Not too many people paid attention to Hillary Clinton's proposal last week to amend capital gains taxes, but we'd all do well to give it a look,
says New York Times columnist Andrew Ross Sorkin.
"If Mrs. Clinton becomes president, her remarks could radically change the way investors and chief executives behave," he writes.
Clinton favors a six-year sliding scale for capital gains taxes. The wealthiest among us would pay the ordinary income tax rate — 39.6 percent — on capital gains in the first two years. The rate would then decrease in each of the next four years, finally reaching the current rate of 20 percent, which applies to investments held more than a year.
"Clinton’s proposal is useful in starting a meaningful conversation about an issue that could have a significant impact on business," Sorkin says.
"Helping create an incentive system that makes investors — and therefore chief executives and their boards of directors — less focused on quarterly profits and their immediate stock price should be a boon to the economy."
Part of many executives' compensation depends on their companies' stock price, so the executives have great incentive to help boost the price.
Elsewhere on the investment front, both passive and actively-managed investment funds have fundamental flaws, says star economist Nouriel Roubini of New York University. But smart beta funds, a hybrid between the two, can offer superior returns, he says.
As for passive funds, they offer low fees, he acknowledges. "But it yields only the sum of the good, the bad, and the ugly,
Roubini writes on Project Syndicate.
As for actively-managed funds, they're expensive, and 95 percent of them underperform their benchmarks, Roubini notes.
Smart beta funds are passive but don't blindly follow an index. For example, you can use quantitative rules to adjust the fund's holdings.
"If you weed out most of the bad and the ugly, you end up picking more of the good apples," Roubini explains.
"Weeding out the bad and the ugly based on these scores, and thus picking more of the good apples, has been shown to provide higher returns with lower risk than actively managed alpha or passive beta funds."
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