11 ms·

Biden eyeing tax rate as high as 43.4% in next economic package

101 points by marc__1 6y ago

wing-_-nuts 6y ago
...For those making 1M / yr or more. Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. Income is income. Plenty of other countries tax it the same and we should too. Edit: To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?
- chrisp_dc 6y ago
  The argument I have heard is corporate profits are already taxed. The capital gains tax + corporate profit tax roughly equals normal income tax. Personally, I'd prefer higher capital gains tax and lower corporate tax. I think it would be more transparent and easier to collect.
  - jjoonathan 6y ago
    Ah, yes, double taxed: once at 0%, due to Ireland, and once at 15%, due to the special capital gains rate. I wish my income was double taxed like that! Where do I sign up?
    - zepto 6y ago
      What proportion of businesses are taxed like that?
      - klyrs 6y ago
        Better question: what proportion of corporate profits are taxed like that? Because the cheesemonger down the street isn't pulling a Double Irish to avoid taxes on the ~0% of GDP that they're generating.
        zepto 6y ago
        Agreed - I would like to know what the effect would be on regular businesses are growing, not a few giant multinationals. If people care about this loophole, how about just closing it, rather than taxing everyone else?
        deleted 6y ago
        [deleted]
        klyrs 6y ago
        How do you close a loophole without bought politicians replacing one loophole with ten? A bit of an "angels dancing on a pinhead" question, I'll admit
      - User23 6y ago
        Look up double Irish with a Dutch sandwich. Not really my area of expertise, but in the past at least basically all big tech companies used that strategy.
        zepto 6y ago
        I don’t need to look it up, I know what it is. The proposal would hit every business not just a few tech giants.
        jjoonathan 6y ago
        Yeah, everyone knows what it is, and has known for a long time. It goes to show that the loophole is not an accident but rather an intentional result of our political process. Unfortunately.
      - lostlogin 6y ago
        Different scenario, but tech giants in the US have some amazing arrangements. I’m in New Zealand and their clever arrangements here see them paying minuscule bills on massive revenue “In 2018 Google NZ Ltd (an entity of Alphabet group) paid income tax of NZ$398,341 – about 0.055 per cent of the estimated gross ad revenue “extracted” from the New Zealand market.” Facebook, Apple and Amazon have all been in and out of the news here for their arrangements too. https://i.stuff.co.nz/business/121505796/google-and-facebook-pay-way-less-tax-in-new-zealand-than-in-australia--and-were-paying-the-price https://i.stuff.co.nz/business/121505796/google-and-facebook...
        zepto 6y ago
        You have to be a multinational by definition to do this, and yet the proposed taxes will hit most medium sized businesses. “It will hurt Apple and Amazon” is not a problem. “It will hurt most growing businesses”, is.
        jjoonathan 6y ago
        On account of where campaign finance comes from, I'm afraid politicians see it the other way around.
    - jariel 6y ago
      True - but of the business activity is in EU, then really it's Ireland's issue to sort out with the EU, it's a separate issue from the 'other side' of the taxation in the US. What they should do is sort it out.
  - anonAndOn 6y ago
    > capital gains tax + corporate profit tax roughly equals normal income tax Doesn't this apply exclusively to the corporate profits not shielded in a Double Irish (or it's latest incarnation) arrangement [0]? [0]https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
  - walshemj 6y ago
    shifting even more the tax burden to the citizen why?
    - lwansbrough 6y ago
      To improve society.
      - moyasari 6y ago
        Society won't improve if the financial system is fundamentally broken, and the people running it are explicitly against fixing it. Don't let these circus shows let you believe otherwise.
    - throwaway8581 6y ago
      No, corporate tax is of corporate profits, which is just capital gains that haven't been dispersed and may be dispersed in the future (or may be reinvested). Salaries and wages are not profits, so they are not subject to the corporate tax. In theory, the sum of the capital gains rate + corporate tax rate is supposed to approximate the individual income tax rate. But because most people will never understand this, we can't have a tax code that makes sense. Mass democracy is incompatible with sensible rulemaking in this area.
    - closeparen 6y ago
      The argument is that dragging on corporations hurts customers and staff as well as owners. It's better to precisely target the owners. However, I think it misses that most of the benefit to owners is in the form of unrealized gains, not subject to any of the tax rates that people talk about tweaking.
      - throwaway8581 6y ago
        It's not a gain if you don't realize it.
        closeparen 6y ago
  - fighterpilot 6y ago
    > Personally, I'd prefer higher capital gains tax and lower corporate tax. Same, but it'd mean more tax money for foreign governments, too, since those untaxed profits would be contributing to cap gains tax in another country (in the case of foreign investors) instead of domestic corporate tax.
  - trhway 6y ago
    That doesn't make sense. Those are taxes with different bases. It would make sense to talk that way about corporate profit tax and corporate dividend tax for example.
  - klyrs 6y ago
    > The argument I have heard is corporate profits are already taxed I've heard time and time again that it's a moral imperative for corporations to reduce their tax burden to zero using every loophole available. Are big corporations actually paying tax?
    - bolasanibk 6y ago
      https://www.washingtonpost.com/business/2021/04/05/corporations-federal-taxes/ https://www.washingtonpost.com/business/2021/04/05/corporati... >55 corporations had zero federal tax liability in 2020, including household names like Nike, FedEx and Dish Network, analysis finds
    - akvadrako 6y ago
      That's not relevant. If you pay out dividends, you cant evade those taxes. Capitol gains is supposed to be based on expected future dividends.
  - XorNot 6y ago
    And that argument is complete junk: https://i.imgur.com/QpvGlnV.gif https://i.imgur.com/QpvGlnV.gif The money I spend of my income buying goods from other businesses is "already taxed" and then when those businesses collect it from me its "taxed again". Mysteriously, the one form of taxation the already wealthy benefit from is very concerned about this happening.
    - jariel 6y ago
      The argument is not junk, there's value in understanding how taxes work through the value chain. A little bit like a VAT, we don't want to tax, tax and tax some product that has a long and complicated line of distributors, rather, tax the final product, either using VAT rebates etc.. This is more economically beneficial. With corporate and individual incomes, we think at little bit the same way - i.e. how the taxation will flow through via corp tax, income tax, dividend tax and cap gains. In Ontario, if you pay small business corp tax and then a dividend, it's pretty much the same as if you were to take a salary and pay income tax. Obviously, this because the million or so small businesses out there would rig their outgoing cash flows one way or the other, depending on tax treatment. While cap gains is a special situation, it does still form part of those block of taxes that should naturally relate to one another in terms of how net surpluses are taxed. When you spend your 'already taxed income' on an entirely new product or service, then that's separate economic activity, and so it's taxed without consideration to your 'previously taxed income'.
- triceratops 6y ago
  True. Although a dollar from investing money is potentially worth less, risk-adjusted, than a dollar from working a job. So it makes sense that the proposed tax brackets are at higher incomes than earned income. But definitely the top rate should be increased; why the heck should a middle-class retiree pay the same rate on their cap gains as someone with way higher income?
- surge 6y ago
  You're also not factoring in risk that comes from investing, the argument is lower taxes on investments encourages people to invest their money. If there is risk of loss, plus high taxes when there are actual gains, there is lower return on investment and therefore, less incentive to risk your money in investments. It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends. I imagine large investors will just break up their investments into so many shell companies/trusts that each entity will never carry more than 1M in investments. There's always a loophole.
  - JamesBarney 6y ago
    Given current interest rates it seems like the world has too much money to invest and not enough people spending.
  - triceratops 6y ago
    Investment risk is already addressed with this proposal. The top tax bracket for earned income is way lower - something like $450k.
  - jbay808 6y ago
    If you can still credit past losses against your gains, that should account for the risk shouldn't it?
    - da_big_ghey 6y ago
      only if you are assume that each person is coming out positive in eventuality. there exist always some person who has lose, maybe he is having for to withdraw money for covering expenses or retirementing.
      - jbay808 6y ago
        If you never come out positive, capital gains tax is the least of your worries.
  - 6y ago
- infogulch 6y ago
  Shares are a kind of property. Perhaps it would be reasonable to charge a property tax on their value. The market would fix inflated valuations right quick.
  - potiuper 6y ago
    Cash is also a kind of property or more technically a "security", and a tax on it would be a "wealth" tax. The progressive vs regressive tax question can be reworded into asking how much freedom or our own wealth should we give up to the government to provide "security"?
    - infogulch 6y ago
      I think inflation is the tax on cash as a security. That's what all the cryptocoin people are harping about.
- walshemj 6y ago
  It to incentivise investment to make up for the possible loss. you might want to think about what happens when companies run out of capital.
  - wing-_-nuts 6y ago
    Isn't incentivizing for risk the market's job? Why should the government be in the business of rewarding risk taking, and secondly, where else would they put their money? It's not like there's a secret, riskless investment out there that has a high return and doesn't generate capital gains. Your options are to invest, or lose money to inflation in a certificate of deposit.
    - walshemj 6y ago
      Lots of reasons the government should be in that business. And artificially pushing people to invest in income vs capital gains will increase bond/guilt prices.
- kec 6y ago
  The median home price in California is rapidly approaching $1M, Wouldn't this just lock up the real estate market even more?
  - wing-_-nuts 6y ago
    You can exclude 250k / 500k for single / married folks. It's quite generous.
  - dv_dt 6y ago
    Selling a $1M home doesn't mean you have $1M in income, so I think in general it wouldn't impact the real estate market except perhaps at the much higher end - maybe $5M or higher. Our housing market would probably be more sane if developers had more pressure to focus on building units in the middle to low end of the market anyway in California.
- gher-shyu3i 6y ago
  > ...For those making 1M / yr or more. Does that mean if someone makes $1M of capital gains and has no other job, he'll get taxed at the high rate?
  - ac29 6y ago
    The new rules have not been written, voted on, or enacted, so who knows. But under the current law, yes, capital gains count towards your total income.
- thelean12 6y ago
  > Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. It's pretty simple in my mind: Retiring is hard enough, and at some point I won't be able to do any labor. Market investments are the current way that most people are able to retire, whether we like it or not. Raising it for anything above 1M / year? No problem. They've got enough money to retire comfortably. For everyone though? My god.
  - elil17 6y ago
    Except most people in America don't pay capital gains taxes on their retirement savings anyway. 401ks and IRAs are free from capital gains taxes. Anyone can save enough money in those vehicles for retirement unless they start saving really late in life. For those who start saving late, most of their wealth will be in basis anyway.
    - bullfightonmars 6y ago
      Right 401ks and IRA are taxed as regular old income when withdrawn and are subject to the same tax brackets as everyone else.
      - elil17 6y ago
        Right but they're only taxed once (either you don't pay income tax going in or you have a Roth account and you don't pay it going out). Either way, ignoring the fact that you might change tax brackets, it's as if you took the money post tax, invested it, and then didn't have to pay any capital gains on it.
- ojbyrne 6y ago
  Pretty simple to me, investing is mostly discretionary. If it's encouraged, there will be more of it. If it's not, there will be less.
  - wing-_-nuts 6y ago
    IMHO, mr market is more than capable enough of pricing his assets to attract investments. I fail to see why this is a government concern.
  - jrs235 6y ago
    >investing is mostly discretionary *investing is basically a luxury for many, if not most
- colinmhayes 6y ago
  The government wants to incentivize investment because it causes the economy to grow. More investment = faster growth = everyone better off in the long run.
  - DiNovi 6y ago
    capital gains tax doesnt effect investment levels. here's a chart: https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=large https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...
    - colinmhayes 6y ago
      That chart doesn't even have investment levels on it. Even if it did correlation isn't causation.
    - jppope 6y ago
      Capital gains is levied on assets other than Stocks - such as bonds, real estate, royalties.
- gotoeleven 6y ago
  I don't really see how it's fair to tax investment returns at all. When you invest money in something you are taking a risk that you will lose that investment. It's not like the government steps in to make you whole when you lose money, so how is it fair that they get to go through your pockets if you make money? Granted probably much income that counts as 'capital gains' right now should be classified as regular income and taxed as such.
  - wing-_-nuts 6y ago
    >It's not like the government steps in to make you whole when you lose money They let you deduct losses from gains and income for tax purposes. This saved me thousands after '08. IMHO it's the market's job to price assets and reward risk taking, not the government
  - gotoeleven 6y ago
    Why is everyone so downvote happy on this site now? Its kind of nuts. Are there really a bunch of sad people just reading through the comments for things that they disagree with to downvote? Maybe you're a communist you thinks taxes should be 100%, fine, but why downvote this? Do you think your socialist utopia is just a few HN downvotes away?
    - deleted 6y ago
      [deleted]
- moduspol 6y ago
  I think it's because investment money can be moved away easier and faster than labor. As a result, taxes have to be more competitive relative to other areas. I also don't think it's about incentivizing investing relative to labor. The incentives are for investing relative to other things you could do with money, like spend it, save it, move it elsewhere, etc.
  - wing-_-nuts 6y ago
    Money belongs to people, and those people don't tend to move. Heck, the US is especially good at taxing people abroad. How many would really renounce citizenship just to save on taxes, and where would they go that taxes less? There's always a pull between spending and saving, but if you save, you're either investing, or losing money to inflation.
    - moduspol 6y ago
      > Money belongs to people, and those people don't tend to move. The tax isn't for their money, it's for their capital gains, which only happen when they realize those gains (e.g. sell assets). High net worth individuals absolutely can and do move to lower tax areas if the incentive is sufficient, or otherwise choose not to move to higher tax areas. It happens between US states all the time. > Heck, the US is especially good at taxing people abroad. Has it improved significantly since 2014 [1]? > How many would really renounce citizenship just to save on taxes, and where would they go that taxes less? Perhaps somewhere other than Canada, France, Holland, Denmark or Sweden, and without renouncing their citizenship. There seems to be this idea that simply because the IRS tax rules apply to expatriates, that everyone bends over backwards to report their incomes and pay their taxes the same way they would in the US. I just haven't seen evidence that's the case--particularly among high net worth individuals leaving for that purpose. And regardless, ideally our rates would be competitive and investors should want to put their money here. A "where else are you gonna go" attitude only works while there aren't better options, which may not be forever for all taxpayers. [1] https://www.forbes.com/sites/procedurallytaxing/2014/11/18/international-collection-efforts-by-the-irs-expanding-the-number-of-treaties-in-which-we-have-collection-language/?sh=3a3dc3ff1e08 https://www.forbes.com/sites/procedurallytaxing/2014/11/18/i...
- cperciva 6y ago
  ...For those making 1M / yr or more. Note however that capital gains tend to be "bursty", so having $1M of capital gains in one year doesn't imply having $1M of income in a normal year. (To take a personal example: I had a very large amount of capital gains in 2020 because I sold my entire portfolio of ETFs and bought a house.)
- antisthenes 6y ago
  > Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor The reason is caring about the seniors/elderly and a pro-home ownership policy. As you age, your ability to earn a living from labor goes down, for a number of reasons (ageism, family obligations, less energy), but your costs go up (healthcare, family obligations). Having investments and being able to sell off capital, taxed at a lower rate than income is an insurance policy against reduced earning potential in senior years. Is that in and of itself enough to say the tax rate should be half? Maybe not. But the argument is solid. It just doesn't determine the exact percentages.
- RhysU 6y ago
  > Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. A laborer gets paid $1 for working hard. An investor gets paid for $1 for doing something smarter. Work smarter, not harder, as a civilization. Deliver the most value to the greatest number with the lowest labor input. That's how we get scale, grow an economy, and prosper.
  - jay_kyburz 6y ago
    An investor get paid $1 because...they had money to invest. Labor need not be taxed at all if you ask me.
  - sundaeofshock 6y ago
    The hard work of the laborer is what allows the investor to sit on their lazy ass all day long. The infrastructure the “smart” investor exploits day-to-day doesn’t just magic out of the ground…
    - RhysU 6y ago
      Correct. Investors pay laborers to build said infrastructure. Like, the investor pays all the laborer's wages even if the infrastructure idea was stupid and the investor loses his shirt in the process. The laborer still cashes paychecks while the capital lasts. Like, think stupid VCs. Investors might just be stupid VCs. A laborer can pocket money from stupid, stupid VCs while the laborer's work provides no value to humanity. That's why smart investors aren't bastards. And why stupid investors aren't bastards for trying but failing. It's hard to not be a stupid VC. It takes skill. And capital. And understanding what people want. And grokking the shifting regulatory environment. And a whole lot of other crap beyond fizz buzz and and and...
- Balgair 6y ago
  > ...For those making 1M / yr or more. This is on a graduated tax schedule, correct? If so, then only the 1,000,001st dollar gets the higher tax (and every dollar thereafter).
- chrismcb 6y ago
  My understanding is, to encourage people to invest their money, rather than sick it in a mattress. "The asset price should reflect the inherit risk..." How? The risk of investing is losing everything. How do you add that to the price? Perhaps income should be income. It would definitely simplify the tax code. But money needs to circulate, that is how you have a booming economy. You asked how is a dollar earned from an investment with more than a dollar from labor. Well that dollar from labor might only exist because of the dollar from investment.
- Jackson12 6y ago
  Capital gains default to being taxed at the same rate as income in this country (as they should be). There are exceptions for certain long term capital gains, and for qualified dividends. The rationale for this is that corporate profits are already taxed. The effective tax rate is about 25% for US corporations. For income from corporate profits to be taxed at the same rate as normal income, it should be taxed at a lesser rate once it's been distributed via dividends or buybacks (which is how the system is set up). Changing the system would have several negative effects. It would encourage companies to take on leverage. Interest expenses are deductible for the purposes of corporate taxes. While interest earnings are and have always been taxed as ordinary income. So companies would likely shift their balance sheets to compensate. It would also make short term speculative trading more attractive for US citizens (and lord knows we have enough of that). And lead to greater foreign ownership of US equities, which is not necessarily desirable. There are certainly fairly indefensible aspects of the US tax code. This just isn't one of them. There's also an interesting argument that it's less distortionary to tax wage income than investment income. Because wages (and especially the variation thereof) are substantially driven by unearned human capital endowments.
  - bjtitus 6y ago
    > Capital gains generally are taxed at the same rate as income in this country Maybe I'm missing something but the "Sales of Capital Assets Reported on Individual Tax" from 2012 shows 7.5x as many long term Capital Gains as short term. https://www.irs.gov/statistics/soi-tax-stats-sales-of-capital-assets-reported-on-individual-tax-returns#_tables https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita... Doesn't this mean the majority of individual investment gains are not taxed as income?
    - Jackson12 6y ago
      You're right. That's a slightly misleading way to put it, and I have revised my original post. My point was that the "default" method of taxation is the same as ordinary income. Long term capital gains and qualified dividends are legally an exception to that rule. Though I don't think it diminishes my broader point.
- bitshiftfaced 6y ago
  > To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right? That's exactly right, but you're only looking at it from the point of view of someone clicking "buy" on their phone. Instead, look at it through the eyes of someone who has twenty years of working the daily grind saved up and is thinking about building something new out of nothing. Maybe it's worth the risk of losing that savings. If you tax that even more, then the balance tips even more into riskier territory and makes it less likely that you take on that new business venture. You're saying that the market corrects for that, and it does... by disincentiving the investment by making the potential payoff less.
rvz 6y ago
Sounds like the news of this spooked a lot of investors to cause a surprise sell off. Most notable drops in Deliveroo, Coinbase and GameStop stock. At the time when everyone was scrambling to buy into the Coinbase direct listing, I was downvoted to warn them that the early investors will dump it immediately. [0] [1] In fact, I shorted it on direct listing day and here we are the news are now reporting it trading down last week [2] the hype squad are no where to be seen leaving the retail investor bag holding at >$375. And now the news of US tax increases dealt another blow to the markets and boosted my short position in Coinbase. Well done me, I guess. [0] https://news.ycombinator.com/item?id=26673100 https://news.ycombinator.com/item?id=26673100 [1] https://news.ycombinator.com/item?id=26790725 https://news.ycombinator.com/item?id=26790725 [2] https://www.cnbc.com/2021/04/15/coinbase-coin-climbs-11percent-in-premarket-after-nasdaq-debut.html https://www.cnbc.com/2021/04/15/coinbase-coin-climbs-11perce...
- seattle_spring 6y ago
  Can you share some screenshots of your short position and which brokerage allowed you to trade options? Because this would be a historic first that a brokerage allowed options trading of a stock on the first week, let alone the first day, of hitting the market.
triceratops 6y ago
This is a good move. It'll raise tax revenues, hopefully reduce inequality, and potentially bring equities' valuations down to something more reasonable (and I say this as someone with a healthy stock portfolio). How will it address people financing their spending with pledged asset line loans against their portfolios? Interest on that is tax deductible if the loan is used for an investment; which doesn't seem like a high barrier.
- encoderer 6y ago
  I disagree. Raise taxes if you need money. I guess the government does? But doing it to solve inequality and bring down equity valuations? That seems like irresponsible tinkering with the economic chemistry set, and not the right way to set govt policy.
  - triceratops 6y ago
    I don't believe I said anything about the administration's motivations behind this proposal. I only described some potential positive (to me) side-effects .
    - encoderer 6y ago
      If you're a fan, that's fair, and I hope the side effects work out for you the way you hope.
- elil17 6y ago
  >hopefully reduce inequality Depends how the money is used. If we spend it on social programs, reducing taxes on lower-income earners, infrastructure, then it will. But if it just gets spent on more weapons? I don't know that that does anyone any good.
- gher-shyu3i 6y ago
  People will find loopholes, that's how the game is played. Nothing will get solved because the system is broken at a fundamental level, and no amount of patching will fix it. Do you want actual, proper change that will benefit society? Ban interest and all the shenanigans that come out of it (shorting, puts and calls, etc.). I guarantee things will dramatically improve - it's been done before.
temp667 6y ago
I can speak to this - a long time coming. A HUGE amount of complexity in tax code, tax preparation, and tax audit is the characterization of earnings. Pop quiz, if you are going to be bringing in $100M, do you want to pay 40% tax or 15% tax? Long term capital gains = 15%. So a lot of hoop jumping to turn things into capital gains, then long term capital gains. What a pain. Just for simplicyt I wish they would say, for everyone making more than $150K/year (300K married) investment income is taxed as any other type of income. Cut overall rates if needed if you want it revenue neutral. The next step is to tax unrealized gains. I know, lots of hand wringing, but if you can defer gains until death (not too hard) you can come out golden in terms of family wealth (lots of like kind property exchanges etc).
- ska 6y ago
  Wouldn't that latter be better fixed by adjusting estate & inheritance rules? You could even make it simple, e.g. all unrealized gains upon death.
- novok 6y ago
  $150k may sound large for you, but $150k in california is around $90k after tax, and with $2800-$5000/month rents that is not a lot of money left over.
  - toomuchtodo 6y ago
    Federal tax rates should not be optimized for localized dysfunctional housing markets.
    - BooneJS 6y ago
      Please remember that punitive changes like limiting SALT hurts actual people before it causes changes in the way state governments run.
      - toomuchtodo 6y ago
        I assume that the SALT limitation will be removed by this administration, as it was punitive and not grounded in effective policy.
dv_dt 6y ago
Maybe it would make companies go back to dividends instead of favoring stock buybacks - which imho would be a nice reduction of financialization behavior
- walshemj 6y ago
  And add a small say $5k allowance for small stockholders like the UK does.
- toast0 6y ago
  I don't see how. Qualified dividends are taxed at long term capital gains rates; if those rates go up (for high income) stockholders, those stockholders will be generally less pleased about recognizing the income rather than defering it with a buyback. As a stockholder, I can always make my own dividend by selling shares; but I can't make my own stock buyback, because I only get a portion of the dividend.
- pembrook 6y ago
  This would have literally no effect on buybacks vs dividends as both are taxed as capital gains. In fact, it might favor buybacks even more since you aren’t forced to pay taxes on share price increases until you sell. Dividends give you a tax bill every year, even if reinvested. Also, there’s nothing nefarious about buybacks. It’s just a more tax efficient way to return money to shareholders. There’s no boogie man there.
Taniwha 6y ago
A reminder - in the US by default capital gains are levied at the same rate as any other income - the "capital gains tax" is a LOWER tax on some forms of capital gain intended to encourage some forms of investment (long term rather than stock/house flipping for example)
- lotsofpulp 6y ago
  You can flip houses all day long and not pay any tax as long as you buy another piece of real estate within 6 months. https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx https://www.investopedia.com/financial-edge/0110/10-things-t...
  - throwaway3699 6y ago
    This is A Good Thing and by design. Isn't encouraging investment the whole point?
    - triceratops 6y ago
      This particular loophole seems like it was meant to shield homeowners who are moving house. Not for encouraging investment.
      - jmvoodoo 6y ago
        It only applies to investment property. If you own your home the first 250-500k of capital gains is exempt depending on your filing status. 1031 exchanges are a decent amount of work and have some additional requirements (it's not really for house flipping). They are also a tax deferral strategy. The tax eventually comes due.
        lotsofpulp 6y ago
        > They are also a tax deferral strategy. Carved out only for real estate investors. I don’t see why it shouldn’t either apply to everyone, or no one.
jandrewrogers 6y ago
And that's just the base Federal rate. If you add NIIT at 3.8%, I believe that is the highest long-term capital gains rate in the developed world. And that is before you add State taxes, like the 13.3% in California. Unlike some other countries, there is no cost-basis adjustment for inflation and there is a limited ability to deduct capital losses, both of which can be substantial for long-term investments and risk capital. All in, this makes it very difficult to get a competitive return on long-term high-risk investments, like tech startups, biotech, etc compared to almost any other asset class. Instead, it strongly incentives cashflow and rent-seeking investments, which have better risk and tax profiles in almost every regard if this goes through. As a second-order effect, this would cause an extraordinary amount of capital to be moved into real estate which is already experiencing very high price inflation.
- da_big_ghey 6y ago
  yes you are make very good points. we are doing better if we make consumption and land value taxes our majority for federal. then try maybe different models at state level, make states fund their own things once more. we try fifty different models, we find the best and use it, then we try new ones on that basis and find better again. one federal model is create the unintended consecuence for each state in nation, state model is damage only one. let us play once more to strengths of federal models.
  - imtringued 6y ago
    I don't think land value taxes will ever be implemented in a way that actually lives up to the ideals. Switching from land ownership to ground leases is less disruptive to the current tax system and has similar benefits.
- bpodgursky 6y ago
  Not to mention that the fed is now aiming for 2+% inflation (and let's be real, it's going to be higher), so cashing out even after a 10-year breakeven investment that earned nothing is going to cost you over 10% on withdrawl.
nceqs3 6y ago
It should be made retroactive to 2020.
bpodgursky 6y ago
Looming high (fed-directed) inflation + a high capital gains tax unindexed to inflation... seems like a shadow wealth tax. Dunno if I feel great about this in combination.
- imtringued 6y ago
  It's not perfectly equivalent to a wealth tax because the effective tax rate would merely approach the current capital gains tax. Assuming 1000% inflation the worst that could happen is that you pay capital gains on your entire investment rather than the gains.
hourislate 6y ago
Theater for the masses... Why? Because do you think for a moment someone making $1 million in "Capital Gains" doesn't have access to a financial professional to avoid paying any tax? If you want to tax the wealthy, you'll have to find a different way.
- jtr1 6y ago
  What would you propose?
- poundofshrimp 6y ago
  Mind to elaborate what kind of loopholes you’re talking about?
- bejt 6y ago
  Aren't things like this the way you would tax the wealthy? Think of this as a patch which fixes a bug that said financial professional would exploit.
- Daishiman 6y ago
  This argument doesn't make sense at all. Rich people always have access to financial professionals. Shifting tax burdens isn't free and nobody's expecting that people won't change their portfolios/tax declarations/whatever to reflect this. What it does do is alter the effective tax rate, and even a partial effect is desirable.
- TomVDB 6y ago
  Someone making $1M is often part of the working wealthy. No amount of advise from financial professionals will help them avoid paying tax on things like salaries, RSUs etc.
- kelp 6y ago
  As someone who has access to and regularly works with (pays) tax professionals and financial advisors, I've yet to be able to take advantage of much, if any, way to avoid paying any tax. Most of the things I'm aware of, and have been advised of, are things like QSBS (Qualified Small Business Stock) which I've been able to claim once. In that case it was a 5 figure gain. So the tax benefit was not particularly amazing. Yeah, others have been able to benefit much more from this. But it's a pretty narrow situation where you can. I've recently early exercised some ISOs, so if this proposed tax change didn't pass, I'd have the long term cap gains rate. I think there are some interesting things you can do with charitable trusts, but I think you're mostly deferring taxes, and I haven't had a situation where it made sense. But all in all, in the years that I've paid, what I think, are a pretty competent set of financial professionals, I've yet to come across any magical way to avoid paying any taxes. I've actually paid a large amount of taxes and have to ensure my investments and finances are planned so I can pay the tax bill when it comes due. I think most stories we hear about the wealthy not paying any taxes are either tax fraud, or substantial capital losses that offset all gains. In the capital loss situation, that's probably a temporary thing for that person, otherwise they won't be wealthy for long.
encoderer 6y ago
It will be a great time to build a small SaaS business. Get QSBS tax treatment, pay no federal taxes when you sell the business after 5 years.
ericbarrett 6y ago
Everybody commenting on this should be familiar with the historic income and capital gains tax rates in the U.S. Here's a chart from 1954-2020: https://www.taxpolicycenter.org/sites/default/files/styles/original_optimized/public/book_images/3.2.1.1_0.png https://www.taxpolicycenter.org/sites/default/files/styles/o...
- da_big_ghey 6y ago
  what nice of a cherry-picking graph. it have picked start point of highest rates in history for to make the appearing that there have been some extraordinary cut. but in real seeing it is the high rate that was the extraordinary. here we have longer-view graph for to illustrate: https://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c85dc53f970b-800wi https://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c85dc53... in similarity, we are see that capital gains tax today still exist above historical past, the graph you link again cherry-pick. longer-term view is showing of a different picture: https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com%2Feditorial%2Fimages%2F433057%2Fmaximum-capital-gains-tax-rates.PNG&w=1200&op=resize https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com... under here we are see a recover to normal over time not the "cuts for rich" things you are saying.
  - singhrac 6y ago
    I doubt you can compare the American economy of 1850 to that of today... the reason we needed lower taxes before 1920 is because we had a fairly underdeveloped economy. You’re right that it’s best to present the full history, but then you also have to provide context. The period before 1920s was the Gilded Age (then Progressive Era) which was when America was industrializing. I think by “recover to normal over time” you’re making a claim that you’d prefer the economics of 1910 America over 1970 America, which is where we disagree. Sure, if you’re making a founding fathers style argument, it makes sense, but I doubt anyone really wants to go back to a world where America doesn’t have an interstate highway system or Medicare.
- ploxiln 6y ago
  That's a rather misleading graph though. https://checkyourfact.com/2019/01/09/fact-check-90-percent-taxes-eisenhower-1950s/ https://checkyourfact.com/2019/01/09/fact-check-90-percent-t... > The top 1 percent of income earners paid an average effective income tax rate of 16.9 percent in the 1950s, according to data compiled by the Tax Foundation from a 2017 paper by economics professors. That figure includes all federal, state and local income taxes. > Congressional Research Service calculations of data from the Internal Revenue Service similarly found in a 2012 report that the very top income earners – the top 0.1 percent and 0.01 percent – also paid effective tax rates lower than the 91 percent top marginal tax rate in the 1950s. The average rate for the top 0.1 percent fell from the low 40 percent range to the high 30 percent range during the 1950s. For the top 0.01 percent, it fell from the 50 percent range to the mid-40 percent range.
jppope 6y ago
My biggest issue with all the "Tax the Wealthy" stuff... we have 5 Trillion to work with... how much more do they need? What will they possibly spend it on given we already spend more than other countries on pretty much everything. Giving our current leaders more money to spend is just wasteful.
- nnm 6y ago
  Big money spent by bureaucracy does not have a reputation of not being wasteful.
- akvadrako 6y ago
  Most of the money goes towards social security and medical expenses, and the percentage is going up. So it's not so much about giving politicians more to play with, but being able to honor the debts that have been incured to the citizens.
  - jppope 6y ago
    100% but those debts are unsustainable as a society.
lend000 6y ago
Finally, a common sense tax proposal. Fix the brackets before any of this wealth tax nonsense. We already have a thorough and effective system of measuring income in this country. I would add another bracket for 100mm+, as well as stretch the brackets out for regular income. It's ridiculously broken when people make 10,000 times as much as the highest bracket. If someone makes more than an order of magnitude above the highest level, it's time for an update, imo.
- closeparen 6y ago
  Who is realizing $100mm in taxable ordinary income? That is one hell of a wage. Much more likely you "make" $100mm by owning a company that increases in value by $100mm. That is not subject to any tax rate or bracket at all. Only the portion that you sell for diversification / consumption is.
  - lend000 6y ago
    Founders and early investors cash out billions in capital gains at a time every year. The brackets should reflect that.
nnm 6y ago
A sensible capital gains tax should remove the inflation part. Say you buy a stock for $1000 in year 1. Suppose monthly cost for living in that year is $1000. In year 10, you sell the stock for $2500. Suppose monthly cost for living in year 10 is $2000. Your investment essentially just beat the inflation by $500 at year 10. In other words, real capital gain is not $1500.
DiNovi 6y ago
the proposal is to remove capital gains and tax it as ordinary income above 1 million, clickbait headline
pembrook 6y ago
It’s important to remember that this is just a proposal, and even if passed, it will likely be negotiated to be a less dramatic change (as with all legislation in the US). The problem with this particular proposal is it would hit most members of congress (on both sides of the aisle) and their friends right in the pocketbook. Being flawed humans, the people in congress rarely vote against their personal self interest. I expect to see at most 30% cap gains rates and likely for people making $5M or more, with carve outs for about 15 special interest groups to the point where it’s basically ineffectual.
DiNovi 6y ago
here's a chart of market returns vs cap gains tax rate, you will notice there is no correlation. So dont argue that there is! https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=large https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...
Jackson12 6y ago
The problem (other than double taxation)is that people whose wealth is predominantly held in a diversified portfolio will be able to avoid this sort of tax much more easily than people who have more concentrated holdings. Someone who sells a $2 million business is rich, but they aren't that rich. The rules for houses and incentive equity compensation are complex. But this would generally be bad for people who get equity compensation in companies whose value is very volatile (read early stage startup workers). This is very problematic for Silicon Valley's current economic model.
- Dah00n 6y ago
  >This is very problematic for Silicon Valley's current economic model. Is that a bad thing?
  - Jackson12 6y ago
    You never know. But this would make building or joining early stage companies in the US dramatically less attractive. Especially for people who have the option of living abroad. I think that would be incredibly bad.
nyxtom 6y ago
2024 or even 2022 is going to be a very interesting election if this ever gets passed.
tonfreed 6y ago
Are people actually stupid enough to think anyone earning over $1M a year aren't just going to hire an accountant that can play the stupid tax games? This is going to do shit all and just cascade to the middle class, just like all tax hikes do
- seattle_spring 6y ago
  What stupid tax games are there to play? There seems to be some myth going around that high income folks can just pay a CPA to absolve themselves of tax obligations. That's really not how this works.

101 points by marc__1 6y ago

...For those making 1M / yr or more. Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. Income is income. Plenty of other countries tax it the same and we should too. Edit: To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?

chrisp_dc 6y ago
The argument I have heard is corporate profits are already taxed. The capital gains tax + corporate profit tax roughly equals normal income tax. Personally, I'd prefer higher capital gains tax and lower corporate tax. I think it would be more transparent and easier to collect.
- jjoonathan 6y ago
  Ah, yes, double taxed: once at 0%, due to Ireland, and once at 15%, due to the special capital gains rate. I wish my income was double taxed like that! Where do I sign up?
  - zepto 6y ago
    What proportion of businesses are taxed like that?
    - klyrs 6y ago
      Better question: what proportion of corporate profits are taxed like that? Because the cheesemonger down the street isn't pulling a Double Irish to avoid taxes on the ~0% of GDP that they're generating.
      - zepto 6y ago
        Agreed - I would like to know what the effect would be on regular businesses are growing, not a few giant multinationals. If people care about this loophole, how about just closing it, rather than taxing everyone else?
        deleted 6y ago
        [deleted]
        klyrs 6y ago
        How do you close a loophole without bought politicians replacing one loophole with ten? A bit of an "angels dancing on a pinhead" question, I'll admit
    - User23 6y ago
      Look up double Irish with a Dutch sandwich. Not really my area of expertise, but in the past at least basically all big tech companies used that strategy.
      - zepto 6y ago
        I don’t need to look it up, I know what it is. The proposal would hit every business not just a few tech giants.
        jjoonathan 6y ago
        Yeah, everyone knows what it is, and has known for a long time. It goes to show that the loophole is not an accident but rather an intentional result of our political process. Unfortunately.
    - lostlogin 6y ago
      Different scenario, but tech giants in the US have some amazing arrangements. I’m in New Zealand and their clever arrangements here see them paying minuscule bills on massive revenue “In 2018 Google NZ Ltd (an entity of Alphabet group) paid income tax of NZ$398,341 – about 0.055 per cent of the estimated gross ad revenue “extracted” from the New Zealand market.” Facebook, Apple and Amazon have all been in and out of the news here for their arrangements too. https://i.stuff.co.nz/business/121505796/google-and-facebook-pay-way-less-tax-in-new-zealand-than-in-australia--and-were-paying-the-price https://i.stuff.co.nz/business/121505796/google-and-facebook...
      - zepto 6y ago
        You have to be a multinational by definition to do this, and yet the proposed taxes will hit most medium sized businesses. “It will hurt Apple and Amazon” is not a problem. “It will hurt most growing businesses”, is.
        jjoonathan 6y ago
        On account of where campaign finance comes from, I'm afraid politicians see it the other way around.
  - jariel 6y ago
    True - but of the business activity is in EU, then really it's Ireland's issue to sort out with the EU, it's a separate issue from the 'other side' of the taxation in the US. What they should do is sort it out.
- anonAndOn 6y ago
  > capital gains tax + corporate profit tax roughly equals normal income tax Doesn't this apply exclusively to the corporate profits not shielded in a Double Irish (or it's latest incarnation) arrangement [0]? [0]https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
- walshemj 6y ago
  shifting even more the tax burden to the citizen why?
  - lwansbrough 6y ago
    To improve society.
    - moyasari 6y ago
      Society won't improve if the financial system is fundamentally broken, and the people running it are explicitly against fixing it. Don't let these circus shows let you believe otherwise.
  - throwaway8581 6y ago
    No, corporate tax is of corporate profits, which is just capital gains that haven't been dispersed and may be dispersed in the future (or may be reinvested). Salaries and wages are not profits, so they are not subject to the corporate tax. In theory, the sum of the capital gains rate + corporate tax rate is supposed to approximate the individual income tax rate. But because most people will never understand this, we can't have a tax code that makes sense. Mass democracy is incompatible with sensible rulemaking in this area.
  - closeparen 6y ago
    The argument is that dragging on corporations hurts customers and staff as well as owners. It's better to precisely target the owners. However, I think it misses that most of the benefit to owners is in the form of unrealized gains, not subject to any of the tax rates that people talk about tweaking.
    - throwaway8581 6y ago
      It's not a gain if you don't realize it.
      - closeparen 6y ago
- fighterpilot 6y ago
  > Personally, I'd prefer higher capital gains tax and lower corporate tax. Same, but it'd mean more tax money for foreign governments, too, since those untaxed profits would be contributing to cap gains tax in another country (in the case of foreign investors) instead of domestic corporate tax.
- trhway 6y ago
  That doesn't make sense. Those are taxes with different bases. It would make sense to talk that way about corporate profit tax and corporate dividend tax for example.
- klyrs 6y ago
  > The argument I have heard is corporate profits are already taxed I've heard time and time again that it's a moral imperative for corporations to reduce their tax burden to zero using every loophole available. Are big corporations actually paying tax?
  - bolasanibk 6y ago
    https://www.washingtonpost.com/business/2021/04/05/corporations-federal-taxes/ https://www.washingtonpost.com/business/2021/04/05/corporati... >55 corporations had zero federal tax liability in 2020, including household names like Nike, FedEx and Dish Network, analysis finds
  - akvadrako 6y ago
    That's not relevant. If you pay out dividends, you cant evade those taxes. Capitol gains is supposed to be based on expected future dividends.
- XorNot 6y ago
  And that argument is complete junk: https://i.imgur.com/QpvGlnV.gif https://i.imgur.com/QpvGlnV.gif The money I spend of my income buying goods from other businesses is "already taxed" and then when those businesses collect it from me its "taxed again". Mysteriously, the one form of taxation the already wealthy benefit from is very concerned about this happening.
  - jariel 6y ago
    The argument is not junk, there's value in understanding how taxes work through the value chain. A little bit like a VAT, we don't want to tax, tax and tax some product that has a long and complicated line of distributors, rather, tax the final product, either using VAT rebates etc.. This is more economically beneficial. With corporate and individual incomes, we think at little bit the same way - i.e. how the taxation will flow through via corp tax, income tax, dividend tax and cap gains. In Ontario, if you pay small business corp tax and then a dividend, it's pretty much the same as if you were to take a salary and pay income tax. Obviously, this because the million or so small businesses out there would rig their outgoing cash flows one way or the other, depending on tax treatment. While cap gains is a special situation, it does still form part of those block of taxes that should naturally relate to one another in terms of how net surpluses are taxed. When you spend your 'already taxed income' on an entirely new product or service, then that's separate economic activity, and so it's taxed without consideration to your 'previously taxed income'.
triceratops 6y ago
True. Although a dollar from investing money is potentially worth less, risk-adjusted, than a dollar from working a job. So it makes sense that the proposed tax brackets are at higher incomes than earned income. But definitely the top rate should be increased; why the heck should a middle-class retiree pay the same rate on their cap gains as someone with way higher income?
surge 6y ago
You're also not factoring in risk that comes from investing, the argument is lower taxes on investments encourages people to invest their money. If there is risk of loss, plus high taxes when there are actual gains, there is lower return on investment and therefore, less incentive to risk your money in investments. It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends. I imagine large investors will just break up their investments into so many shell companies/trusts that each entity will never carry more than 1M in investments. There's always a loophole.
- JamesBarney 6y ago
  Given current interest rates it seems like the world has too much money to invest and not enough people spending.
- triceratops 6y ago
  Investment risk is already addressed with this proposal. The top tax bracket for earned income is way lower - something like $450k.
- jbay808 6y ago
  If you can still credit past losses against your gains, that should account for the risk shouldn't it?
  - da_big_ghey 6y ago
    only if you are assume that each person is coming out positive in eventuality. there exist always some person who has lose, maybe he is having for to withdraw money for covering expenses or retirementing.
    - jbay808 6y ago
      If you never come out positive, capital gains tax is the least of your worries.
- 6y ago
infogulch 6y ago
Shares are a kind of property. Perhaps it would be reasonable to charge a property tax on their value. The market would fix inflated valuations right quick.
- potiuper 6y ago
  Cash is also a kind of property or more technically a "security", and a tax on it would be a "wealth" tax. The progressive vs regressive tax question can be reworded into asking how much freedom or our own wealth should we give up to the government to provide "security"?
  - infogulch 6y ago
    I think inflation is the tax on cash as a security. That's what all the cryptocoin people are harping about.
walshemj 6y ago
It to incentivise investment to make up for the possible loss. you might want to think about what happens when companies run out of capital.
- wing-_-nuts 6y ago
  Isn't incentivizing for risk the market's job? Why should the government be in the business of rewarding risk taking, and secondly, where else would they put their money? It's not like there's a secret, riskless investment out there that has a high return and doesn't generate capital gains. Your options are to invest, or lose money to inflation in a certificate of deposit.
  - walshemj 6y ago
    Lots of reasons the government should be in that business. And artificially pushing people to invest in income vs capital gains will increase bond/guilt prices.
kec 6y ago
The median home price in California is rapidly approaching $1M, Wouldn't this just lock up the real estate market even more?
- wing-_-nuts 6y ago
  You can exclude 250k / 500k for single / married folks. It's quite generous.
- dv_dt 6y ago
  Selling a $1M home doesn't mean you have $1M in income, so I think in general it wouldn't impact the real estate market except perhaps at the much higher end - maybe $5M or higher. Our housing market would probably be more sane if developers had more pressure to focus on building units in the middle to low end of the market anyway in California.
gher-shyu3i 6y ago
> ...For those making 1M / yr or more. Does that mean if someone makes $1M of capital gains and has no other job, he'll get taxed at the high rate?
- ac29 6y ago
  The new rules have not been written, voted on, or enacted, so who knows. But under the current law, yes, capital gains count towards your total income.
thelean12 6y ago
> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. It's pretty simple in my mind: Retiring is hard enough, and at some point I won't be able to do any labor. Market investments are the current way that most people are able to retire, whether we like it or not. Raising it for anything above 1M / year? No problem. They've got enough money to retire comfortably. For everyone though? My god.
- elil17 6y ago
  Except most people in America don't pay capital gains taxes on their retirement savings anyway. 401ks and IRAs are free from capital gains taxes. Anyone can save enough money in those vehicles for retirement unless they start saving really late in life. For those who start saving late, most of their wealth will be in basis anyway.
  - bullfightonmars 6y ago
    Right 401ks and IRA are taxed as regular old income when withdrawn and are subject to the same tax brackets as everyone else.
    - elil17 6y ago
      Right but they're only taxed once (either you don't pay income tax going in or you have a Roth account and you don't pay it going out). Either way, ignoring the fact that you might change tax brackets, it's as if you took the money post tax, invested it, and then didn't have to pay any capital gains on it.
ojbyrne 6y ago
Pretty simple to me, investing is mostly discretionary. If it's encouraged, there will be more of it. If it's not, there will be less.
- wing-_-nuts 6y ago
  IMHO, mr market is more than capable enough of pricing his assets to attract investments. I fail to see why this is a government concern.
- jrs235 6y ago
  >investing is mostly discretionary *investing is basically a luxury for many, if not most
colinmhayes 6y ago
The government wants to incentivize investment because it causes the economy to grow. More investment = faster growth = everyone better off in the long run.
- DiNovi 6y ago
  capital gains tax doesnt effect investment levels. here's a chart: https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=large https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...
  - colinmhayes 6y ago
    That chart doesn't even have investment levels on it. Even if it did correlation isn't causation.
  - jppope 6y ago
    Capital gains is levied on assets other than Stocks - such as bonds, real estate, royalties.
gotoeleven 6y ago
I don't really see how it's fair to tax investment returns at all. When you invest money in something you are taking a risk that you will lose that investment. It's not like the government steps in to make you whole when you lose money, so how is it fair that they get to go through your pockets if you make money? Granted probably much income that counts as 'capital gains' right now should be classified as regular income and taxed as such.
- wing-_-nuts 6y ago
  >It's not like the government steps in to make you whole when you lose money They let you deduct losses from gains and income for tax purposes. This saved me thousands after '08. IMHO it's the market's job to price assets and reward risk taking, not the government
- gotoeleven 6y ago
  Why is everyone so downvote happy on this site now? Its kind of nuts. Are there really a bunch of sad people just reading through the comments for things that they disagree with to downvote? Maybe you're a communist you thinks taxes should be 100%, fine, but why downvote this? Do you think your socialist utopia is just a few HN downvotes away?
  - deleted 6y ago
    [deleted]
moduspol 6y ago
I think it's because investment money can be moved away easier and faster than labor. As a result, taxes have to be more competitive relative to other areas. I also don't think it's about incentivizing investing relative to labor. The incentives are for investing relative to other things you could do with money, like spend it, save it, move it elsewhere, etc.
- wing-_-nuts 6y ago
  Money belongs to people, and those people don't tend to move. Heck, the US is especially good at taxing people abroad. How many would really renounce citizenship just to save on taxes, and where would they go that taxes less? There's always a pull between spending and saving, but if you save, you're either investing, or losing money to inflation.
  - moduspol 6y ago
    > Money belongs to people, and those people don't tend to move. The tax isn't for their money, it's for their capital gains, which only happen when they realize those gains (e.g. sell assets). High net worth individuals absolutely can and do move to lower tax areas if the incentive is sufficient, or otherwise choose not to move to higher tax areas. It happens between US states all the time. > Heck, the US is especially good at taxing people abroad. Has it improved significantly since 2014 [1]? > How many would really renounce citizenship just to save on taxes, and where would they go that taxes less? Perhaps somewhere other than Canada, France, Holland, Denmark or Sweden, and without renouncing their citizenship. There seems to be this idea that simply because the IRS tax rules apply to expatriates, that everyone bends over backwards to report their incomes and pay their taxes the same way they would in the US. I just haven't seen evidence that's the case--particularly among high net worth individuals leaving for that purpose. And regardless, ideally our rates would be competitive and investors should want to put their money here. A "where else are you gonna go" attitude only works while there aren't better options, which may not be forever for all taxpayers. [1] https://www.forbes.com/sites/procedurallytaxing/2014/11/18/international-collection-efforts-by-the-irs-expanding-the-number-of-treaties-in-which-we-have-collection-language/?sh=3a3dc3ff1e08 https://www.forbes.com/sites/procedurallytaxing/2014/11/18/i...
cperciva 6y ago
...For those making 1M / yr or more. Note however that capital gains tend to be "bursty", so having $1M of capital gains in one year doesn't imply having $1M of income in a normal year. (To take a personal example: I had a very large amount of capital gains in 2020 because I sold my entire portfolio of ETFs and bought a house.)
antisthenes 6y ago
> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor The reason is caring about the seniors/elderly and a pro-home ownership policy. As you age, your ability to earn a living from labor goes down, for a number of reasons (ageism, family obligations, less energy), but your costs go up (healthcare, family obligations). Having investments and being able to sell off capital, taxed at a lower rate than income is an insurance policy against reduced earning potential in senior years. Is that in and of itself enough to say the tax rate should be half? Maybe not. But the argument is solid. It just doesn't determine the exact percentages.
RhysU 6y ago
> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. A laborer gets paid $1 for working hard. An investor gets paid for $1 for doing something smarter. Work smarter, not harder, as a civilization. Deliver the most value to the greatest number with the lowest labor input. That's how we get scale, grow an economy, and prosper.
- jay_kyburz 6y ago
  An investor get paid $1 because...they had money to invest. Labor need not be taxed at all if you ask me.
- sundaeofshock 6y ago
  The hard work of the laborer is what allows the investor to sit on their lazy ass all day long. The infrastructure the “smart” investor exploits day-to-day doesn’t just magic out of the ground…
  - RhysU 6y ago
    Correct. Investors pay laborers to build said infrastructure. Like, the investor pays all the laborer's wages even if the infrastructure idea was stupid and the investor loses his shirt in the process. The laborer still cashes paychecks while the capital lasts. Like, think stupid VCs. Investors might just be stupid VCs. A laborer can pocket money from stupid, stupid VCs while the laborer's work provides no value to humanity. That's why smart investors aren't bastards. And why stupid investors aren't bastards for trying but failing. It's hard to not be a stupid VC. It takes skill. And capital. And understanding what people want. And grokking the shifting regulatory environment. And a whole lot of other crap beyond fizz buzz and and and...
Balgair 6y ago
> ...For those making 1M / yr or more. This is on a graduated tax schedule, correct? If so, then only the 1,000,001st dollar gets the higher tax (and every dollar thereafter).
chrismcb 6y ago
My understanding is, to encourage people to invest their money, rather than sick it in a mattress. "The asset price should reflect the inherit risk..." How? The risk of investing is losing everything. How do you add that to the price? Perhaps income should be income. It would definitely simplify the tax code. But money needs to circulate, that is how you have a booming economy. You asked how is a dollar earned from an investment with more than a dollar from labor. Well that dollar from labor might only exist because of the dollar from investment.
Jackson12 6y ago
Capital gains default to being taxed at the same rate as income in this country (as they should be). There are exceptions for certain long term capital gains, and for qualified dividends. The rationale for this is that corporate profits are already taxed. The effective tax rate is about 25% for US corporations. For income from corporate profits to be taxed at the same rate as normal income, it should be taxed at a lesser rate once it's been distributed via dividends or buybacks (which is how the system is set up). Changing the system would have several negative effects. It would encourage companies to take on leverage. Interest expenses are deductible for the purposes of corporate taxes. While interest earnings are and have always been taxed as ordinary income. So companies would likely shift their balance sheets to compensate. It would also make short term speculative trading more attractive for US citizens (and lord knows we have enough of that). And lead to greater foreign ownership of US equities, which is not necessarily desirable. There are certainly fairly indefensible aspects of the US tax code. This just isn't one of them. There's also an interesting argument that it's less distortionary to tax wage income than investment income. Because wages (and especially the variation thereof) are substantially driven by unearned human capital endowments.
- bjtitus 6y ago
  > Capital gains generally are taxed at the same rate as income in this country Maybe I'm missing something but the "Sales of Capital Assets Reported on Individual Tax" from 2012 shows 7.5x as many long term Capital Gains as short term. https://www.irs.gov/statistics/soi-tax-stats-sales-of-capital-assets-reported-on-individual-tax-returns#_tables https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita... Doesn't this mean the majority of individual investment gains are not taxed as income?
  - Jackson12 6y ago
    You're right. That's a slightly misleading way to put it, and I have revised my original post. My point was that the "default" method of taxation is the same as ordinary income. Long term capital gains and qualified dividends are legally an exception to that rule. Though I don't think it diminishes my broader point.
bitshiftfaced 6y ago
> To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right? That's exactly right, but you're only looking at it from the point of view of someone clicking "buy" on their phone. Instead, look at it through the eyes of someone who has twenty years of working the daily grind saved up and is thinking about building something new out of nothing. Maybe it's worth the risk of losing that savings. If you tax that even more, then the balance tips even more into riskier territory and makes it less likely that you take on that new business venture. You're saying that the market corrects for that, and it does... by disincentiving the investment by making the potential payoff less.

rvz 6y ago

Sounds like the news of this spooked a lot of investors to cause a surprise sell off. Most notable drops in Deliveroo, Coinbase and GameStop stock. At the time when everyone was scrambling to buy into the Coinbase direct listing, I was downvoted to warn them that the early investors will dump it immediately. [0] [1] In fact, I shorted it on direct listing day and here we are the news are now reporting it trading down last week [2] the hype squad are no where to be seen leaving the retail investor bag holding at >$375. And now the news of US tax increases dealt another blow to the markets and boosted my short position in Coinbase. Well done me, I guess. [0] https://news.ycombinator.com/item?id=26673100 https://news.ycombinator.com/item?id=26673100 [1] https://news.ycombinator.com/item?id=26790725 https://news.ycombinator.com/item?id=26790725 [2] https://www.cnbc.com/2021/04/15/coinbase-coin-climbs-11percent-in-premarket-after-nasdaq-debut.html https://www.cnbc.com/2021/04/15/coinbase-coin-climbs-11perce...

seattle_spring 6y ago
Can you share some screenshots of your short position and which brokerage allowed you to trade options? Because this would be a historic first that a brokerage allowed options trading of a stock on the first week, let alone the first day, of hitting the market.

triceratops 6y ago

This is a good move. It'll raise tax revenues, hopefully reduce inequality, and potentially bring equities' valuations down to something more reasonable (and I say this as someone with a healthy stock portfolio). How will it address people financing their spending with pledged asset line loans against their portfolios? Interest on that is tax deductible if the loan is used for an investment; which doesn't seem like a high barrier.

encoderer 6y ago
I disagree. Raise taxes if you need money. I guess the government does? But doing it to solve inequality and bring down equity valuations? That seems like irresponsible tinkering with the economic chemistry set, and not the right way to set govt policy.
- triceratops 6y ago
  I don't believe I said anything about the administration's motivations behind this proposal. I only described some potential positive (to me) side-effects .
  - encoderer 6y ago
    If you're a fan, that's fair, and I hope the side effects work out for you the way you hope.
elil17 6y ago
>hopefully reduce inequality Depends how the money is used. If we spend it on social programs, reducing taxes on lower-income earners, infrastructure, then it will. But if it just gets spent on more weapons? I don't know that that does anyone any good.
gher-shyu3i 6y ago
People will find loopholes, that's how the game is played. Nothing will get solved because the system is broken at a fundamental level, and no amount of patching will fix it. Do you want actual, proper change that will benefit society? Ban interest and all the shenanigans that come out of it (shorting, puts and calls, etc.). I guarantee things will dramatically improve - it's been done before.

temp667 6y ago

I can speak to this - a long time coming. A HUGE amount of complexity in tax code, tax preparation, and tax audit is the characterization of earnings. Pop quiz, if you are going to be bringing in $100M, do you want to pay 40% tax or 15% tax? Long term capital gains = 15%. So a lot of hoop jumping to turn things into capital gains, then long term capital gains. What a pain. Just for simplicyt I wish they would say, for everyone making more than $150K/year (300K married) investment income is taxed as any other type of income. Cut overall rates if needed if you want it revenue neutral. The next step is to tax unrealized gains. I know, lots of hand wringing, but if you can defer gains until death (not too hard) you can come out golden in terms of family wealth (lots of like kind property exchanges etc).

ska 6y ago
Wouldn't that latter be better fixed by adjusting estate & inheritance rules? You could even make it simple, e.g. all unrealized gains upon death.
novok 6y ago
$150k may sound large for you, but $150k in california is around $90k after tax, and with $2800-$5000/month rents that is not a lot of money left over.
- toomuchtodo 6y ago
  Federal tax rates should not be optimized for localized dysfunctional housing markets.
  - BooneJS 6y ago
    Please remember that punitive changes like limiting SALT hurts actual people before it causes changes in the way state governments run.
    - toomuchtodo 6y ago
      I assume that the SALT limitation will be removed by this administration, as it was punitive and not grounded in effective policy.

dv_dt 6y ago

Maybe it would make companies go back to dividends instead of favoring stock buybacks - which imho would be a nice reduction of financialization behavior

walshemj 6y ago
And add a small say $5k allowance for small stockholders like the UK does.
toast0 6y ago
I don't see how. Qualified dividends are taxed at long term capital gains rates; if those rates go up (for high income) stockholders, those stockholders will be generally less pleased about recognizing the income rather than defering it with a buyback. As a stockholder, I can always make my own dividend by selling shares; but I can't make my own stock buyback, because I only get a portion of the dividend.
pembrook 6y ago
This would have literally no effect on buybacks vs dividends as both are taxed as capital gains. In fact, it might favor buybacks even more since you aren’t forced to pay taxes on share price increases until you sell. Dividends give you a tax bill every year, even if reinvested. Also, there’s nothing nefarious about buybacks. It’s just a more tax efficient way to return money to shareholders. There’s no boogie man there.

Taniwha 6y ago

A reminder - in the US by default capital gains are levied at the same rate as any other income - the "capital gains tax" is a LOWER tax on some forms of capital gain intended to encourage some forms of investment (long term rather than stock/house flipping for example)

lotsofpulp 6y ago
You can flip houses all day long and not pay any tax as long as you buy another piece of real estate within 6 months. https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx https://www.investopedia.com/financial-edge/0110/10-things-t...
- throwaway3699 6y ago
  This is A Good Thing and by design. Isn't encouraging investment the whole point?
  - triceratops 6y ago
    This particular loophole seems like it was meant to shield homeowners who are moving house. Not for encouraging investment.
    - jmvoodoo 6y ago
      It only applies to investment property. If you own your home the first 250-500k of capital gains is exempt depending on your filing status. 1031 exchanges are a decent amount of work and have some additional requirements (it's not really for house flipping). They are also a tax deferral strategy. The tax eventually comes due.
      - lotsofpulp 6y ago
        > They are also a tax deferral strategy. Carved out only for real estate investors. I don’t see why it shouldn’t either apply to everyone, or no one.

jandrewrogers 6y ago

And that's just the base Federal rate. If you add NIIT at 3.8%, I believe that is the highest long-term capital gains rate in the developed world. And that is before you add State taxes, like the 13.3% in California. Unlike some other countries, there is no cost-basis adjustment for inflation and there is a limited ability to deduct capital losses, both of which can be substantial for long-term investments and risk capital. All in, this makes it very difficult to get a competitive return on long-term high-risk investments, like tech startups, biotech, etc compared to almost any other asset class. Instead, it strongly incentives cashflow and rent-seeking investments, which have better risk and tax profiles in almost every regard if this goes through. As a second-order effect, this would cause an extraordinary amount of capital to be moved into real estate which is already experiencing very high price inflation.

da_big_ghey 6y ago
yes you are make very good points. we are doing better if we make consumption and land value taxes our majority for federal. then try maybe different models at state level, make states fund their own things once more. we try fifty different models, we find the best and use it, then we try new ones on that basis and find better again. one federal model is create the unintended consecuence for each state in nation, state model is damage only one. let us play once more to strengths of federal models.
- imtringued 6y ago
  I don't think land value taxes will ever be implemented in a way that actually lives up to the ideals. Switching from land ownership to ground leases is less disruptive to the current tax system and has similar benefits.
bpodgursky 6y ago
Not to mention that the fed is now aiming for 2+% inflation (and let's be real, it's going to be higher), so cashing out even after a 10-year breakeven investment that earned nothing is going to cost you over 10% on withdrawl.

nceqs3 6y ago

It should be made retroactive to 2020.

bpodgursky 6y ago

Looming high (fed-directed) inflation + a high capital gains tax unindexed to inflation... seems like a shadow wealth tax. Dunno if I feel great about this in combination.

imtringued 6y ago
It's not perfectly equivalent to a wealth tax because the effective tax rate would merely approach the current capital gains tax. Assuming 1000% inflation the worst that could happen is that you pay capital gains on your entire investment rather than the gains.

hourislate 6y ago

Theater for the masses... Why? Because do you think for a moment someone making $1 million in "Capital Gains" doesn't have access to a financial professional to avoid paying any tax? If you want to tax the wealthy, you'll have to find a different way.

jtr1 6y ago
What would you propose?
poundofshrimp 6y ago
Mind to elaborate what kind of loopholes you’re talking about?
bejt 6y ago
Aren't things like this the way you would tax the wealthy? Think of this as a patch which fixes a bug that said financial professional would exploit.
Daishiman 6y ago
This argument doesn't make sense at all. Rich people always have access to financial professionals. Shifting tax burdens isn't free and nobody's expecting that people won't change their portfolios/tax declarations/whatever to reflect this. What it does do is alter the effective tax rate, and even a partial effect is desirable.
TomVDB 6y ago
Someone making $1M is often part of the working wealthy. No amount of advise from financial professionals will help them avoid paying tax on things like salaries, RSUs etc.
kelp 6y ago
As someone who has access to and regularly works with (pays) tax professionals and financial advisors, I've yet to be able to take advantage of much, if any, way to avoid paying any tax. Most of the things I'm aware of, and have been advised of, are things like QSBS (Qualified Small Business Stock) which I've been able to claim once. In that case it was a 5 figure gain. So the tax benefit was not particularly amazing. Yeah, others have been able to benefit much more from this. But it's a pretty narrow situation where you can. I've recently early exercised some ISOs, so if this proposed tax change didn't pass, I'd have the long term cap gains rate. I think there are some interesting things you can do with charitable trusts, but I think you're mostly deferring taxes, and I haven't had a situation where it made sense. But all in all, in the years that I've paid, what I think, are a pretty competent set of financial professionals, I've yet to come across any magical way to avoid paying any taxes. I've actually paid a large amount of taxes and have to ensure my investments and finances are planned so I can pay the tax bill when it comes due. I think most stories we hear about the wealthy not paying any taxes are either tax fraud, or substantial capital losses that offset all gains. In the capital loss situation, that's probably a temporary thing for that person, otherwise they won't be wealthy for long.

encoderer 6y ago

It will be a great time to build a small SaaS business. Get QSBS tax treatment, pay no federal taxes when you sell the business after 5 years.

ericbarrett 6y ago

Everybody commenting on this should be familiar with the historic income and capital gains tax rates in the U.S. Here's a chart from 1954-2020: https://www.taxpolicycenter.org/sites/default/files/styles/original_optimized/public/book_images/3.2.1.1_0.png https://www.taxpolicycenter.org/sites/default/files/styles/o...

da_big_ghey 6y ago
what nice of a cherry-picking graph. it have picked start point of highest rates in history for to make the appearing that there have been some extraordinary cut. but in real seeing it is the high rate that was the extraordinary. here we have longer-view graph for to illustrate: https://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c85dc53f970b-800wi https://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c85dc53... in similarity, we are see that capital gains tax today still exist above historical past, the graph you link again cherry-pick. longer-term view is showing of a different picture: https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com%2Feditorial%2Fimages%2F433057%2Fmaximum-capital-gains-tax-rates.PNG&w=1200&op=resize https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com... under here we are see a recover to normal over time not the "cuts for rich" things you are saying.
- singhrac 6y ago
  I doubt you can compare the American economy of 1850 to that of today... the reason we needed lower taxes before 1920 is because we had a fairly underdeveloped economy. You’re right that it’s best to present the full history, but then you also have to provide context. The period before 1920s was the Gilded Age (then Progressive Era) which was when America was industrializing. I think by “recover to normal over time” you’re making a claim that you’d prefer the economics of 1910 America over 1970 America, which is where we disagree. Sure, if you’re making a founding fathers style argument, it makes sense, but I doubt anyone really wants to go back to a world where America doesn’t have an interstate highway system or Medicare.
ploxiln 6y ago
That's a rather misleading graph though. https://checkyourfact.com/2019/01/09/fact-check-90-percent-taxes-eisenhower-1950s/ https://checkyourfact.com/2019/01/09/fact-check-90-percent-t... > The top 1 percent of income earners paid an average effective income tax rate of 16.9 percent in the 1950s, according to data compiled by the Tax Foundation from a 2017 paper by economics professors. That figure includes all federal, state and local income taxes. > Congressional Research Service calculations of data from the Internal Revenue Service similarly found in a 2012 report that the very top income earners – the top 0.1 percent and 0.01 percent – also paid effective tax rates lower than the 91 percent top marginal tax rate in the 1950s. The average rate for the top 0.1 percent fell from the low 40 percent range to the high 30 percent range during the 1950s. For the top 0.01 percent, it fell from the 50 percent range to the mid-40 percent range.

jppope 6y ago

My biggest issue with all the "Tax the Wealthy" stuff... we have 5 Trillion to work with... how much more do they need? What will they possibly spend it on given we already spend more than other countries on pretty much everything. Giving our current leaders more money to spend is just wasteful.

nnm 6y ago
Big money spent by bureaucracy does not have a reputation of not being wasteful.
akvadrako 6y ago
Most of the money goes towards social security and medical expenses, and the percentage is going up. So it's not so much about giving politicians more to play with, but being able to honor the debts that have been incured to the citizens.
- jppope 6y ago
  100% but those debts are unsustainable as a society.

lend000 6y ago

Finally, a common sense tax proposal. Fix the brackets before any of this wealth tax nonsense. We already have a thorough and effective system of measuring income in this country. I would add another bracket for 100mm+, as well as stretch the brackets out for regular income. It's ridiculously broken when people make 10,000 times as much as the highest bracket. If someone makes more than an order of magnitude above the highest level, it's time for an update, imo.

closeparen 6y ago
Who is realizing $100mm in taxable ordinary income? That is one hell of a wage. Much more likely you "make" $100mm by owning a company that increases in value by $100mm. That is not subject to any tax rate or bracket at all. Only the portion that you sell for diversification / consumption is.
- lend000 6y ago
  Founders and early investors cash out billions in capital gains at a time every year. The brackets should reflect that.

nnm 6y ago

A sensible capital gains tax should remove the inflation part. Say you buy a stock for $1000 in year 1. Suppose monthly cost for living in that year is $1000. In year 10, you sell the stock for $2500. Suppose monthly cost for living in year 10 is $2000. Your investment essentially just beat the inflation by $500 at year 10. In other words, real capital gain is not $1500.

DiNovi 6y ago

the proposal is to remove capital gains and tax it as ordinary income above 1 million, clickbait headline

pembrook 6y ago

It’s important to remember that this is just a proposal, and even if passed, it will likely be negotiated to be a less dramatic change (as with all legislation in the US). The problem with this particular proposal is it would hit most members of congress (on both sides of the aisle) and their friends right in the pocketbook. Being flawed humans, the people in congress rarely vote against their personal self interest. I expect to see at most 30% cap gains rates and likely for people making $5M or more, with carve outs for about 15 special interest groups to the point where it’s basically ineffectual.

DiNovi 6y ago

here's a chart of market returns vs cap gains tax rate, you will notice there is no correlation. So dont argue that there is! https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=large https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...

Jackson12 6y ago

The problem (other than double taxation)is that people whose wealth is predominantly held in a diversified portfolio will be able to avoid this sort of tax much more easily than people who have more concentrated holdings. Someone who sells a $2 million business is rich, but they aren't that rich. The rules for houses and incentive equity compensation are complex. But this would generally be bad for people who get equity compensation in companies whose value is very volatile (read early stage startup workers). This is very problematic for Silicon Valley's current economic model.

Dah00n 6y ago
>This is very problematic for Silicon Valley's current economic model. Is that a bad thing?
- Jackson12 6y ago
  You never know. But this would make building or joining early stage companies in the US dramatically less attractive. Especially for people who have the option of living abroad. I think that would be incredibly bad.

nyxtom 6y ago

2024 or even 2022 is going to be a very interesting election if this ever gets passed.

tonfreed 6y ago

Are people actually stupid enough to think anyone earning over $1M a year aren't just going to hire an accountant that can play the stupid tax games? This is going to do shit all and just cascade to the middle class, just like all tax hikes do

seattle_spring 6y ago
What stupid tax games are there to play? There seems to be some myth going around that high income folks can just pay a CPA to absolve themselves of tax obligations. That's really not how this works.