Tags: Bogle | markets | Crazy | Tax | Absurd

John Bogle: Markets Have ‘Gone Crazy’ and Tax Policy is ‘Absurd’

Friday, 23 December 2011 12:57 PM

Vanguard Group Founder John C. “Jack” Bogle says it's clear that “our markets have gone crazy" and that while current tax policy is "absolute absurdity," taxing the rich isn't going to solve everything.

"Our markets have gone crazy, and there is 200 times as much speculation as there is investing," Bogle told the Associated Press said in a recent interview.

"I believe the rich should pay more, but that's not a good platform for tax policy," he says.

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"What has gone wrong is that we've failed to recognize the difference between earned income and unearned income," he said. "Is it really fair for gamblers on Wall Street to pay a 15 percent rate when they make a winning investment, and an honest working person — a bricklayer for example — may pay an equal or higher tax on their wages than a gambler? That's absolute absurdity."

Rates may have to be changed, but we also need to look at what is taxed, and how, Bogle told the Associated Press.

 John Bogle
(Associated Press photo)
"Dividend income should be taxed at the same rate as ordinary income," he says.

"As for capital gains, there ought to be some distinction between capital made by people who start businesses, and contribute value to society, and capital made by gamblers on Wall Street, some of whom win," he says.

"Earned capital income should carry the regular dividend rate, but capital income gains by trading, and particularly short-term trading, should pay a higher tax, even than the present ordinary income."

Our financial system has gone off the rails, says Bogle.

Bogle says those considering investing in stocks with the idea of a one-year outcome, should not invest. “You can lose a lot,” he says. “If you invest in stocks with a five-year outlook, I would think it is highly debatable if you should do that.”

“You have to think about more than just the probabilities of a market crash. You have to consider the consequences for your savings, and whether you'd be decimated. As for bonds, with interest rates and yields so low now, you just have to take those for what they are — a lot lower than what they have been historically.”

Bogle is cautious about the economy. “I don't expect a boom in consumer spending over the next two or three years,” he says. “People don't have the wherewithal to spend a lot more, and in today's world, they don't have the confidence.”

“Confidence can change overnight, but wherewithal cannot.”

Other experts also are wary of the economy, in the United States and on a global level.

International investor Jim Rogers says he is "not too optimistic about what’s going to be happening in the world in the next two or three years, and maybe even longer.”

Rogers told the Finance News Network that “if the world economy doesn’t get better, you’re not going to make money in stocks.”

Others aren't so dour.

Billionaire investor Wilbur Ross Jr. tells Moneynews that regarding the economic downturn of recent years, “the worst is over, although there could be intermediate dips, but no new recession or depression.”

This is a “sensible time” for long-term investors to invest in the American economy, Ross told Moneynews.

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Vanguard Group Founder John C. Jack Bogle says it's clear that our markets have gone crazy and that while current tax policy is absolute absurdity, taxing the rich isn't going to solve everything. Our markets have gone crazy, and there is 200 times as much...
Friday, 23 December 2011 12:57 PM
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