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Income taxes are a distraction. Bill Gates is not filing income tax on 40B worth of stock. Real wealth comes from owning assets that appreciate and pay dividend

by zanny 9y ago

Income taxes are a distraction. Bill Gates is not filing income tax on 40B worth of stock. Real wealth comes from owning assets that appreciate and pay dividends, and our capital gains tax rates are even less progressive than the income ones (there are only two capital gains tax brackets and they cap out less than half of income - which should then mean its no surprise people who get paid in income get poorer and people who profit off capital gains get richer). If anything should be progressively taxed its individualized capital gains. It is simultaneously very healthy to incentivize everyone to invest a bit in capital, and extraordinarily detrimental to the health of civilization to let capital concentrate without any impediment.

utexaspunk 9y ago
True- Capital gains should just be counted as income, IMHO.
- nostrademons 9y ago
  It's really hard to do this on an administrative level with the way that the price mechanism currently works. Prices are set at the margin, based on the most recent transaction. If I decide I'm willing to pay $72,000 for a single share of Microsoft stock, then Microsoft stock will momentarily be worth $72k, at least until the next transaction, and Bill Gates will be 1000x richer on paper. Similarly, if I turn around and sell that one share for 1 cent, Microsoft's value (and the net worth of everyone who owns it) will momentarily be cut by 7200x. When do you assess the tax? If it's at any predictable interval of time, it opens the market up to massive manipulation schemes where people crash their own stocks to avoid paying taxes and bid up their rivals so they'll be forced to owe a massive tax bill. You could I guess take an average over time to avoid the manipulation efforts, but then you still run into the issue many dot-com paper millionaires faced, where they were assessed a tax bill based on the paper value of their options but when it came time to pay it, the stock wasn't worth enough money to cover the taxes. That's why we have the current system, where capital gains are taxed as income (though at a lower rate), but only when you sell them. That's the only time when you can put a fair value on the asset being sold, when it's convertible into the currency you actually plan to pay the taxes with.
  - utexaspunk 9y ago
    Right- what I'm saying is we keep taxing capital gains upon conversion to currency, but tax them the same as any other income.
  - zanny 9y ago
    You could tax capital gains as income at the time of realization of the gains. IE, buy all the stock you want. It doesn't matter. The dividends you get, and any payout you get from selling those stocks (even for immediate reinvestment) count as income.
snarf21 9y ago
I'm not sure I agree but in any case, I'd rather see removal of like kind exchange for stocks (and maybe other things too?). Constantly buying and selling doesn't add to our economy in any real way when it can be deferred forever. Tax a percentage of the gain on any transaction and use that money to fund programs. Let money have velocity and get taxed lots of times per year instead of zero.

by zanny 9y ago

utexaspunk 9y ago

True- Capital gains should just be counted as income, IMHO.

nostrademons 9y ago
It's really hard to do this on an administrative level with the way that the price mechanism currently works. Prices are set at the margin, based on the most recent transaction. If I decide I'm willing to pay $72,000 for a single share of Microsoft stock, then Microsoft stock will momentarily be worth $72k, at least until the next transaction, and Bill Gates will be 1000x richer on paper. Similarly, if I turn around and sell that one share for 1 cent, Microsoft's value (and the net worth of everyone who owns it) will momentarily be cut by 7200x. When do you assess the tax? If it's at any predictable interval of time, it opens the market up to massive manipulation schemes where people crash their own stocks to avoid paying taxes and bid up their rivals so they'll be forced to owe a massive tax bill. You could I guess take an average over time to avoid the manipulation efforts, but then you still run into the issue many dot-com paper millionaires faced, where they were assessed a tax bill based on the paper value of their options but when it came time to pay it, the stock wasn't worth enough money to cover the taxes. That's why we have the current system, where capital gains are taxed as income (though at a lower rate), but only when you sell them. That's the only time when you can put a fair value on the asset being sold, when it's convertible into the currency you actually plan to pay the taxes with.
- utexaspunk 9y ago
  Right- what I'm saying is we keep taxing capital gains upon conversion to currency, but tax them the same as any other income.
- zanny 9y ago
  You could tax capital gains as income at the time of realization of the gains. IE, buy all the stock you want. It doesn't matter. The dividends you get, and any payout you get from selling those stocks (even for immediate reinvestment) count as income.

snarf21 9y ago

I'm not sure I agree but in any case, I'd rather see removal of like kind exchange for stocks (and maybe other things too?). Constantly buying and selling doesn't add to our economy in any real way when it can be deferred forever. Tax a percentage of the gain on any transaction and use that money to fund programs. Let money have velocity and get taxed lots of times per year instead of zero.