NetNews Usenet Archive 1992 #27/NN_1992_27.iso/spool/aus/politics/1851

Text File | 1992-11-19 | 2.0 KB | 41 lines

Newsgroups: aus.politics
Path: sparky!uunet!munnari.oz.au!metro!basser.cs.su.oz.au!swift!suite.sw.oz.au!chris
From: [e-mail] (Chris Maltby)
Subject: Re: Negative Gearing
Organization: Softway Pty Ltd
Date: 20 Nov 92 05:11:31 GMT
Message-ID: <[e-mail]>
References: <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]>
Sender: [e-mail] (Usenet)
Lines: 29

In <[e-mail]> [e-mail] (Chris O'Neill) writes:
>
>Suppose you borrow $100,000 and invest it all under the conditions of the above
>example (18% interest, 8% inflation, 6% rate of return on investment, 48.25%
>tax rate).  Suppose you sell if after 1 year for $108,000, i.e. you get a
>capital gain equal to inflation.  Now the rental return was $6,000, the
>interest was $18,000, so the tax deductable loss was $12,000.  The reduction in
>tax reduces this loss to $12,000 (1-0.4825) = $6210.  The net gain is the
>capital gain minus the loss resulting from rent, interest, and tax reduction,
>i.e. $8000 - $6210 = $1790.
>
>So, you make $1790 and the tax office loses $5790.

But the bank who lent you the money has earned $18,000 interest on which it
pays tax at 39%. It may have had to offer 12% interest to borrow the money
which it lent you, and that will be taxed at someone's marginal rate - for
simplicity also 39%. That's $7020 in tax collected. The tax man has also
made a net gain of $1230. That is principally at the expense of the nitwits
who save their money in banks which pay negative real-after-tax rates of
interest.

Negative gearing is a transfer of wealth from savers to speculators.
When the merry-go-round stops it's the savers who are worse off.
And society as a whole loses.
--
Chris Maltby - Softway Pty Ltd        Internet: [e-mail]

PHONE:    [phone]    "I'm waiting for X-Windows to become just that;
FAX:    [phone]     Ex-Windows" - A McGrath.