30 ms·

Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. The worse tax situati

Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. The worse tax situation is always the person who makes 500k in a good year, or sells a house they held for 25 years which went up a bunch in value. I suspect this is a significant factor in social mobility. Our tax system is punitive to people who try to leave the working class.

Wowfunhappy 5y ago
> Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. Could you please share some of the situations you're thinking about here? I'm not familiar.
- realce 5y ago
  If you have just enough assets to be "rich" but don't have enough to purchase tax assistance, you've become unprotected prey. Everyone that can afford this tax assistance has a lower cost of business than you, everyone poorer has a lower tax burden.
  - Wowfunhappy 5y ago
    I'd love to see some data on how big a deal this really is, because I would normally assume that by the time you've reached the levels of wealth we're talking about, "tax assistance" is a trivial expense.
    - kbelder 5y ago
      I think at this level, tax protection isn't 'hiring a decent accountant' or 'donate $10,000 to charity', but instead is 'moving your base of operations off-shore' and things like that. Things you can do with a ten-million dollar income, but not a half-million.
      - ta1234567890 5y ago
        Yes. And the reason for that is the cost of lawyers to setup and run the structure. Lawyers could actually charge less and open access to more people, but then it wouldn’t be as exclusive.
  - ta1234567890 5y ago
    Very interesting concept. This happens with lawsuits. If you have enough money/assets to be an attractive target for a lawsuit, but you don’t have enough to pay to defend the lawsuit, you are also “unprotected prey”. An example: in SF/LA (California), a decent civil litigator will cost about $400+/hr. And a lawsuit will run for 1-3 years. When you add all the legal costs up, it turns out that just to defend yourself, you’ll need to spend about $100-$200k. So, unless you have quite a bit of money, you’ll have to either default or settle in maybe not very favorable terms. Either way, you might end up bankrupt, in debt for a long time, or just with no savings at all.
- Mc_Big_G 5y ago
  GFY
  - u801e 5y ago
    > Your dollars saved are worth much less than they were a few years ago and now your taxes are high Which makes me wonder why the general consensus about deflation is that it's not a good thing.
    - deleted 5y ago
      [deleted]
  - iso1631 5y ago
    > Most of your gains are going to go to taxes, so you wait to sell or only sell a little So basically you're hoping for someone to get elected who will give you a ton of money (via a tax cut for the wealthy)
    - dang 5y ago
      "Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize. Assume good faith." "Have curious conversation; don't cross-examine." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  - dang 5y ago
    Please don't delete-edit your posts like that. It's not fair to the users who replied. And needless to say, attacking other users like that will get your account banned here. We've had to warn you multiple times in the past about breaking the HN guidelines. I don't want to ban you, so if you'd please review https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and fix this, we'd be grateful.
bidirectional 5y ago
How does this effect social mobility? I agree the tax system is unfair towards those in the 1% but not 0.001%, but I don't see how it is so punitive that those earning 500k or owning appreciating assets are taxed back down to a lower social class. And no one reaches those upper echelons by saving their 500k/year or holding their house for a really long time.
- deleted 5y ago
  [deleted]
- lacksconfidence 5y ago
  The general idea is average people don't make 500k/yr. What they might do though is have a one time event that earns them 500k in a single year, like selling a small business or a house. In that one year where they finally did well the tax system comes in and hits them even harder with laws intended for someone who makes 500k every year.
  - paganel 5y ago
    Working-class people don’t own small businesses worth hundreds of thousands of dollars, if you’re in that position you’re already middle-class.
dangus 5y ago
You’re not actually talking about the “moderately wealthy.” Just because billionaires are insanely wealthy doesn’t change the fact that a household making $500,000 is still incredibly wealthy. There’s already an exemption for capital gains tax on the sale of primary homes. $500,000 for married couples, and you can remove the cost basis and cost of improvements from the equation. In other words, almost nobody is taxed on the sale of their primary home. A household that makes $500k on a good year is actually in the 1% statistically. They have left the working class long ago. They could work for about 7-10 years in their career and retire with an above-median salary (withdrawing following the 4% rule) in perpetuity. That is by definition not the working class: that family barely has to work in order to secure a lifetime of comfortable living if they don’t inflate their lifestyle. In my view, your comment acts as an implication of support for regressive tax policy that hurts the actual working class. No, moderately wealthy people do not need help. No, we are not temporarily embarrassed millionaires held back from generational wealthy only by government tax policy – that’s a farce sold to us by the very billionaires that want to avoid being taxed. They want us to think that taxes hurt us more than they hurt them, which is mathematically not true. They want us to think that “if only our taxes were cut, we could go back to affording a middle class lifestyle.” It’s not true.
- dhd415 5y ago
  >>A household that makes $500k on a good year is actually in the 1% statistically. They have left the working class long ago. They could work for about 7-10 years in their career and retire with an above-median salary (withdrawing following the 4% rule) in perpetuity. That is by definition not the working class: that family barely has to work in order to secure a lifetime of comfortable living.<< The "in a good year" qualifier in both your comment and the parent comment means that your conclusion that this person has left the "working class" is untrue. It's not uncommon to get a windfall (stock option vesting cliff, inheritance, capital gains, etc.) that boosts income in a single year to many multiples of one's typical income. Such an occurrence does not boost the recipient out of the working class. Managed carefully, it can change their life (buy a house, turbo-charge retirement savings, etc.) but no one's buying a private island with a single year of $500k income.
option 5y ago
that’s the point - ultra rich main concern is not a number in the bank, but that they remain “on top”, so of course they lobby for more taxes which would make it harder for others to approach them in the amount of wealth
pydry 5y ago
One of the lobby tactics the ultra rich use is to try and push a tax hike/new tax to hit as many people as possible to stall its implementation. Then they also go on an all out propaganda offensive to act like it'll hit even more than that.
ipython 5y ago
I agree with your general point, but your specific example of selling highly appreciated real estate is a poor one, since you incur no tax when selling your primary residence (up to something like $500k gain - over your cost basis which includes any capital improvement you made to the property) as long as you lived there for two of the last five years. It’s a huge tax advantage for homeowners. One could argue that it is in itself unfair as it advantages people who already have large assets over those who do not.
- jtdev 5y ago
  It also encourages liquidity in the residential real estate market… which seems to be a net good thing.
- nostrademons 5y ago
  > (up to something like $500k gain - over your cost basis which includes any capital improvement you made to the property) In a lot of markets this absolutely hits the "moderately wealthy trying to leave the working class". Bay Area houses that went for $1.2M in 2009 now go for about $3M, for a gain of $1.8M. That's well over the $500K exclusion, even including capital improvements. Few folks will shed a tear for people who own a $3M house simply by virtue of living in a hot area, but that's exactly who the OP is talking about.
  - motohagiography 5y ago
    The people who live in hot real estate areas for years made them the hot real estate areas. Real estate appreciation isn't free money. It's people who risked moving into an area and brought their culture with them. This is what creates the value. Just because middle class people benefit from the subsidy of low interest rates that create asset bubbles does not mean that the people who raised families in a neighbourhood or a city are somehow undeserving of the rewards on their equity. The idea that money not taken in taxes is an "expenditure," or an advantage, and this idea of accounting for the hypothetical opportunity cost of not taking some peoples money as a tax privilege is bizzare.
tomerico 5y ago
Another point is that $500k is not in the 1% everywhere. In the Bay Area, it wouldn’t even put you at the top 5%. https://www.nytimes.com/interactive/2019/08/01/upshot/are-you-rich.html https://www.nytimes.com/interactive/2019/08/01/upshot/are-yo...
- Wowfunhappy 5y ago
  But the Bay Area's high prices are driven by scarcity + demand, not intrinsic cost. So if everyone had a higher tax burden, I'd expect costs to come down.
  - MR4D 5y ago
    Unless a huge earthquake hits it, the Bay area will always be worth more than central Kansas. At a minimum, there is one simple reason for this - the amount of infrastructure investment over the years (power, sewer, roads, etc), of which there is basically none in central Kansas, but loads of in the bay area.
    - dantheman 5y ago
      It has nothing do with physical infrastructure and everything to do with social infrastructure - the people and organizations that are located there. And the weather.
      - MR4D 5y ago
        The value of the land at Burning Man is much lower than the Bay Area, even though it has many of the same people. I think the infrastructure is pretty important. Disregarding it entirely seems a bit much. Even a bad neighborhood in Philly has more value per square foot than farmland in Kansas.
        akiselev 5y ago
        > The value of the land at Burning Man is much lower than the Bay Area, even though it has many of the same people. You're proving GP's point. People from the Bay Area go to a desolate desert in the dead of summer because of the social aspects of Burning Man - the land is worthless because its a desert, owned by the Federal government, and they only stay a week out of the year. They bring the infrastructure with them, from stadium audio equipment to porta-poties to wireless equipment.
deleted 5y ago
[deleted]
microdrum 5y ago
I agree. As someone from a poor family, never received inheritance of any kind, and now (40 years old) makes +/- $1M per year, I climbed through every 'tax bracket'. The income tax system is absolutely designed to make it very hard to move through working class into middle class, and then from middle class to upper middle class. Once you have escape velocity, you've got room to move with debt facilities and other options. Everyone wants to give you free, high quality banking services. It gets easier. But moving from, say $70K to $500K is very very hard specifically because of taxes. For a very long time, the cumulative sum of taxes I'd paid were more than the money I actually had in my account, to invest and pay for things. Ted Cruz was right, taxes should fit on a postcard for everyone. And no, unrealized investments shouldn't be taxed and no one except do-nothing journalists are surprised to learn that they aren't - this ProPublica article is really the definition of fake news. Actually let me just say what it is: propaganda leaked in order to build support for the president's tax increases, which are a very bad idea.
- cycomanic 5y ago
  That you consider yourself upper middle class with an income of 1M a year already says a lot about how skewed your view is (not surprising there was some article on HN recently about research showing that the rich and the poor consider themselves middle class both). Sure you are not a billionaire but you are not middle class anymore, you earn 30 times the median income in the US. Now comparing yourself with the superrich might make you think you're not that rich, but you are.
  - rllearneratwork 5y ago
    have you heard about different cost of living in different places? What if the person plans to fund himself/herself in the retirement and pay for kids college rather than expecting all that "for free" from the government?
    - ryandrake 5y ago
      There is no metro region on Earth where $1M/year can be considered middle class.
cletus 5y ago
> The worse tax situation is always the person who makes 500k in a good year What's the problem here? Income tax rates are moderately progressive. They'll pay a higher marginal tax rate and a moderately higher total tax rate in this year. That seems fine to me. > or sells a house they held for 25 years which went up a bunch in value This is what I have a problem with. This house has already had plenty of favourable tax treatment, which could include: - Tax-deductible mortgage interest - Gains on that property deferred for up to 25 years. To give you a comparison, zero coupon bonds don't get this favourable tax treatment; - Possibly capped or even frozen property tax increases; - Long-term capital gains are generally significantly lower than income taxes Just how much tax subsidies does real estate need? > I suspect this is a significant factor in social mobility. Let me give you an example where this is definitely true. In Australia, pretty much every state charges stamp duty on the sale when you purchase property. It's typically in the 2-5% range. There are various exemptions and allowances for first home owners and the like (this varies from state to state). This was all meant to go away 25 years ago when the Federal government replaced a bunch of taxes with a consumption tax (ie the GST) but it didn't happen, largely because the states were addicted to the income, which became hugely significant as property prices skyrocketed in the early 2000s. The median price of a house in Sydney is now over A$1m. How do we expect anyone to have any kind of mobility when simply moving may result in a $50-100k+ tax? Now the US has some of this. For example, to buy my one bedroom apartment in NYC I had to pay a "mansion tax" (that's literally what it's called) but at least it was only 1%. My point is it could be much, much worse.
- xienze 5y ago
  > Gains on that property deferred for up to 25 years. Well yeah, before that point it hasn’t been sold, so paying taxes on unrealized gains on what the house “should” be worth is bullshit.
  - cletus 5y ago
    I agree, but my point is that this is a favourable tax treatment (which it is) because it doesn't have to be that way.
ineptech 5y ago
I don't think you're describing an obstacle to change, you're describing the mechanism of change avoidance. Compare: "Gosh, every time we try to tax the wolves, it ends up hurting the sheep as well. Why can't our 100% wolf, 0% sheep Congress get this right? I guess it's just a hard problem!" The solution is not to give up, the solution is to actually tax the rich more. Also, your examples are awful: paying taxes on the sale of your house is extremely rare, and the reason your hypothetical person who makes $500k in a good year pays such a high tax burden is because we tax income more heavily than capital gains, i.e. the exact opposite of a "tax targeting the ultra rich".
- stmfreak 5y ago
  No. The solution is for government to spend LESS. There is no amount of tax that can out earn Congress’ appetite for pork, kickbacks, and voter bribery through wealth transfer. The only reason we are told to see the illiquid wealth of billionaires as a problem is the lie that Congress can spend that money better. They cannot.
- TimPC 5y ago
  The problem isn't that it hurts the sheep as well, it's that it hurts the sheep almost entirely. Raising capital gains would be a decent idea that forces the rich to pay more. Basically zero support for it. Closing loopholes helps too, not what we're seeing in tax policy discussions which focus on rates instead. Raising the top rate on income when most of the ultra-rich's money comes from investment isn't making sense. There is also little interest in creating ultra-high tax brackets. I agree in principle with someone earning $5 million/year paying a higher percentage than someone earning $1 million/year. Many countries the top rate starts at $120,000ish in local currency. Taxes on the sale of a primary home is not as rare as you think. It may be a twice in a lifetime event for many people but if it costs you a fortune each time people are discouraged from buying starter homes and then upgrading as their family grows. Make this too expensive and people even choose to have fewer children rather than get a bigger house. People may also choose to avoid the real estate market early to wait for a realistic home and risk getting priced out entirely. Admittedly, capital gains taxes are less punitive than land transfer taxes in this regard but it's still a factor. A capped to $500K of capital gains on a primary residence of tax avoidance is useful for middle and upper middle class Americans. It's not a measure designed predominantly for the rich unless your definition of rich is so broad that it includes any property owner. We've seen what happens when you create markets where people can't move and it looks a lot like San Francisco. That's not something I'd want policies to try and replicate.
jl2718 5y ago
And it will never change! Taking things requires force. Force only works against the powerless. That’s tautological. And also tautologically, if you’re benefitting from the use of force, it’s because you are powerful, and you are exploiting the powerless. I don’t care how poor or oppressed you think you are.
munificent 5y ago
Every single time someone tries to make a tax targeting the ultra rich, someone writes a comment just like this. Every. Single. Time. As far as I can tell, this comment is semantically identical to: "Every time someone tries a new cancer therapy, it ends up not helping the worst cancers." "The sting operation was a failure because it only caught low- and mid-level criminals." "We shouldn't use automated tests because some bugs cannot be caught by it." "Look, this bully is ten times stronger than my kid. He's gonna beat him up whether my kid wants him too or not. We should just accept that the kid is gonna get pummelled." There are at least four flaws I can see: 1. The obvious "perfect is the enemy of the good" argument. Unless you have an alternative proposed tax that is flawless, then the comment does not get closer to a world where people pay a share of taxes commensurate with their point on the wealth continuum. 2. By framing it as "hurting" the moderately wealthy, it applies a narrative that taxes exist to punish, that the extremely wealthy deserve that morally, and that the moderately wealthy do not. Every piece of that narrative is wrong. Taxes exist to fund services, not enforce moral orders. It's not like we have a higher tax rate for convicted criminals. The moderately wealthy also have a capacity to afford taxes higher taxes without lowering their quality of life, so a tax law that hits them too has not "failed". Even if taxes were punishment, this comment presents no actual evidence that the moderately wealthy are morally purer than the ultra-wealthy. 3. Some fraction of today's moderately wealthy are tomorrow's obscenely wealthy, so applying some tax pressure on them today is a step towards preventing them from escaping that tax burden tomorrow. 4. Equating people who make 500k in a year with "the working class" is... I don't even know what to say about it. 5. Forcing the ultra-rich to do extra work to dodge this new law is a net good. Defeatism, which seems to be the counter-proposal here, makes it even easier for them to retain and acquire wealth. We should keep passing laws. Every time they find a loophole, close it. Vote out politicians that get bought. Make them keep jumping. Wear the fuckers out because eventually some will lose if you keep trying. If you let them win... well you let them win.
- silexia 5y ago
  Very good point! I thought the same thing about the original comment, but you actually analyze the entire thing improved why it is incorrect. Thank you!
- 5y ago
hellbannedguy 5y ago
You are right, but if they crafted the right bill, I think we could tax the ultra rich, without affecting the asset rich widow, or the moderately wealthy. Give everyone one big tax day on a house. The family that bought a ranch style house years ago is allowed 1 huge tax holiday. That married $500k deduction is a joke, and needs to be increased. So, the widow living in the ranch style house should be exempt from taxes, say up to 3M, if she decides to move. With that money, she could move anywhere, and not worry about property taxes too? I know you guys don't like prop 13. (Only about 4-5 counties in CA that will accept a recriprovial property tax transfer. Keep that in mind if older, and looking to move.) Let's face it, most Americans will only see one big pay day over an asset, and it's usually the family home. My point is only allow the tax holiday 1 time, and it would be for individuals whom make less than $500k/yr. Don't allow the tax dodge to go on forever, and abused by every ultra rich guy forever. Let Elisabeth Warren right the bill, and I would bet the lucky middle class 1 home asset person would not be affected by a wealth tax? Warren is wealthy. She is not ultrarich. She knows the difference.
Spooky23 5y ago
My giving a shit about household capital gains went away when a partisan congress decided to buy redneck votes with punitive SALT rollback.
- fallingknife 5y ago
  Why should 2 people with the same income, who get the same services for the federal government pay different federal tax rates? That's what SALT does, and it should have been eliminated entirely.
  - vkou 5y ago
    2 people with the same income get different benefits, if one lives in a red state, and the other in a blue state. The red state is a net recipient of federal funding, the blue state is a net provider. Most red state economies would implode without this fire-hose of free money. Texas or Florida might be okay, the rest, not so much. The same thing plays out on the state level. Eastern Washington loves to complain about taxes, and I would love nothing more than to let it have its wish... As long as Western Washington can stop subsidizing it.
  - Spooky23 5y ago
    I live in New York, which has a net outflow of Federal revenues that makes life in many states possible. Most of the states impacted have outflows like that. So frankly, I think it’s fair for some Midwest farmer with land left barely fertile due to mono cropping to pay the full shot of capital gains on his farm, after all, the farm would be worthless without federal price supports, irrigation, levee systems, and direct payments for the corn. Likewise, the Floridian using the homestead laws to launder money in property should be paying the full shot on the Miami condo. When demographics starts shifting the congress in a few years, I’m sure similar scorched earth policy will happen, which sucks, becuase it will utterly destroy whatever rural economy exists in these states.
- fennecfoxen 5y ago
  SALT deductions are a massive tax break for the wealthy. Your own partisanship that would see them restored is just as powerful, and the tax policy you advocate here is more regressive.
lumost 5y ago
That's the ultimate appeal of a wealth tax. Taxing a hundred millionaire, or billionaire, or even a 10 billionaire a progressive 4% annual tax won't affect someone making good money off of income in nearly every scenario.
- silexia 5y ago
  I agree! All taxes should be wealth taxes. Or to be more clear - the only tax we have should be one wealth tax that is a single percentage and affects everyone at all levels equally. Maybe 3% per year or something.
onlyrealcuzzo 5y ago
A house someone held for 25 years, fundamentally, doesn't seem any different than stocks someone held for 25 years. I'm not sure why we're obsessed with the idea that non-homeowners should subsidize homeowner's housing. If we really claim to live in a progressive society, shouldn't renters be getting the subsidy? I mean, sure, a small percentage of the population does have public housing. But that hardly compares to the amount of people saving $10k per year on taxes with the mortgage interest deduction on ~$1M homes in HCOL areas, and then another 15-20% on $250k ($37.5k-$50k) when they sell it. This is more than the average household makes per year after taxes... The long-term average for appreciation on housing is 2.75%. In the last 20 years, it's been well above that. But even still, the average home-owner with a $1M house is saving $20k+ in taxes per year. I mean - I get it. The average person buying a million dollar home these days probably has a marginal tax rate of >40%, and houses are wicked expensive. It's nice to save some taxes. But is this really the group that should be getting the savings? And isn't it possible all this is just manipulating the housing market further? I'm not sure about everyone else, but I'd rather my home be a place where I live than a meme-stock I speculate on.
- willseth 5y ago
  Housing benefits need adjustment so a larger share goes toward people who need it more, but overall home ownership encourages people to raise families and build communities, which acts as a compounding benefit to society. i.e. subsidizing renters will have a positive short term benefit, but long term it benefits landlords.
heavyset_go 5y ago
> Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead.Every. Single. Time. Get back to me when there is a good faith effort to raise the capital gains tax and/or institute a wealth tax instead of pretending that that "ultra rich" people derive their wealth from employment income.
varelse 5y ago
Nothing like a barrier to entry to the top 1% to keep out the rabble! But yes, you've discovered the crab pot cheat code that will continue to keep things exactly where they've been and they will remain. Go ahead and propose a 1% tax on wealth beyond $50M. Even make sales to pay that tax 100% tax-deductible. It won't happen. Or how about a 50% inheritance tax on wealth beyond $100M? You're not getting that either when there's a sweet middle to upper middle class pile of Quatloos to mine and they don't have enough money to hire the right people to make that problem go away. But I'm starting to think they need their own PAC and they could afford that.
fennecfoxen 5y ago
> Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Governments around the tax the middle class, because that's where the money is. Our current spending campaign will result in substantial tax increases for the middle class; the only real questions are when, and how much (less if it's sooner, more if it's later).
- karmajunkie 5y ago
  > because that's where the money is. Except that its not. Did you actually read the article?
  - fennecfoxen 5y ago
    Did you read the HN community guidelines?
mrtnmcc 5y ago
Wait, I thought the first 250-500K home sale profit was not capital gain taxed in the US? https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp https://www.investopedia.com/ask/answers/06/capitalgainhomes...

Wowfunhappy 5y ago

> Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. Could you please share some of the situations you're thinking about here? I'm not familiar.

realce 5y ago
If you have just enough assets to be "rich" but don't have enough to purchase tax assistance, you've become unprotected prey. Everyone that can afford this tax assistance has a lower cost of business than you, everyone poorer has a lower tax burden.
- Wowfunhappy 5y ago
  I'd love to see some data on how big a deal this really is, because I would normally assume that by the time you've reached the levels of wealth we're talking about, "tax assistance" is a trivial expense.
  - kbelder 5y ago
    I think at this level, tax protection isn't 'hiring a decent accountant' or 'donate $10,000 to charity', but instead is 'moving your base of operations off-shore' and things like that. Things you can do with a ten-million dollar income, but not a half-million.
    - ta1234567890 5y ago
      Yes. And the reason for that is the cost of lawyers to setup and run the structure. Lawyers could actually charge less and open access to more people, but then it wouldn’t be as exclusive.
- ta1234567890 5y ago
  Very interesting concept. This happens with lawsuits. If you have enough money/assets to be an attractive target for a lawsuit, but you don’t have enough to pay to defend the lawsuit, you are also “unprotected prey”. An example: in SF/LA (California), a decent civil litigator will cost about $400+/hr. And a lawsuit will run for 1-3 years. When you add all the legal costs up, it turns out that just to defend yourself, you’ll need to spend about $100-$200k. So, unless you have quite a bit of money, you’ll have to either default or settle in maybe not very favorable terms. Either way, you might end up bankrupt, in debt for a long time, or just with no savings at all.
Mc_Big_G 5y ago
GFY
- u801e 5y ago
  > Your dollars saved are worth much less than they were a few years ago and now your taxes are high Which makes me wonder why the general consensus about deflation is that it's not a good thing.
  - deleted 5y ago
    [deleted]
- iso1631 5y ago
  > Most of your gains are going to go to taxes, so you wait to sell or only sell a little So basically you're hoping for someone to get elected who will give you a ton of money (via a tax cut for the wealthy)
  - dang 5y ago
    "Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize. Assume good faith." "Have curious conversation; don't cross-examine." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- dang 5y ago
  Please don't delete-edit your posts like that. It's not fair to the users who replied. And needless to say, attacking other users like that will get your account banned here. We've had to warn you multiple times in the past about breaking the HN guidelines. I don't want to ban you, so if you'd please review https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and fix this, we'd be grateful.

bidirectional 5y ago

How does this effect social mobility? I agree the tax system is unfair towards those in the 1% but not 0.001%, but I don't see how it is so punitive that those earning 500k or owning appreciating assets are taxed back down to a lower social class. And no one reaches those upper echelons by saving their 500k/year or holding their house for a really long time.

deleted 5y ago
[deleted]
lacksconfidence 5y ago
The general idea is average people don't make 500k/yr. What they might do though is have a one time event that earns them 500k in a single year, like selling a small business or a house. In that one year where they finally did well the tax system comes in and hits them even harder with laws intended for someone who makes 500k every year.
- paganel 5y ago
  Working-class people don’t own small businesses worth hundreds of thousands of dollars, if you’re in that position you’re already middle-class.

dangus 5y ago

You’re not actually talking about the “moderately wealthy.” Just because billionaires are insanely wealthy doesn’t change the fact that a household making $500,000 is still incredibly wealthy. There’s already an exemption for capital gains tax on the sale of primary homes. $500,000 for married couples, and you can remove the cost basis and cost of improvements from the equation. In other words, almost nobody is taxed on the sale of their primary home. A household that makes $500k on a good year is actually in the 1% statistically. They have left the working class long ago. They could work for about 7-10 years in their career and retire with an above-median salary (withdrawing following the 4% rule) in perpetuity. That is by definition not the working class: that family barely has to work in order to secure a lifetime of comfortable living if they don’t inflate their lifestyle. In my view, your comment acts as an implication of support for regressive tax policy that hurts the actual working class. No, moderately wealthy people do not need help. No, we are not temporarily embarrassed millionaires held back from generational wealthy only by government tax policy – that’s a farce sold to us by the very billionaires that want to avoid being taxed. They want us to think that taxes hurt us more than they hurt them, which is mathematically not true. They want us to think that “if only our taxes were cut, we could go back to affording a middle class lifestyle.” It’s not true.

dhd415 5y ago
>>A household that makes $500k on a good year is actually in the 1% statistically. They have left the working class long ago. They could work for about 7-10 years in their career and retire with an above-median salary (withdrawing following the 4% rule) in perpetuity. That is by definition not the working class: that family barely has to work in order to secure a lifetime of comfortable living.<< The "in a good year" qualifier in both your comment and the parent comment means that your conclusion that this person has left the "working class" is untrue. It's not uncommon to get a windfall (stock option vesting cliff, inheritance, capital gains, etc.) that boosts income in a single year to many multiples of one's typical income. Such an occurrence does not boost the recipient out of the working class. Managed carefully, it can change their life (buy a house, turbo-charge retirement savings, etc.) but no one's buying a private island with a single year of $500k income.

option 5y ago

that’s the point - ultra rich main concern is not a number in the bank, but that they remain “on top”, so of course they lobby for more taxes which would make it harder for others to approach them in the amount of wealth

pydry 5y ago

One of the lobby tactics the ultra rich use is to try and push a tax hike/new tax to hit as many people as possible to stall its implementation. Then they also go on an all out propaganda offensive to act like it'll hit even more than that.

ipython 5y ago

I agree with your general point, but your specific example of selling highly appreciated real estate is a poor one, since you incur no tax when selling your primary residence (up to something like $500k gain - over your cost basis which includes any capital improvement you made to the property) as long as you lived there for two of the last five years. It’s a huge tax advantage for homeowners. One could argue that it is in itself unfair as it advantages people who already have large assets over those who do not.

jtdev 5y ago
It also encourages liquidity in the residential real estate market… which seems to be a net good thing.
nostrademons 5y ago
> (up to something like $500k gain - over your cost basis which includes any capital improvement you made to the property) In a lot of markets this absolutely hits the "moderately wealthy trying to leave the working class". Bay Area houses that went for $1.2M in 2009 now go for about $3M, for a gain of $1.8M. That's well over the $500K exclusion, even including capital improvements. Few folks will shed a tear for people who own a $3M house simply by virtue of living in a hot area, but that's exactly who the OP is talking about.
- motohagiography 5y ago
  The people who live in hot real estate areas for years made them the hot real estate areas. Real estate appreciation isn't free money. It's people who risked moving into an area and brought their culture with them. This is what creates the value. Just because middle class people benefit from the subsidy of low interest rates that create asset bubbles does not mean that the people who raised families in a neighbourhood or a city are somehow undeserving of the rewards on their equity. The idea that money not taken in taxes is an "expenditure," or an advantage, and this idea of accounting for the hypothetical opportunity cost of not taking some peoples money as a tax privilege is bizzare.

tomerico 5y ago

Another point is that $500k is not in the 1% everywhere. In the Bay Area, it wouldn’t even put you at the top 5%. https://www.nytimes.com/interactive/2019/08/01/upshot/are-you-rich.html https://www.nytimes.com/interactive/2019/08/01/upshot/are-yo...

Wowfunhappy 5y ago
But the Bay Area's high prices are driven by scarcity + demand, not intrinsic cost. So if everyone had a higher tax burden, I'd expect costs to come down.
- MR4D 5y ago
  Unless a huge earthquake hits it, the Bay area will always be worth more than central Kansas. At a minimum, there is one simple reason for this - the amount of infrastructure investment over the years (power, sewer, roads, etc), of which there is basically none in central Kansas, but loads of in the bay area.
  - dantheman 5y ago
    It has nothing do with physical infrastructure and everything to do with social infrastructure - the people and organizations that are located there. And the weather.
    - MR4D 5y ago
      The value of the land at Burning Man is much lower than the Bay Area, even though it has many of the same people. I think the infrastructure is pretty important. Disregarding it entirely seems a bit much. Even a bad neighborhood in Philly has more value per square foot than farmland in Kansas.
      - akiselev 5y ago
        > The value of the land at Burning Man is much lower than the Bay Area, even though it has many of the same people. You're proving GP's point. People from the Bay Area go to a desolate desert in the dead of summer because of the social aspects of Burning Man - the land is worthless because its a desert, owned by the Federal government, and they only stay a week out of the year. They bring the infrastructure with them, from stadium audio equipment to porta-poties to wireless equipment.

deleted 5y ago

[deleted]

microdrum 5y ago

I agree. As someone from a poor family, never received inheritance of any kind, and now (40 years old) makes +/- $1M per year, I climbed through every 'tax bracket'. The income tax system is absolutely designed to make it very hard to move through working class into middle class, and then from middle class to upper middle class. Once you have escape velocity, you've got room to move with debt facilities and other options. Everyone wants to give you free, high quality banking services. It gets easier. But moving from, say $70K to $500K is very very hard specifically because of taxes. For a very long time, the cumulative sum of taxes I'd paid were more than the money I actually had in my account, to invest and pay for things. Ted Cruz was right, taxes should fit on a postcard for everyone. And no, unrealized investments shouldn't be taxed and no one except do-nothing journalists are surprised to learn that they aren't - this ProPublica article is really the definition of fake news. Actually let me just say what it is: propaganda leaked in order to build support for the president's tax increases, which are a very bad idea.

cycomanic 5y ago
That you consider yourself upper middle class with an income of 1M a year already says a lot about how skewed your view is (not surprising there was some article on HN recently about research showing that the rich and the poor consider themselves middle class both). Sure you are not a billionaire but you are not middle class anymore, you earn 30 times the median income in the US. Now comparing yourself with the superrich might make you think you're not that rich, but you are.
- rllearneratwork 5y ago
  have you heard about different cost of living in different places? What if the person plans to fund himself/herself in the retirement and pay for kids college rather than expecting all that "for free" from the government?
  - ryandrake 5y ago
    There is no metro region on Earth where $1M/year can be considered middle class.

cletus 5y ago

> The worse tax situation is always the person who makes 500k in a good year What's the problem here? Income tax rates are moderately progressive. They'll pay a higher marginal tax rate and a moderately higher total tax rate in this year. That seems fine to me. > or sells a house they held for 25 years which went up a bunch in value This is what I have a problem with. This house has already had plenty of favourable tax treatment, which could include: - Tax-deductible mortgage interest - Gains on that property deferred for up to 25 years. To give you a comparison, zero coupon bonds don't get this favourable tax treatment; - Possibly capped or even frozen property tax increases; - Long-term capital gains are generally significantly lower than income taxes Just how much tax subsidies does real estate need? > I suspect this is a significant factor in social mobility. Let me give you an example where this is definitely true. In Australia, pretty much every state charges stamp duty on the sale when you purchase property. It's typically in the 2-5% range. There are various exemptions and allowances for first home owners and the like (this varies from state to state). This was all meant to go away 25 years ago when the Federal government replaced a bunch of taxes with a consumption tax (ie the GST) but it didn't happen, largely because the states were addicted to the income, which became hugely significant as property prices skyrocketed in the early 2000s. The median price of a house in Sydney is now over A$1m. How do we expect anyone to have any kind of mobility when simply moving may result in a $50-100k+ tax? Now the US has some of this. For example, to buy my one bedroom apartment in NYC I had to pay a "mansion tax" (that's literally what it's called) but at least it was only 1%. My point is it could be much, much worse.

xienze 5y ago
> Gains on that property deferred for up to 25 years. Well yeah, before that point it hasn’t been sold, so paying taxes on unrealized gains on what the house “should” be worth is bullshit.
- cletus 5y ago
  I agree, but my point is that this is a favourable tax treatment (which it is) because it doesn't have to be that way.

ineptech 5y ago

I don't think you're describing an obstacle to change, you're describing the mechanism of change avoidance. Compare: "Gosh, every time we try to tax the wolves, it ends up hurting the sheep as well. Why can't our 100% wolf, 0% sheep Congress get this right? I guess it's just a hard problem!" The solution is not to give up, the solution is to actually tax the rich more. Also, your examples are awful: paying taxes on the sale of your house is extremely rare, and the reason your hypothetical person who makes $500k in a good year pays such a high tax burden is because we tax income more heavily than capital gains, i.e. the exact opposite of a "tax targeting the ultra rich".

stmfreak 5y ago
No. The solution is for government to spend LESS. There is no amount of tax that can out earn Congress’ appetite for pork, kickbacks, and voter bribery through wealth transfer. The only reason we are told to see the illiquid wealth of billionaires as a problem is the lie that Congress can spend that money better. They cannot.
TimPC 5y ago
The problem isn't that it hurts the sheep as well, it's that it hurts the sheep almost entirely. Raising capital gains would be a decent idea that forces the rich to pay more. Basically zero support for it. Closing loopholes helps too, not what we're seeing in tax policy discussions which focus on rates instead. Raising the top rate on income when most of the ultra-rich's money comes from investment isn't making sense. There is also little interest in creating ultra-high tax brackets. I agree in principle with someone earning $5 million/year paying a higher percentage than someone earning $1 million/year. Many countries the top rate starts at $120,000ish in local currency. Taxes on the sale of a primary home is not as rare as you think. It may be a twice in a lifetime event for many people but if it costs you a fortune each time people are discouraged from buying starter homes and then upgrading as their family grows. Make this too expensive and people even choose to have fewer children rather than get a bigger house. People may also choose to avoid the real estate market early to wait for a realistic home and risk getting priced out entirely. Admittedly, capital gains taxes are less punitive than land transfer taxes in this regard but it's still a factor. A capped to $500K of capital gains on a primary residence of tax avoidance is useful for middle and upper middle class Americans. It's not a measure designed predominantly for the rich unless your definition of rich is so broad that it includes any property owner. We've seen what happens when you create markets where people can't move and it looks a lot like San Francisco. That's not something I'd want policies to try and replicate.

jl2718 5y ago

And it will never change! Taking things requires force. Force only works against the powerless. That’s tautological. And also tautologically, if you’re benefitting from the use of force, it’s because you are powerful, and you are exploiting the powerless. I don’t care how poor or oppressed you think you are.

munificent 5y ago

Every single time someone tries to make a tax targeting the ultra rich, someone writes a comment just like this. Every. Single. Time. As far as I can tell, this comment is semantically identical to: "Every time someone tries a new cancer therapy, it ends up not helping the worst cancers." "The sting operation was a failure because it only caught low- and mid-level criminals." "We shouldn't use automated tests because some bugs cannot be caught by it." "Look, this bully is ten times stronger than my kid. He's gonna beat him up whether my kid wants him too or not. We should just accept that the kid is gonna get pummelled." There are at least four flaws I can see: 1. The obvious "perfect is the enemy of the good" argument. Unless you have an alternative proposed tax that is flawless, then the comment does not get closer to a world where people pay a share of taxes commensurate with their point on the wealth continuum. 2. By framing it as "hurting" the moderately wealthy, it applies a narrative that taxes exist to punish, that the extremely wealthy deserve that morally, and that the moderately wealthy do not. Every piece of that narrative is wrong. Taxes exist to fund services, not enforce moral orders. It's not like we have a higher tax rate for convicted criminals. The moderately wealthy also have a capacity to afford taxes higher taxes without lowering their quality of life, so a tax law that hits them too has not "failed". Even if taxes were punishment, this comment presents no actual evidence that the moderately wealthy are morally purer than the ultra-wealthy. 3. Some fraction of today's moderately wealthy are tomorrow's obscenely wealthy, so applying some tax pressure on them today is a step towards preventing them from escaping that tax burden tomorrow. 4. Equating people who make 500k in a year with "the working class" is... I don't even know what to say about it. 5. Forcing the ultra-rich to do extra work to dodge this new law is a net good. Defeatism, which seems to be the counter-proposal here, makes it even easier for them to retain and acquire wealth. We should keep passing laws. Every time they find a loophole, close it. Vote out politicians that get bought. Make them keep jumping. Wear the fuckers out because eventually some will lose if you keep trying. If you let them win... well you let them win.

silexia 5y ago
Very good point! I thought the same thing about the original comment, but you actually analyze the entire thing improved why it is incorrect. Thank you!
5y ago

hellbannedguy 5y ago

You are right, but if they crafted the right bill, I think we could tax the ultra rich, without affecting the asset rich widow, or the moderately wealthy. Give everyone one big tax day on a house. The family that bought a ranch style house years ago is allowed 1 huge tax holiday. That married $500k deduction is a joke, and needs to be increased. So, the widow living in the ranch style house should be exempt from taxes, say up to 3M, if she decides to move. With that money, she could move anywhere, and not worry about property taxes too? I know you guys don't like prop 13. (Only about 4-5 counties in CA that will accept a recriprovial property tax transfer. Keep that in mind if older, and looking to move.) Let's face it, most Americans will only see one big pay day over an asset, and it's usually the family home. My point is only allow the tax holiday 1 time, and it would be for individuals whom make less than $500k/yr. Don't allow the tax dodge to go on forever, and abused by every ultra rich guy forever. Let Elisabeth Warren right the bill, and I would bet the lucky middle class 1 home asset person would not be affected by a wealth tax? Warren is wealthy. She is not ultrarich. She knows the difference.

Spooky23 5y ago

My giving a shit about household capital gains went away when a partisan congress decided to buy redneck votes with punitive SALT rollback.

fallingknife 5y ago
Why should 2 people with the same income, who get the same services for the federal government pay different federal tax rates? That's what SALT does, and it should have been eliminated entirely.
- vkou 5y ago
  2 people with the same income get different benefits, if one lives in a red state, and the other in a blue state. The red state is a net recipient of federal funding, the blue state is a net provider. Most red state economies would implode without this fire-hose of free money. Texas or Florida might be okay, the rest, not so much. The same thing plays out on the state level. Eastern Washington loves to complain about taxes, and I would love nothing more than to let it have its wish... As long as Western Washington can stop subsidizing it.
- Spooky23 5y ago
  I live in New York, which has a net outflow of Federal revenues that makes life in many states possible. Most of the states impacted have outflows like that. So frankly, I think it’s fair for some Midwest farmer with land left barely fertile due to mono cropping to pay the full shot of capital gains on his farm, after all, the farm would be worthless without federal price supports, irrigation, levee systems, and direct payments for the corn. Likewise, the Floridian using the homestead laws to launder money in property should be paying the full shot on the Miami condo. When demographics starts shifting the congress in a few years, I’m sure similar scorched earth policy will happen, which sucks, becuase it will utterly destroy whatever rural economy exists in these states.
fennecfoxen 5y ago
SALT deductions are a massive tax break for the wealthy. Your own partisanship that would see them restored is just as powerful, and the tax policy you advocate here is more regressive.

lumost 5y ago

That's the ultimate appeal of a wealth tax. Taxing a hundred millionaire, or billionaire, or even a 10 billionaire a progressive 4% annual tax won't affect someone making good money off of income in nearly every scenario.

silexia 5y ago
I agree! All taxes should be wealth taxes. Or to be more clear - the only tax we have should be one wealth tax that is a single percentage and affects everyone at all levels equally. Maybe 3% per year or something.

onlyrealcuzzo 5y ago

A house someone held for 25 years, fundamentally, doesn't seem any different than stocks someone held for 25 years. I'm not sure why we're obsessed with the idea that non-homeowners should subsidize homeowner's housing. If we really claim to live in a progressive society, shouldn't renters be getting the subsidy? I mean, sure, a small percentage of the population does have public housing. But that hardly compares to the amount of people saving $10k per year on taxes with the mortgage interest deduction on ~$1M homes in HCOL areas, and then another 15-20% on $250k ($37.5k-$50k) when they sell it. This is more than the average household makes per year after taxes... The long-term average for appreciation on housing is 2.75%. In the last 20 years, it's been well above that. But even still, the average home-owner with a $1M house is saving $20k+ in taxes per year. I mean - I get it. The average person buying a million dollar home these days probably has a marginal tax rate of >40%, and houses are wicked expensive. It's nice to save some taxes. But is this really the group that should be getting the savings? And isn't it possible all this is just manipulating the housing market further? I'm not sure about everyone else, but I'd rather my home be a place where I live than a meme-stock I speculate on.

willseth 5y ago
Housing benefits need adjustment so a larger share goes toward people who need it more, but overall home ownership encourages people to raise families and build communities, which acts as a compounding benefit to society. i.e. subsidizing renters will have a positive short term benefit, but long term it benefits landlords.

heavyset_go 5y ago

> Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead.Every. Single. Time. Get back to me when there is a good faith effort to raise the capital gains tax and/or institute a wealth tax instead of pretending that that "ultra rich" people derive their wealth from employment income.

varelse 5y ago

Nothing like a barrier to entry to the top 1% to keep out the rabble! But yes, you've discovered the crab pot cheat code that will continue to keep things exactly where they've been and they will remain. Go ahead and propose a 1% tax on wealth beyond $50M. Even make sales to pay that tax 100% tax-deductible. It won't happen. Or how about a 50% inheritance tax on wealth beyond $100M? You're not getting that either when there's a sweet middle to upper middle class pile of Quatloos to mine and they don't have enough money to hire the right people to make that problem go away. But I'm starting to think they need their own PAC and they could afford that.

fennecfoxen 5y ago

> Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Governments around the tax the middle class, because that's where the money is. Our current spending campaign will result in substantial tax increases for the middle class; the only real questions are when, and how much (less if it's sooner, more if it's later).

karmajunkie 5y ago
> because that's where the money is. Except that its not. Did you actually read the article?
- fennecfoxen 5y ago
  Did you read the HN community guidelines?

mrtnmcc 5y ago

Wait, I thought the first 250-500K home sale profit was not capital gain taxed in the US? https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp https://www.investopedia.com/ask/answers/06/capitalgainhomes...