4 ms·

I don't see why income can't be treated as income no matter where it comes from.

leetcrew 7y ago
one reason other replies haven't mentioned is that long-term gains don't play well with a progressive income tax system. imagine you make $35k salary and you make an investment that increases in value by $50k over ten years. we'll ignore inflation and tax bracket hikes for simplicity. assuming you live in the US, your salary places you in the 12% bracket, and the 22% bracket starts around $40k income. if you realize that gain in the last year and it counts as income, almost all of that $50k gets taxed at 22%, despite the fact that "on average" you only made $40k each year. this effect gets worse the longer you hold onto the asset.
- Traster 7y ago
  Why not simply apply the gain over the time period. If you get $50k gain after 10 years, that's counted as $5k gain per year and we already know what tax bracket you were in for those years so you submit a revision and pay the tax that would've been due in each of those years.
  - leetcrew 7y ago
    that would be a reasonable solution. I wouldn't oppose it if it came with a slight cut to income tax rates.
- unlinked_dll 7y ago
  A few replies. First, I don't believe this is actually an issue for people with 35k salaries as a whole. The vast majority of Americans do not have savings in excess of $1k let alone the ability to make an investment in the ballpark you're talking about. Secondly, if this is true - why is the "long term" tax capped at 1 year? And not 10? Or adjusted for the length of an investment? To me the answer is because it's not designed to fix this problem.
  - leetcrew 7y ago
    it's a contrived example to make the math easy. you can get the same outcome with more realistic values by putting the income closer to $40k and decreasing the gain, or you could do the analysis at a higher tax bracket boundary. my point is that it doesn't make sense to naively tax gains as if they were income acquired in a single year. I'm not arguing for/against the specific implementation of cap gains we currently have.
afthonos 7y ago
The tax system in the US is commonly used to encourage behaviors the state finds desirable and discourage others. Capital gains are taxed lower because of the perception that that money will get reinvested and that investments are good for the economy.
- C1sc0cat 7y ago
  This is pretty common world wide you want to encourage investment in companies and not just Guilts (T-bills in US speak) And also it incentivises things like employee shares which everyone agrees is a good thing, even the SWP Socialist Workers Party Grudgingly accepts this
  - afthonos 7y ago
    I wish there was a way to truly be neutral in phrasing. I did not mean to imply this was bad or a lie, but I also didn’t want someone to pop up and say “capitalist lies!” :-)
- dannyw 7y ago
  The other way to interpret this is that lobbying by wealthy interests have cut their own tax rates by half as compared to the working class, perpetually creating a class of wealth-holders and a class of renters through systematic distortions in the tax system. Is it really fair that a wealthy investor pays 15% tax, while a doctor pays 35%?
  - chii 7y ago
    > Is it really fair that a wealthy investor pays 15% tax, while a doctor pays 35%? no. But then the wealthy's capital gains could come from gains in stock or a company, and those gains have already had company tax paid on them, e.g., if a company makes a profit of $100, they'd have to pay $21 in tax, and the company's equity gain is then $79. If you then charge a 35% tax on top of the $79, then that means you've taxed the $100 profit at 56%, which is a lot higher than the normal amount. So by reducing capital gains tax to 15%, you'd end up charging only 36% in total. It makes sense. However, why this doesn't apply to a bank's interest payment is beyond me. So may be it is rigged...
jotakami 7y ago
Because there is a reporting burden to keep track of income, and the more nit picky you get about reporting all income the more deadweight loss you impose upon society as they waste time on accounting for trivial transactions.
jshaqaw 7y ago
The issue is double taxation. Income at the corporate level is already taxed at corporate tax rates (albeit these were significantly higher before a Trump). When a profit is realized by selling shares that same income is effectively taxed a second time so the lower rate compensates a bit for that. Personal income is only taxed once.
- drcode 7y ago
  I never understood that argument: If I buy some Google stock for $8000 and then the value of it goes up and I then sell the shares for $10000, then the $2000 I made have not yet been taxed. Making the argument "but them there people at the Google company already paid this and that tax!" seems to just be some weird category error, in my estimation of the circumstances. This line of argumentation, whenever it comes up, has the feeling of a "pre canned response" that people somewhere are taught to offer up any time someone argues for higher capital gains taxes (though I'll admit I haven't thought about the issue in great enough detail to be completely firm on my assessment, or maybe I'm misunderstanding some important detail)
  - hurricanetc 7y ago
    It’s the difference between the value of the stock and dividend payout before and after corporate taxes are paid. If you bought stock in January 1, 2019 and then sold the stock before the end of 2019 then you were double taxed. Your effective rate is still low in the history of the US but you were technically double taxed. Where it gets tricky and fundamentally alters the equation is when you defer and don’t sell in the same year you bought. You’re still technically double taxed but the effective rate can become comically low. I’m also just outright ignoring inflation but inflation is a huge aspect in this calculation.
    - drcode 7y ago
      Not a single comment in this thread, nor the OP document, contained the word "dividend", so I am completely lost as to why you are now referencing something that applies only to dividends, when the discussion clearly is about "investment income" in the general sense, not to mention that dividends don't exist with cryptocurrencies.

one reason other replies haven't mentioned is that long-term gains don't play well with a progressive income tax system. imagine you make $35k salary and you make an investment that increases in value by $50k over ten years. we'll ignore inflation and tax bracket hikes for simplicity. assuming you live in the US, your salary places you in the 12% bracket, and the 22% bracket starts around $40k income. if you realize that gain in the last year and it counts as income, almost all of that $50k gets taxed at 22%, despite the fact that "on average" you only made $40k each year. this effect gets worse the longer you hold onto the asset.

Traster 7y ago
Why not simply apply the gain over the time period. If you get $50k gain after 10 years, that's counted as $5k gain per year and we already know what tax bracket you were in for those years so you submit a revision and pay the tax that would've been due in each of those years.
- leetcrew 7y ago
  that would be a reasonable solution. I wouldn't oppose it if it came with a slight cut to income tax rates.
unlinked_dll 7y ago
A few replies. First, I don't believe this is actually an issue for people with 35k salaries as a whole. The vast majority of Americans do not have savings in excess of $1k let alone the ability to make an investment in the ballpark you're talking about. Secondly, if this is true - why is the "long term" tax capped at 1 year? And not 10? Or adjusted for the length of an investment? To me the answer is because it's not designed to fix this problem.
- leetcrew 7y ago
  it's a contrived example to make the math easy. you can get the same outcome with more realistic values by putting the income closer to $40k and decreasing the gain, or you could do the analysis at a higher tax bracket boundary. my point is that it doesn't make sense to naively tax gains as if they were income acquired in a single year. I'm not arguing for/against the specific implementation of cap gains we currently have.

afthonos 7y ago

The tax system in the US is commonly used to encourage behaviors the state finds desirable and discourage others. Capital gains are taxed lower because of the perception that that money will get reinvested and that investments are good for the economy.

C1sc0cat 7y ago
This is pretty common world wide you want to encourage investment in companies and not just Guilts (T-bills in US speak) And also it incentivises things like employee shares which everyone agrees is a good thing, even the SWP Socialist Workers Party Grudgingly accepts this
- afthonos 7y ago
  I wish there was a way to truly be neutral in phrasing. I did not mean to imply this was bad or a lie, but I also didn’t want someone to pop up and say “capitalist lies!” :-)
dannyw 7y ago
The other way to interpret this is that lobbying by wealthy interests have cut their own tax rates by half as compared to the working class, perpetually creating a class of wealth-holders and a class of renters through systematic distortions in the tax system. Is it really fair that a wealthy investor pays 15% tax, while a doctor pays 35%?
- chii 7y ago
  > Is it really fair that a wealthy investor pays 15% tax, while a doctor pays 35%? no. But then the wealthy's capital gains could come from gains in stock or a company, and those gains have already had company tax paid on them, e.g., if a company makes a profit of $100, they'd have to pay $21 in tax, and the company's equity gain is then $79. If you then charge a 35% tax on top of the $79, then that means you've taxed the $100 profit at 56%, which is a lot higher than the normal amount. So by reducing capital gains tax to 15%, you'd end up charging only 36% in total. It makes sense. However, why this doesn't apply to a bank's interest payment is beyond me. So may be it is rigged...

jotakami 7y ago

Because there is a reporting burden to keep track of income, and the more nit picky you get about reporting all income the more deadweight loss you impose upon society as they waste time on accounting for trivial transactions.

jshaqaw 7y ago

The issue is double taxation. Income at the corporate level is already taxed at corporate tax rates (albeit these were significantly higher before a Trump). When a profit is realized by selling shares that same income is effectively taxed a second time so the lower rate compensates a bit for that. Personal income is only taxed once.

drcode 7y ago
I never understood that argument: If I buy some Google stock for $8000 and then the value of it goes up and I then sell the shares for $10000, then the $2000 I made have not yet been taxed. Making the argument "but them there people at the Google company already paid this and that tax!" seems to just be some weird category error, in my estimation of the circumstances. This line of argumentation, whenever it comes up, has the feeling of a "pre canned response" that people somewhere are taught to offer up any time someone argues for higher capital gains taxes (though I'll admit I haven't thought about the issue in great enough detail to be completely firm on my assessment, or maybe I'm misunderstanding some important detail)
- hurricanetc 7y ago
  It’s the difference between the value of the stock and dividend payout before and after corporate taxes are paid. If you bought stock in January 1, 2019 and then sold the stock before the end of 2019 then you were double taxed. Your effective rate is still low in the history of the US but you were technically double taxed. Where it gets tricky and fundamentally alters the equation is when you defer and don’t sell in the same year you bought. You’re still technically double taxed but the effective rate can become comically low. I’m also just outright ignoring inflation but inflation is a huge aspect in this calculation.
  - drcode 7y ago
    Not a single comment in this thread, nor the OP document, contained the word "dividend", so I am completely lost as to why you are now referencing something that applies only to dividends, when the discussion clearly is about "investment income" in the general sense, not to mention that dividends don't exist with cryptocurrencies.