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>They make it through capital gains, which is taxed much less than wage tax. Capital is taxed considerably more than you believe. If you own shares in a corpo

>They make it through capital gains, which is taxed much less than wage tax. Capital is taxed considerably more than you believe. If you own shares in a corporation, on every dollar of profit that corp pays 21% tax. The investor pays 23% on what's distributed. So on every dollar of profit, the government takes 39.2% This is set to go to 28% and 40% respectively, for a combined tax rate of 56.8%. Oh and I didn't mention state taxes. Tack another 8-10% on the corporate side and up to 13% on the income side. So if you had the misfortune of starting a successful business domiciled in California, on every dollar of profit: Fed: 28 cents (corp tax) State: 8 cents (corp tax) Fed: 43 cents (Biden admin proposed top capital gains rate) CA: 13 cents (Top CA income rate) Shareholder: 8 cents That's a 92% effective tax rate.

atlgator 5y ago
None of what you're saying exclusively affects capital gains earners. Higher corporate taxes also affect employee wages. The market does not accept a lower earnings per share report just because corporate taxes increased. Therefore, companies compensate by cutting costs, often by reducing raises, promotions, and/or benefits. Wage earners also pay state income taxes, which are often more than capital gains taxes.
- anonuser123456 5y ago
  The pre-distribution tax is absolutely unique to capital vs wage. Even at the top end of the wage side; 43+13.3 is a net rate of 56.3. At lower income brackets you could throw in payroll taxes, but marginal rates go down considerably at payroll tax phase out levels. My statement stands. There is a pernicious lie that the investor class pays low tax rates because their capital gains rate is a particular value. It’s just _one_ of the taxes paid on profits.
jedberg 5y ago
Your math is wrong. If the company makes $1 in profit, they will pay 36 cents for federal and state taxes. Then they will distribute the remaining 64 cents as a dividend, assuming they don't just hold it. Then you'd pay 27.52 cents more for federal and 8.32 cents in personal taxes. So that's a 72% effective rate. Which the company has the option of getting to 0% by just spending on new equipment, or hiring more people, or anything else they can write off to reduce profits to 0. Which is kind of the point. They want to force corporations to spend all their money so it gets redistributed. The owner of the company still gets "richer" because they own all that stuff that was purchased or the IP produced by the extra workers.
- anonuser123456 5y ago
  You are right. My math in the post-distribution was wrong. But the implications are still valid. There is a considerable tax on investment income. And yes, corporations have figured out ways around paying the tax, but not in an efficient or socially useful way. Corporations are forced to reinvest beyond their competency instead of just distributing returns and allowing investors to re-allocate capital.
dragonwriter 5y ago
> If you own shares in a corporation, on every dollar of profit that corp pays 21% tax. No, it doesn’t, which is why many corporations with large profits still pay ~$0 corporate tax. On every $ of retained profits not negated by some special tax deduction, they pay 21% before considering special tax credits, sure. But the 21% is, as a result, an upper limit on the tax on retained profits, the lower limit is zero, and the biggest corporations tend to also have the most effective tax optimization (and also lobbying, so that the rules favor them from the outset) and so end up toward the lower limit. > The investor pays 23% on what's distributed. Nope, they pay the same rate as long term cap gains, 20% max (not flat, can also be as little as 0% depending on thr taxpayers income.) > Fed: 28 cents (corp tax) State: 8 cents (corp tax) Fed: 43 cents (Biden admin proposed top capital gains rate) CA: 13 cents (Top CA income rate) Shareholder: 8 cents Earlier, you correctly combined taxes where one applies only to the residual, despite the other misleading elements, but here tou seem to have forgotten how to do that and are, in addition to the mistakes made earlier, treating personal maximum tax rates applicable to distributions as applying not to the distributed amount but the amount before corporate taxes. This further overstates the total tax take.
- anonuser123456 5y ago
  You are missing the 3.8% net investment income tax on capital gains. I acknowledge the math error in a sibling post.

atlgator 5y ago

None of what you're saying exclusively affects capital gains earners. Higher corporate taxes also affect employee wages. The market does not accept a lower earnings per share report just because corporate taxes increased. Therefore, companies compensate by cutting costs, often by reducing raises, promotions, and/or benefits. Wage earners also pay state income taxes, which are often more than capital gains taxes.

anonuser123456 5y ago
The pre-distribution tax is absolutely unique to capital vs wage. Even at the top end of the wage side; 43+13.3 is a net rate of 56.3. At lower income brackets you could throw in payroll taxes, but marginal rates go down considerably at payroll tax phase out levels. My statement stands. There is a pernicious lie that the investor class pays low tax rates because their capital gains rate is a particular value. It’s just _one_ of the taxes paid on profits.

jedberg 5y ago

Your math is wrong. If the company makes $1 in profit, they will pay 36 cents for federal and state taxes. Then they will distribute the remaining 64 cents as a dividend, assuming they don't just hold it. Then you'd pay 27.52 cents more for federal and 8.32 cents in personal taxes. So that's a 72% effective rate. Which the company has the option of getting to 0% by just spending on new equipment, or hiring more people, or anything else they can write off to reduce profits to 0. Which is kind of the point. They want to force corporations to spend all their money so it gets redistributed. The owner of the company still gets "richer" because they own all that stuff that was purchased or the IP produced by the extra workers.

anonuser123456 5y ago
You are right. My math in the post-distribution was wrong. But the implications are still valid. There is a considerable tax on investment income. And yes, corporations have figured out ways around paying the tax, but not in an efficient or socially useful way. Corporations are forced to reinvest beyond their competency instead of just distributing returns and allowing investors to re-allocate capital.

dragonwriter 5y ago

> If you own shares in a corporation, on every dollar of profit that corp pays 21% tax. No, it doesn’t, which is why many corporations with large profits still pay ~$0 corporate tax. On every $ of retained profits not negated by some special tax deduction, they pay 21% before considering special tax credits, sure. But the 21% is, as a result, an upper limit on the tax on retained profits, the lower limit is zero, and the biggest corporations tend to also have the most effective tax optimization (and also lobbying, so that the rules favor them from the outset) and so end up toward the lower limit. > The investor pays 23% on what's distributed. Nope, they pay the same rate as long term cap gains, 20% max (not flat, can also be as little as 0% depending on thr taxpayers income.) > Fed: 28 cents (corp tax) State: 8 cents (corp tax) Fed: 43 cents (Biden admin proposed top capital gains rate) CA: 13 cents (Top CA income rate) Shareholder: 8 cents Earlier, you correctly combined taxes where one applies only to the residual, despite the other misleading elements, but here tou seem to have forgotten how to do that and are, in addition to the mistakes made earlier, treating personal maximum tax rates applicable to distributions as applying not to the distributed amount but the amount before corporate taxes. This further overstates the total tax take.

anonuser123456 5y ago
You are missing the 3.8% net investment income tax on capital gains. I acknowledge the math error in a sibling post.