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It'd be pretty easy to levy completely fair and progressive tax structure that only directly impacts the wealthy, and is sufficient to cover the spending. - Ta

It'd be pretty easy to levy completely fair and progressive tax structure that only directly impacts the wealthy, and is sufficient to cover the spending. - Tax capital gains >1m a year as regular income. - Fix loopholes that allow for equity as collateral for perpetual loans without ever selling the underlying. - Remove step up in cost basis on inheriting assets. - Tax stock buybacks at same level as dividends. - Don't bring back SALT deduction. Pretty easy to justify. Why should capital gains get favorable tax treatment over income, especially for wealthy who have this as a primary income source? Overall, proportion of assets allocated to investment capital would not dip due to change in tax, where else would they put the money? Buybacks are effectively a technique to consolidate wealth primarily for the CEO and board of a company, who are paid primarily in equity comp. Very few companies do buybacks for legitimate operational reasons, like purchasing stock when it's undervalued to reduce operational expenses re dividends. It's mostly a buy at any price to juice valuations. I'm not against companies returning money to shareholders, but buybacks shouldn't be tax advantaged vs dividends. SALT is a direct handout to wealthy homeowners. The fact that this is even in the spending bill shows how far the narrative of fixing wealth inequality has deviated from the actual legislation. I suspect Congress doesn't do these things because it would actually impact their own finances. And of course they need unilateral agreement on any approach.

refurb 5y ago
This won't cover the spending at all. Not even close.
- adam_arthur 5y ago
  There are ~1T in capital gains realized every year, roughly. If you increase long term rate from 20%, to roughly 40% (top income rate), you'll generate roughly 200B a year in additional revenue. Of course changes in tax law will alter behavior, but we can say likely 100-150B+ per year. We can assume the large majority of these gains are from those above the 1m threshold. Facebook is doing ~60B in buybacks this year. Taxing that at 20% nets 12B a year in revenue from Facebook alone. Dollar amount of total market buybacks is much higher, obviously. So we can say this likely generates 100B+ per year. SALT deduction alone costs 100B/year to reinstate So how does 300-450B a year not cover a 1.5T spending bill over 10 years? What logic are you using to assert this isn't sufficient? Or are you just writing it off without any research?
  - refurb 5y ago
    You need to start putting realistic numbers. First off, if you double the tax rate on capital gains you'll see a dramatic change in behavior. You're not going to capture 75% of the expected, maybe half that. Instead of companies issuing equity, they'll just issue debt instead if it has clear tax advantages for investors. Stock buy backs will end, they'll just pay it out as dividends instead. So $0. SALT deduction has already been capped, no change there. It's like the wealth tax in France that they expected would bring in billions brought in a few percentage of that.
    - adam_arthur 5y ago
      I explicitly stated in my response that behavior would change in response to tax policy changes. Why state that as if I didn't lead with that? There's 0 chance that capital gains will drop from 1T to much less than 500B, or that buybacks go to 0. You think people will suddenly never sell their assets because the tax rate is higher? Dividends are already taxed at 20% for most people, yet companies still pay dividends. So why wouldn't they do buybacks at a 20% tax rate? Even if you cut projections in half, it's more than enough to fund. And it seems like you're not aware of the legislation. The budget bill brings back the SALT deduction, which will reduce tax revenue by 100B/year. That single provision alone is almost enough to fully fund the (pared down) bill.
      - refurb 5y ago
        Money will shift from capital gains to other investments. Same with buybacks. I mean, that's why company's do buybacks today, they are tax advantaged. And I don't get why you'd tax stock buyback. That's a key way company's control their equity. Take $10B to buy $10B of their own stock and you'd make them pay $2B in taxes? Really?
        adam_arthur 5y ago
        Why tax anything? The free market always works better without taxes altering behaviors. The reason you tax buybacks is because you presumably care about wealth inequality. Buybacks by and large are mechanisms to increase the wealth of shareholders in a tax deferred manner. Dividends are not tax deferred. Ideally legislation would differentiate between "operational buybacks" where the buyback is actually justified by fundamentals and "indiscriminate buybacks" where the goal is to increase the value of the equity regardless of efficiency of the buyback. If a company has ROIC of 20% and a cashflow yield of 3%, it's pretty obvious that the buyback is indiscriminate and not rooted in any sense of the best allocation of capital. Of course impossible to differentiate these two things in legislation. But we can say 90% of the money allocated towards buybacks has nothing to do with operational efficiency, and acts more as a tax deferred transfer of wealth to shareholders. From the governments perspective, encouraging dividends over buybacks makes a lot of sense.
gruez 5y ago
>- Remove step up in cost basis on inheriting assets. my impression is that the step-up cost basis is there because you've already paid the estate tax when the assets were transferred to you? otherwise you'd end up getting double-taxed.
- adam_arthur 5y ago
  I need to read more into that. If true, the cost basis should only be stepped up such that it accounts for the estate tax. I'd prefer some simpler overall approach though. Removing step up in cost basis alone obviates the need for an estate tax, as eventually assets would be sold and tax revenue generated. But important to do some research into how often inherited assets are kept permanently and gains never realized (thus tax never paid). Just on gut instinct, I would guess most who inherit wealth eventually sell off any assets. I recall it tends to be that most accumulated wealth is lost by the third generation.
  - WalterBright 5y ago
    > thus tax never paid The estate tax is still due. The federal estate tax is 40%.
    - adam_arthur 5y ago
      I was saying, in a world without an estate tax. If you could remove estate tax and cover by removing step up in cost basis, is probably preferable (but contingent on assets eventually getting sold, requires some research)
      - PaulDavisThe1st 5y ago
        For almost every US person, it IS a world without an estate tax. Nobody pays that in 2021 without an estate worth more than US$11.7M
        WalterBright 5y ago
WalterBright 5y ago
> Why should capital gains get favorable tax treatment over income Because the income has already been taxed when it was the corporation's profit.
- PaulDavisThe1st 5y ago
  Even if I was to buy that there's some theoretical argument that no dollar may be taxed more than once (which I don't), the income isn't the capital gains. It's not related in any way to the capital gains. A corporation may have enormous profits, and zero capital gains. It may have enormous capital gains, and zero profits. The capital gain has not been previously taxed.
  - WalterBright 5y ago
    The value of a corporation is inevitably linked to its profits.
    - PaulDavisThe1st 5y ago
      Not really. Amazon, a company I once knew a bit about, showed gigantic growth in stock value with minimal or zero profit. This is hardly a new story. But it wouldn't matter anyway, given GP's point. Taxes on corporate income are not taxes on the capital gains of those who hold corporate stock.
      - WalterBright 5y ago
        I know about the Amazon case. The stock price was linked to expected future profits. Which will be taxed. The stock price can deviate for a time from the current profits, but it will inevitably move back to what the overall profit is. The reason is simple. The gains in value of a company are when (revenue > expenses), i.e. it comes from profit. > Taxes on corporate income are not taxes on the capital gains of those who hold corporate stock. Yes they are, because they reduce the value of the stock (and hence the capital gains) by the same amount. There's no free lunch.
bradgessler 5y ago
Another problem with taxing unrealized capital gains is that if the gov’t wants to collect more tax revenue, they could print money, inflate the dollar value of assets, then tax the gains.
- brightball 5y ago
  Basically what’s happening right now?
crystalmeph 5y ago
> Why should capital gains get favorable tax treatment over income My take on this is that the capital gain was not actually generated all in one year, but by taxing it as ordinary income, you are putting it into a higher bracket as though it were all generated in one year. As an example, say your father builds a successful company, and runs it well for 40 years before selling it for $10 million and retiring. By taxing the entire $10 million in one tax year, almost all of it is in the highest tax bracket, which is anything above $500,000 for single filers. But the actual average amount earned per year is only $250,000, which doesn’t reach the highest tax bracket at all. There are ways to balance this, of course, e.g. if you did exactly what I did in my example, and applied the income tax bracket based on the average gain per year of the securities sold. Something like that would still take care of billionaires “paying their fair share,” since you would have to divide by a lot of years to get billions of dollars in gains into a lower tax bracket.
- shalmanese 5y ago
  It's in a higher bracket but you're also deferring paying. Given the choice of paying $1 of tax today or paying $N of tax later, that $1 of deferred tax at a 7.18% return is worth $2 in 10 years, $4 in 20 years and $16 in 40 years. At a 6% rate of return and a 25% tax rate, after 40 years, even a 100% deferred tax rate is financially preferable to a 25% immediate tax rate, ie: I make more from the interest on my deferred tax than on my entire principle.
seanmcdirmid 5y ago
> - Tax capital gains >1m a year as regular income. It sounds fair, but aren't lower capital gains taxes used to encourage investment? And if we get rid of that incentive on income > $1 million (at least, can they still offset losses?), then would that lead to some adverse consequence (like much lower investment overall as direct income generation becomes preferred at that point)?
- adam_arthur 5y ago
  I would guess not much reduction in investment. If you have 100m dollars, there's only a limited number of places you can put it. What are you proposing re: direct income generation? It will lead to reduced liquidity though. E.g. holders of assets are likely to sell less frequently to avoid the higher tax burden.
  - seanmcdirmid 5y ago
    > If you have 100m dollars, there's only a limited number of places you can put it. Stock market is a risky place to put it for sure, especially if the upside is taxed more aggressively. > What are you proposing re: direct income generation? They will invest more in private businesses and just take a salary, which is also taxed as income.
    - adam_arthur 5y ago
      Most wealthy people are likely to own dividend paying stocks, so valuations don't matter as much for risk re the market. They get paid every quarter by the company, and can just live off of passive distributions. If they follow what you're proposing, they pay the higher tax rate anyway. But also don't think that's really feasible at very high net worth.
- pas 5y ago
  If you move money from one stock market position to an other do you realize your gains? If not, then said investors can simply dump their gains into small new companies that are on the stock market. (Plus see SPACs.)
pmorici 5y ago
"SALT is a direct handout to wealthy homeowners." The SALT deduction benefits people in high tax states which happen to also be states where democrats hold political power. Many of them ran on restoring the SALT deduction. It benefits states that have high tax rates not exclusively 'wealthy' home owners.
- adam_arthur 5y ago
  Texas was the number 4 state for number of SALT deduction claims due to the high property tax. The vast majority taking the deduction are going to be well off homeowners. But yes for sure, high state income tax and other factors play in as well.
  - pmorici 5y ago
    Texas is an outlier.

refurb 5y ago

This won't cover the spending at all. Not even close.

adam_arthur 5y ago
There are ~1T in capital gains realized every year, roughly. If you increase long term rate from 20%, to roughly 40% (top income rate), you'll generate roughly 200B a year in additional revenue. Of course changes in tax law will alter behavior, but we can say likely 100-150B+ per year. We can assume the large majority of these gains are from those above the 1m threshold. Facebook is doing ~60B in buybacks this year. Taxing that at 20% nets 12B a year in revenue from Facebook alone. Dollar amount of total market buybacks is much higher, obviously. So we can say this likely generates 100B+ per year. SALT deduction alone costs 100B/year to reinstate So how does 300-450B a year not cover a 1.5T spending bill over 10 years? What logic are you using to assert this isn't sufficient? Or are you just writing it off without any research?
- refurb 5y ago
  You need to start putting realistic numbers. First off, if you double the tax rate on capital gains you'll see a dramatic change in behavior. You're not going to capture 75% of the expected, maybe half that. Instead of companies issuing equity, they'll just issue debt instead if it has clear tax advantages for investors. Stock buy backs will end, they'll just pay it out as dividends instead. So $0. SALT deduction has already been capped, no change there. It's like the wealth tax in France that they expected would bring in billions brought in a few percentage of that.
  - adam_arthur 5y ago
    I explicitly stated in my response that behavior would change in response to tax policy changes. Why state that as if I didn't lead with that? There's 0 chance that capital gains will drop from 1T to much less than 500B, or that buybacks go to 0. You think people will suddenly never sell their assets because the tax rate is higher? Dividends are already taxed at 20% for most people, yet companies still pay dividends. So why wouldn't they do buybacks at a 20% tax rate? Even if you cut projections in half, it's more than enough to fund. And it seems like you're not aware of the legislation. The budget bill brings back the SALT deduction, which will reduce tax revenue by 100B/year. That single provision alone is almost enough to fully fund the (pared down) bill.
    - refurb 5y ago
      Money will shift from capital gains to other investments. Same with buybacks. I mean, that's why company's do buybacks today, they are tax advantaged. And I don't get why you'd tax stock buyback. That's a key way company's control their equity. Take $10B to buy $10B of their own stock and you'd make them pay $2B in taxes? Really?
      - adam_arthur 5y ago
        Why tax anything? The free market always works better without taxes altering behaviors. The reason you tax buybacks is because you presumably care about wealth inequality. Buybacks by and large are mechanisms to increase the wealth of shareholders in a tax deferred manner. Dividends are not tax deferred. Ideally legislation would differentiate between "operational buybacks" where the buyback is actually justified by fundamentals and "indiscriminate buybacks" where the goal is to increase the value of the equity regardless of efficiency of the buyback. If a company has ROIC of 20% and a cashflow yield of 3%, it's pretty obvious that the buyback is indiscriminate and not rooted in any sense of the best allocation of capital. Of course impossible to differentiate these two things in legislation. But we can say 90% of the money allocated towards buybacks has nothing to do with operational efficiency, and acts more as a tax deferred transfer of wealth to shareholders. From the governments perspective, encouraging dividends over buybacks makes a lot of sense.

gruez 5y ago

>- Remove step up in cost basis on inheriting assets. my impression is that the step-up cost basis is there because you've already paid the estate tax when the assets were transferred to you? otherwise you'd end up getting double-taxed.

adam_arthur 5y ago
I need to read more into that. If true, the cost basis should only be stepped up such that it accounts for the estate tax. I'd prefer some simpler overall approach though. Removing step up in cost basis alone obviates the need for an estate tax, as eventually assets would be sold and tax revenue generated. But important to do some research into how often inherited assets are kept permanently and gains never realized (thus tax never paid). Just on gut instinct, I would guess most who inherit wealth eventually sell off any assets. I recall it tends to be that most accumulated wealth is lost by the third generation.
- WalterBright 5y ago
  > thus tax never paid The estate tax is still due. The federal estate tax is 40%.
  - adam_arthur 5y ago
    I was saying, in a world without an estate tax. If you could remove estate tax and cover by removing step up in cost basis, is probably preferable (but contingent on assets eventually getting sold, requires some research)
    - PaulDavisThe1st 5y ago
      For almost every US person, it IS a world without an estate tax. Nobody pays that in 2021 without an estate worth more than US$11.7M
      - WalterBright 5y ago

WalterBright 5y ago

> Why should capital gains get favorable tax treatment over income Because the income has already been taxed when it was the corporation's profit.

PaulDavisThe1st 5y ago
Even if I was to buy that there's some theoretical argument that no dollar may be taxed more than once (which I don't), the income isn't the capital gains. It's not related in any way to the capital gains. A corporation may have enormous profits, and zero capital gains. It may have enormous capital gains, and zero profits. The capital gain has not been previously taxed.
- WalterBright 5y ago
  The value of a corporation is inevitably linked to its profits.
  - PaulDavisThe1st 5y ago
    Not really. Amazon, a company I once knew a bit about, showed gigantic growth in stock value with minimal or zero profit. This is hardly a new story. But it wouldn't matter anyway, given GP's point. Taxes on corporate income are not taxes on the capital gains of those who hold corporate stock.
    - WalterBright 5y ago
      I know about the Amazon case. The stock price was linked to expected future profits. Which will be taxed. The stock price can deviate for a time from the current profits, but it will inevitably move back to what the overall profit is. The reason is simple. The gains in value of a company are when (revenue > expenses), i.e. it comes from profit. > Taxes on corporate income are not taxes on the capital gains of those who hold corporate stock. Yes they are, because they reduce the value of the stock (and hence the capital gains) by the same amount. There's no free lunch.

bradgessler 5y ago

Another problem with taxing unrealized capital gains is that if the gov’t wants to collect more tax revenue, they could print money, inflate the dollar value of assets, then tax the gains.

brightball 5y ago
Basically what’s happening right now?

crystalmeph 5y ago

> Why should capital gains get favorable tax treatment over income My take on this is that the capital gain was not actually generated all in one year, but by taxing it as ordinary income, you are putting it into a higher bracket as though it were all generated in one year. As an example, say your father builds a successful company, and runs it well for 40 years before selling it for $10 million and retiring. By taxing the entire $10 million in one tax year, almost all of it is in the highest tax bracket, which is anything above $500,000 for single filers. But the actual average amount earned per year is only $250,000, which doesn’t reach the highest tax bracket at all. There are ways to balance this, of course, e.g. if you did exactly what I did in my example, and applied the income tax bracket based on the average gain per year of the securities sold. Something like that would still take care of billionaires “paying their fair share,” since you would have to divide by a lot of years to get billions of dollars in gains into a lower tax bracket.

shalmanese 5y ago
It's in a higher bracket but you're also deferring paying. Given the choice of paying $1 of tax today or paying $N of tax later, that $1 of deferred tax at a 7.18% return is worth $2 in 10 years, $4 in 20 years and $16 in 40 years. At a 6% rate of return and a 25% tax rate, after 40 years, even a 100% deferred tax rate is financially preferable to a 25% immediate tax rate, ie: I make more from the interest on my deferred tax than on my entire principle.

seanmcdirmid 5y ago

> - Tax capital gains >1m a year as regular income. It sounds fair, but aren't lower capital gains taxes used to encourage investment? And if we get rid of that incentive on income > $1 million (at least, can they still offset losses?), then would that lead to some adverse consequence (like much lower investment overall as direct income generation becomes preferred at that point)?

adam_arthur 5y ago
I would guess not much reduction in investment. If you have 100m dollars, there's only a limited number of places you can put it. What are you proposing re: direct income generation? It will lead to reduced liquidity though. E.g. holders of assets are likely to sell less frequently to avoid the higher tax burden.
- seanmcdirmid 5y ago
  > If you have 100m dollars, there's only a limited number of places you can put it. Stock market is a risky place to put it for sure, especially if the upside is taxed more aggressively. > What are you proposing re: direct income generation? They will invest more in private businesses and just take a salary, which is also taxed as income.
  - adam_arthur 5y ago
    Most wealthy people are likely to own dividend paying stocks, so valuations don't matter as much for risk re the market. They get paid every quarter by the company, and can just live off of passive distributions. If they follow what you're proposing, they pay the higher tax rate anyway. But also don't think that's really feasible at very high net worth.
pas 5y ago
If you move money from one stock market position to an other do you realize your gains? If not, then said investors can simply dump their gains into small new companies that are on the stock market. (Plus see SPACs.)

pmorici 5y ago

"SALT is a direct handout to wealthy homeowners." The SALT deduction benefits people in high tax states which happen to also be states where democrats hold political power. Many of them ran on restoring the SALT deduction. It benefits states that have high tax rates not exclusively 'wealthy' home owners.

adam_arthur 5y ago
Texas was the number 4 state for number of SALT deduction claims due to the high property tax. The vast majority taking the deduction are going to be well off homeowners. But yes for sure, high state income tax and other factors play in as well.
- pmorici 5y ago
  Texas is an outlier.