7 ms·

One reason why the 1% pay less taxes is b/c they make their money on investments rather than income. The yearly capital gains tax (tax on investment gains) is ~

by supster 11y ago

One reason why the 1% pay less taxes is b/c they make their money on investments rather than income. The yearly capital gains tax (tax on investment gains) is ~15% while income tax in that bracket is 30-40%. Those in the 99% pay somewhere between 10-28% income tax. So it would seem obvious that we should simply raise capital gains tax to 30-40%. However, investments and income are not equivalent. Making an investment is correlated with a certain amount of risk. For example an investment in a General Motors corporate bond has a risk of default (very apparent in 2008). So if we raise taxes on investment gains, we dis-incetivize investment activity (b/c it therefore lowers expected gains). So it makes places like GM less able to finance things like payroll or build factories that employ regular people. I'm not saying we should or should not raise taxes on 1%'ers. But we should keep in mind that there is no free lunch. What we do has unintended consequences that we should keep in mind.

lmm 11y ago
Taking a job on a salary also involves a risk, as plenty of GM workers found out recently. Money is supposed to be fungible, and the free market is supposed to allocate capital optimally. In any other case where we taxed one kind of thing at 30% and another at 15%, people would be crying foul about this crazy taxation regime that was distorting the market.
littletimmy 11y ago
It is not true that raising taxes on investment gains disincentives investment. If you start taxing investments more, it's not like the rich will suddenly stop investing. You should hear Warren Buffet talk about this. No rich person is going to go like "Well... I could make money on this, but not going to do it because the state is going to tax it..." This is something that happens only in abstract economic models, not in the real world. In fact, if you raise taxes rich people may be incentivized to work harder to find better investments with higher gains.
- hga 11y ago
  No rich person is going to go like "Well... I could make money on this, but not going to do it because the state is going to tax it..." Utter bullshit, which has been reflected in actual US investment history since the Capital Strike of 1937. The perception of fairness goes both ways, you know. Not to mention reflected in my father's (and others') economic behavior as the Reagan tax rate cuts took effect, and they put much less effort into sheltering income from very high tax rates (generally, something with a net vector sum of zero) and focused more on just, you know, running good businesses. Then there's the minor detail that a tax increase can turn a profitable investment into a loss. The constant chaos of changing tax rates, or at least serious proposals to do so, also changes the nature of investments, for example favoring quick gains before the government might ruin it.
- whatok 11y ago
  An increased tax rate absolutely affects investment behavior. A wealthy person is going to evaluate whatever tax-advantaged investments there are and make a decision based on that. As long as a the US has a ridiculously complicated tax code, individuals with the means will find loopholes around targeted taxes.

by supster 11y ago

lmm 11y ago

Taking a job on a salary also involves a risk, as plenty of GM workers found out recently. Money is supposed to be fungible, and the free market is supposed to allocate capital optimally. In any other case where we taxed one kind of thing at 30% and another at 15%, people would be crying foul about this crazy taxation regime that was distorting the market.

littletimmy 11y ago

It is not true that raising taxes on investment gains disincentives investment. If you start taxing investments more, it's not like the rich will suddenly stop investing. You should hear Warren Buffet talk about this. No rich person is going to go like "Well... I could make money on this, but not going to do it because the state is going to tax it..." This is something that happens only in abstract economic models, not in the real world. In fact, if you raise taxes rich people may be incentivized to work harder to find better investments with higher gains.

hga 11y ago
No rich person is going to go like "Well... I could make money on this, but not going to do it because the state is going to tax it..." Utter bullshit, which has been reflected in actual US investment history since the Capital Strike of 1937. The perception of fairness goes both ways, you know. Not to mention reflected in my father's (and others') economic behavior as the Reagan tax rate cuts took effect, and they put much less effort into sheltering income from very high tax rates (generally, something with a net vector sum of zero) and focused more on just, you know, running good businesses. Then there's the minor detail that a tax increase can turn a profitable investment into a loss. The constant chaos of changing tax rates, or at least serious proposals to do so, also changes the nature of investments, for example favoring quick gains before the government might ruin it.
whatok 11y ago
An increased tax rate absolutely affects investment behavior. A wealthy person is going to evaluate whatever tax-advantaged investments there are and make a decision based on that. As long as a the US has a ridiculously complicated tax code, individuals with the means will find loopholes around targeted taxes.