14 ms·

It's a real scandal that a person that makes 500.000 $ a month pays only 11% taxes. This system is completely unfair. This is not liberalism: this is simply the

It's a real scandal that a person that makes 500.000 $ a month pays only 11% taxes. This system is completely unfair. This is not liberalism: this is simply the law of the strongest.

yummyfajitas 14y ago
I agree. It is a scandal that reporters constantly focus on the individual tax bill of investors while completely ignoring taxes paid by the corporations they own. The solution is simple: stop taxing corporations and replace it with taxes on capital gains/etc. (Also, while we are at it, equalize the taxation of cap gains, dividends and interest.)
- scarmig 14y ago
  Indeed. Corporate taxation makes for good applause lines, but at least in our particular system it's basically a giant target for "lobby for special tax breaks, but only if you're rich enough to hire a staff of lobbyists." My favored solution is having two taxes: a heavily progressive consumption tax, and a flat capital gains/etc. tax. Because what people usually are bothered by are the Paris Hiltons of the world, not the humble billionaire featured in the article.
  - msellout 14y ago
    How about an externality tax? Anything that hurts anyone else, even via causing jealousy, gets taxed as appropriate for the size of the externality.
    - scarmig 14y ago
      Taxing externalities is, of course, a good idea, and key to any functioning system of property rights. I don't believe they should be used for revenues, because once you do that, it misplaces the incentive: now the government makes more revenue per unit externality. So I favor a flat rebate for all externality taxes.
- dtby 14y ago
  [Hopefully you've got showdead on.] I find this to be a somewhat odd position. I think it's much more morally defensible to argue for raising corporate taxes and eliminating capital gains taxes. This acknowledges that corporations owe their existence to the state, while natural persons do not. Is your position based on the premise that personal income taxes are good and necessary? Or, perhaps, an acknowledgement that dismantling that system is probably unattainable?
- KaoruAoiShiho 14y ago
  Wouldn't that be great for foreign investors?
- yequalsx 14y ago
  It's a simple sounding solution but I'm skeptical of the issue being that simple. There's a world of difference between GE style corporation and an S-corp owned by a single person. The GE type corporations effectively pay very little tax in the present system. They also have the right to spend an unlimited amount of money on election campaigns. In the U.S. system corporations are treated as persons. If a person makes an income (profit) they get taxed. What we presently have is a broken system in my opinion. The very rich earn their money through capital gains and the capital gains tax is very, very low. The very wealthy in the U.S. do not pay a fair share of the tax burden or for the cost of government. Perhaps eliminating corporate taxes while simultaneously greatly increasing capital gains taxes would be good. There could also be some bad consequences to eliminating corporate taxes altogether.
  - twoodfin 14y ago
    The very wealthy in the U.S. do not pay a fair share of the tax burden or for the cost of government. They don't?? The top 1% of taxpayers paid 36.7% of all income taxes in 2009[1] (yes, that includes capital gains). The top 10% paid 70%! [1] http://ntu.org/tax-basics/who-pays-income-taxes.html http://ntu.org/tax-basics/who-pays-income-taxes.html
    - yequalsx 14y ago
      One needs to look at overall tax receipts. Not just income taxes. The very wealthy primarily pay capital gains taxes and not income taxes. Also, the 36.7% figure is not meaningful without knowing the percentage of wealth the very rich control.
      - luminaobscura 14y ago
        so actually Top 10% pays more than 70% of the taxes when we also consider capital gains (because they are the ones who play with the capital) well, i think we all should be grateful for the %10, we are basically funded by them. Thank you rich folks!
        14y ago
- rubashov 14y ago
  > replace it with taxes on capital gains The reasons capital gains taxes are lower than income seem sound to me. You want capital formation and savings. There's only a problem because the government inflates the currency and manipulates interest rates down. This subsidizes speculation. The solution is just higher interest rates.
  - rprasad 14y ago
    The problem is not that capital gains are taxed at lower rates; the problem is that the rate differential between capital gains and ordinary income is currently too large. It incentivizes fake investment (in speculative investments) rather than savings (ordinary income) or businesses (which earn ordinary income). Higher interest rates will help increase savings, but it will do little to address the incentivization of speculative markets caused by the tax rate differential. The solution is to increase interest rates and reduce the tax rate differential (either by increasing capital gains taxes or lowering income taxes).
    - rubashov 14y ago
      The successful speculations are predicated on artificially low interest rates and subsidized leverage.
  - msellout 14y ago
    The amount of savings in the economy is exactly equal to the amount of investment. Changing the capital gains tax rate does not affect how much investment takes place, but instead affects the choice of investment vehicle.
T-hawk 14y ago
Although technically true, there's a very widespread misconception underneath that. The low tax rates for business-derived income such as capital gains and dividends exist because that income was already taxed at the corporate level. Uncle Sam already got his bite out of the corporate balance sheet. http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_Sta... If these business gains were retaxed at the personal level as ordinary income, that would incent company owners and directors to keep the money in the company's coffers safe from taxation. Then you have corporations sitting on illiquid wealth. Giving personal tax breaks for these business gains creates incentive to distribute money back to the economy to be spent and continue flowing. I'm surprised to see a reputable publication like GQ repeat the "rich people pay low taxes" fallacy. But it's such an easy way to score pandering points that pretty much every business article and publication spreads the misinformation now.
- mistermann 14y ago
  Are you implying that the corporate tax + capital gains tax is roughly equal to that of earned income?
  - T-hawk 14y ago
    I hadn't thought through the numbers, but here goes. The Wiki article in my parent post says that the US federal corporate tax rate once beyond the lowest brackets is 34% or 35%. The personal tax rate on capital gains is 15% of the 65% that remains after the corporate taxation step, so 10% of the original total. The total of 45% is higher than the top personal bracket of 35%. (And it's reasonable that it should be, as the child comment points out, the corporation is buying legally protected limitation of liability. The notion that business owners pay less tax than workaday individuals is a media-created myth.)
    - rayiner 14y ago
      Say someone earns a million dollars a year driving a cab. If he negligently hits and kills someone, and gets a $3 million wrongful-death judgment against him, he is personally on the hook for the whole $3 million. If an individual earns a million dollars a year by owning a fleet of cabs, each organized as a separate corporation with the legally-required $50k or whatever of insurance,[1] and one of the cabs hits and kills someone resulting in a $3 million wrongful death lawsuit, the individual is out at most the assets of that single corporation (say $50k + legal fees). It would be ridiculous if the individual paid the same %-age of taxes on that million dollars in both cases. [1] This is actually how many (most?) cab companies are structured.
ams6110 14y ago
I don't know, that guy in particular seemed to be pretty loose with his money. Lots of travel, private jets, etc. He may not think he is "creating jobs" and maybe is isn't directly, but all that spending keeps a lot of people employed.
- twoodfin 14y ago
  That's not even the half of it. Presumably most of his wealth is in either stocks or bonds. In stocks, it's providing capital to enterprises to produce products people want to buy and likely hiring a couple of people to do it. In bonds, it's either doing that, too, or funding government projects like roads and schools.
  - msellout 14y ago
    There is a trickle-down effect, but it's not nearly as strong as some people think. You can think of progressive taxes as a form of insurance policy on the misallocation of resources by wealthy people. Wealthy people may on average make better resource allocation decisions, but sometimes there are mistakes. Progressive taxes prevent wealthy people from gaining so much that a single mistake will be catastrophic. The mechanism by which the free market performs better than a command economy is that of distributed decisions. Instead of a central planner, everyone makes resource allocation decisions based on price information. This free market mechanism works to the extent that resources are distributed. Thus progressive taxes ensure the continuing efficiency of the market.
pg 14y ago
Not necessarily. For example, if someone made that from municipal bonds, as a lot of rich people do, additional tax has in effect already been deducted in the form of the lower interest rates that such bonds pay.

It's a real scandal that a person that makes 500.000 $ a month pays only 11% taxes. This system is completely unfair. This is not liberalism: this is simply the law of the strongest.

yummyfajitas 14y ago

I agree. It is a scandal that reporters constantly focus on the individual tax bill of investors while completely ignoring taxes paid by the corporations they own. The solution is simple: stop taxing corporations and replace it with taxes on capital gains/etc. (Also, while we are at it, equalize the taxation of cap gains, dividends and interest.)

scarmig 14y ago
Indeed. Corporate taxation makes for good applause lines, but at least in our particular system it's basically a giant target for "lobby for special tax breaks, but only if you're rich enough to hire a staff of lobbyists." My favored solution is having two taxes: a heavily progressive consumption tax, and a flat capital gains/etc. tax. Because what people usually are bothered by are the Paris Hiltons of the world, not the humble billionaire featured in the article.
- msellout 14y ago
  How about an externality tax? Anything that hurts anyone else, even via causing jealousy, gets taxed as appropriate for the size of the externality.
  - scarmig 14y ago
    Taxing externalities is, of course, a good idea, and key to any functioning system of property rights. I don't believe they should be used for revenues, because once you do that, it misplaces the incentive: now the government makes more revenue per unit externality. So I favor a flat rebate for all externality taxes.
dtby 14y ago
[Hopefully you've got showdead on.] I find this to be a somewhat odd position. I think it's much more morally defensible to argue for raising corporate taxes and eliminating capital gains taxes. This acknowledges that corporations owe their existence to the state, while natural persons do not. Is your position based on the premise that personal income taxes are good and necessary? Or, perhaps, an acknowledgement that dismantling that system is probably unattainable?
KaoruAoiShiho 14y ago
Wouldn't that be great for foreign investors?
yequalsx 14y ago
It's a simple sounding solution but I'm skeptical of the issue being that simple. There's a world of difference between GE style corporation and an S-corp owned by a single person. The GE type corporations effectively pay very little tax in the present system. They also have the right to spend an unlimited amount of money on election campaigns. In the U.S. system corporations are treated as persons. If a person makes an income (profit) they get taxed. What we presently have is a broken system in my opinion. The very rich earn their money through capital gains and the capital gains tax is very, very low. The very wealthy in the U.S. do not pay a fair share of the tax burden or for the cost of government. Perhaps eliminating corporate taxes while simultaneously greatly increasing capital gains taxes would be good. There could also be some bad consequences to eliminating corporate taxes altogether.
- twoodfin 14y ago
  The very wealthy in the U.S. do not pay a fair share of the tax burden or for the cost of government. They don't?? The top 1% of taxpayers paid 36.7% of all income taxes in 2009[1] (yes, that includes capital gains). The top 10% paid 70%! [1] http://ntu.org/tax-basics/who-pays-income-taxes.html http://ntu.org/tax-basics/who-pays-income-taxes.html
  - yequalsx 14y ago
    One needs to look at overall tax receipts. Not just income taxes. The very wealthy primarily pay capital gains taxes and not income taxes. Also, the 36.7% figure is not meaningful without knowing the percentage of wealth the very rich control.
    - luminaobscura 14y ago
      so actually Top 10% pays more than 70% of the taxes when we also consider capital gains (because they are the ones who play with the capital) well, i think we all should be grateful for the %10, we are basically funded by them. Thank you rich folks!
      - 14y ago
rubashov 14y ago
> replace it with taxes on capital gains The reasons capital gains taxes are lower than income seem sound to me. You want capital formation and savings. There's only a problem because the government inflates the currency and manipulates interest rates down. This subsidizes speculation. The solution is just higher interest rates.
- rprasad 14y ago
  The problem is not that capital gains are taxed at lower rates; the problem is that the rate differential between capital gains and ordinary income is currently too large. It incentivizes fake investment (in speculative investments) rather than savings (ordinary income) or businesses (which earn ordinary income). Higher interest rates will help increase savings, but it will do little to address the incentivization of speculative markets caused by the tax rate differential. The solution is to increase interest rates and reduce the tax rate differential (either by increasing capital gains taxes or lowering income taxes).
  - rubashov 14y ago
    The successful speculations are predicated on artificially low interest rates and subsidized leverage.
- msellout 14y ago
  The amount of savings in the economy is exactly equal to the amount of investment. Changing the capital gains tax rate does not affect how much investment takes place, but instead affects the choice of investment vehicle.

T-hawk 14y ago

Although technically true, there's a very widespread misconception underneath that. The low tax rates for business-derived income such as capital gains and dividends exist because that income was already taxed at the corporate level. Uncle Sam already got his bite out of the corporate balance sheet. http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_Sta... If these business gains were retaxed at the personal level as ordinary income, that would incent company owners and directors to keep the money in the company's coffers safe from taxation. Then you have corporations sitting on illiquid wealth. Giving personal tax breaks for these business gains creates incentive to distribute money back to the economy to be spent and continue flowing. I'm surprised to see a reputable publication like GQ repeat the "rich people pay low taxes" fallacy. But it's such an easy way to score pandering points that pretty much every business article and publication spreads the misinformation now.

mistermann 14y ago
Are you implying that the corporate tax + capital gains tax is roughly equal to that of earned income?
- T-hawk 14y ago
  I hadn't thought through the numbers, but here goes. The Wiki article in my parent post says that the US federal corporate tax rate once beyond the lowest brackets is 34% or 35%. The personal tax rate on capital gains is 15% of the 65% that remains after the corporate taxation step, so 10% of the original total. The total of 45% is higher than the top personal bracket of 35%. (And it's reasonable that it should be, as the child comment points out, the corporation is buying legally protected limitation of liability. The notion that business owners pay less tax than workaday individuals is a media-created myth.)
  - rayiner 14y ago
    Say someone earns a million dollars a year driving a cab. If he negligently hits and kills someone, and gets a $3 million wrongful-death judgment against him, he is personally on the hook for the whole $3 million. If an individual earns a million dollars a year by owning a fleet of cabs, each organized as a separate corporation with the legally-required $50k or whatever of insurance,[1] and one of the cabs hits and kills someone resulting in a $3 million wrongful death lawsuit, the individual is out at most the assets of that single corporation (say $50k + legal fees). It would be ridiculous if the individual paid the same %-age of taxes on that million dollars in both cases. [1] This is actually how many (most?) cab companies are structured.

ams6110 14y ago

I don't know, that guy in particular seemed to be pretty loose with his money. Lots of travel, private jets, etc. He may not think he is "creating jobs" and maybe is isn't directly, but all that spending keeps a lot of people employed.

twoodfin 14y ago
That's not even the half of it. Presumably most of his wealth is in either stocks or bonds. In stocks, it's providing capital to enterprises to produce products people want to buy and likely hiring a couple of people to do it. In bonds, it's either doing that, too, or funding government projects like roads and schools.
- msellout 14y ago
  There is a trickle-down effect, but it's not nearly as strong as some people think. You can think of progressive taxes as a form of insurance policy on the misallocation of resources by wealthy people. Wealthy people may on average make better resource allocation decisions, but sometimes there are mistakes. Progressive taxes prevent wealthy people from gaining so much that a single mistake will be catastrophic. The mechanism by which the free market performs better than a command economy is that of distributed decisions. Instead of a central planner, everyone makes resource allocation decisions based on price information. This free market mechanism works to the extent that resources are distributed. Thus progressive taxes ensure the continuing efficiency of the market.

pg 14y ago

Not necessarily. For example, if someone made that from municipal bonds, as a lot of rich people do, additional tax has in effect already been deducted in the form of the lower interest rates that such bonds pay.