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So you think that siphoning wealth through gambling deserves better tax treatment than creating it through working?

jogjayr 9y ago
Certainly some investment can be classed as "gambling". But not all, maybe not even most. Starting, owning, and/or running a business is working. Only it's working with no guarantee of any reward. Again, we can argue about how high the tax rate should be on unearned income vs earned income (20% max is too low IMO). But $50k in unearned income is worth less (risk-adjusted) than $50k in earned income and should accordingly be taxed lower. Maybe $50k in unearned income is the same as $20k in earned income and similarly all the way up the earnings ladder (I don't know the exact ratio; I made these numbers up). We often talk about survivor bias in business success; how successful people owe something to luck as much as skill or hard work (which is true, IMO). Shouldn't the variance of this success be recognized in the tax code as well?
- crdoconnor 9y ago
  >Starting, owning, and/or running a business is working. Only it's working with no guarantee of any reward. Well, yes, that's why the rewards of starting a business are often completely tax free up until a pretty high level. I don't really have a problem with that, which should have been pretty obvious from my above post. However, that is completely irrelevant to what I said above. Sitting on property and collecting rent is clearly not working. >Again, we can argue about how high the tax rate should be on unearned income vs earned income I'm of the opinion that unearned income should be taxed at 100% and distributed equally throughout the population whereas earned income should be taxed at 0%. I have yet to meet a person who can cogently argue why handouts (e.g. land rents) shouldn't be distributed equally. Note that starting a business that grows is clearly earned at least up until a certain point (usually the point where the founder lets the employees run most things). >Shouldn't the variance of this success be recognized in the tax code as well? You really seem very keen on having the tax code encourage gambling over working. I'm not so sure that using the tax code to deliberately discourage working for a living is necessarily the best way to generate a productive economy.
  - jogjayr 9y ago
    > Sitting on property and collecting rent is clearly not working. I guess we'll have to agree to disagree about that. Even landlords have to work (and I say this as a tenant). There's tenants to screen, repairs to manage, regular safety inspections to perform. Land rents have volatility and risk as well. There's the possibility of vacancy or bad tenants which leaves you with a property that's not returning any value. A landslide could take away your property entirely and insurance won't cover it (don't scoff; I know someone this happened to). Maybe it's not as much work as running a small business, maybe it is, I don't know. But it's a non-zero amount of work. EDIT: As I pointed out in a comment above, I think the top tax rate for unearned income should be higher, with more brackets overall. There's no reason for it to be flat 20% when the top rate for earned income is 40%. That unfairly penalizes small-time investors (who get taxed at 15% on an income that would be almost 0% if earned) as well as high-earning salaried people who pay 40% compared to the 20% someone making 20x as much in unearned income would pay. > I have yet to meet a person who can cogently argue why handouts (e.g. land rents) shouldn't be distributed equally. Taxing rental income at 100% would kill off the rental market completely. A lot of people like the flexibility of renting and don't want to deal with realtors and banks and mortgages every time they change their job. Many people can't afford the down payment to buy a house so they need to rent until they've saved up enough to do so (you might argue that property prices will go down because of no landlords and there won't be a need for mortgages, not sure that'll actually happen but it's another topic). Businesses also rent offices or retail space when they can't or don't need to buy. At the end of the day, landlords provide a service that's useful, by deploying their capital and labor. > I'm of the opinion that unearned income should be taxed at 100% Here's the IRS definition of unearned income: "Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions."[1] So if you really mean that, you're going to be taxing average-Joe-worker-with-index-funds (that includes me BTW) 100% on his dividends. Maybe we need to start being clear on what the term "unearned income" really means before we argue further :-) 1. https://apps.irs.gov/app/IPAR/resources/help/unearn.html https://apps.irs.gov/app/IPAR/resources/help/unearn.html > whereas earned income should be taxed at 0% So...CEO making $50 million/year would pay $0 in taxes? > You really seem very keen on having the tax code encourage gambling over working. Gambling implies the possibility of loss, the presence of real risk. And even property speculation is still a lot of work; you have to research lots and lots of properties, crunch numbers, line up funding, develop and market the property for rent or resale. Given that it's work with more risk involved than taking a paycheck, why is it a bad thing for the tax code to recognize this?

Certainly some investment can be classed as "gambling". But not all, maybe not even most. Starting, owning, and/or running a business is working. Only it's working with no guarantee of any reward. Again, we can argue about how high the tax rate should be on unearned income vs earned income (20% max is too low IMO). But $50k in unearned income is worth less (risk-adjusted) than $50k in earned income and should accordingly be taxed lower. Maybe $50k in unearned income is the same as $20k in earned income and similarly all the way up the earnings ladder (I don't know the exact ratio; I made these numbers up). We often talk about survivor bias in business success; how successful people owe something to luck as much as skill or hard work (which is true, IMO). Shouldn't the variance of this success be recognized in the tax code as well?

crdoconnor 9y ago
>Starting, owning, and/or running a business is working. Only it's working with no guarantee of any reward. Well, yes, that's why the rewards of starting a business are often completely tax free up until a pretty high level. I don't really have a problem with that, which should have been pretty obvious from my above post. However, that is completely irrelevant to what I said above. Sitting on property and collecting rent is clearly not working. >Again, we can argue about how high the tax rate should be on unearned income vs earned income I'm of the opinion that unearned income should be taxed at 100% and distributed equally throughout the population whereas earned income should be taxed at 0%. I have yet to meet a person who can cogently argue why handouts (e.g. land rents) shouldn't be distributed equally. Note that starting a business that grows is clearly earned at least up until a certain point (usually the point where the founder lets the employees run most things). >Shouldn't the variance of this success be recognized in the tax code as well? You really seem very keen on having the tax code encourage gambling over working. I'm not so sure that using the tax code to deliberately discourage working for a living is necessarily the best way to generate a productive economy.
- jogjayr 9y ago
  > Sitting on property and collecting rent is clearly not working. I guess we'll have to agree to disagree about that. Even landlords have to work (and I say this as a tenant). There's tenants to screen, repairs to manage, regular safety inspections to perform. Land rents have volatility and risk as well. There's the possibility of vacancy or bad tenants which leaves you with a property that's not returning any value. A landslide could take away your property entirely and insurance won't cover it (don't scoff; I know someone this happened to). Maybe it's not as much work as running a small business, maybe it is, I don't know. But it's a non-zero amount of work. EDIT: As I pointed out in a comment above, I think the top tax rate for unearned income should be higher, with more brackets overall. There's no reason for it to be flat 20% when the top rate for earned income is 40%. That unfairly penalizes small-time investors (who get taxed at 15% on an income that would be almost 0% if earned) as well as high-earning salaried people who pay 40% compared to the 20% someone making 20x as much in unearned income would pay. > I have yet to meet a person who can cogently argue why handouts (e.g. land rents) shouldn't be distributed equally. Taxing rental income at 100% would kill off the rental market completely. A lot of people like the flexibility of renting and don't want to deal with realtors and banks and mortgages every time they change their job. Many people can't afford the down payment to buy a house so they need to rent until they've saved up enough to do so (you might argue that property prices will go down because of no landlords and there won't be a need for mortgages, not sure that'll actually happen but it's another topic). Businesses also rent offices or retail space when they can't or don't need to buy. At the end of the day, landlords provide a service that's useful, by deploying their capital and labor. > I'm of the opinion that unearned income should be taxed at 100% Here's the IRS definition of unearned income: "Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions."[1] So if you really mean that, you're going to be taxing average-Joe-worker-with-index-funds (that includes me BTW) 100% on his dividends. Maybe we need to start being clear on what the term "unearned income" really means before we argue further :-) 1. https://apps.irs.gov/app/IPAR/resources/help/unearn.html https://apps.irs.gov/app/IPAR/resources/help/unearn.html > whereas earned income should be taxed at 0% So...CEO making $50 million/year would pay $0 in taxes? > You really seem very keen on having the tax code encourage gambling over working. Gambling implies the possibility of loss, the presence of real risk. And even property speculation is still a lot of work; you have to research lots and lots of properties, crunch numbers, line up funding, develop and market the property for rent or resale. Given that it's work with more risk involved than taking a paycheck, why is it a bad thing for the tax code to recognize this?