CU professor calls “BS” on Romney’s 13 percent tax rate claim

[TruthAnalyzed]

50. It doesn't work that way.

Let's say you hedge stock A(artificial), 100 shares each, at $1.00. This is what you would call the 'artificial' position.

Your 'real' position is buying stock R(real), 100 shares, at $1.00

Over the year, stock R goes up to $1.50. Stock A goes up to $1.50 as well.

Your current positions are

Short A = ($50)
Long A = $50
Long R = $50


So, you are suggesting that we close R for $50 profit, and close Short A for $50 loss. Net gain is 0, and we pay no taxes. We also made no money on the trades that we have closed.

Ok... so we are left with $50 in profit that is floating in Long A.

Now, you would suggest that we re-open Short A after 30 days. Let's assume it doesn't move, so we would short 100 shares at $1.50.

Now your positions are

Short A = $0
Long A = $50

You have lost the hedge. You realized the loss already, there is no way to magically re-create the loss by buying back in. So at this point, we have realized $0 net with the two positions we closed earlier, and we currently have $50 net in A. No matter what happens to A, we will keep that $50 net. If we close both positions, we will realize $50 and pay tax on the $50.

You can't create artificial capital losses.