Proposal Three: Patient Capital

The Yellow Line, a moderate blog, discusses the third plank in Mark Satin’s radical middle agenda, which supports no taxes on investment income held for five years or more: "At first glance, this proposal seems less important than some of Satin’s other ideas. But think about the implications. By taxing all income on investments that have been held for less than five years, the patient capital program would punish short-term investing—a major form of modern investing. There would be less incentive for investors (individual and corporate) to 'ride the wave' and more incentive to think long-term and add real value to investments. In many ways, I like this proposal. It in no way prevents individuals or companies from selling investments quickly—it just assesses a tax penalty if they choose to do so. But I wonder how it would affect the common investor who owns mutual funds. Even if we try, most of us do not track exactly which stocks and bonds our mutual funds hold. If our fund manager is moving around investments and that movement nets us a profit, would we be penalized? I’d hope not. I’d hope it’d be enough just to own the mutual fund itself for five years and not each individual investment within the fund. But that would create a giant loophole where mutual fund managers could continue to buy and sell investments at a quick clip without suffering the tax penalties for doing so. And when it comes to money, once a loophole is opened, creative accountants will exploit it for all it’s worth. I think, while a solid starting point, Satin’s 'patient capital' proposal needs some greater detail so as to protect the interests of the common investor."