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Don't conflate lifetime wealth with one time annual income. Many more than 1% of the population earns top 1% income in some year. And don't conflate wage incom

by tamana 11y ago

Don't conflate lifetime wealth with one time annual income. Many more than 1% of the population earns top 1% income in some year. And don't conflate wage income, which is taxed at (marginal) 40+% right off the top, with investment income, which is low or never taxed due to scheming.

harryh 11y ago
A substantial majority of economists agree that capital gains should have a lower tax rate than wage income. There are lots of good reasons for this (fake gains due to inflation, the fact that gains come over multiple years, interactions between corporate taxes and cap gains). It really doesn't have anything to do with scheming.
- zanny 11y ago
  Does not change that the product of lower capital gains tax rates than income tax means those who earn absolutely less in a given year are paying a higher percentage of their income in tax than those who make absolutely (much) more. I think the fundamental problem is everyone talks about capital gains as some flat thing. It needs to be progressive like income tax (or at least in the US, way more progressive than current income tax) to have the positive effects economists want so long as the gains are distributed across many people than centralized in the hands of few. I'd say the same with waged income. In a theoretical better society we would even be taking income up to the happiness threshold and would progressively tax to an absolute income limit beyond that. And that is not just for bitternesses, sake, the problem we are going to face is that automation and the private ownership of automated production will produce literal money machines, where no human labor is required but goods are made and then sold which transfers money to you, that you then never spend back out again so long as you can own the whole supply chain. That situation is not sustainable - it is money flowing uni-directionally - and the consequences of uncapped income have precipitated how in the past five years we went from a little over 300 billionaires having more wealth than half the human population on Earth to just over 50 today.
  - bzbarsky 11y ago
    The problem with thinking of capital gains as "income" is that you end up with a tax system that punishes people for deferring consumption (aka saving). Or put another way, if I earn some money and don't spend it immediately, I end up paying more of it in taxes than if I do spend it immediately. Only taxing above-inflation capital gains would help some; only taxing capital gains above some discount rate (which one, though?) would help more. The ideal thing here would probably be a progressive consumption tax, but implementing that in practice is rather difficul, unfortunately. Oh, and there is no happiness threshold. Or more precisely, more money doesn't necessarily buy more happiness, but it does tend to buy less unhappiness (which is not the same thing!), albeit not linearly.
    - zanny 11y ago
      Hence the idea of progressive capital gains. In the same way you would not tax normal income up to an approximation of the happiness threshold you would do the same with capital gains. Progressive consumption taxes do nothing to ablate the central problem of the argument, the centralization of wealth as a means to distort society to your whims. The wealthier you are the less you spend on goods and services as a percentage of income and the more you save. Eventually most of your income just goes back into reinvestment to make you more money. The current model basically lets anyone business savvy enough just make perpetually more money, increasing their wealth... just for the sake of having more wealth. The majority of billionaires are not rich with a purpose of how they want to use that money, they just control incredible amounts of capital for the purposes of accumulating more. The Bill Gates are the exception, not the rule, and even then while Bill spends tremendous amounts of money for good he only spends money he is already making off a considerable fortune to begin with. And those kinds of fortunes are what I am talking about. > Oh, and there is no happiness threshold. Or more precisely, more money doesn't necessarily buy more happiness, but it does tend to buy less unhappiness (which is not the same thing!), albeit not linearly. More money buys less unhappiness up to a limit[1]. It is simply the fulfillment of base needs in Maslow's heirarchy, and once you have enough not to worry about starving, homelessness, or sickness ruining you, you have a much better quality of life, less stress, and more importantly, peak productivity. My argument is not that everyone has the same limit, or that it is constant regardless of inflation - it is of course a function of the real cost of needs, and varies from place to place. But that is why I argue to start taxation at a normalized threshold like this, to potentially extract the most revenue in the least harmful way possible. [1]http://www.advisorperspectives.com/dshort/commentaries/Happiness-Benchmark.php http://www.advisorperspectives.com/dshort/commentaries/Happi...
matt_wulfeck 11y ago
> which is taxed at (marginal) 40+% right off the top, with investment income, which is low or never taxed due to scheming. If you think this is true then clearly you've never tried seriously investing money. It gets taxed on its way to becoming cash (capital gains taxes if you simply sold at a gain). Then local state income tax. Then taxed again once spent (sales tax). Not to mention fees. Even if your money is offshore -- which isn't illegal -- the IRS simply has to ask you about offshore accounts. You'd be smart not to lie to them.
- rlucas 11y ago
  And in turn, if you think that is true, then clearly you've never tried investing serious money. It doesn't get taxed when sold at a gain (because it's exchanged per 1031 or similar tax code provisions). If it does, it's often subject to super-advantaged treatment over and above long-term capital gains (think Qualified Small Business Stock or the like). But it's often not sold at a gain and sometimes never will be; see various carveouts allowing for basis step-ups upon certain transfers (which might be within a family or a network). But why even bother selling at a gain and paying even those favorable cap gains rates? Much more favorable to take out a loan against the asset for some spendable cash. You can even deduct the interest payments. None of what I've described even requires an offshore vehicle, which parent rightly describes as usually perfectly legal -- although if you do have the right kind of setup you can keep deferring taxes for, practically speaking, forever. (It does require that there be enough money in play to make the significant overhead worth it, of course.) "[L]ocal state income tax"? Not if you live in WA and a good number of other places. And you really, really can't count sales tax as part of the taxes on investment income. Not least because the stuff one typically "spends" the bulk of investment returns on is, in turn, other investments, which are not taxed as sales items.
- bryondowd 11y ago
  I think the idea is that investment income has much more wiggle room, which can be taken to extremes, particularly by people at the top with lots of it. Local/state tax can be avoided by officially residing in a state/municipality with low/no taxes on investment income. This works if your only income is investment and you don't need to live near a wage source. Or if you can afford to 'live' there officially without actually being present, and stay wherever you actually choose to spend your time. Throwing in sales tax seems disingenuous, as that is applied the same regardless of your source of income.

by tamana 11y ago

harryh 11y ago

A substantial majority of economists agree that capital gains should have a lower tax rate than wage income. There are lots of good reasons for this (fake gains due to inflation, the fact that gains come over multiple years, interactions between corporate taxes and cap gains). It really doesn't have anything to do with scheming.

zanny 11y ago
Does not change that the product of lower capital gains tax rates than income tax means those who earn absolutely less in a given year are paying a higher percentage of their income in tax than those who make absolutely (much) more. I think the fundamental problem is everyone talks about capital gains as some flat thing. It needs to be progressive like income tax (or at least in the US, way more progressive than current income tax) to have the positive effects economists want so long as the gains are distributed across many people than centralized in the hands of few. I'd say the same with waged income. In a theoretical better society we would even be taking income up to the happiness threshold and would progressively tax to an absolute income limit beyond that. And that is not just for bitternesses, sake, the problem we are going to face is that automation and the private ownership of automated production will produce literal money machines, where no human labor is required but goods are made and then sold which transfers money to you, that you then never spend back out again so long as you can own the whole supply chain. That situation is not sustainable - it is money flowing uni-directionally - and the consequences of uncapped income have precipitated how in the past five years we went from a little over 300 billionaires having more wealth than half the human population on Earth to just over 50 today.
- bzbarsky 11y ago
  The problem with thinking of capital gains as "income" is that you end up with a tax system that punishes people for deferring consumption (aka saving). Or put another way, if I earn some money and don't spend it immediately, I end up paying more of it in taxes than if I do spend it immediately. Only taxing above-inflation capital gains would help some; only taxing capital gains above some discount rate (which one, though?) would help more. The ideal thing here would probably be a progressive consumption tax, but implementing that in practice is rather difficul, unfortunately. Oh, and there is no happiness threshold. Or more precisely, more money doesn't necessarily buy more happiness, but it does tend to buy less unhappiness (which is not the same thing!), albeit not linearly.
  - zanny 11y ago
    Hence the idea of progressive capital gains. In the same way you would not tax normal income up to an approximation of the happiness threshold you would do the same with capital gains. Progressive consumption taxes do nothing to ablate the central problem of the argument, the centralization of wealth as a means to distort society to your whims. The wealthier you are the less you spend on goods and services as a percentage of income and the more you save. Eventually most of your income just goes back into reinvestment to make you more money. The current model basically lets anyone business savvy enough just make perpetually more money, increasing their wealth... just for the sake of having more wealth. The majority of billionaires are not rich with a purpose of how they want to use that money, they just control incredible amounts of capital for the purposes of accumulating more. The Bill Gates are the exception, not the rule, and even then while Bill spends tremendous amounts of money for good he only spends money he is already making off a considerable fortune to begin with. And those kinds of fortunes are what I am talking about. > Oh, and there is no happiness threshold. Or more precisely, more money doesn't necessarily buy more happiness, but it does tend to buy less unhappiness (which is not the same thing!), albeit not linearly. More money buys less unhappiness up to a limit[1]. It is simply the fulfillment of base needs in Maslow's heirarchy, and once you have enough not to worry about starving, homelessness, or sickness ruining you, you have a much better quality of life, less stress, and more importantly, peak productivity. My argument is not that everyone has the same limit, or that it is constant regardless of inflation - it is of course a function of the real cost of needs, and varies from place to place. But that is why I argue to start taxation at a normalized threshold like this, to potentially extract the most revenue in the least harmful way possible. [1]http://www.advisorperspectives.com/dshort/commentaries/Happiness-Benchmark.php http://www.advisorperspectives.com/dshort/commentaries/Happi...

matt_wulfeck 11y ago

> which is taxed at (marginal) 40+% right off the top, with investment income, which is low or never taxed due to scheming. If you think this is true then clearly you've never tried seriously investing money. It gets taxed on its way to becoming cash (capital gains taxes if you simply sold at a gain). Then local state income tax. Then taxed again once spent (sales tax). Not to mention fees. Even if your money is offshore -- which isn't illegal -- the IRS simply has to ask you about offshore accounts. You'd be smart not to lie to them.

rlucas 11y ago
And in turn, if you think that is true, then clearly you've never tried investing serious money. It doesn't get taxed when sold at a gain (because it's exchanged per 1031 or similar tax code provisions). If it does, it's often subject to super-advantaged treatment over and above long-term capital gains (think Qualified Small Business Stock or the like). But it's often not sold at a gain and sometimes never will be; see various carveouts allowing for basis step-ups upon certain transfers (which might be within a family or a network). But why even bother selling at a gain and paying even those favorable cap gains rates? Much more favorable to take out a loan against the asset for some spendable cash. You can even deduct the interest payments. None of what I've described even requires an offshore vehicle, which parent rightly describes as usually perfectly legal -- although if you do have the right kind of setup you can keep deferring taxes for, practically speaking, forever. (It does require that there be enough money in play to make the significant overhead worth it, of course.) "[L]ocal state income tax"? Not if you live in WA and a good number of other places. And you really, really can't count sales tax as part of the taxes on investment income. Not least because the stuff one typically "spends" the bulk of investment returns on is, in turn, other investments, which are not taxed as sales items.
bryondowd 11y ago
I think the idea is that investment income has much more wiggle room, which can be taken to extremes, particularly by people at the top with lots of it. Local/state tax can be avoided by officially residing in a state/municipality with low/no taxes on investment income. This works if your only income is investment and you don't need to live near a wage source. Or if you can afford to 'live' there officially without actually being present, and stay wherever you actually choose to spend your time. Throwing in sales tax seems disingenuous, as that is applied the same regardless of your source of income.