5 ms·

They pay way more total money, and most people are complaining about capital gains taxes but that's not really income is it? It's risked capital that has alrea

They pay way more total money, and most people are complaining about capital gains taxes but that's not really income is it? It's risked capital that has already been taxed at the corporate rates.

chadmalik 14y ago
Care to source that? Anyway, the point is there's something wrong when capital income is taxed at half the rate of labor income. In particular, taxing carried interest income that low is especially egregious. Private equity and VC partners that are earning a guaranteed % of funds under management annually are NOT taking a risk.
Drbble 14y ago
Salary isn't income either, it's risked labor that should be deductible as a business expense.
- dantheman 14y ago
  I have always gotten paid for every hour I've ever worked, but I've lost money on investments. In fact, one of the reasons for a wage is so that your risk is limited. In theory you could get paid purely in stock grants and bear the risk that entails.
mikeash 14y ago
Can you explain the bit about already having been taxed at the corporate rates? I've seen others mention that but I never quite got it. Say a person buys $1 million of AAPL at $50, then sells at $500, netting $9 million of capital gains. Where and when were the corporate taxes paid on that $9 million?
- sokoloff 14y ago
  If you assume (as many do) there is a relationship between the stock price and the profits of the company, then corporate taxation serves to reduce profits, reducing the stock price. So, instead of rising to $500, it may have risen to $750. The forgone (and invisible) $5 million of appreciation was the loss due to corporate taxation. (Obviously, the above is too simplistic to actually rely upon, but that's how corporate taxes reduce investor returns, effectively resulting in double taxation in many people's mind, including my own. I still believe that's part of the reason LTCG are and should be taxed at a lower rate than ordinary income.)
  - seanpreston 14y ago
    Stock prices are also influenced by supply & demand. The situation you describe works for just one company paying no corporation tax, but if every company suddenly has no corporation tax, every company's profits increase, so relative demand should stay the same, leaving prices the same.
    - dantheman 14y ago
      Stocks can pay dividends which are a direct result of their profits, and so the corporate tax rate effects the amount of actual money that gets paid out. Stocks that don't pay dividends are an interesting case, that is the investors allow the company to reinvest their earnings for growth with the expectation of future dividends.
  - mikeash 14y ago
    I can see how this can work, for a stable domestic company that's not reinvesting its profits, but don't both foreign earnings (which affect the stock price but are not taxed by the US) and profit reinvestment defeat that whole idea?

They pay way more total money, and most people are complaining about capital gains taxes but that's not really income is it? It's risked capital that has already been taxed at the corporate rates.

chadmalik 14y ago

Care to source that? Anyway, the point is there's something wrong when capital income is taxed at half the rate of labor income. In particular, taxing carried interest income that low is especially egregious. Private equity and VC partners that are earning a guaranteed % of funds under management annually are NOT taking a risk.

Drbble 14y ago

Salary isn't income either, it's risked labor that should be deductible as a business expense.

dantheman 14y ago
I have always gotten paid for every hour I've ever worked, but I've lost money on investments. In fact, one of the reasons for a wage is so that your risk is limited. In theory you could get paid purely in stock grants and bear the risk that entails.

mikeash 14y ago

Can you explain the bit about already having been taxed at the corporate rates? I've seen others mention that but I never quite got it. Say a person buys $1 million of AAPL at $50, then sells at $500, netting $9 million of capital gains. Where and when were the corporate taxes paid on that $9 million?

sokoloff 14y ago
If you assume (as many do) there is a relationship between the stock price and the profits of the company, then corporate taxation serves to reduce profits, reducing the stock price. So, instead of rising to $500, it may have risen to $750. The forgone (and invisible) $5 million of appreciation was the loss due to corporate taxation. (Obviously, the above is too simplistic to actually rely upon, but that's how corporate taxes reduce investor returns, effectively resulting in double taxation in many people's mind, including my own. I still believe that's part of the reason LTCG are and should be taxed at a lower rate than ordinary income.)
- seanpreston 14y ago
  Stock prices are also influenced by supply & demand. The situation you describe works for just one company paying no corporation tax, but if every company suddenly has no corporation tax, every company's profits increase, so relative demand should stay the same, leaving prices the same.
  - dantheman 14y ago
    Stocks can pay dividends which are a direct result of their profits, and so the corporate tax rate effects the amount of actual money that gets paid out. Stocks that don't pay dividends are an interesting case, that is the investors allow the company to reinvest their earnings for growth with the expectation of future dividends.
- mikeash 14y ago
  I can see how this can work, for a stable domestic company that's not reinvesting its profits, but don't both foreign earnings (which affect the stock price but are not taxed by the US) and profit reinvestment defeat that whole idea?