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The correct solution to this problem is to abolish the distinction between capital gains and ordinary income (ie wages), and abolish the corporate income tax th

• rileymat2 8y ago
  I would agree, if they taxed "real gains" not inflation.
• valuearb 8y ago
  Problem is that capital gains aren’t all gains, they include inflation. I’m all for a transition to ordinary income if you index the basis of investments to the inflation rate.
  • harryh 8y ago
    Imagine how much more heated debates about the accuracy of the government CPI calculation would be if the number formed the basis of a bunch of people's tax bills. Oh man oh man!
    • millstone 8y ago
      I think Americans have this today via Social Security!
      • harryh 8y ago
        True, and that definitely causes plenty of rumbles. Just thinking it would get 10x worse if it also formed the basis of cap gains taxes.
  • imbur 8y ago
    Isn't this accounted for with the standard deduction and marginal tax brackets?
    • harryh 8y ago
      No. The standard deduction essentially establishes a 0% rate on a "minimum $ necessary to live" salary. Marginal tax brackets establish a progressive tax system which is consistent with diminishing marginal utility of money. The problem that valuearb refers to is completely different. Because of inflation I could buy an asset in 1 year, sell it 5 years later and show a nominal gain (sale price > purchase price) but have actually made any real money. By most standards it would be unfair to tax me on this sale.
    • gnicholas 8y ago
      Not at all. Neither of these account for how long you've held something, which is what implicates inflation. For example, Person A buys stock in Company A and holds it for just over 1 year. Person A's gain on this stock is $1,000. Person B has held stock in Company B for the last 50 years. He sells at exactly the same time as Person A and has the same $1,000 taxable gain. If we accounted for inflation, Person B would pay much less tax than Person A, because Person B's gain is mostly (if not completely) inflation. Person A's gain, on the other hand, is mostly real gain, not inflation.
  • xapata 8y ago
    Or we could simply allow shareholders to pressure companies into giving dividends, as was the original intent for the value of a share. The bizarre focus on capital gains at the expense of dividends was created by the tax code. Switching it back would eliminate the perverse incentive for corporations to merge and acquire for no other reason than to avoid disbursing capital as dividends.
    • phkahler 8y ago
      A hundred times this. If your plan is make money by selling at a higher price, you're playing the greater-fool game. If you make your return via dividends, it is a direct reflection of the value of the company.
      • chii 8y ago
        but how does that system allow for a company that re-invest all profits into growing, if doing so is a tax disadvantage? selling at a higher price is how investors "get out" of the game, but allow other investors to "take over the reigns", all without the company having had to pay out dividends at inopportune times.
        • JetSpiegel 8y ago
          > but how does that system allow for a company that re-invest all profits into growing, if doing so is a tax disadvantage? Use your own money to gamble. Once you accept shareholder's money, you play by their rules. If you are not paying dividends, register as non-profit.
        • phkahler 8y ago
          >> selling at a higher price is how investors "get out" of the game, but allow other investors to "take over the reigns", all without the company having had to pay out dividends at inopportune times. No. Selling is how investors get out. No need for a higher price because they presumably got a return via dividends. If there's no increase in stock price, there will be no capital gains on the sale price either. Reinvesting all the profits into growing is a phenomenon that became popular due to tax law. A dividend paying company can still make the choice to reinvest profits rather than pay them out. That will just mean a lower dividend than if they paid out all the profit to shareholders.
• thaumasiotes 8y ago
  > abolish the corporate income tax that justifies the "double taxation" argument that justifies the capital gains rate. That's not the double taxation argument. After abolishing the corporate income tax, you still have to pay the personal income tax. The double taxation argument is that money now is better than the same amount of money later ( https://en.wikipedia.org/wiki/Time_value_of_money https://en.wikipedia.org/wiki/Time_value_of_money ). But the concept of the capital gains tax is that someone who defers spending their money must pay an additional tax despite not receiving additional value. Their larger amount of later money is the same money-value at a higher tax rate. > the idea that there is one set of rules for the rich and another for everyone else is already stressing our nation. Question: are you aware of any nation at any point in history which was large enough to have "the rich", but which did not apply different rules to the rich in the sense you're talking about? This may not be a major source of societal stress.
  • harryh 8y ago
    You are incorrect about what is often referred to as a "double taxation argument." https://www.investopedia.com/terms/d/double_taxation.asp https://www.investopedia.com/terms/d/double_taxation.asp Double taxation often occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just like individuals. When corporations pay out dividends to shareholders, those dividend payments incur income-tax liabilities for the shareholders who receive them, even though the earnings that provided the cash to pay the dividends were already taxed at the corporate level.
    • thaumasiotes 8y ago
      That is a double taxation argument against the corporate income tax. I described the double taxation argument against the capital gains tax. Unsurprisingly, different taxes are relevant. But I feel safe in saying that "the double taxation argument that justifies the capital gains rate [being different from the labor income rate]" is the double taxation argument against taxing capital gains, not the double taxation argument against taxing corporate income. From your link: > Double taxation is a taxation principle referring to income taxes paid twice on the same source of earned income. The model I described matches this definition perfectly. Where do you think I was incorrect?
• colechristensen 8y ago
  If you abolish corporate taxation, (rich) people will just use them to avoid taxes. Won't have to pay any tax on investment growth if you wrap all your investments in a corporation. Hiring me? No you're hiring my corporation, which pays me a meager salary. Company car? Check. Company apartment? Check. There is another consideration, you want to motivate people with lots of money to invest it somewhere. Money sitting on a bank ledger can't do nearly as much as money in a venture capital fund. You have to be careful with taxes to make sure you don't disincentivize investment too much. I think the goal should be _more_ people earning capital gains, and perhaps a more progressive tax rate on them independent of other income including a generous 0% bracket at the bottom. (i.e. regardless if you make $20,000 or $1,000,000 in wages, the first $10,000 in capital gains is tax free.)
  • icebraining 8y ago
    Company car? Check. Company apartment? Check. All that can be taxed as well.
    • colechristensen 8y ago
      Which of course will be ripe with caveats and loopholes for accountants to take advantage of. Combined with the fact that they won't be taxed when they earn wealth but only when they use it, a significant advantage allowing one to let wealth compound tax free until the last second when it is used and taxed. When you come up with these things it's not a simple equation, it's a game of chess or an evolutionary arms race. This doesn't obviously cause that. You're playing on people's motivations and loopholes which can be found and exploited. Just like a computer program doesn't always (never) does exactly what the programmer intended on the first version. There are always bugs and exploits and weird behavior nobody thought of.
    • stealthmodeclan 8y ago
      All that can be taxed as well. At the risk of increased compliance cost?
      • 8y ago
• stealthmodeclan 8y ago
  I don't have problem with rich people making more money. After all capital should go to people who can best use it. Did you also create as much as value as Mitt Romney? As many jobs created? If not then i think he deserves more money, so that he can continue doing that. If James and Bob both make $100 but James invested that money into company (which used his capital to create more jobs) while Bob simply hold onto that money, I don't see anything wrong in James ending up with unfairly large returns (along with low taxes) since that's what's best for the economy. Bob might be working somewhere, buying stuff for his family, indirectly creating jobs but if James money creates more jobs and value, he will likely a better bet.
  • kisstheblade 8y ago
    By all means he deserves more money, no problem. But why with a lower tax rate?
    • stealthmodeclan 8y ago
      By all means he deserves more money, no problem. But why with a lower tax rate? Low tax rate can be seen as a discount from society. So, how else do we incentivize him if not by lower tax rate? And if we don't, he will just take a lazy job and continue earning his paycheck.
      • Arbitrary4657 8y ago
        Incentivize him to make money for himself? I'd like a discount from society for doing that myself. How much does Romney actually contribute to society as a whole by making so much money for himself? Why does he deserve a discount?
        • stealthmodeclan 8y ago
          Incentivize him to make money for himself? You are talking as if capital gains don't increase efficiency the company, help produce more goods and services for the people or create/eliminate useless jobs via automation. He only gets to keep money for the value he creates for the society. Society gets to keep the value. Now he might be corrupt or using loopholes, but that's smth we need to fix.
• gok 8y ago
  To be more precise, you are proposing eliminating the long term capital gains deduction. Short term capital gains are already taxed as regular income. In other words, you propose eliminating the tax advantage of being a long term investor. Active traders will be unaffected.
• qaq 8y ago
  I think this conveniently ignores the risk factor your risk of not getting payed your wage is a tiny fraction of the risk of someone loosing the invested money. You want to participate on the win side of that risk without sharing the losses.
  • Dowwie 8y ago
    You raise a good point about risk profiles. Let's consider other asymmetric risks? An employee is hired at will and largely vulnerable to employment risk. The employee has no legal claim to income earned by an employer beyond general compensation provided in the duration of employment. On the other hand, an investor, without major financial restructuring, can through equity or debt secure a claim with various degrees of seniority. So, to counter your claim, an employee is exposed to downside through these terms.
    • imgabe 8y ago
      > An employee is hired at will and largely vulnerable to employment risk. The employee is almost always paid for work they have already done, except in extreme circumstances. There are substantial legal protections in place to assure this. There are entire divisions of Federal and State governments in place to ensure that employees get their wages for work they have already done. The risk you're talking about is that they may not continue getting paid the future. They haven't done that work yet, that work may not even exist and need to be done yet, so of course there's no guarantee that they'll get paid for it. In order to make it analogous to the risk an investor takes, the employee's deal would have to be something like "come in and work for 40 hours a week, if it turns out your work created a profit, you'll get a cut of that profit in a few months or years"
      • chii 8y ago
        > governments in place to ensure employees get their wages for work they have already done. does payment to employees override payment to creditors/investors when a company goes belly up? I get the feeling that employees are secondary compared to the primary creditors.
• tim333 8y ago
  Simply taxing gains as ordinary income is often unfair because it taxes stuff going up in nominal terms without actually being worth more in real terms. You can get around this by indexing for inflation, which gets complicated, or taxing it at a lower rate. Carried interest isn't really capital gains - it's income and should be taxed as that. The deeper problem is if there is some way to reform the political system to be less easily bought.
  • lotsofpulp 8y ago
    Isn't that how income tax works too? Why should cap gains be different?
    • bawse1 8y ago
      Income tax is based on income earned, capital gains is based on a sale of a asset. There is definitely a difference.
      • chii 8y ago
        > Income tax is based on income earned, capital gains is based on a sale of a asset. but couldn't you claim that income is sale of personal time (an infinitely valuable, and non-renewable asset)?
        • fleetingmoments 8y ago
          If your personal time is infinitely valuable to yourself, why do you sell for way below that?
      • beat 8y ago
        Yes, but that doesn't mean they should be taxed differently. You need more justification.
    • barry-cotter 8y ago
      Inflation. Inflation is one of the two reasons capital gains should be different. You can make a large profit in nominal terms while making a real loss if inflation is high enough. This is not a risk with non-capital gains income. The real reason capital gains taxes are a bad idea is that they discourage investment and we want more of that because it’s how we increase our productive capacity and get more of what we really want, consumption. We should abolish income and capital gains taxes altogether and tax consumption. Encouraging investment by ceasing to tax it will lead to higher production and consumption in the long run.
• marvin 8y ago
  Capital gains is not necessarily an immoral tax, but it's not obvious that the people who make this argument would enjoy the alternative. In Norway, capital gains and corporate income tax are set such that they are (practically) identical to the income tax when they are both applied. So gains from owning shares in a company will not give you a tax advantage over receiving wages from said company. Then again, this is exactly the argument you're making - ensure that corporate + capital gains taxation is identical to the income tax. The difference that we still have a corporate income tax. I would think it's necessary to keep this, or else capital owners would just avoid realizing profits at all, while waiting for the political climate to favor reducing the capital gains tax again. With an annual tax on corporate profits, you ensure that capital owners are forced to contribute to a degree no matter what. But consumption is still taxed.
• zimablue 8y ago
  Abolishing corporation tax has always seemed to me like something that makes sense only in a quite naive view of the world. The idea is always just to tax methods of getting income out of a corporation instead, (income, dividends) but there's a problem with this idea. There are infinite ways to get your money out of a corporation. If you start off with: power is power all forms of power can be transferred into money somehow Then you realize that allowing someone to put their income into a company and only pay tax on DIRECTLY taking it out, there's hundreds of ways to get around that. My company employs your son, then you give me a kickback in whatever form My company buys from your company, you give me a kickback somehow My company invests in something related to another investment that I hold and pushes the value of it up. My company employs me on minimum wage for 80 years instead of employing me on a high wage for 40 years, halving the tax that I pay through income My company employs my own son, girlfriend, relative If I have access to and control over an entity that can swing a million pounds around you can guarantee I can find an indirect way to get paid from that which you can't prevent/tax/foresee. The only reasonable way to mitigate that is to slap some level of tax on me putting money into my proxy.
  • phkahler 8y ago
    Most importantly. If you only tax money coming out of the company to individuals, any savings within the company can be invested tax-free.
  • saalweachter 8y ago
    Not to mention, it assumes a priori that double taxation is bad. Double taxation has consequences, which may be bad or good in different situations, but isn’t itself bad or good. Hell, I’m now getting double taxed, through the adjustment to the SALT deductions.
  • test6554 8y ago
    I don't think there is anything wrong with someone hiring people as a favor or someone selecting a specific vendor as a favor. As long as the company's owner knows what's going on and is ok with it. And as far as kickbacks go or repaying those favors, if it's money, that's taxable. If it's more favors, well that's merely bartering. When it comes to stock manipulation, I think that's a crime. But if not, I can't see it being profitable. It would most likely result in a net loss unless there was some inside information being shared.
• imgabe 8y ago
  I'd rather go in the opposite direction. Tax all ordinary income as corporations get taxed. Corporation only pay taxes on their profits, not on the expenses necessary to keep them alive, so why not give the same deal for people? Yes, it would make people's taxes more complicated, but also much lower. Software like Mint and Personal Capital already make it easy to track expenses. Although they might not be accessible to everyone, such as people who are unbanked, but in that case they're probably not making enough to be taxed in the first place.
  • contravariant 8y ago
    Usually you want to use income taxes to discourage particularly high wages, if you take away expenses then this effect becomes less strong, which could lead to more inequality. Taxing money at the point where it leaves the 'corporate' sphere and enters the 'private' sphere is also a fairly simple way of ensuring there are no loopholes. This is also why tax on capital gains is necessary.
  • maxerickson 8y ago
    Progressive tax schemes more or less do this. Deductions take them in the other direction, giving people with higher bracket income a larger benefit than people in lower tax brackets. Of course they are still paying more tax, but deducting $30,000 of mortgage interest from the 39.6% bracket is quite a bigger tax benefit than deducting $5,000 of mortgage interest from the 20% bracket.
  • madeofpalk 8y ago
    Isn't this what we already do? For individuals, our income is more or less profits, which is what we're taxed on. You can claim deductions against your income for the expenses your occurred while getting that income.
    • chii 8y ago
      But for a company, they can claim taxes on expenses such as rent, but for an individual, they couldn't.
• Retric 8y ago
  Corporate taxes include foreign companies which would otherwise extract money tax free from the US economy. Removing them is a terrible idea that increases the net US tax burden. Further, the tax rate is less important than the fact capital can appreciate for 40 years without paying any taxes what so ever. Remember the robber barons accumulated vast wealth just fine in a time with extremely high personal income taxes. Those appreciated assets then pass on without ever being taxed at death.
• logicallee 8y ago
  >Tax capital gains as ordinary income. It's simple and fair. It might seem like money is money: if you have $20,000 more than a year ago, due to making capital gains on something you've just sold, you're $20,000 richer (less taxes) than if you hadn't invested. If you make an extra $20,000 in income through a salary raise (you get a raise to $80,000 from $60,000) you are also $20,000 richer (less taxes) than if you hadn't worked for, argued for, and gotten the promotion or change of jobs. And if as a side gig you sell $20,000 of software as a service as a 1-person engineer with a web app, you're also $20,000 richer (less taxes) than if you hadn't been on that market and promoted it in the right way. And yet these three are totally different sources of wealth in every respect, and taxing them equivalently would have a totally different effect on people's behavior, as well as produce wildly different amounts of tax revenue. They are also subject to different ideas of "fairness". The main difference is risk structure. There's a counterparty to most salary income which guarantees it in a way. By contrast, capital investments can go up and down, so if you want people to make capital investments it makes sense to have a lower tax rate to incentivize it. There's a risk when you make income, but it is basically limited to the chance that your employer will go bankrupt and not pay for one month of that income. (Or similar risks if you charge someone yourself.) These risks are absolutely minimal and a whole different kind than the idea that capital investment will not appreciate (or even go to 0!) You can feel this difference yourself quite easily: if you had $1.25M in cash how much of it would you make as a capital investment, and into what kinds of investments (how risky) if capital gains were charged at 90%? (You could keep only 10% of the gains.) I think most people would make only exceedingly unrisky investments, basically keeping it as cash. Investment would be heavily disincentivized. On the other hand would you stay at home or work for a $1.25M/year salary if it were taxed at 90%? Most people would still work! And there are historical examples of this (where the marginal tax rate at the highest end was 90% or more.) So saying capital gains = income is very dangerous from the point of view of incentivizing investment (fundamental to capitalism) and also ignores the risk structure. The only time it seems similar is in a "bubble mentality". In other words, if you think that all capital investments always appreciate. For example if you thought this way: of course it's not risky; of course it will go up; of course I would put my $1.25M net worth into bitcoin, after it goes to $20M then even if I had to let go of 90% of my gains it still makes a lot more sense than keeping it as cash. The fact is it's no different than $18.75M of income from any other source. I hope I don't have to tell you how irrational and bubble-like this thinking would be. I believe that in sane capital markets, capital gains and earnings from other sources are entirely different kinds of things. Investment behavior responds extremely different to these things.
• Dwolb 8y ago
  Just a note with this post's structure: I'm surprised in this day and age of dealing with complex global economic systems that we'd upvote any post that starts with an absolute view "The correct solution..."
  • dick_sucker2 8y ago
    Maybe it is the correct solution?
• autokad 8y ago
  Mitt Romney had such a low income tax because the majority of his earnings was through municipal bonds. (which are not taxed) I rolled my eyes when the media said he was 'taking advantage of a loophole' and some people floated removing that 'loophole'. That would have been a blunder of blunders.
  • chii 8y ago
    so the the question becomes 'why municiple bonds are not taxed?'
    • jdhn 8y ago
      Because if they were taxed, municipalities would see their interest rates skyrocket. Having municipal bonds be free of taxation benefits the investor (they don't pay income tax), the municipality (more people will be interested in the bonds, hence lower interest rates), and the citizens of the municipality (their tax rates won't go up as quickly).
      • treis 8y ago
        Seems like a wealth transfer from municipalities that don't borrow heavily to those that do.
        • jdhn 8y ago
          I agree. However, I can't see the situation changing anytime soon.
        • lisper 8y ago
          That's true, but you seem to imply that this is a bad thing. It's not. A municipality that does not borrow must either tax its current citizens to raise the money to pay for capital expenditures, or stop investing in infrastructure. Neither option produces vibrant economies, particularly in a country where people are relatively free to move.
• amluto 8y ago
  I mostly agree, but not quite. > abolish the corporate income tax that justifies the "double taxation" argument that justifies the capital gains rate. I would rather see a low but nonzero corporate tax rate with very strong enforcement. Otherwise it would be too easy to create a corporation to defer taxes indefinitely.
• dangjc 8y ago
  Capital gains are only taxed for American investors. Foreign investors get away scott free. Their proceeds are highly unpredictable and even more cyclical compared to corporate income tax. There are too many ways to defer or never pay them. It's more reliable as a tax base to take a little of profits every year than take a bunch all at one uncertain time in the future.
• merinowool 8y ago
  I would argue that income tax is immoral - the more you care and provide for the society - the more you are punished for it. Only fair tax I can think of is a poll tax, where everyone pays the same amount regardless of their income. With this model you could think of giving 100% discount to those who can't afford it.
  • blackguardx 8y ago
    People at the top are usually getting more benefits from society, so they should pay more. Jeff Bezos's riches from Amazon couldn't exist without a vast highway network, regulated airspace, stable government, etc. A person digging ditches or picking strawberries in the central valley can do that without many of the previous benefits.
    • conanbatt 8y ago
      But all the workers at amazon pay income tax that go into that infrastructure.
    • merinowool 8y ago
      You are going to the extremes - most wealthy people don't pay taxes or pay what they think is right. Who is getting shafted is the middle class that pays for everyone and is bleeding money, because the poor enjoy number of benefits and exemptions and the rich can afford loopholes.
  • yk 8y ago
    > the more you care and provide for the society - the more you are punished for it. Could you expand on your argument? It appears that you are arguing that income directly correlates with social benefit, which I would argue is at the very least not obvious. What is the precise benefit of say a Ferrari dealer compared to a typically lower income trade like a teacher?
    • nybble41 8y ago
      > What is the precise benefit of say a Ferrari dealer compared to a typically lower income trade like a teacher? The Ferrari dealer's value to society lies in connecting prospective producers and consumers of Ferraris. It is popular to undervalue middlemen, but without the dealers producers' skills would be underutilized while buyers' wants would go unfulfilled. Presumably the job itself is not something just anyone could do, either, or everyone would be dealing Ferraris (and the pay would be much lower); one needs a relatively rare combination of personality, skills, and connections to succeed. The marginal benefit to society of yet another new teacher, on the other hand, is not very high. Education is not something society particularly values; primary school these days is basically a glorified day-care. Nonetheless, the role of teacher still carries a certain glamour which ensures a steady supply of idealistic applicants, despite the low wages. Whatever issues the educational system may have, throwing more warm bodies at the problem is not likely to prove any more effective than the past and ongoing attempts to resolve the issues with piles of money. If you're approaching this from the position that a teacher "objectively" provides more benefit to society than a Ferrari dealer, despite the fact that the dealer's services are clearly valued more highly, then I'm afraid I can't help you. The marginal value, and consequently "social benefit", associated with performing a task is subjective, not objective. The closest you will ever get to an objective measure of value is the price the good or service has historically commanded in a free market, and even then all you really know that that at the point the trade took place the buyer valued the good more highly than the payment, while the reverse was true for the seller. If the seller makes a profit it means that they took materials valued at one price and turned them into something valued more highly by the buyer. In the absence of external costs, what benefits the buyer also benefits society as a whole, if only in the aggregate.
• crdoconnor 8y ago
  >corporate income tax that justifies the "double taxation" argument Why should any credence be given at all to "the double taxation argument"? Everybody gets taxed more than once. If you're going to make a taxation argument based on fairness it would make more sense to consider whether the wealth flowing to you was earned by you (income, capital gains/dividends in a company you built) or whether it is an entitlement (e.g. rental, dividend & capital gains income fro the stock market that would accrue just as easily if you were in a coma for a decade).
• Shivetya 8y ago
  Corporate income tax is just an indirect tax on the populace. regardless, just flat tax all income equally and refund everyone a set amount that can be adjusted as needed. In other words, use the old flat tax that some have pushed to get your tax equality and basic income in one step. (no cap on income or tax from it) in this day and age the computational power and such is such that we can easily do it all. the reason it won't? because a flat tax/etc takes power away from politicians who use the tax code to punish and reward, it never has been fair
• bingoboingo33 8y ago
  The correct solution is to eliminate income-based taxes altogether, be they corporate, individual, derived from regular wages or derived from capital gains, etc ... and stick to a flat consumption based tax. But we're so deep down the rabbit-hole of our current system, we can't even imagine doing that. Without going to that level of simplicity, it's worth noting that some countries have done away with capital gains altogether and are doing perfectly well socially. That would be a perfect first step.
  • rpedela 8y ago
    If we are going to massively simplify taxes, then it needs to be done on the richest rather than the poor like a consumption tax does. By rich, I don't necessarily mean rich individuals. The richest entities in society are businesses and they benefit the most when you or I have money in our pockets. If you think about it, the most common federal tax on individuals or families, income wage taxes, is in fact a revenue tax on businesses just like the payroll tax. A business has to pay an employee more to cover that employee's income and payroll taxes. If we are going to replace all taxes with one tax, I would like to see a simple, flat business revenue tax. This has a few benefits. First, businesses already pay revenue taxes and individuals don't have to worry about taxes. Companies like Amazon cannot behave like a non-profit to avoid taxes. Individuals will have more money in their pockets to spend which helps business make more money. We could probably excempt small businesses and/or startups and still generate enough tax revenue. A revenue tax would also double as a consumption tax except it is only the richest that have to pay it.
    • bingoboingo33 8y ago
      "If we are going to massively simplify taxes, then it needs to be done on the richest" Why? This is a built-in assumption most people seem to be operating with and I've never understood the rationale that the rich should pay more. Does a rich person wear roads out more than a poor one? And if they do, wouldn't it be better if they paid for how much they wear the road down? As in: a percentages of miles driven on it? As in: a consumption-based tax? Anyhow, even if you decide to work with that flawed premise, to me, if we're going to tax revenue, then "fair" translate to a very simple mathematical concept: fixed-rate. Everyone pays 10% tax on their income. This way, the "rich" pay more, and the "poor" pay less. Because 10% of 1M is 100k and 10% of 100k is 10k. Fairness handled.
• savanaly 8y ago
  I think what we're really upset about when it comes to rich people making a lot of money through investments is not that interest isn't taxed more, but rather that they had such a high (non-investment) income in the first place. In fact, I think there should be zero investment taxes. My reasoning goes like this: If I would rather have two coconuts seven years from now than one coconut today, and I'm willing to find someone to sign a contract to make that trade with me, why do I deserve to be penalized more than someone who would rather have just one coconut today? This is in effect what capital gains taxes are. Penalizing future consumption in preference to current consumption. But there's no reason we as a society should prefer one over the other.
  • Retric 8y ago
    Alternatively, investments should have much higher tax rates. If someone invested money then they clearly did not need it, thus they need returns even less. Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified.
    • briandear 8y ago
      So a teacher’s 401k is money they don’t really need? Because that’s an investment too you know.
    • bzbarsky 8y ago
      This is an incredibly anti-savings policy, given that we have central banks ensuring positive inflation (except in Japan) and capital gains are calculated in nominal, not real terms. In other words, if you just hold some money for a few years and it doesn't lose value (interest rate equals inflation), you _already_ owe tax on it. That's just broken. If we did capital gains in inflation-adjusted dollars, the situation would be somewhat different.
      • Retric 8y ago
        The world is flush capital which is driving down returns. We don't need to try and increase it as people with a surplus are always going to invest it.
• briandear 8y ago
  What are the unintended consequences of that? If a capital gain gets taxed at 35%, it follows that you will have less incentive to seek capital gains in higher risk investments. Look at the paucity of VC and angel investing in France for example — extremely high capital gains taxes result in much more conservative investing and thus a relative lack of funding for startups. Much startup investment is from quasi-government programs that require Byzantine and Kafka-esque processes that favor “safer” businesses that fit in with central planned priorities rather than businesses that might become truly disruptive. It’s simplistic to suggest making tax rates the same. Capital gains are what drive investment. Increase the tax on investment and naturally, you will get less investment. Capital gains are a reward for risking capital. You lower the reward, you will create a reduction in investment — which has a much more deleterious economic effect than the marginal gain achieved from raising the tax.