5 ms·

Lower tax rates, not necessarily lower taxes.

by newen 7y ago

tanderson92 7y ago
From TFA: > They have constructed a historical database that tracks the tax payments of households at different points along the income spectrum going back to 1913, when the federal income tax began. It may be reading the book for the full detail on methods and results. I plan to.
- newen 7y ago
  I was saying that the reason the IRS would audit richer people more is because they would pay more taxes even though they might have lower tax rates.
rc_kas 7y ago
Lower tax rate is indeed my definition of lower taxes. A lower tax payment is a different thing.
- koheripbal 7y ago
  The problem is that "tax rate" is an ambiguous term because different kinds of income at taxed at different rates. So, for example, if someone makes most of their money on dividends, then they pay capital gains tax, and it appears like they are unfairly paying a lower rate than everyone else. ...but that's not a fair comparison because it's a different sort of income, with a VASTLY riskier risk profile. Taxing it at the income rate wouldn't make sense. In the past, in the US, capital gains wasn't taxed at all because it was considered double taxation (since the investment was already taxed). ...and in some other countries, there is no tax on capital gains. I've seen people claim that country XYZ has higher tax rates than the US, but then when you look closed, they have zero capital gains taxes.
  - Retric 7y ago
    In the end the real tax rate is simply government spending as a percentage of GDP. Everything else is just shifting around who pays what and when not what the average ends up as. In the US that’s 41.6 percent GDP which is in line with Canada at 42%: https://en.m.wikipedia.org/wiki/Government_spending#As_a_percentage_of_GDP https://en.m.wikipedia.org/wiki/Government_spending#As_a_per... PS: Either lower taxes on capital gains or allowing people to deduct losses is reasonable in the name of risk, but we do both.
    - AnthonyMouse 7y ago
      Really what we should do with capital gains is allow people to deduct losses including inflation, so that we tax the total real value gain at the ordinary rate, and do so when the money is actually divested rather than only moved from one investment security to another (because one of the arguments for lower capital gains rates is that higher rates causes money to be locked into securities the investor wouldn't otherwise continue to hold). Or just use a consumption tax, which is largely the same thing but a lot less complicated.
      - ScottBurson 7y ago
        > what we should do with capital gains is allow people to deduct losses including inflation Yes, I've come to this conclusion too. The long-standing argument that capital gains rates should be low is about what happens, for example, if your gain on an investment exactly matches inflation: you'd pay taxes on it, but you haven't made any profit in real dollars. The right fix for that is not to divide your paper gain by some amount before taxing it; it's to subtract the loss due to inflation. In times of low inflation, as we have now, this won't make much difference, but if inflation picks up again at some point, it will make quite a large difference. Of course, such a plan raises the question of exactly what inflation estimator one should use. I'm not enough of an expert to have a strong opinion, but the T-bill rate [0] seems like a reasonable first cut, since it's a good estimator for the risk-free rate of return. Paper gains from holding T-bills would thus not be taxed at all. Whatever the inflation estimator used, the more important (and likely more controversial) aspect of the proposal is that gains beyond that amount be taxed as ordinary income. The argument is one of simple fairness: once the inflation problem is handled, how can one justify doing otherwise? [0] https://www.investopedia.com/terms/t/treasurybill.asp https://www.investopedia.com/terms/t/treasurybill.asp -- Okay, I see there isn't just one rate, since the rate depends on the maturity interval, but we can go with the highest one, which is the one for the 52-week bill. This creates the oddity that holders of shorter-term bills will actually get a tax credit, but it will be small; I think we can live with this.
  - chimi 7y ago
    > it's a different sort of income, with a VASTLY riskier risk profile Yes, earning the money with labor is vastly riskier. Telling a financial advisor where to put money incurs no risk to your life. Compare that to being a welder, tree feller, home builder, where your health or life is a daily concern. I really don't understand why those who go out and work hard every day have to pay more in tax (as a percentage) than those that just sit on the couch and watch their wealth grow.
    - deleted 7y ago
      [deleted]
  - ClumsyPilot 7y ago
    > but that's not a fair comparison because it's a different sort of income, with a VASTLY riskier risk profile. Taxing it at the income rate wouldn't make sense. Ah yes, the riskiest activities of them all: investing in fortune 500, government bonds, index funds and inflating real-estate prices. They all count as capital gains.
    - walshemj 7y ago
      Most of those are higher risk than interest on cash or TIPS (not all government bods are safe) ask the shareholders of Thomas Cook or Going back a bit Enron about risk.
      - vertex-four 7y ago
        Ask the people who worked for Thomas Cook about risk.
        walshemj 7y ago
        They will in the UK at least get some back pay via RB2 (I have had to fill out one of those). RB2 Is the form you fill out if an employer goes bust, to get some cash from the government.
        vertex-four 7y ago
        Yes, but you now don't have a job, even if you get paid for every hour you worked. Jobseekers is only a partial safety net. On the other hand, nearly everyone who saw their shares in Thomas Cook go to 0 had investments in a number of other things, so only took a minor hit. The risk of investing is, in the large, "my £10,000 might be worth £9,500 tomorrow", not "tomorrow I might lose my job through no fault of my own and suddenly have to make a major lifestyle change".
      - ClumsyPilot 7y ago
        Do stunt-men, soldiers, arctic explorers and other jobs with risk to life and limb pay no tax?
  - brlewis 7y ago
    > In the past, in the US, capital gains wasn't taxed at all because it was considered double taxation (since the investment was already taxed) The same thing can be said about every tax ever. Every time you tax money as it changes hands, that same money has changed hands before and was probably taxed then.
godelski 7y ago
This is a very important point. Tax rates and taxes are very different. We have a marginal tax system so effective rates should be higher for those that make more. Them paying lower tax rates (like Buffet said) is them having more loopholes in the system.
WheelsAtLarge 7y ago
True but all of this tax discussion is about perceived fairness. I may pay a few thousand and a billionaire will pay millions in taxes but if the overall tax rate is lower for the billionaire then I'm going to get upset. It's just human nature.

Lower tax rates, not necessarily lower taxes.

by newen 7y ago

Lower tax rates, not necessarily lower taxes.

From TFA: > They have constructed a historical database that tracks the tax payments of households at different points along the income spectrum going back to 1913, when the federal income tax began. It may be reading the book for the full detail on methods and results. I plan to.

newen 7y ago
I was saying that the reason the IRS would audit richer people more is because they would pay more taxes even though they might have lower tax rates.

rc_kas 7y ago

Lower tax rate is indeed my definition of lower taxes. A lower tax payment is a different thing.

koheripbal 7y ago
The problem is that "tax rate" is an ambiguous term because different kinds of income at taxed at different rates. So, for example, if someone makes most of their money on dividends, then they pay capital gains tax, and it appears like they are unfairly paying a lower rate than everyone else. ...but that's not a fair comparison because it's a different sort of income, with a VASTLY riskier risk profile. Taxing it at the income rate wouldn't make sense. In the past, in the US, capital gains wasn't taxed at all because it was considered double taxation (since the investment was already taxed). ...and in some other countries, there is no tax on capital gains. I've seen people claim that country XYZ has higher tax rates than the US, but then when you look closed, they have zero capital gains taxes.
- Retric 7y ago
  In the end the real tax rate is simply government spending as a percentage of GDP. Everything else is just shifting around who pays what and when not what the average ends up as. In the US that’s 41.6 percent GDP which is in line with Canada at 42%: https://en.m.wikipedia.org/wiki/Government_spending#As_a_percentage_of_GDP https://en.m.wikipedia.org/wiki/Government_spending#As_a_per... PS: Either lower taxes on capital gains or allowing people to deduct losses is reasonable in the name of risk, but we do both.
  - AnthonyMouse 7y ago
    Really what we should do with capital gains is allow people to deduct losses including inflation, so that we tax the total real value gain at the ordinary rate, and do so when the money is actually divested rather than only moved from one investment security to another (because one of the arguments for lower capital gains rates is that higher rates causes money to be locked into securities the investor wouldn't otherwise continue to hold). Or just use a consumption tax, which is largely the same thing but a lot less complicated.
    - ScottBurson 7y ago
      > what we should do with capital gains is allow people to deduct losses including inflation Yes, I've come to this conclusion too. The long-standing argument that capital gains rates should be low is about what happens, for example, if your gain on an investment exactly matches inflation: you'd pay taxes on it, but you haven't made any profit in real dollars. The right fix for that is not to divide your paper gain by some amount before taxing it; it's to subtract the loss due to inflation. In times of low inflation, as we have now, this won't make much difference, but if inflation picks up again at some point, it will make quite a large difference. Of course, such a plan raises the question of exactly what inflation estimator one should use. I'm not enough of an expert to have a strong opinion, but the T-bill rate [0] seems like a reasonable first cut, since it's a good estimator for the risk-free rate of return. Paper gains from holding T-bills would thus not be taxed at all. Whatever the inflation estimator used, the more important (and likely more controversial) aspect of the proposal is that gains beyond that amount be taxed as ordinary income. The argument is one of simple fairness: once the inflation problem is handled, how can one justify doing otherwise? [0] https://www.investopedia.com/terms/t/treasurybill.asp https://www.investopedia.com/terms/t/treasurybill.asp -- Okay, I see there isn't just one rate, since the rate depends on the maturity interval, but we can go with the highest one, which is the one for the 52-week bill. This creates the oddity that holders of shorter-term bills will actually get a tax credit, but it will be small; I think we can live with this.
- chimi 7y ago
  > it's a different sort of income, with a VASTLY riskier risk profile Yes, earning the money with labor is vastly riskier. Telling a financial advisor where to put money incurs no risk to your life. Compare that to being a welder, tree feller, home builder, where your health or life is a daily concern. I really don't understand why those who go out and work hard every day have to pay more in tax (as a percentage) than those that just sit on the couch and watch their wealth grow.
  - deleted 7y ago
    [deleted]
- ClumsyPilot 7y ago
  > but that's not a fair comparison because it's a different sort of income, with a VASTLY riskier risk profile. Taxing it at the income rate wouldn't make sense. Ah yes, the riskiest activities of them all: investing in fortune 500, government bonds, index funds and inflating real-estate prices. They all count as capital gains.
  - walshemj 7y ago
    Most of those are higher risk than interest on cash or TIPS (not all government bods are safe) ask the shareholders of Thomas Cook or Going back a bit Enron about risk.
    - vertex-four 7y ago
      Ask the people who worked for Thomas Cook about risk.
      - walshemj 7y ago
        They will in the UK at least get some back pay via RB2 (I have had to fill out one of those). RB2 Is the form you fill out if an employer goes bust, to get some cash from the government.
        vertex-four 7y ago
        Yes, but you now don't have a job, even if you get paid for every hour you worked. Jobseekers is only a partial safety net. On the other hand, nearly everyone who saw their shares in Thomas Cook go to 0 had investments in a number of other things, so only took a minor hit. The risk of investing is, in the large, "my £10,000 might be worth £9,500 tomorrow", not "tomorrow I might lose my job through no fault of my own and suddenly have to make a major lifestyle change".
    - ClumsyPilot 7y ago
      Do stunt-men, soldiers, arctic explorers and other jobs with risk to life and limb pay no tax?
- brlewis 7y ago
  > In the past, in the US, capital gains wasn't taxed at all because it was considered double taxation (since the investment was already taxed) The same thing can be said about every tax ever. Every time you tax money as it changes hands, that same money has changed hands before and was probably taxed then.

godelski 7y ago

This is a very important point. Tax rates and taxes are very different. We have a marginal tax system so effective rates should be higher for those that make more. Them paying lower tax rates (like Buffet said) is them having more loopholes in the system.

WheelsAtLarge 7y ago

True but all of this tax discussion is about perceived fairness. I may pay a few thousand and a billionaire will pay millions in taxes but if the overall tax rate is lower for the billionaire then I'm going to get upset. It's just human nature.