Holding a stock longer than you want does not help the company who's stock you own

Reader comment on: Alan Reynolds on Taxes

Submitted by Alan Reynolds (United States), Dec 23, 2010 10:37

To be neutral the capital gains tax would have to be zero on short and long-term gains. But that would probably lose revenue, so the government would raise some other distortive tax. Keeping the rate the same on dividends and capital gains was my proposed compromise to the chairman of the House Ways and Means Committee in 2003, and it is working well.

Being "locked in" to a stock for tax purposes (by a high transactions tax on selling) makes the allocation of capital less efficient. The stockholder would like to sell yesterday's winner to buy what he thinks is tomorrow's winner, but the CGT keeps him locked in. It does nothing to raise the stock price of the company who's stock you're stuck with, because that depends on what others will pay for it . There is more on this in my study for the Australian stock exchange, which is cited here

Note: Comments are moderated by the editor and are subject to editing.

Comment on this item