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by C1sc0cat 2803 days ago
If there is no tax incentive the investing in new start up companies eg (fever tree in the UK)

Then rational investors will avoid risker share investments in new companies it will reinforce the position of incumbents who will be forced to pay out more in dividends and become bond proxies.
2 comments
Retric 2803 days ago
Where you are making a mistake is riskier investment have a risk premium. Further, you can offset capital gains with losses, and with a highly diversified portfolio the expected returns will be positive over time.

So, it's going to be rational with a 0 or 50% capital gains rate with some portion of your portfolio. Further, increasing capital gains makes it harder to keep up with inflation thus pushing people to make riskier investments.

PS: Try modeling a portfolio of bonds with different yields and risk premiums vs different tax rates including inflation.

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moorhosj 2803 days ago
==Then rational investors will avoid risker share investments in new companies it will reinforce the position of incumbents who will be forced to pay out more in dividends and become bond proxies.==

Investors will seek alpha wherever they can get it. If there is a flight into "safer" investments, the market would adjust and the returns of those "safer" investments would fall. If investors want alpha returns, they will take risks. This is a fundamental truth of investing.

Are the incumbent's positions not reinforced in today's environment? There are 3,618 publicly traded companies today compared to 6,407 in 1987 [1]. Is that a sign of positive competition? Today's capital gains rate is the lowest since the Depression [2]. Yet, entrepreneurial activity is at generational lows [3].

[1] https://www.bloomberg.com/view/articles/2018-04-09/where-hav...

[2] https://www.cbpp.org/sites/default/files/thumbnails/image/ca...

[3] https://money.cnn.com/2016/09/08/news/economy/us-startups-ne...

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