5 ms·

It's only half the picture. A major source - maybe the major source - of massive unfairness in the US tax code is the capital gains tax. Tax on capital gains i

by beat 10y ago

It's only half the picture. A major source - maybe the major source - of massive unfairness in the US tax code is the capital gains tax. Tax on capital gains is about half the tax on wage income. This is justified by the "double taxation" of corporate income tax. So abolish the corporate income tax, with its myriad loopholes and ineffectiveness, but treat capital gains as ordinary income. Wealthy individuals who make most of their income on capital gains rather than wages would then pay the same as the rest of us. I remember during the 2012 presidential election, when Mitt Romney finally released his tax returns, he paid less than 50% of my family's tax rate, on 100 times our income. How does that make any sense? If capital gains were taxed as ordinary income, his taxes would have been roughly the same as ours.

soVeryTired 10y ago
"Double taxation" is a crazy argument anyway. What's the difference between a tax of 40% and two successive taxations of 20%? (compounding aside)
- beat 10y ago
  It's not crazy. Just self-serving. It makes total sense if your goal is to get out of paying taxes by convincing people you're getting ripped off.
lazyjones 10y ago
> Wealthy individuals who make most of their income on capital gains rather than wages would then pay the same as the rest of us. I remember during the 2012 presidential election, when Mitt Romney finally released his tax returns, he paid less than 50% of my family's tax rate, on 100 times our income. How does that make any sense? It's not an entirely accurate/honest picture. Romney's tax rate is lower because the income from his capital gains has already been taxed as corporate profits (well, assuming no tax evasion). I.e. the double taxation you mentioned affects him too, but it's not contained in his tax rate.
- beat 10y ago
  Are you sure? What rate did those corporations pay? Remember, the article that triggered this is about how difficult it is to collect corporate taxes, how little revenue they really generate, and how they lead to tax-sheltering overseas. I think it's fair to say that Romney's effective tax rate, including the corporate taxes, do not rival the taxes my wife and I paid as middle class wage earners. And even if they did, what's wrong with my solution? It would be fair, and visibly fair, without the whiff of "Oh, you're just ignorant" to the naysayers.
  - lazyjones 10y ago
    > what's wrong with my solution? It would be fair, and visibly fair, without the whiff of "Oh, you're just ignorant" to the naysayers. Absolutely nothing is wrong with your solution, it's fair and probably increases tax income for the country. It would only work if corporate taxes were abolished, though.
    - beat 10y ago
      Yeah. Those two things should go hand in hand. Alas, the left will react with revulsion at killing corporate income tax, and the right will react with revulsion at raising capital gains. Sigh.
- coredog64 10y ago
  His rate was so low because, IIRC, he had a boatload of equities that he knew were going to be worth a lot more in the future and he parked them in a Roth IRA. Not exactly a strategy open to your everyman even if we can all open our own Roth IRAs.
  - beat 10y ago
    That was only one of his strategies. The real problem was capital gains.
- clairity 10y ago
  "double taxation" is not an entirely accurate/honest term. corporations are "persons" and we tax money flowing to people. it's taxed just like everyone else. what's odd is that it has a different, and largely preferential, tax treatment relative to other persons.
coredog64 10y ago
A low rate on capital gains is justified because we want people to inject capital. Absent an extreme situation, your regular wage check isn't subject to being completely wiped out. Yet if I invest in a company that sells ice over the internet, my entire investment could vanish. So collectively we put our thumb on the scale that more investment is better than less investment. That's also why we have the (imperfect) short-term/long-term capital gains setup.
- spoonie 10y ago
  Shouldn't the capital-losses that you can book against future taxes compensate for this enough?
- beat 10y ago
  As I keep saying, we don't need to "inject capital". At this point, it's actually counterproductive. The problem isn't that there isn't enough capital to invest, but rather that there's too much capital. Supply-side economics only works when the system is starved for liquidity to start new business. Instead, we have companies and investors sitting on billions, trillions in liquidity, and no good place to put it. Adding more capital will not create growth or jobs. The cup runneth over already. Moreover, you need to consider the risk/return/liquidity triangle. This is sort of Investing 101, but it's often lost on people making pronouncements about how we need to cut taxes - mostly people who don't have substantial real capital investment, who rely on wage-driven cash flow. There are three elements to any investment - risk, return, and liquidity. Risk is the likelihood that the investment might lose rather than gain. Return is the amount of growth over time. Liquidity - the forgotten factor - is how easily the investment can be divested and turned into something else. If you can give up substantial liquidity, you can get into much more lucrative investment. Real estate is the classic low-liquidity example. Buying and selling real estate is slow and painful, and it ties up a lot of capital. But it should return well over time. But liquifying real estate against needs other than profit can be very, very costly. Angel investing and venture capital are extreme examples. You wind up with capital completely locked, almost totally illiquid (hence "liquidity event"), at very high risk. But the rewards can be stupendous. And they should be. At any rate, cutting taxes to pour more capital into a system that already has too much capital is dumb. It made sense 35 years, when the economy was cash-starved and at risk of runaway inflation. But decades later, all the growth concentrates at the top, the poor and middle class have stagnated for people's entire adult lives, and we're facing borderline revolutionary attitudes on both the right and the left. "Cutting taxes to stimulate investment" is putting us on the brink of both economic collapse and political radicalism, and given how it's worked, deservedly so.
yourapostasy 10y ago
The original PR stunt that worked to lower capital gains was to present retirees as human shields in front of capital holders whose income came primarily or even exclusively from capital gains. The entreaty was: capital gains would force your grandparents into eating cat food by taxing them twice in their twilight years! There is a grain of truth to that, but for various American-specific reasons, it is difficult to apply a ceiling income level beyond which all capital gains income is treated as plain income. I believe one pernicious issue that must be addressed is treating corporations as people: lots of legal and tax accounting maneuvers absolutely depend upon this treatment, and a lot of tax-shielded income falls apart without it. Another pernicious issue is actual versus legal control of organizations: again, lots of legal and tax accounting maneuvers depend upon legally on paper showing no or minority control (especially fiscal disbursement) over an organization, yet actual control resides with real-world fiscal beneficiaries. It is highly unlikely these will ever be addressed in the foreseeable future, as many retirement structures among many other kinds of organizations are built around these issues.
twoodfin 10y ago
One reason it makes sense is we want to encourage investors to take risks. Would you take a job where you had to put up an amount equivalent to 5x your annual salary in advance, with a chance of losing it all?

by beat 10y ago

soVeryTired 10y ago

"Double taxation" is a crazy argument anyway. What's the difference between a tax of 40% and two successive taxations of 20%? (compounding aside)

beat 10y ago
It's not crazy. Just self-serving. It makes total sense if your goal is to get out of paying taxes by convincing people you're getting ripped off.

lazyjones 10y ago

> Wealthy individuals who make most of their income on capital gains rather than wages would then pay the same as the rest of us. I remember during the 2012 presidential election, when Mitt Romney finally released his tax returns, he paid less than 50% of my family's tax rate, on 100 times our income. How does that make any sense? It's not an entirely accurate/honest picture. Romney's tax rate is lower because the income from his capital gains has already been taxed as corporate profits (well, assuming no tax evasion). I.e. the double taxation you mentioned affects him too, but it's not contained in his tax rate.

beat 10y ago
Are you sure? What rate did those corporations pay? Remember, the article that triggered this is about how difficult it is to collect corporate taxes, how little revenue they really generate, and how they lead to tax-sheltering overseas. I think it's fair to say that Romney's effective tax rate, including the corporate taxes, do not rival the taxes my wife and I paid as middle class wage earners. And even if they did, what's wrong with my solution? It would be fair, and visibly fair, without the whiff of "Oh, you're just ignorant" to the naysayers.
- lazyjones 10y ago
  > what's wrong with my solution? It would be fair, and visibly fair, without the whiff of "Oh, you're just ignorant" to the naysayers. Absolutely nothing is wrong with your solution, it's fair and probably increases tax income for the country. It would only work if corporate taxes were abolished, though.
  - beat 10y ago
    Yeah. Those two things should go hand in hand. Alas, the left will react with revulsion at killing corporate income tax, and the right will react with revulsion at raising capital gains. Sigh.
coredog64 10y ago
His rate was so low because, IIRC, he had a boatload of equities that he knew were going to be worth a lot more in the future and he parked them in a Roth IRA. Not exactly a strategy open to your everyman even if we can all open our own Roth IRAs.
- beat 10y ago
  That was only one of his strategies. The real problem was capital gains.
clairity 10y ago
"double taxation" is not an entirely accurate/honest term. corporations are "persons" and we tax money flowing to people. it's taxed just like everyone else. what's odd is that it has a different, and largely preferential, tax treatment relative to other persons.

coredog64 10y ago

A low rate on capital gains is justified because we want people to inject capital. Absent an extreme situation, your regular wage check isn't subject to being completely wiped out. Yet if I invest in a company that sells ice over the internet, my entire investment could vanish. So collectively we put our thumb on the scale that more investment is better than less investment. That's also why we have the (imperfect) short-term/long-term capital gains setup.

spoonie 10y ago
Shouldn't the capital-losses that you can book against future taxes compensate for this enough?
beat 10y ago
As I keep saying, we don't need to "inject capital". At this point, it's actually counterproductive. The problem isn't that there isn't enough capital to invest, but rather that there's too much capital. Supply-side economics only works when the system is starved for liquidity to start new business. Instead, we have companies and investors sitting on billions, trillions in liquidity, and no good place to put it. Adding more capital will not create growth or jobs. The cup runneth over already. Moreover, you need to consider the risk/return/liquidity triangle. This is sort of Investing 101, but it's often lost on people making pronouncements about how we need to cut taxes - mostly people who don't have substantial real capital investment, who rely on wage-driven cash flow. There are three elements to any investment - risk, return, and liquidity. Risk is the likelihood that the investment might lose rather than gain. Return is the amount of growth over time. Liquidity - the forgotten factor - is how easily the investment can be divested and turned into something else. If you can give up substantial liquidity, you can get into much more lucrative investment. Real estate is the classic low-liquidity example. Buying and selling real estate is slow and painful, and it ties up a lot of capital. But it should return well over time. But liquifying real estate against needs other than profit can be very, very costly. Angel investing and venture capital are extreme examples. You wind up with capital completely locked, almost totally illiquid (hence "liquidity event"), at very high risk. But the rewards can be stupendous. And they should be. At any rate, cutting taxes to pour more capital into a system that already has too much capital is dumb. It made sense 35 years, when the economy was cash-starved and at risk of runaway inflation. But decades later, all the growth concentrates at the top, the poor and middle class have stagnated for people's entire adult lives, and we're facing borderline revolutionary attitudes on both the right and the left. "Cutting taxes to stimulate investment" is putting us on the brink of both economic collapse and political radicalism, and given how it's worked, deservedly so.

yourapostasy 10y ago

The original PR stunt that worked to lower capital gains was to present retirees as human shields in front of capital holders whose income came primarily or even exclusively from capital gains. The entreaty was: capital gains would force your grandparents into eating cat food by taxing them twice in their twilight years! There is a grain of truth to that, but for various American-specific reasons, it is difficult to apply a ceiling income level beyond which all capital gains income is treated as plain income. I believe one pernicious issue that must be addressed is treating corporations as people: lots of legal and tax accounting maneuvers absolutely depend upon this treatment, and a lot of tax-shielded income falls apart without it. Another pernicious issue is actual versus legal control of organizations: again, lots of legal and tax accounting maneuvers depend upon legally on paper showing no or minority control (especially fiscal disbursement) over an organization, yet actual control resides with real-world fiscal beneficiaries. It is highly unlikely these will ever be addressed in the foreseeable future, as many retirement structures among many other kinds of organizations are built around these issues.

twoodfin 10y ago

One reason it makes sense is we want to encourage investors to take risks. Would you take a job where you had to put up an amount equivalent to 5x your annual salary in advance, with a chance of losing it all?