- Tax Drag
- The reduction of potential income due to taxes. Drag describes the loss in returns owing to taxation, usually on an investment. Tax drag is commonly used when describing the difference between an investment vehicle that is tax-sheltered and one that is not. For many individuals, tax drag can have a significant effect on overall investment performance.
Tax-efficient investing techniques are very important for recognizing capital gains, transferring wealth and estate planning.
For example, suppose that an individual can invest $1 million in two securities in either Country A (with a 25% withholding tax) or Country B (with a 15% withholding tax). Both securities pay a 2.5% dividend. Security A would return $25,000 minus $6,250 in taxes, for a total of $18,750. Investment B would return $25,000 minus $3,750 in taxes, for a total of $21,250. Therefore, returns would be 1.875% for Security A and 2.125% for Security B, equating to a tax drag of 25 basis points (the difference in returns between the two securities).
Investment dictionary. Academic. 2012.
Look at other dictionaries:
Drag-along right — is a legal concept in corporate law. The right assures that if the majority shareholder sells his stake, minority holders are forced to join the deal. This right protects majority shareholders. Drag along rights are fairly standard terms in a… … Wikipedia
Fiscal drag — refers to the process where tax thresholds are either not adjusted for inflation, or fail to keep pace with earnings growth, causing in either case an automatic rise in tax revenues.Example of nominal fiscal dragSuppose a person earns $20,000 per … Wikipedia
fiscal drag — ˌfiscal ˈdrag noun [uncountable] ECONOMICS when rising incomes mean that the government receives increasing amounts of tax, as people move up into higher tax bracket S (= levels of income with a particular tax rate). Taxes have to be adjusted to… … Financial and business terms
Fiscal Drag — is an economics term referring to a situation where a government s net fiscal position (equal to its spending less any taxation) does not meet the net savings goals of the private economy. This can result in deflationary pressure attributed to… … Investment dictionary
Flat tax — A flat tax (short for flat rate tax) is a tax system with a constant tax rate. [James, Simon (1998) A Dictionary of Taxation , Edgar Elgar Publishing Limited: Northampton, MA] Usually the term flat tax would refer to household income (and… … Wikipedia
Value added tax — Taxation An aspect of fiscal policy … Wikipedia
Alternative Minimum Tax — (AMT) is part of the Federal income tax system of the United States. There is an AMT for those who owe personal income tax, and another for corporations owing corporate income tax. Only the AMT for those owing personal income tax is described… … Wikipedia
fiscal drag — The time between when a government spending policy is approved and when it affects the economy. ► “But like Mr. Bush before him, Mr. Clinton has locked in the fiscal drag of a tax increase. (Wall Street Journal, April 5, 1994, p. A18) … American business jargon
fiscal drag — /ˌfɪskəl dræg/ noun 1. the effect of inflation on a government’s tax revenues. As inflation increases so do prices and wages, and tax revenues rise proportionately; even if inflation is low, increased earnings will give the government increased… … Dictionary of banking and finance
fiscal drag — (U.K.) Fin the effect that inflation has on taxation in that it raises the amount of tax collected as earnings rise without increasing tax rates … The ultimate business dictionary