5 ms·

The fact is that -- at least percentagewise -- the rich tend to be taxed far less than the middle class, precisely because capital gains tax tends to be so much

• ojbyrne 14y ago
  I'm left of center politically, but the argument is that they put money they already have (and have paid taxes on) at risk by investing. They don't have to do that, and by doing so, they help the economy overall. So the government provides incentives to risk money that they don't really need to. Also middle class people can (and do) take advantage of the exact same mechanism.
  • eli_gottlieb 14y ago
    By that measure, isn't working putting your time at risk? After all, the company could collapse and go under any day, or, more likely, just lay you off any day! (I realize that equity instruments are far riskier than working, but debt instruments really aren't. With a bond or loan, the company owes you the money either way, just as it does when working for salary.) I see no reason that realized capital gains shouldn't just be treated as Yet Another Source of Income.
• deleted 14y ago
  [deleted]
• twoodfin 14y ago
  > The fact is that -- at least percentagewise -- the rich tend to be taxed far less than the middle class... If you're talking about Federal income taxes, that isn't true. Marginal rates for the middle class can exceed 15% (a married couple would have to earn ~$80K jointly before that happened), but the effective income tax rate for the median household is much lower than, say, Mitt Romney's.[1] Payroll taxes make this a closer run thing, but that's another story, and the trend since the Medicare reforms of the '90's (removing the FICA tax cap) and the ACA today (higher FICA tax on high income, new cap gains tax) has been to push the costs of broad social welfare programs onto high earners. [1] http://www.cbpp.org/cms/index.cfm?fa=view&id=3151 http://www.cbpp.org/cms/index.cfm?fa=view&id=3151
  • jamesaguilar 14y ago
    The other thing to observe is that very few people who are making a mid-lot of money ($200k-$1m) are paying as low of an effective rate as Romney is.
  • loup-vaillant 14y ago
    No, he's talking about total effective taxes in France. That includes things such as VAT. Basically, the lower classes pay around 40% taxes (compared to their income). The middle class pay around 50%. Rich people pay around 30%, and the riches pay even much less (percentage wise). Apparently, wealthy people are better at exploiting loopholes in our tax system.
    • twoodfin 14y ago
      That the VAT taxes consumption, something the rich do proportionally less of, is not a "loophole". It's fundamental to the design of the tax.
      • loup-vaillant 14y ago
        Good point. It doesn't explain everything however: The top 2% (or is it 0.2%?) pay less than 10% taxes. Direct income tax alone is supposed to approach 50% for those incomes.
• WildUtah 14y ago
  Capital gains income is usually taxed at a lower rate on the principle of double taxation. I don't know how it's done in France, but in the USA corporate income is taxed at a theoretical rate of 35% and the gains from that stream of profits, whether dividends or capital gains, are taxed at 15% on the individual level. That 15% comes after excluding the taxes paid at the corporate level. If an individual had earned that money himself without forming a corporation, he would have paid a 35% maximum rate. Real estate income is usually taxed like corporate income. Capital gains from non tax paying assets like art and collectables don't reflect double taxation and therefore don't get the lower capital gains tax. Of course it's more complicated than that. Corporate taxes are filled with loopholes. The 15%+35% is often less in total than the simple 35% if your accountant is talented. That doesn't mean the system is wrong, just that the loopholes reflect corruption.
  • joshAg 14y ago
    But, isn't it two different people paying the corporate tax and the cap gains tax? Forgive me, but the way you explained the cap gains tax seems akin to me being taxed on my income, then taking part of the leftover money to pay for a mechanic and him having to pay income tax on what i paid him. Could you please explain where/how i'm misunderstanding you?
    • WildUtah 14y ago
      Sure. Suppose you write an app and put it on the Google app store (because who wants to publish on a phone that can't even produce a decent map?). Now in a parallel universe, you first form a corporation to publish your app. Maybe you're hoping to establish a brand or get easier credit or take investors or keep accounting simpler when the business grows. For whatever reason, you incorporated the app business first and then published to the app store. Your app is a big success and makes a million dollars, ninety-nine cents at a time. Remember that in the original story, you wrote the app and published it yourself. In the parallel incorporated universe you wrote the app and published it yourself, but through a corporation in which you are the sole shareholder. Either way the writing act and the value delivered are the same and the money collected are the same. The taxes won't be the same because sole proprietors (that's you alone running a business), partnerships (two or more people running a business without incorporating), and corporations are taxed differently. Those differences can be useful and beneficial or distortionary depending on circumstances. From a policy-making point of view we don't want the ultimate total tax liability to be very much higher or lower for any kind of organization. Well, we might want them to be different if we want to discourage one form of business organization, but then we might as well just make it illegal from the start. So let's consider how much tax you pay on your app. In the original plan, you pay personal tax rates up to 35% (39.6% next year) plus FICA (2.9% marginal, but half deductible against income and FICA itself(!)) and state income taxes (about 7% average). You'll be left with about 57 cents from your marginal dollar. In the corporate parallel, you pay 35% corporate rates plus state income tax (5% average). Then you pay yourself dividends or capital gains. Dividends can be converted to capital gains by dissolving the corporation or stock buy backs. The current capital gain rate is 15% federal plus state income tax (again). You'll be left with 62 cents after corporate taxes (state taxes are deductible against corporate levies) and then 50 cents after personal taxes. So the corporate route costs you about 7 cents per dollar in higher taxes. Raising the dividend or capital gains rate to the personal rate would leave you with 35 cents and make a total cost of 22 cents per dollar for choosing the corporate form. The corporate form has some tax benefits that can justify part of the seven cent burden. There are benefit programs and deductions available more easily to corporations. They cannot make up anything like a 22 cent difference. Charging tax rates so high on corporate profits will lead to tax dodges like hoarding profits inside the company, paying executives outrageous hidden tax-free beenfits, and using the corporate tax-free interest paid loophole to make things even worse from a tax and corporate integrity perspective. Now the USA has the highest corporate income tax rate in the world (matched with Japan). Obama has proposed dropping that rate along with eliminating deductions to keep it revenue neutral. He also wants to raise capital gains and dividend taxes to 20% or possibly higher. That would be a good trade-off for everyone but it's important to remember that your choice of business organization should not make so much difference in your tax paid that it takes the decision from you.
• shin_lao 14y ago
  Capital is what remains after tax. During the life of the company the structure paid social and income tax. Strongly taxing what remains (wealth) is not only unfair (What, how did you manage to produce wealth? Let's tax it!) but results in, in fact, a double tax.
• jandrewrogers 14y ago
  Long-term capital gains taxes are lower than income taxes for a number of sound financial reasons. Who earns them really does not play into it. While the double taxation argument seems to be popular, it is relatively weak. Some of the important reasons that are often overlooked: - Long-term capital gains are not indexed for inflation. For investments held multiple years, this compounds into a very substantial loss that cannot be deducted from the nominal paper gain. You can pay significant capital taxes for a real loss. For short-term investments and income, this loss is nominal and can easily be accounted for in other ways. The lower tax rate on long-term capital returns is a simple way to approximately account for that loss without complicated math. - Long-term capital taxes are not efficient relative to other taxes. Taxes adversely impact the economy from which tax revenue is derived, so preference is given to taxes that have the least negative impact for every dollar collected. In this regard, capital taxes are among the least efficient of the common taxes. By comparison, both income and consumption taxes do much less damage to economic growth for the amount of revenue generated. From the standpoint of maximizing tax revenue, taxing long-term capital investments is not a good way of going about it. In short, long-term capital gains are taxed at a lower rate because (1) you can't deduct the substantial inflation losses which make long-term investments otherwise unattractive and (2) even if you could, it is a lousy way for governments to generate tax revenue over the long term relative to other tax sources. While they are associated with high earners, that is mostly incidental. Governments generally have a vested interest in balancing growing the tax base and maximizing revenue, arbitrary notions of fairness aside.
  • Locke1689 14y ago
    This is fine in theory, but the data doesn't seem to back up the idea that capital gains tax has to be extremely low for substantial investment to occur. At least, according to US historical capital gains tax rates.
  • deleted 14y ago
    [deleted]