Rules should be known in advance

By DAVID MOON, Moon Capital Management, LLC
December 30, 2012

One of my highlights of the holiday season is the Victorian-era tradition of gathering around the Vizio big screen to watch the Buffalo Wild Wings Bowl. What better way could there be to celebrate the true meaning of Christmas than watching a midnight football game brought to you by the people who perfected mango habanera fried chicken parts?

During last night’s classic, I watched Texas Christian University head coach Gary Patterson and could only think of one thing: capital gains taxes.

As the Horned Frogs lined up for their first series, I began to wonder what football would be like if they changed the rules each quarter. Sometimes a touchdown would be worth six points. Sometimes it might be worth four.

Or what if the value of a field goal depended on your team’s cumulative time of possession or how many touchdowns you had already scored at the time of the kick? I was imagining a situation in which coaches might kneel on the ball for a play or two in order to lengthen their time of possession prior to a field goal attempt.

And imagine if the referees didn’t announce the rules for each quarter until midway through the quarter.

That’s what the past month has been like for me.

It doesn’t matter whether you believe tax rates should go up, down or sideways. I don’t care if your position is based on economic, moral or astrological arguments.

It is irresponsible and the epitome of practical incompetence for Congress and the President to hold the American people as fiscal hostages. All citizens – both the 47 and the 53 percent – deserve to know the tax rules of the game months or years in advance, not days.

All else being equal, an investor typically tries to postpone capital gains as long as possible in order to reduce the present value of his taxes. If capital gains rates are about to significantly increase, however, he would likely want to accelerate the sale of any appreciated asset he was planning to sell in the near future.

But what if he has no idea if the higher tax rates will only apply to people with incomes above $250,000 or $400,000 or $1 million? What if he takes his gain this year, but then isn’t subject to the increased rate?

Perhaps you wish that you had this problem. Only six percent of taxpayers report capital gains each year. Most people have W2 income and can’t manage the timing of that income. Maybe you think this is only a bunch of rich people trying to game the system. They have more than they need, so what difference does it make?

Regardless of whether or not you believe someone doesn’t pay their fair share of taxes or is even a scoundrel, he deserves to know the regulations under which he is operating.

Even a murderer knows the rules of evidence before the trial begins. All taxpayers deserve at least the same.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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