Tags: gerstner | tax | stock | gains

Gerstner: Tax Short-Term Gains at 80 Percent

Thursday, 25 Jun 2009 05:37 PM

By Julie Crawshaw

Former IBM CEO Louis Gerstner thinks taxing short-term gains at 80 percent would be a great way to put greedy Wall Street types in their place.

“If you buy something — a stock or a bond — in the morning, and you sell in the afternoon, the tax probably ought to be 80 percent,” Gerstner told Bloomberg.

“If you hold it for six months, maybe it ought to be 60 percent.”

Gerstner, also a former chairman of private equity firm Carlyle Group, says investments held for five years or longer should be tax-free in order to encourage more buy and hold investing instead of frequent trading.

The current top tax rate on investments held for one year is 35 percent.

“Wall Street is driven by transactions,” Gerstner notes. “That’s what they live by. They don’t live by long-term investment decisions.”

Though he believes executives who add shareholder value should receive generous compensation, Gerstner opposes giving failed managers golden parachutes and thinks attempts by government to control pay levels are fruitless.

“We’ve had governments attempt to control executive compensation for 40 or 50 years,” he notes, adding that more disclosure and shareholder oversight of boards of directors is far more effective.

“The system can fix itself without rigid rules,” he says.

Many of the largest banks on Wall Street became so fragmented into silos that those at the top had trouble keeping track, says Financial Times journalist Gillian Tett.

“Whichever silo was making the most money tended to have control and push the other silos away,” Tett told Newsweek.

“The guys at the top were not asking hard questions.”

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