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Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

254 points by champagnepapi 9y ago

cylinder 9y ago
The biggest lie is this nonsense about "double taxation," ie taxing money that's already been taxed is somehow unfair. So stupid. Capital gains tax shouldn't exist. It should all be one income tax. You can carve out discounts or exemptions for things like sale of PPOR, sale of family business up to a certain point, if you want.
- fooster 9y ago
  I don't see it that way. When you invest you risk the capital. You might get a return, you might not and therefore the taxation rules should reflect that. The situation as a worker is different. The only risk you take is that you might select a bad company.
  - ashark 9y ago
    > You might get a return, you might not and therefore the taxation rules should reflect that. So... you take a loss on your taxes, probably spreading it out in some way so you don't pay taxes for a few years, if it's a serious enough loss. Right? Why does the rate need to be different?
    - fooster 9y ago
      Probably spreading it out in some way? You must also have a have a future gain to offset that loss. The rate difference is to compensate for the risk that you are taking by investing the money. Again, as a worker you have essentially no risk of capital (only of effort). Furthermore, I think you are misunderstanding the double taxation argument. The double taxation arises because the company has already payed tax on their profits.
  - etwigg 9y ago
    "The only risk you take is that you might select a bad company." - that's the same risk an investor takes no? Except the investor can diversify across many companies, while the employee can rely on only one. Yours seems like an argument for investors to pay a higher rate than an employee, because they can diversify their risk. Personally, I don't think taxes should be based on risk assessment.
    - fooster 9y ago
      If there was no capital gains tax it would almost certainly reduce investment in risky industries. For example, high tech.
      - matt4077 9y ago
        The risks should be reflected in the possible return from the investment (pre-tax), and it is. This is most obvious with fixed-income investments (bonds) where the rate is directly derived from the perceived risks. The justification also breaks down when you recognise that capital gains taxes are the same for investments in any sector: If it's supposed to reward risk-taking, why tax investments in retail or insurance stocks the same as early-stage venture capital?
        fooster 9y ago
        It is recognized to some extent. Thats why interest has a different taxation rate than capital gains on stock investments.
  - maxxxxx 9y ago
    Selecting a bad company is a pretty big risk. It may do a lot of damage to your career from which you potentially never can come back. The opportunity cost is pretty high. I don't believe capitalists take more risk or should get preferential tax treatment.
    - vasilipupkin 9y ago
      it's not just capitalists who get a lower tax on investment income - it's everyone.
      - maxxxxx 9y ago
        It's a little skewed towards wealthier people, don't you think?
        vasilipupkin 9y ago
        Think of it this way. If taxes on investment income are raised, those who aren't wealthy will have an even harder time catching up to those who are
        maxxxxx 9y ago
        I don't think that's accurate. As of now the wealthy are pulling away quickly. This will continue if the majority of of workers' income (salary) is taxed higher than the income of investors.
        vasilipupkin 9y ago
        yes, but those workers will at some point retire and live off their investment income, no?
        maxxxxx 9y ago
        And they would have had much more money to invest if their income tax had been lower. You don't seem to want to understand my point: Low taxes for investment benefits wealthy people disproportionately. Yes, lower income also get some benefit but the vast majority goes to the wealthy. Same for all the Republic "tax reform" proposals: A little tax cut for small incomes, large tax cut for high incomes.
  - deleted 9y ago
    [deleted]
  - jandrese 9y ago
    Well, what else are you going to do with that capital? Stuff it in a mattress? The Government really doesn't need to encourage people with money to use it to make more money, that happens naturally. You might argue that they'll just "waste" it on goods and services, but that's what keeps the economy moving so it's not really a waste.
- crdoconnor 9y ago
  If you want to distinguish between the creation of wealth vs. the appropriation of wealth it makes sense to distinguish between earned and unearned income.
- menacingly 9y ago
  This similar to the logic that used to fuel Adobe's anti-piracy numbers. They claim they lose (number_of_pirated_copies X retail_cost) to piracy, making the huge assumption that everyone who pirated would have bought a copy, and needs photoshop so badly that they will sell a kidney to get it if you could stop piracy. You can't selectively change variables and assume the others stay the same. Your life would be negatively impacted if everyone paying capital gains decided it was advantageous to avoid paying them, so you can't talk about adjusting that tax structure as if all of the same money would stay on the table. If it were less enticing to invest it, fewer would, and that changes the environment in complex ways. It's a big assumption that if you raise taxes, everything else remains pinned down and we can analyze that variable in isolation.
  - njarboe 9y ago
    I think I am on the side of Warren Buffet and agree that investment tax rates does not much effect how eager people are to invest. I mean, what else are the rich going to do with their money? If they think, "These tax rates on investments are too high. I'm not going to invest. I'm just going to spend it on yachts, hookers, blow, and black-jack.", then soon they will run out of money and have to start earning it again. Most investors like making successful investments and growing their wealth. What the capital gains tax rate is is not going to change that. Maybe they would not switch investments as much. That might be a good thing. Maybe a better argument would be that successful investors use of money is better for everyone in society in the long run and that having lower taxes on earned income would just let more money be spent on "useless" things: longer vacations or fancy lattes.
- jwally 9y ago
  Completely agree if you nuke the corporate / business tax as well.
- rhino369 9y ago
  You would have to start adjusting for inflation. If I bought an asset in 1980 and it just tracked inflation, you'd show a nominal 200% profit. But really, it's worth the same as before.
  - cylinder 9y ago
    yes, but that's not really an issue. If it's not a real gain (inflation adjusted), then it's not income, and doesn't need to be taxed.
    - deleted 9y ago
      [deleted]
- carradjm 9y ago
  Why should we want to tax income? If you tax something, you inherently affect the supply of it. I.e. taxing labor (income tax) will make people want to work less. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax We need to implement a land-value tax, if simply because taxing land does nothing to change the supply of land. Unless America decides to invade Mexico anytime soon, the value of land will not change. I responded to another post in this thread with a link on Georgism as well (https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax). I see Georgism occasionally advocated for on Hacker News but I really wish I would see more discussion on it. IMHO, it is the only sensible tax and the most fair tax that economists have thought up.
  - twoquestions 9y ago
    It looks excellent at first blush, but calculating the value of land seems distinctly non-trivial even for honest assessors. For less than perfect people, this highly charged calculation could become a huge political football.
cgore 9y ago
Because politicians sell progressive income taxes as a way to screw the rich, when it actually just screws the upper middle class, since the actual rich don't have jobs to tax the income from.
- TheAdamAndChe 9y ago
  There are many people making over $200,000/yr. With 20 years of investing $150,000 of that, it's incredibly easy to have over $6.5 million. I don't see why it can't be a two-pronged approach with both higher income taxes and wealth taxes. It's what was done in the 1950's, and there was still plenty of wealth then.
  - toomuchtodo 9y ago
    > It's what was done in the 1950's, and there was still plenty of wealth then. That time period was one of great prosperity that won't be repeated. Market returns were higher; most of the low hanging fruit has been plucked, and you can expect ~5% in equities returns. Its going to take far more capital now to get the same returns your grandparents had, which is why you see capital chasing returns across the world. https://www.cnbc.com/2017/05/07/get-ready-for-dramatically-lower-stock-market-returns-over-the-next-decade.html https://www.cnbc.com/2017/05/07/get-ready-for-dramatically-l... "The leaders of Vanguard Group, overseers of some $4 trillion in client assets, have been advising investors to expect a typical 60 percent stocks/40 percent bonds portfolio to deliver two- to- three percentage points less in nominal annual returns than its long-term norm. (Since 1926, such an asset mix has returned better than 8.5 percent annualized.)" "Other forecasts are even less generous. Research Affiliates, a quantitative and "smart beta" fund manager, projects that U.S. stocks might only offer one percent a year for the next decade, after inflation. This is based largely on the so-called Shiller P/E, a ratio of the S&P 500 index to its trailing ten-year average earnings, which is now above 29 and higher than any period aside from the run-up to the 1929 and 2000 market peaks." "And with risk-free 10-year government debt yielding a skimpy 2.3 percent in the U.S. and far less elsewhere, all other financial assets have repriced for skimpier future returns as well."
    - 9y ago
pcurve 9y ago
Makes my blood boil reading this, especially how poor republicans who have the most to gain through tax reform are consistently voting against their interest.
- brianwawok 9y ago
  But poor republicans have often a religious obligation to vote republican. So do you vote democrat to get more money and fail your religious obligtation? Or do you vote repblican to fulfill your religious obligation at the cost of some rich guys getting richer? Not all people vote through an economic lens. Many othet lenses exist. Religion is just one of them. You could replace religion with gun rights. Or states rights. Same story. I would guess for most people, no one party matches all their wants. So they need to prioritize.
  - TheAdamAndChe 9y ago
    This is why our two-party political system needs to change. It's proven inadequate to reflect the people in a nuanced enough way.
    - menacingly 9y ago
      It's the same as the old cable company model. Slicing the list of available concerns up just perfectly enough that you can't get what you want without a bunch of shit you don't.
      - brianwawok 9y ago
        But it's almost worse. In the cable system, if I want channel 1 from package A, and channel 2 form package B.. I can get mad they aren't in the same package.. but I can ultimately just buy the super package and for $200 a month get all channels. How do I do that in politics? Get one view from party A and one view form party B? I can't. I have to pick my priorities and only get one. or maybe guess which party has more things I like.
    - 9y ago
chollida1 9y ago
> Americans in the top 1 percent, and especially the top 0.1 percent, have seen their wealth and income multiply in recent decades as the rest of the country’s share of the economic pie shrank. Since 2000, a recent study found, the top 1 percent have made those gains almost entirely on income from capital, especially corporate stock—not on labor income. One reason may be the financial options of the wealthy: Business owners can lower their tax bills by paying themselves in dividends rather than in salary, for example. I've written a few times about how the different tax rates on income, vs dividends vs interest income vs capital gains, and even business vs personal tax rates all work together to ensure the 1% come out ahead of the average income earning individual. I think I was 25 when I incorporated my first corporation, not because I was a startup founder, but to reduce my taxes. I'll bet if you look around at the most wealthy people you know, almost all will have their own corporation or two. I mean, just the fact that people pay taxes and then expense out of after tax money and corporations pay expenses and then tax on whats left should be enough to illustrate how corporations keep the rich ahead of the salaried population. It can get worse as corporations can change their tax year. This means if you are someone who gets a large bonus at the end of the calendar year you can shelter the tax on it for an entire year. So you can have someone who earns a $100,000 salary and gets a $500,000 bonus on December 31st. The bonus goes into the corporation and has a full year until November 30th before the tax is due. If you invest the bonus and earn 20% by next November you have earned enough money back to cover the corporate taxes due vs the salaried employee who pays the full 40ish% tax rate on the $500,000 bonus. Now, you'll have to eventually pay dividends to take the money out of the company but I think I've shown enough to prove just how far ahead the person with the corporation comes out ahead of the average person. Until the tax law changes, smart people have corporations, the 99% don't.
- bryanlarsen 9y ago
  They're currently trying to close a couple of those loopholes here in Canada, and it's surprising how much traction the complaints against the reforms are getting. The opponents are claiming that the reforms are going to devastate family doctors and family farms. The complaints are mostly bogus, but people don't understand tax law so are vulnerable to an emotional plea.
bupku5 9y ago
the rich inoculate themselves against criticism through their superficial support for liberal social issues
fortythirteen 9y ago
If capital gains taxes are raised, then someone who invests outside of a 401k or IRA gets double screwed.
- NegativeK 9y ago
  How would you get double screwed? You would only pay income taxes on the gains.
  - vasilipupkin 9y ago
    the corporation also pays taxes on the income before distributing it to you.
    - jgalt212 9y ago
      Not if you're Apple, et al. https://www.nytimes.com/2016/09/01/business/yesterday-outraged-by-apples-tax-dodge-today-by-its-tax-bill.html?mcubz=3 https://www.nytimes.com/2016/09/01/business/yesterday-outrag...
      - fooster 9y ago
        Thats because US corporate tax rates are ridiculous and so big corp plays games. Small corp of course are the real victims because they can't afford the army of lawyers and accountants to manage all the complex tax avoidance schemes so they get stuck with some of the highest corporate tax rates in the world.
        jgalt212 9y ago
        I agree. That is part of the problem. But, I'd argue that even if US Corp rates were much lower (say 15%), Tim Cook, ever the optimizer, would still pursue the 1% rate they currently achieve. I think rates should be lowered and and tax avoiders/dodgers should not be allowed to bid on govt contracts.
      - vasilipupkin 9y ago
RHSeeger 9y ago
> The most famous economic boom in U.S. history, right after World War II, occurred when the top rates on dividends were between 70 and 90 percent. This seems very much like presenting correlation without any semblance of causation. Specifically, "right after World War II" is a pretty significant variable to ignore. The financial impact of the war being over (and massive amounts of resources being re-allocated) may well have been large enough to counteract any other variables.
- jrs95 9y ago
  But it's a really popular meme so who cares? It's not like Bloomberg is supposed to understand economics or something
paulpauper 9y ago
Americans in the top 1 percent, and especially the top 0.1 percent, have seen their wealth and income multiply in recent decades as the rest of the country’s share of the economic pie shrank. Since 2000, a recent study found, the top 1 percent have made those gains almost entirely on income from capital, especially corporate stock—not on labor income. One reason may be the financial options of the wealthy: Business owners can lower their tax bills by paying themselves in dividends rather than in salary, for example. Yeah...look at Bitcoin, Bay Area real estate, tech stocks (Google, Tesla, Amazon, Apple, Facebook, Sales Force, etc.)...it would seem like 'assets' are kicking the asses of wages. People are getting rich buy & holding assets and with speculation than 'building and making things' (except for Tesla). And the low long-term capital gains taxes to boot just makes it all the sweeter. Now obviously,doctors, coders, and lawyers can do very well too. To get to the stage where you can live off assets, you need income.
SoMisanthrope 9y ago
I recognize that most of the readers are socialist progressives. That's not a bad thing, I'm here to challenge you to consider that a flat tax (no tiers) takes out all of the room to maneuver and cheat. You make a dollar? Good for you, give 20 cents to the federal government. Simple. And EVERYONE should pay their 20 cents. I don't like this meme that "it will hurt the poor." Right now, the poor can "vote for Santa Clause" because they have no skin in the game. I think that everyone would be more civic-minded, if they actually carried an equal share of the pain of taxes.
paulpauper 9y ago
One of the arguments for low long term capital gains taxes is that investments carry higher risk and volatility than wages. Accumulated wages grow monotonically but investments are inherently volatile and there is always the risk of losing everything
- PeppermintGrade 9y ago
  Another argument for low long term capital gain taxes is that the federal reserve (the Fed) can artificially manipulate the inflation rate (say from 1.5% to 4% / year) to increase for example the value of a home and cause everyone to pay higher capital gains without those tax-payers having actually gained any additional purchasing power.
- plandis 9y ago
  I can diversify my investments, I cannot diversify the company I work for. For an individual being employed is pretty risky. I'm fairly confident that I have enough money to survive a recession without needing to take a hit on my investments (and I'm assuming the uber-wealthy are definitely in this situation). I'm not confident that I won't entirely lose my main source of new income.
vasilipupkin 9y ago
"Taxing investors less is really not what the U.S. needs now,” Saez said. “Instead, we should focus on trying to rebuild middle-class wealth” by encouraging families to save for retirement and pay down mortgages." How do you encourage families to save for retirement? isn't a lower tax rate on investment income a way to do that?
- mbillie1 9y ago
  It's hard to invest if you don't have any money, and as the article points out, investment income below $38,000 is already untaxed. Mortgage rates are a tricky lever to manipulate. Wealth redistribution (in the form of taxing capital gains / investment income more and taxing wages less, particularly middle and upper-middle class wages) is probably the only realistic way to accomplish this.
- Chardok 9y ago
  FTA “There is little empirical evidence showing that taxing investors less stimulates savings and growth,” said Emmanuel Saez, an economist at the University of California at Berkeley.
  - vasilipupkin 9y ago
    Yes. But that's because there is so little data and so many confounding variables There is little empirical evidence for everything in macroeconomics, including for Saez's claims.
    - mercutio2 9y ago
      Wait, did you really just say, “I acknowledge there is no evidence” immediately followed by “there is no evidence for the absence of evidence”? If I’m not missing something you though was implicit somehow, that is some pretty remarkable logic.
      - vasilipupkin 9y ago
        There is evidence, but it's relatively weak from statistical significance point of view. This is also true of Saez's claims, such as if only we get rid of lower taxation on capital, things will improve for the 99%. I am not aware of any evidence that would support this prediction.
chrismealy 9y ago
If your only income is qualified dividends you can make about $90,000/year and pay zero taxes.
- mi100hael 9y ago
  If you're making $90k a year in qualified dividends, you're almost guaranteed to be pulling a good chunk of change in other forms of income as well.
  - ReallyAnonymous 9y ago
    My parents saved their whole lives and now make about $100,000 / year in qualified dividends - They pay about 6K in federal taxes with all that income. My dad bought pcg_pe for $12 / share when they went into bankruptcy protection bc Enron/etc. When they came out of bankruptcy they had to back pay him all the missed dividends and now continue to pay $1.75/share/year. For his cost basis, its 15% return yearly. Not too shabby.
dahdum 9y ago
America has among the highest capital gains tax rate in the world, and if you live in California (which treats gains as regular income) the combination of ACA/NIIT, state, and long term capital gains I believe is the highest in the world.
ChemicalWarfare 9y ago
Ok, so how about we lower the tax the "american workers" (more like upper middle class) are paying? Get rid of progressive tax system maybe? Fix the situation where the "bottom 50%" aren't paying anything thus making them an easily manipulated group by promising higher taxation of the "evuhl 1%"?
gnicholas 9y ago
> You owe the IRS about $38,500 more, assuming each of us pays the maximum with no special deductions. This also assumes the investor has no interest income, which would be unlikely. For a younger person with a big nest egg, this wouldn't be a huge chunk of their assets. But as you age you'd want to shift into less-risky assets, like interest-bearing ones. Also, investors would probably be diversified into real estate (which generates rental income, which is taxed as ordinary income). There are tricks that can be played in real estate, of course, but there's also lots of ordinary income tax paid. > I get to skip about $24,000 in payroll taxes that you and your employer must fork over each year. "Payroll taxes" includes social security, which the worker will collect until he/she dies. It is also payable to the worker's spouse in certain circumstances. But you only get to collect social security to the extent you paid into the system. So if there's an economic downturn, the worker will have social security to fall back on in old age, where the investor will not. The general point remains, but this is a highly stylized example designed to emphasize (hyperbolize) the author's point.
- aylmao 9y ago
  Yes. I would assume the article's point IS to emphasize the author's point.
  - gnicholas 9y ago
    Sure! It'd be more credible if it acknowledged the unrealistic assumptions that it's making. Reminds me of the Engineering dept t-shirt I saw in college: "assuming a spherical cow..."
    - aylmao 9y ago
      I mean, sure. But the point is to make the problem accessible to the reader, not to obscure it through the ton of variables present in real life. Which actually goes back to the t-shirt example. If we had to consider a real cow every time, nobody would want to study engineering ¯\_(ツ)_/¯
- haikuginger 9y ago
njarboe 9y ago
Here is a question for any tax attorneys out there. Not sure how to find a clear answer to this question but these pages[1][2] seems to suggest that the capital gains tax rate is based on your "Taxable Income". This is shown further down the second page to be "really Regularly Taxed Income minus Adjustments, Deductions, and Exemptions". If your "Taxable Income" is less than 37,950 your long range capital gains tax is 0%. This seems to me to mean that if you are say Larry Page or Sergey Page and set your salary to $1 (like the do), your main motivation for the low salary might not be to signal that, as a large shareholder, you are aligning your interest with shareholders and thus won't take a salary (this is what I thought the $1 salaries in the Valley were all about, but it always seemed a little silly to me). Maybe your main motivation is that you make all of your income in capital gains and if you have less than $37,950 in "Taxable Income", you pay %0 in capital gains. $1 in "Taxable income" with $1 billion in capital gains and pay $0 in tax. You could make a bit more with a salary of $37,949, but that is nothing compared to your capital gains, and then people would be pointed to exactly what was happening. This would be a much bigger loophole than covered interest being taxed at the long term capital gains rate. Although, now that I think about it, the two loopholes would work together. Own a hedge fund, take $1 in salary, make $1 billion in carried interest, pay $0 in taxes. I sure don't want to believe this is the way it works. Links to an IRS.gov web page example that shows otherwise would be greatly appreciated. [1]http://www.moneychimp.com/features/capgain.htm http://www.moneychimp.com/features/capgain.htm [2]http://www.moneychimp.com/features/tax_brackets.htm http://www.moneychimp.com/features/tax_brackets.htm
- zamfi 9y ago
  IANATA, but if you look at the qualified dividends and capital gains tax worksheet [0] on personal income tax form 1040 (that’s the main tax form for individuals), you’ll find that your capital gains tax rate is dependent on your income including capital gains. For the purposes of your example, Larry and Sergei would pay no tax on the first 37,949 of capital gain income (thanks to the $1 salary), but regular capital gain rates on the next ~billion. [0]: https://apps.irs.gov/app/vita/content/globalmedia/capital_gain_tax_worksheet_1040i.pdf https://apps.irs.gov/app/vita/content/globalmedia/capital_ga...
  - 9y ago
ryanmarsh 9y ago
There's a startup idea in this. Help people convert to corp-to-corp with their employer. Get them set up with health insurance and the normal bennies. Take advantage of the preferable tax position.
gd1 9y ago
Chamley and Judd: http://econlog.econlib.org/archives/2013/03/redistributing.html http://econlog.econlib.org/archives/2013/03/redistributing.h... "Under standard, pretty flexible assumptions, it's impossible to tax capitalists, give the money to workers, and raise the total long-run income of workers."
deleted 9y ago
[deleted]
tabeth 9y ago
One thing a middle class friend of mine does is the following: 1. Buy house 2. Rent out rooms 3. Deduct all expenses that you'd have to pay anyway, utilities, internet, etc. as "business expenses". 4. Depreciate house 5. Renovate the house and depreciate the new fixtures/additions/etc. 6. Reappraise the house after a certain time and refinance. 7. Take money out after refinancing and buy more property. Go back to (1). It's pretty much foolproof. The tough part is being an owner-occupied landlord for a bit to get to the point where (6) is worth while. You also have to be in a hot market.
- vasilipupkin 9y ago
  when you sell those properties, you still have to pay all the taxes. Depreciating doesn't save you from having to pay tax, it just defers the tax liability to the future.
  - tabeth 9y ago
    You have to pay depreciation recapture tax whether or not you actually depreciate your house[1]. Not depreciating a rental property is just stupid. [0] https://www.thebalance.com/depreciation-recapture-3192979 https://www.thebalance.com/depreciation-recapture-3192979 [1] Internal Revenue Code section 1250(b)(3)
    - vasilipupkin 9y ago
      I agree, I am just saying, depreciation is not a free pass, since when you sell, you have to pay the tax.
      - tabeth 9y ago
        True, but you'd have to pay tax either way (e.g. don't have a rental and pay capital gains, though this is minimized if you're a first time homeowner), is what I'm saying. Though, the cool thing is that if your house is a rental (as opposed to residential) you can actually offset depreciation recapture by passive loss throughout the time the property was a rental. Often this completely negates the tax. Man... too many benefits are given to those who own property.
31reasons 9y ago
Can't we just have Sales tax only. People who buy more will pay more taxes. You can exempt certain items like food, education, healthcare. Why do we need complicated income tax model? In the Sales Tax Only model, wealthy investors can invest as much money as they like but they will only be taxed if they liquidate their stocks and buy a fancy car or a yacht. I am trying to understand why we need Income tax at all?
- joshklein 9y ago
  It's been over a decade since I studied the literature on this, but the dead weight loss caused by a tax at the point of transaction is larger; a case can reasonably be made that transactions that would otherwise occur did not due to tax. Income tax removed before you receive your paycheck into your bank account has been demonstrated in psychological studies to be less onorous, and cause less behavior change (you don't ask for a lower paycheck because you don't like tax). I'm sure I'm grossly oversimplifying, so someone with more economics education please chip in!
  - AnthonyMouse 9y ago
    > It's been over a decade since I studied the literature on this, but the dead weight loss caused by a tax at the point of transaction is larger; a case can reasonably be made that transactions that would otherwise occur did not due to tax. > Income tax removed before you receive your paycheck into your bank account has been demonstrated in psychological studies to be less onorous, and cause less behavior change (you don't ask for a lower paycheck because you don't like tax). Another way of putting this is that sales taxes encourage saving and income taxes encourage borrowing. Lo and behold, the average American is up to their eyeballs in debt and a large fraction of income is going to interest payments instead of actual spending. It is hard to see why this should be considered a good thing.
- PeterisP 9y ago
  A sales-only tax (i.e. taxing consumption) means that the burden of taxation is disproportionally shifted towards the poor. A poor person consumes almost 100% of their income; a very poor person consumes more than 100% of their income (by going into debt), an upper-middle class person consumes much less than 100% of their income (they get savings, some investments, and big expenses like student loans and mortgage don't count for sales taxes), and a very wealthy person consumes just a small part of their total income, as most of their spending is essentially buying control of means of production and control of other people, which is not consumption and not affected by sales tax. If all your spending is consumption, then all of that is taxable, and if much of your spending is to gain more income in the future (e.g. buying rent housing, or stock/control in companies) then that's tax-free - in essence it's a tax system that strongly facilitates a rich-get-richer, poor-stay-poor dynamic and increases inequality. And that's generally considered a bad thing for society.
almonj 9y ago
Any person or group that manages to avoid paying taxes should be celebrated. The solution to this "problem" should not be that the wealthy pay more taxes, but that nobody should have to pay taxes since it is blatant theft that funds incompetent and evil people. Nothing that the government does is good. All money that goes to the government is either wasted or spent in ways that make society objectively worse. All functions of government can be replaced and improved by a free market system.
- Shikadi 9y ago
  Is this satire?
  - mrguyorama 9y ago
    Whether or not this specific example is, I know people who legitimately believe this.
mfringel 9y ago
Capital does not need to follow an immigration process in order to move to a new country, beyond a known-fixed cost in customs duties, and typically not even then. Labor can't run away as fast, so it's easier to tax more.
Shivetya 9y ago
I would love a simple tax system but no politician in Washington wants, especially those on the left side of the aisle. the tax system is the largest source of political power that exists in the United States and likely everywhere in the world. Politicians refuse to let you disarm them. Worse they are adept at convincing you they need more taxing power by playing you off each other, by preying on your jealously or creating it. What is ignored about investment income taxing is that original income used to create the investment was taxed. Hence we are taxing it more than once and doing so forever. the alternative is they pull their investments/risks and put them into vehicles like bonds that government officials really want them in. don't think these articles come out of thin air, they are politically motivated to get you angry so you willingly give more power to the political class; they are the true one percent
andrewjl 9y ago
The intention behind this tax regime was that long-term investing has positive external effects on the overall economy so should can be incentivized (which like all other social incentives in the US is done via tax incentives). In 2017 with a global glut of capital desperately looking for any kind of return, it's not clear if this incentive is necessary anymore.
hsileng 9y ago
We are the country where money >> labor. Lets be real.
drpgq 9y ago
I found this example interesting as a Canadian, as currently there's a big tax battle over people incorporating to avoid high marginal tax rates and take advantage of relatively low small business tax rates, plus income splitting (which normal employees don't have in Canada). In Canada the emergency room physician would be incorporated. Personally I think a lot of the issue is coming from lowering small business tax rates while cranking marginal tax rates federally and provincially.
squozzer 9y ago
Where this article "phailed" persuasion-wise was in its archtypes -- the hard-working, high-pressure ER surgeon v. trust-fund slacker baby. Really? How about changing the dramatis personae a little -- say, make the wage-earner a VP of product development at a soon-to-be-purchased startup (straddling both wage-earning and investing, maybe) v. Warren Buffett?
fencepost 9y ago
Legislators, the best investment money can buy. It's amazing to witness the compound effects of interest^H^H^H^H^H^H^H^H long term changes in tax policy, particularly when the advantage becomes the new normal and is then the basis for further changes. How many people look at tax legislation based on how much better it is than 50 years ago?
lhh 9y ago
How about the government spends a lot less money, thereby requiring far less tax to fund it? Also, wealthy people are mobile, as are companies that don't have tangible assets. If you try to over-tax, they'll simply domicile everything elsewhere.

254 points by champagnepapi 9y ago

The biggest lie is this nonsense about "double taxation," ie taxing money that's already been taxed is somehow unfair. So stupid. Capital gains tax shouldn't exist. It should all be one income tax. You can carve out discounts or exemptions for things like sale of PPOR, sale of family business up to a certain point, if you want.

fooster 9y ago
I don't see it that way. When you invest you risk the capital. You might get a return, you might not and therefore the taxation rules should reflect that. The situation as a worker is different. The only risk you take is that you might select a bad company.
- ashark 9y ago
  > You might get a return, you might not and therefore the taxation rules should reflect that. So... you take a loss on your taxes, probably spreading it out in some way so you don't pay taxes for a few years, if it's a serious enough loss. Right? Why does the rate need to be different?
  - fooster 9y ago
    Probably spreading it out in some way? You must also have a have a future gain to offset that loss. The rate difference is to compensate for the risk that you are taking by investing the money. Again, as a worker you have essentially no risk of capital (only of effort). Furthermore, I think you are misunderstanding the double taxation argument. The double taxation arises because the company has already payed tax on their profits.
- etwigg 9y ago
  "The only risk you take is that you might select a bad company." - that's the same risk an investor takes no? Except the investor can diversify across many companies, while the employee can rely on only one. Yours seems like an argument for investors to pay a higher rate than an employee, because they can diversify their risk. Personally, I don't think taxes should be based on risk assessment.
  - fooster 9y ago
    If there was no capital gains tax it would almost certainly reduce investment in risky industries. For example, high tech.
    - matt4077 9y ago
      The risks should be reflected in the possible return from the investment (pre-tax), and it is. This is most obvious with fixed-income investments (bonds) where the rate is directly derived from the perceived risks. The justification also breaks down when you recognise that capital gains taxes are the same for investments in any sector: If it's supposed to reward risk-taking, why tax investments in retail or insurance stocks the same as early-stage venture capital?
      - fooster 9y ago
        It is recognized to some extent. Thats why interest has a different taxation rate than capital gains on stock investments.
- maxxxxx 9y ago
  Selecting a bad company is a pretty big risk. It may do a lot of damage to your career from which you potentially never can come back. The opportunity cost is pretty high. I don't believe capitalists take more risk or should get preferential tax treatment.
  - vasilipupkin 9y ago
    it's not just capitalists who get a lower tax on investment income - it's everyone.
    - maxxxxx 9y ago
      It's a little skewed towards wealthier people, don't you think?
      - vasilipupkin 9y ago
        Think of it this way. If taxes on investment income are raised, those who aren't wealthy will have an even harder time catching up to those who are
        maxxxxx 9y ago
        I don't think that's accurate. As of now the wealthy are pulling away quickly. This will continue if the majority of of workers' income (salary) is taxed higher than the income of investors.
        vasilipupkin 9y ago
        yes, but those workers will at some point retire and live off their investment income, no?
        maxxxxx 9y ago
        And they would have had much more money to invest if their income tax had been lower. You don't seem to want to understand my point: Low taxes for investment benefits wealthy people disproportionately. Yes, lower income also get some benefit but the vast majority goes to the wealthy. Same for all the Republic "tax reform" proposals: A little tax cut for small incomes, large tax cut for high incomes.
- deleted 9y ago
  [deleted]
- jandrese 9y ago
  Well, what else are you going to do with that capital? Stuff it in a mattress? The Government really doesn't need to encourage people with money to use it to make more money, that happens naturally. You might argue that they'll just "waste" it on goods and services, but that's what keeps the economy moving so it's not really a waste.
crdoconnor 9y ago
If you want to distinguish between the creation of wealth vs. the appropriation of wealth it makes sense to distinguish between earned and unearned income.
menacingly 9y ago
This similar to the logic that used to fuel Adobe's anti-piracy numbers. They claim they lose (number_of_pirated_copies X retail_cost) to piracy, making the huge assumption that everyone who pirated would have bought a copy, and needs photoshop so badly that they will sell a kidney to get it if you could stop piracy. You can't selectively change variables and assume the others stay the same. Your life would be negatively impacted if everyone paying capital gains decided it was advantageous to avoid paying them, so you can't talk about adjusting that tax structure as if all of the same money would stay on the table. If it were less enticing to invest it, fewer would, and that changes the environment in complex ways. It's a big assumption that if you raise taxes, everything else remains pinned down and we can analyze that variable in isolation.
- njarboe 9y ago
  I think I am on the side of Warren Buffet and agree that investment tax rates does not much effect how eager people are to invest. I mean, what else are the rich going to do with their money? If they think, "These tax rates on investments are too high. I'm not going to invest. I'm just going to spend it on yachts, hookers, blow, and black-jack.", then soon they will run out of money and have to start earning it again. Most investors like making successful investments and growing their wealth. What the capital gains tax rate is is not going to change that. Maybe they would not switch investments as much. That might be a good thing. Maybe a better argument would be that successful investors use of money is better for everyone in society in the long run and that having lower taxes on earned income would just let more money be spent on "useless" things: longer vacations or fancy lattes.
jwally 9y ago
Completely agree if you nuke the corporate / business tax as well.
rhino369 9y ago
You would have to start adjusting for inflation. If I bought an asset in 1980 and it just tracked inflation, you'd show a nominal 200% profit. But really, it's worth the same as before.
- cylinder 9y ago
  yes, but that's not really an issue. If it's not a real gain (inflation adjusted), then it's not income, and doesn't need to be taxed.
  - deleted 9y ago
    [deleted]
carradjm 9y ago
Why should we want to tax income? If you tax something, you inherently affect the supply of it. I.e. taxing labor (income tax) will make people want to work less. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax We need to implement a land-value tax, if simply because taxing land does nothing to change the supply of land. Unless America decides to invade Mexico anytime soon, the value of land will not change. I responded to another post in this thread with a link on Georgism as well (https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax). I see Georgism occasionally advocated for on Hacker News but I really wish I would see more discussion on it. IMHO, it is the only sensible tax and the most fair tax that economists have thought up.
- twoquestions 9y ago
  It looks excellent at first blush, but calculating the value of land seems distinctly non-trivial even for honest assessors. For less than perfect people, this highly charged calculation could become a huge political football.

cgore 9y ago

Because politicians sell progressive income taxes as a way to screw the rich, when it actually just screws the upper middle class, since the actual rich don't have jobs to tax the income from.

TheAdamAndChe 9y ago
There are many people making over $200,000/yr. With 20 years of investing $150,000 of that, it's incredibly easy to have over $6.5 million. I don't see why it can't be a two-pronged approach with both higher income taxes and wealth taxes. It's what was done in the 1950's, and there was still plenty of wealth then.
- toomuchtodo 9y ago
  > It's what was done in the 1950's, and there was still plenty of wealth then. That time period was one of great prosperity that won't be repeated. Market returns were higher; most of the low hanging fruit has been plucked, and you can expect ~5% in equities returns. Its going to take far more capital now to get the same returns your grandparents had, which is why you see capital chasing returns across the world. https://www.cnbc.com/2017/05/07/get-ready-for-dramatically-lower-stock-market-returns-over-the-next-decade.html https://www.cnbc.com/2017/05/07/get-ready-for-dramatically-l... "The leaders of Vanguard Group, overseers of some $4 trillion in client assets, have been advising investors to expect a typical 60 percent stocks/40 percent bonds portfolio to deliver two- to- three percentage points less in nominal annual returns than its long-term norm. (Since 1926, such an asset mix has returned better than 8.5 percent annualized.)" "Other forecasts are even less generous. Research Affiliates, a quantitative and "smart beta" fund manager, projects that U.S. stocks might only offer one percent a year for the next decade, after inflation. This is based largely on the so-called Shiller P/E, a ratio of the S&P 500 index to its trailing ten-year average earnings, which is now above 29 and higher than any period aside from the run-up to the 1929 and 2000 market peaks." "And with risk-free 10-year government debt yielding a skimpy 2.3 percent in the U.S. and far less elsewhere, all other financial assets have repriced for skimpier future returns as well."
  - 9y ago

pcurve 9y ago

Makes my blood boil reading this, especially how poor republicans who have the most to gain through tax reform are consistently voting against their interest.

brianwawok 9y ago
But poor republicans have often a religious obligation to vote republican. So do you vote democrat to get more money and fail your religious obligtation? Or do you vote repblican to fulfill your religious obligation at the cost of some rich guys getting richer? Not all people vote through an economic lens. Many othet lenses exist. Religion is just one of them. You could replace religion with gun rights. Or states rights. Same story. I would guess for most people, no one party matches all their wants. So they need to prioritize.
- TheAdamAndChe 9y ago
  This is why our two-party political system needs to change. It's proven inadequate to reflect the people in a nuanced enough way.
  - menacingly 9y ago
    It's the same as the old cable company model. Slicing the list of available concerns up just perfectly enough that you can't get what you want without a bunch of shit you don't.
    - brianwawok 9y ago
      But it's almost worse. In the cable system, if I want channel 1 from package A, and channel 2 form package B.. I can get mad they aren't in the same package.. but I can ultimately just buy the super package and for $200 a month get all channels. How do I do that in politics? Get one view from party A and one view form party B? I can't. I have to pick my priorities and only get one. or maybe guess which party has more things I like.
  - 9y ago

chollida1 9y ago

> Americans in the top 1 percent, and especially the top 0.1 percent, have seen their wealth and income multiply in recent decades as the rest of the country’s share of the economic pie shrank. Since 2000, a recent study found, the top 1 percent have made those gains almost entirely on income from capital, especially corporate stock—not on labor income. One reason may be the financial options of the wealthy: Business owners can lower their tax bills by paying themselves in dividends rather than in salary, for example. I've written a few times about how the different tax rates on income, vs dividends vs interest income vs capital gains, and even business vs personal tax rates all work together to ensure the 1% come out ahead of the average income earning individual. I think I was 25 when I incorporated my first corporation, not because I was a startup founder, but to reduce my taxes. I'll bet if you look around at the most wealthy people you know, almost all will have their own corporation or two. I mean, just the fact that people pay taxes and then expense out of after tax money and corporations pay expenses and then tax on whats left should be enough to illustrate how corporations keep the rich ahead of the salaried population. It can get worse as corporations can change their tax year. This means if you are someone who gets a large bonus at the end of the calendar year you can shelter the tax on it for an entire year. So you can have someone who earns a $100,000 salary and gets a $500,000 bonus on December 31st. The bonus goes into the corporation and has a full year until November 30th before the tax is due. If you invest the bonus and earn 20% by next November you have earned enough money back to cover the corporate taxes due vs the salaried employee who pays the full 40ish% tax rate on the $500,000 bonus. Now, you'll have to eventually pay dividends to take the money out of the company but I think I've shown enough to prove just how far ahead the person with the corporation comes out ahead of the average person. Until the tax law changes, smart people have corporations, the 99% don't.

bryanlarsen 9y ago
They're currently trying to close a couple of those loopholes here in Canada, and it's surprising how much traction the complaints against the reforms are getting. The opponents are claiming that the reforms are going to devastate family doctors and family farms. The complaints are mostly bogus, but people don't understand tax law so are vulnerable to an emotional plea.

bupku5 9y ago

the rich inoculate themselves against criticism through their superficial support for liberal social issues

fortythirteen 9y ago

If capital gains taxes are raised, then someone who invests outside of a 401k or IRA gets double screwed.

NegativeK 9y ago
How would you get double screwed? You would only pay income taxes on the gains.
- vasilipupkin 9y ago
  the corporation also pays taxes on the income before distributing it to you.
  - jgalt212 9y ago
    Not if you're Apple, et al. https://www.nytimes.com/2016/09/01/business/yesterday-outraged-by-apples-tax-dodge-today-by-its-tax-bill.html?mcubz=3 https://www.nytimes.com/2016/09/01/business/yesterday-outrag...
    - fooster 9y ago
      Thats because US corporate tax rates are ridiculous and so big corp plays games. Small corp of course are the real victims because they can't afford the army of lawyers and accountants to manage all the complex tax avoidance schemes so they get stuck with some of the highest corporate tax rates in the world.
      - jgalt212 9y ago
        I agree. That is part of the problem. But, I'd argue that even if US Corp rates were much lower (say 15%), Tim Cook, ever the optimizer, would still pursue the 1% rate they currently achieve. I think rates should be lowered and and tax avoiders/dodgers should not be allowed to bid on govt contracts.
    - vasilipupkin 9y ago

RHSeeger 9y ago

> The most famous economic boom in U.S. history, right after World War II, occurred when the top rates on dividends were between 70 and 90 percent. This seems very much like presenting correlation without any semblance of causation. Specifically, "right after World War II" is a pretty significant variable to ignore. The financial impact of the war being over (and massive amounts of resources being re-allocated) may well have been large enough to counteract any other variables.

jrs95 9y ago
But it's a really popular meme so who cares? It's not like Bloomberg is supposed to understand economics or something

paulpauper 9y ago

Americans in the top 1 percent, and especially the top 0.1 percent, have seen their wealth and income multiply in recent decades as the rest of the country’s share of the economic pie shrank. Since 2000, a recent study found, the top 1 percent have made those gains almost entirely on income from capital, especially corporate stock—not on labor income. One reason may be the financial options of the wealthy: Business owners can lower their tax bills by paying themselves in dividends rather than in salary, for example. Yeah...look at Bitcoin, Bay Area real estate, tech stocks (Google, Tesla, Amazon, Apple, Facebook, Sales Force, etc.)...it would seem like 'assets' are kicking the asses of wages. People are getting rich buy & holding assets and with speculation than 'building and making things' (except for Tesla). And the low long-term capital gains taxes to boot just makes it all the sweeter. Now obviously,doctors, coders, and lawyers can do very well too. To get to the stage where you can live off assets, you need income.

SoMisanthrope 9y ago

I recognize that most of the readers are socialist progressives. That's not a bad thing, I'm here to challenge you to consider that a flat tax (no tiers) takes out all of the room to maneuver and cheat. You make a dollar? Good for you, give 20 cents to the federal government. Simple. And EVERYONE should pay their 20 cents. I don't like this meme that "it will hurt the poor." Right now, the poor can "vote for Santa Clause" because they have no skin in the game. I think that everyone would be more civic-minded, if they actually carried an equal share of the pain of taxes.

paulpauper 9y ago

One of the arguments for low long term capital gains taxes is that investments carry higher risk and volatility than wages. Accumulated wages grow monotonically but investments are inherently volatile and there is always the risk of losing everything

PeppermintGrade 9y ago
Another argument for low long term capital gain taxes is that the federal reserve (the Fed) can artificially manipulate the inflation rate (say from 1.5% to 4% / year) to increase for example the value of a home and cause everyone to pay higher capital gains without those tax-payers having actually gained any additional purchasing power.
plandis 9y ago
I can diversify my investments, I cannot diversify the company I work for. For an individual being employed is pretty risky. I'm fairly confident that I have enough money to survive a recession without needing to take a hit on my investments (and I'm assuming the uber-wealthy are definitely in this situation). I'm not confident that I won't entirely lose my main source of new income.

vasilipupkin 9y ago

"Taxing investors less is really not what the U.S. needs now,” Saez said. “Instead, we should focus on trying to rebuild middle-class wealth” by encouraging families to save for retirement and pay down mortgages." How do you encourage families to save for retirement? isn't a lower tax rate on investment income a way to do that?

mbillie1 9y ago
It's hard to invest if you don't have any money, and as the article points out, investment income below $38,000 is already untaxed. Mortgage rates are a tricky lever to manipulate. Wealth redistribution (in the form of taxing capital gains / investment income more and taxing wages less, particularly middle and upper-middle class wages) is probably the only realistic way to accomplish this.
Chardok 9y ago
FTA “There is little empirical evidence showing that taxing investors less stimulates savings and growth,” said Emmanuel Saez, an economist at the University of California at Berkeley.
- vasilipupkin 9y ago
  Yes. But that's because there is so little data and so many confounding variables There is little empirical evidence for everything in macroeconomics, including for Saez's claims.
  - mercutio2 9y ago
    Wait, did you really just say, “I acknowledge there is no evidence” immediately followed by “there is no evidence for the absence of evidence”? If I’m not missing something you though was implicit somehow, that is some pretty remarkable logic.
    - vasilipupkin 9y ago
      There is evidence, but it's relatively weak from statistical significance point of view. This is also true of Saez's claims, such as if only we get rid of lower taxation on capital, things will improve for the 99%. I am not aware of any evidence that would support this prediction.

chrismealy 9y ago

If your only income is qualified dividends you can make about $90,000/year and pay zero taxes.

mi100hael 9y ago
If you're making $90k a year in qualified dividends, you're almost guaranteed to be pulling a good chunk of change in other forms of income as well.
- ReallyAnonymous 9y ago
  My parents saved their whole lives and now make about $100,000 / year in qualified dividends - They pay about 6K in federal taxes with all that income. My dad bought pcg_pe for $12 / share when they went into bankruptcy protection bc Enron/etc. When they came out of bankruptcy they had to back pay him all the missed dividends and now continue to pay $1.75/share/year. For his cost basis, its 15% return yearly. Not too shabby.

dahdum 9y ago

America has among the highest capital gains tax rate in the world, and if you live in California (which treats gains as regular income) the combination of ACA/NIIT, state, and long term capital gains I believe is the highest in the world.

ChemicalWarfare 9y ago

Ok, so how about we lower the tax the "american workers" (more like upper middle class) are paying? Get rid of progressive tax system maybe? Fix the situation where the "bottom 50%" aren't paying anything thus making them an easily manipulated group by promising higher taxation of the "evuhl 1%"?

gnicholas 9y ago

> You owe the IRS about $38,500 more, assuming each of us pays the maximum with no special deductions. This also assumes the investor has no interest income, which would be unlikely. For a younger person with a big nest egg, this wouldn't be a huge chunk of their assets. But as you age you'd want to shift into less-risky assets, like interest-bearing ones. Also, investors would probably be diversified into real estate (which generates rental income, which is taxed as ordinary income). There are tricks that can be played in real estate, of course, but there's also lots of ordinary income tax paid. > I get to skip about $24,000 in payroll taxes that you and your employer must fork over each year. "Payroll taxes" includes social security, which the worker will collect until he/she dies. It is also payable to the worker's spouse in certain circumstances. But you only get to collect social security to the extent you paid into the system. So if there's an economic downturn, the worker will have social security to fall back on in old age, where the investor will not. The general point remains, but this is a highly stylized example designed to emphasize (hyperbolize) the author's point.

aylmao 9y ago
Yes. I would assume the article's point IS to emphasize the author's point.
- gnicholas 9y ago
  Sure! It'd be more credible if it acknowledged the unrealistic assumptions that it's making. Reminds me of the Engineering dept t-shirt I saw in college: "assuming a spherical cow..."
  - aylmao 9y ago
    I mean, sure. But the point is to make the problem accessible to the reader, not to obscure it through the ton of variables present in real life. Which actually goes back to the t-shirt example. If we had to consider a real cow every time, nobody would want to study engineering ¯\_(ツ)_/¯
haikuginger 9y ago

njarboe 9y ago

Here is a question for any tax attorneys out there. Not sure how to find a clear answer to this question but these pages[1][2] seems to suggest that the capital gains tax rate is based on your "Taxable Income". This is shown further down the second page to be "really Regularly Taxed Income minus Adjustments, Deductions, and Exemptions". If your "Taxable Income" is less than 37,950 your long range capital gains tax is 0%. This seems to me to mean that if you are say Larry Page or Sergey Page and set your salary to $1 (like the do), your main motivation for the low salary might not be to signal that, as a large shareholder, you are aligning your interest with shareholders and thus won't take a salary (this is what I thought the $1 salaries in the Valley were all about, but it always seemed a little silly to me). Maybe your main motivation is that you make all of your income in capital gains and if you have less than $37,950 in "Taxable Income", you pay %0 in capital gains. $1 in "Taxable income" with $1 billion in capital gains and pay $0 in tax. You could make a bit more with a salary of $37,949, but that is nothing compared to your capital gains, and then people would be pointed to exactly what was happening. This would be a much bigger loophole than covered interest being taxed at the long term capital gains rate. Although, now that I think about it, the two loopholes would work together. Own a hedge fund, take $1 in salary, make $1 billion in carried interest, pay $0 in taxes. I sure don't want to believe this is the way it works. Links to an IRS.gov web page example that shows otherwise would be greatly appreciated. [1]http://www.moneychimp.com/features/capgain.htm http://www.moneychimp.com/features/capgain.htm [2]http://www.moneychimp.com/features/tax_brackets.htm http://www.moneychimp.com/features/tax_brackets.htm

zamfi 9y ago
IANATA, but if you look at the qualified dividends and capital gains tax worksheet [0] on personal income tax form 1040 (that’s the main tax form for individuals), you’ll find that your capital gains tax rate is dependent on your income including capital gains. For the purposes of your example, Larry and Sergei would pay no tax on the first 37,949 of capital gain income (thanks to the $1 salary), but regular capital gain rates on the next ~billion. [0]: https://apps.irs.gov/app/vita/content/globalmedia/capital_gain_tax_worksheet_1040i.pdf https://apps.irs.gov/app/vita/content/globalmedia/capital_ga...
- 9y ago

ryanmarsh 9y ago

There's a startup idea in this. Help people convert to corp-to-corp with their employer. Get them set up with health insurance and the normal bennies. Take advantage of the preferable tax position.

gd1 9y ago

Chamley and Judd: http://econlog.econlib.org/archives/2013/03/redistributing.html http://econlog.econlib.org/archives/2013/03/redistributing.h... "Under standard, pretty flexible assumptions, it's impossible to tax capitalists, give the money to workers, and raise the total long-run income of workers."

deleted 9y ago

[deleted]

tabeth 9y ago

One thing a middle class friend of mine does is the following: 1. Buy house 2. Rent out rooms 3. Deduct all expenses that you'd have to pay anyway, utilities, internet, etc. as "business expenses". 4. Depreciate house 5. Renovate the house and depreciate the new fixtures/additions/etc. 6. Reappraise the house after a certain time and refinance. 7. Take money out after refinancing and buy more property. Go back to (1). It's pretty much foolproof. The tough part is being an owner-occupied landlord for a bit to get to the point where (6) is worth while. You also have to be in a hot market.

vasilipupkin 9y ago
when you sell those properties, you still have to pay all the taxes. Depreciating doesn't save you from having to pay tax, it just defers the tax liability to the future.
- tabeth 9y ago
  You have to pay depreciation recapture tax whether or not you actually depreciate your house[1]. Not depreciating a rental property is just stupid. [0] https://www.thebalance.com/depreciation-recapture-3192979 https://www.thebalance.com/depreciation-recapture-3192979 [1] Internal Revenue Code section 1250(b)(3)
  - vasilipupkin 9y ago
    I agree, I am just saying, depreciation is not a free pass, since when you sell, you have to pay the tax.
    - tabeth 9y ago
      True, but you'd have to pay tax either way (e.g. don't have a rental and pay capital gains, though this is minimized if you're a first time homeowner), is what I'm saying. Though, the cool thing is that if your house is a rental (as opposed to residential) you can actually offset depreciation recapture by passive loss throughout the time the property was a rental. Often this completely negates the tax. Man... too many benefits are given to those who own property.

31reasons 9y ago

Can't we just have Sales tax only. People who buy more will pay more taxes. You can exempt certain items like food, education, healthcare. Why do we need complicated income tax model? In the Sales Tax Only model, wealthy investors can invest as much money as they like but they will only be taxed if they liquidate their stocks and buy a fancy car or a yacht. I am trying to understand why we need Income tax at all?

joshklein 9y ago
It's been over a decade since I studied the literature on this, but the dead weight loss caused by a tax at the point of transaction is larger; a case can reasonably be made that transactions that would otherwise occur did not due to tax. Income tax removed before you receive your paycheck into your bank account has been demonstrated in psychological studies to be less onorous, and cause less behavior change (you don't ask for a lower paycheck because you don't like tax). I'm sure I'm grossly oversimplifying, so someone with more economics education please chip in!
- AnthonyMouse 9y ago
  > It's been over a decade since I studied the literature on this, but the dead weight loss caused by a tax at the point of transaction is larger; a case can reasonably be made that transactions that would otherwise occur did not due to tax. > Income tax removed before you receive your paycheck into your bank account has been demonstrated in psychological studies to be less onorous, and cause less behavior change (you don't ask for a lower paycheck because you don't like tax). Another way of putting this is that sales taxes encourage saving and income taxes encourage borrowing. Lo and behold, the average American is up to their eyeballs in debt and a large fraction of income is going to interest payments instead of actual spending. It is hard to see why this should be considered a good thing.
PeterisP 9y ago
A sales-only tax (i.e. taxing consumption) means that the burden of taxation is disproportionally shifted towards the poor. A poor person consumes almost 100% of their income; a very poor person consumes more than 100% of their income (by going into debt), an upper-middle class person consumes much less than 100% of their income (they get savings, some investments, and big expenses like student loans and mortgage don't count for sales taxes), and a very wealthy person consumes just a small part of their total income, as most of their spending is essentially buying control of means of production and control of other people, which is not consumption and not affected by sales tax. If all your spending is consumption, then all of that is taxable, and if much of your spending is to gain more income in the future (e.g. buying rent housing, or stock/control in companies) then that's tax-free - in essence it's a tax system that strongly facilitates a rich-get-richer, poor-stay-poor dynamic and increases inequality. And that's generally considered a bad thing for society.

almonj 9y ago

Any person or group that manages to avoid paying taxes should be celebrated. The solution to this "problem" should not be that the wealthy pay more taxes, but that nobody should have to pay taxes since it is blatant theft that funds incompetent and evil people. Nothing that the government does is good. All money that goes to the government is either wasted or spent in ways that make society objectively worse. All functions of government can be replaced and improved by a free market system.

Shikadi 9y ago
Is this satire?
- mrguyorama 9y ago
  Whether or not this specific example is, I know people who legitimately believe this.

mfringel 9y ago

Capital does not need to follow an immigration process in order to move to a new country, beyond a known-fixed cost in customs duties, and typically not even then. Labor can't run away as fast, so it's easier to tax more.

Shivetya 9y ago

I would love a simple tax system but no politician in Washington wants, especially those on the left side of the aisle. the tax system is the largest source of political power that exists in the United States and likely everywhere in the world. Politicians refuse to let you disarm them. Worse they are adept at convincing you they need more taxing power by playing you off each other, by preying on your jealously or creating it. What is ignored about investment income taxing is that original income used to create the investment was taxed. Hence we are taxing it more than once and doing so forever. the alternative is they pull their investments/risks and put them into vehicles like bonds that government officials really want them in. don't think these articles come out of thin air, they are politically motivated to get you angry so you willingly give more power to the political class; they are the true one percent

andrewjl 9y ago

The intention behind this tax regime was that long-term investing has positive external effects on the overall economy so should can be incentivized (which like all other social incentives in the US is done via tax incentives). In 2017 with a global glut of capital desperately looking for any kind of return, it's not clear if this incentive is necessary anymore.

hsileng 9y ago

We are the country where money >> labor. Lets be real.

drpgq 9y ago

I found this example interesting as a Canadian, as currently there's a big tax battle over people incorporating to avoid high marginal tax rates and take advantage of relatively low small business tax rates, plus income splitting (which normal employees don't have in Canada). In Canada the emergency room physician would be incorporated. Personally I think a lot of the issue is coming from lowering small business tax rates while cranking marginal tax rates federally and provincially.

squozzer 9y ago

Where this article "phailed" persuasion-wise was in its archtypes -- the hard-working, high-pressure ER surgeon v. trust-fund slacker baby. Really? How about changing the dramatis personae a little -- say, make the wage-earner a VP of product development at a soon-to-be-purchased startup (straddling both wage-earning and investing, maybe) v. Warren Buffett?

fencepost 9y ago

Legislators, the best investment money can buy. It's amazing to witness the compound effects of interest^H^H^H^H^H^H^H^H long term changes in tax policy, particularly when the advantage becomes the new normal and is then the basis for further changes. How many people look at tax legislation based on how much better it is than 50 years ago?

lhh 9y ago

How about the government spends a lot less money, thereby requiring far less tax to fund it? Also, wealthy people are mobile, as are companies that don't have tangible assets. If you try to over-tax, they'll simply domicile everything elsewhere.