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Lengthen the term to qualify for the lower long-term capital gains tax rate

Many (most?) companies now have shareholder value as their primary goal. Unfortunately, shareholders hold stocks for a much shorter period of time than they did in the past leading to short-term thinking on the part of management.

If we required that shareholders kept their shares for a longer period of time to qualify for the lower long-term capital gains tax rate, this would result in a longer term focus, healthier companies, and a healthier society.

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  • Aug 15 2013: To each their own, but to me one reason for capital gains is to compensate for inflation, but there are others.
  • Aug 15 2013: having a long term view would be good. not sure making the long term capital gains period longer will probably not make a difference in the company planning.

    1. As my investment prof said, "An institutional investor would sell their grandmothers for a nickel a share profit."

    2. So long as the stock price is driven by the quarterly reports, long term planning will be secondary.
    • Aug 15 2013: I guess my thought was that if investors had to wait say 5 years to be able to sell their stock at the lower "long-term" capital gains tax rate, then they would not worry as much about this quarter, and would be more worried about the next few years. This would make them more willing for management to take action that may not boost the stock price today, but that will in a few years.
      • Aug 16 2013: Understand what you are saying but the stock price is what the CEO's are judged on and the stocks react to outside events (Egypt for example) and the quarterly reports - good the price goes up and bad (Cisco) and the price goes down.

        For US corporation - the quarterly reports are key, hence planning is only annual at most and some quarterly.
  • Sep 14 2013: Thanks for responding.
    1) Everyone will have a different timetable, but people buying the stock (who set the price) are going to want the company to look like it is set up to succeed in the next 5 years (if that's the long-term period). Now a huge fraction of the people (or computers) buying a stock are only interested in how a compnay is set up for the next few hours or days.
    2) Inflation is eating at your investment (or cash) at the same rate regardless of the time frame, so I don't see how this matters.
  • Sep 14 2013: Changing the long term capital gain holding period, will not change the quarter to quarter mindset of publicly traded CEOs. Two reasons: 1) everybody's holding period will start at a different time and 2) like George's answer below inflation will reek havoc on returns ex. If you held a stock for 5 years and made a 10% return and inflation was 2%, one needs a return of 10.408% just to get ahead of inflation, then get taxed at income rate for short term gains versus a lower long term capital gains rate just adds insult to injury by paying taxes on "phantom" gains.