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Capital Gains Tax

FREEDO
Posts: 21,057
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8/28/2012 2:24:58 AM
Posted: 4 years ago
There are a lot of people calling for more income equality. But not many of those people now how to go about doing that. They've given a general "raise taxes on the rich". But there are many different ways to tax. Are they all the same? To clear things up, I shall point out how there is only really one single tax which is relevant for the issue of income equality. The capital gains tax.

I'll give you the main points of this Forbes.com article on the issue:
https://sphotos-b.xx.fbcdn.net...

Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people.

More than 80% of the increase in income disparity over the last several years can be attributed to income earned from capital gains.

Discuss.
GRAND POOBAH OF DDO

fnord
bossyburrito
Posts: 14,075
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8/28/2012 4:40:11 AM
Posted: 4 years ago
So... We need to tax Dolan?

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FREEDO
Posts: 21,057
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8/28/2012 3:47:08 PM
Posted: 4 years ago
At 8/28/2012 4:40:11 AM, bossyburrito wrote:
So... We need to tax Dolan?


ROFLLLL

Lol, that was a great mistake.
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fnord
TheBossToss
Posts: 154
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8/28/2012 5:28:20 PM
Posted: 4 years ago
At 8/28/2012 2:24:58 AM, FREEDO wrote:
There are a lot of people calling for more income equality. But not many of those people now how to go about doing that. They've given a general "raise taxes on the rich". But there are many different ways to tax. Are they all the same? To clear things up, I shall point out how there is only really one single tax which is relevant for the issue of income equality. The capital gains tax.

I'll give you the main points of this Forbes.com article on the issue:
https://sphotos-b.xx.fbcdn.net...

Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people.

More than 80% of the increase in income disparity over the last several years can be attributed to income earned from capital gains.

Discuss.

Perhaps we need to get off this bandwagon of taxing people the "right amount" and just simplify the bloody tax code, privatize entitlements and cut spending so we can take as little money from people as possible. Perhaps that is what we should be obsessing over, rather than this.
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Ultra
Posts: 47
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8/28/2012 8:35:40 PM
Posted: 4 years ago
I honestly don't understand why we can't just tax Capital Gains as ordinary income. To me, that seems like the most reasonable and fair solution.
Ultra
Posts: 47
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8/28/2012 8:36:34 PM
Posted: 4 years ago
I honestly don't understand why we can't just tax Capital Gains as ordinary income. To me, that seems like the most reasonable and fair solution.

DDO said that my post "is not unique," so I'm adding this.
johnnyboy54
Posts: 6,362
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8/28/2012 8:39:02 PM
Posted: 4 years ago
At 8/28/2012 8:35:40 PM, Ultra wrote:
I honestly don't understand why we can't just tax Capital Gains as ordinary income. To me, that seems like the most reasonable and fair solution.

Because the government wants to encourage investment.
I didn't order assholes with my whiskey.
johnnyboy54
Posts: 6,362
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8/28/2012 8:43:53 PM
Posted: 4 years ago
I don't see a problem with having the top 0.1% of American's making the most capital gains. It is natural, because the top 0.1 percent invest so much more, that they would be responsible for much of the capital gains income.
I didn't order assholes with my whiskey.
Contra
Posts: 3,941
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8/28/2012 8:53:57 PM
Posted: 4 years ago
At 8/28/2012 5:28:20 PM, TheBossToss wrote:
At 8/28/2012 2:24:58 AM, FREEDO wrote:
There are a lot of people calling for more income equality. But not many of those people now how to go about doing that. They've given a general "raise taxes on the rich". But there are many different ways to tax. Are they all the same? To clear things up, I shall point out how there is only really one single tax which is relevant for the issue of income equality. The capital gains tax.

I'll give you the main points of this Forbes.com article on the issue:
https://sphotos-b.xx.fbcdn.net...

Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people.

More than 80% of the increase in income disparity over the last several years can be attributed to income earned from capital gains.

Discuss.

Perhaps we need to get off this bandwagon of taxing people the "right amount" and just simplify the bloody tax code, privatize entitlements and cut spending so we can take as little money from people as possible. Perhaps that is what we should be obsessing over, rather than this.

This. Have two flat rates of 10% and 25%, and make the gov't smaller and privatize the entitlements, to lower our debt and tax burdens, which will give certainty to businesses, and they will have more capital to invest in their machinery and capital goods, leading to an economic stimulus.
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darkkermit
Posts: 11,204
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8/28/2012 9:02:41 PM
Posted: 4 years ago
At 8/28/2012 8:53:57 PM, Contra wrote:
At 8/28/2012 5:28:20 PM, TheBossToss wrote:
At 8/28/2012 2:24:58 AM, FREEDO wrote:
There are a lot of people calling for more income equality. But not many of those people now how to go about doing that. They've given a general "raise taxes on the rich". But there are many different ways to tax. Are they all the same? To clear things up, I shall point out how there is only really one single tax which is relevant for the issue of income equality. The capital gains tax.

I'll give you the main points of this Forbes.com article on the issue:
https://sphotos-b.xx.fbcdn.net...

Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people.

More than 80% of the increase in income disparity over the last several years can be attributed to income earned from capital gains.

Discuss.

Perhaps we need to get off this bandwagon of taxing people the "right amount" and just simplify the bloody tax code, privatize entitlements and cut spending so we can take as little money from people as possible. Perhaps that is what we should be obsessing over, rather than this.

This. Have two flat rates of 10% and 25%, and make the gov't smaller and privatize the entitlements, to lower our debt and tax burdens, which will give certainty to businesses, and they will have more capital to invest in their machinery and capital goods, leading to an economic stimulus.

Its fascinating to watch your writing style stay the same, but switch from a left-wing to right-wing perspective.
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johnnyboy54
Posts: 6,362
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8/28/2012 10:21:49 PM
Posted: 4 years ago
At 8/28/2012 9:02:41 PM, darkkermit wrote:
At 8/28/2012 8:53:57 PM, Contra wrote:
At 8/28/2012 5:28:20 PM, TheBossToss wrote:
At 8/28/2012 2:24:58 AM, FREEDO wrote:
There are a lot of people calling for more income equality. But not many of those people now how to go about doing that. They've given a general "raise taxes on the rich". But there are many different ways to tax. Are they all the same? To clear things up, I shall point out how there is only really one single tax which is relevant for the issue of income equality. The capital gains tax.

I'll give you the main points of this Forbes.com article on the issue:
https://sphotos-b.xx.fbcdn.net...

Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people.

More than 80% of the increase in income disparity over the last several years can be attributed to income earned from capital gains.

Discuss.

Perhaps we need to get off this bandwagon of taxing people the "right amount" and just simplify the bloody tax code, privatize entitlements and cut spending so we can take as little money from people as possible. Perhaps that is what we should be obsessing over, rather than this.

This. Have two flat rates of 10% and 25%, and make the gov't smaller and privatize the entitlements, to lower our debt and tax burdens, which will give certainty to businesses, and they will have more capital to invest in their machinery and capital goods, leading to an economic stimulus.

Its fascinating to watch your writing style stay the same, but switch from a left-wing to right-wing perspective.

What Darkfrogman said.
I didn't order assholes with my whiskey.
Cody_Franklin
Posts: 9,483
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8/29/2012 12:28:52 PM
Posted: 4 years ago
"Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people."

Well, duh. A lot of the people who self-select into long-term investment tend to be people who know how to handle money and have low time preferences. It's like how people who self-select into university (under non-interventionist conditions) are probably more productive ex ante than people who don't. There are counterexamples, but it's generally true just due to the psychological makeup required to self-select into something like that.

I mean, yeah, there are people who inherit a lot of money or whatever, but if they just squandered it like playboys, they'd probably lose most of it, and it wouldn't matter for us anyway, because they'd be getting zero in cap gains, and probably zero in income. They actually have to be smart enough to learn how to invest to ensure continuity of wealth. And I mean, investment isn't just putting money into a bag and waiting for it to multiply--that money goes places and funds things. I think a lot of people only look at it as "using money to make money", but they don't see the less-salient stuff that the money goes to.

So, I'm sure you could raise the cap gains tax a little without pissing anyone off, but a lot of these people, despite having a high net worth, tend to have a lot of their money parceled out in investments, living off interest and dividends and stuff. So, if you try to tax cap gains more, you would have to stop before you made investment spending less profitable than something else (which is worse when it compounds with a shortage of capital for start-ups or debt auctions), since people will just move their money elsewhere if you cut too deep into profits on investments.
Jake-migkillertwo
Posts: 67
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8/30/2012 10:47:33 AM
Posted: 4 years ago
capital gains is taxed differently than ordinary income because capital gains are deferred for much longer than wage income.

If I buy a house for $100,000, and sell it 10 years later for $200,000, should I pay the the same tax on the 100,000 dollar gain as if I had earned that as wage income? of course not. 100,000 dollars realized after ten years is the same as earning 10,000 a year and not spending it. so I should only pay tax on that income as if i had earned that money as a 10,000 annual income.

There's also the problem that capital gains are not indexed to inflation. If inflation averaged 10% over those ten years, I made no capital gain, and yet I'd be taxed at 15%.

Capital and wage income ought to be taxed at 0%. You want to tax behavior that you want less of, like consumption, pollution, etc, not behavior that you want more of, like work and investment.
brian_eggleston
Posts: 3,347
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8/30/2012 2:57:16 PM
Posted: 4 years ago
At 8/28/2012 2:24:58 AM, FREEDO wrote:
There are a lot of people calling for more income equality. But not many of those people now how to go about doing that. They've given a general "raise taxes on the rich". But there are many different ways to tax. Are they all the same? To clear things up, I shall point out how there is only really one single tax which is relevant for the issue of income equality. The capital gains tax.

I'll give you the main points of this Forbes.com article on the issue:
https://sphotos-b.xx.fbcdn.net...

Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people.

More than 80% of the increase in income disparity over the last several years can be attributed to income earned from capital gains.

Discuss.

I don't know about the US, but in Britain capital gains tax is set at 28%, against 50% income tax for top earners. Therefore, most wealthy people use share options and other financial instruments to pay themselves rather than being taxed at source on their whole income like most people are.

That's why an ordinary worker pays a higher percentage of tax than most top earners.

I don't blame them...it's legal, I do the same thing myself, but I wouldn't complain if this tax-avoidance loophole was closed...even I if would be worse off myself.
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Chaos88
Posts: 247
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9/3/2012 2:51:42 AM
Posted: 4 years ago
At 8/30/2012 2:57:16 PM, brian_eggleston wrote:
At 8/28/2012 2:24:58 AM, FREEDO wrote:
There are a lot of people calling for more income equality. But not many of those people now how to go about doing that. They've given a general "raise taxes on the rich". But there are many different ways to tax. Are they all the same? To clear things up, I shall point out how there is only really one single tax which is relevant for the issue of income equality. The capital gains tax.

I'll give you the main points of this Forbes.com article on the issue:
https://sphotos-b.xx.fbcdn.net...

Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people.

More than 80% of the increase in income disparity over the last several years can be attributed to income earned from capital gains.

Discuss.

I don't know about the US, but in Britain capital gains tax is set at 28%, against 50% income tax for top earners. Therefore, most wealthy people use share options and other financial instruments to pay themselves rather than being taxed at source on their whole income like most people are.

That's why an ordinary worker pays a higher percentage of tax than most top earners.

I don't blame them...it's legal, I do the same thing myself, but I wouldn't complain if this tax-avoidance loophole was closed...even I if would be worse off myself.

They do similar things here, too. And we have a simlar outcome as well.
For example, they may pay themselves solely with stock, thus have zero income for the year, while living off their capital gains and interest.
Chaos88
Posts: 247
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9/3/2012 2:57:33 AM
Posted: 4 years ago
At 8/28/2012 2:24:58 AM, FREEDO wrote:
There are a lot of people calling for more income equality. But not many of those people now how to go about doing that. They've given a general "raise taxes on the rich". But there are many different ways to tax. Are they all the same? To clear things up, I shall point out how there is only really one single tax which is relevant for the issue of income equality. The capital gains tax.

I'll give you the main points of this Forbes.com article on the issue:
https://sphotos-b.xx.fbcdn.net...

Half of all income collected from capital gains goes to the top 0.1% of income earners. That's about 315,000 people.

More than 80% of the increase in income disparity over the last several years can be attributed to income earned from capital gains.

Discuss.

I disagree with your premise. If your goal is income equality, then the key tax is the estate tax. I believe it is currently 55% only if the estate is over $1M. So, if I had $10M and I died, before my will is honored, the state claims its $5.5M and I can only bequeth $4.5M.

This "handicaps" inheritences to continue making gobs of money without "earning" it, especially if it were raised to, say, 80%. Or, bring about an inheritance tax on top of the estate tax. This would have a further leveling effect.
Chaos88
Posts: 247
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9/3/2012 3:05:47 AM
Posted: 4 years ago
At 8/28/2012 8:39:02 PM, johnnyboy54 wrote:
At 8/28/2012 8:35:40 PM, Ultra wrote:
I honestly don't understand why we can't just tax Capital Gains as ordinary income. To me, that seems like the most reasonable and fair solution.

Because the government wants to encourage investment.

Captial gains are not solely investments, though. I would wager most are from stock sales, which if bought on the open market, invest in nothing as the "investment" was made when the stock was bought from the company. Any dividends paid are taxed at normal rates, unless they fall under the qualified dividends from the "Bush tax cuts", set to expire this year.

Furthermore, bonds, which are investments, pay interest, which is considered "ordinary income" and taxed as such. Additionally, money in the bank (CD, money market, or savings) is investment as banks use this capital to finance loans. This interest is also taxed at normal rates.

Also, I don't know if it was you who brought up the home sale or not, but you may want to shy away from that, as gains on homes are not taxable (up to $250K). I understand want was being conveyed, but people like to nit-pick arguments anyway they can.
Chaos88
Posts: 247
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9/3/2012 3:21:47 AM
Posted: 4 years ago
At 8/30/2012 10:47:33 AM, Jake-migkillertwo wrote:
capital gains is taxed differently than ordinary income because capital gains are deferred for much longer than wage income.

This is an interesting point. How would you respond to those that say it is moot, because the gain is not REALIZED until later? If I buy a stock for $10, and ten years later, I sell it for $30, that is a $20 gain. But how could I have paid taxes on that ten years ago, when there was no gain?

If I buy a house for $100,000, and sell it 10 years later for $200,000, should I pay the the same tax on the 100,000 dollar gain as if I had earned that as wage income? of course not. 100,000 dollars realized after ten years is the same as earning 10,000 a year and not spending it. so I should only pay tax on that income as if i had earned that money as a 10,000 annual income.

See my earlier post about using a house as an example.

There's also the problem that capital gains are not indexed to inflation. If inflation averaged 10% over those ten years, I made no capital gain, and yet I'd be taxed at 15%.

Moot. You are correct that they are not indexed, but neither is your basis. So, you could be taxed on a "paper gain". However, don't you also reap benefits over the years from these capital assets? They are wealth to be used as collateral. They may pay for themselves, with interest on bonds, dividends on stocks, or free rent from the home (or rent on a rental home). So, while this "paper gain" is unfair, you still reaped a benefit from these assets over the years.

Capital and wage income ought to be taxed at 0%. You want to tax behavior that you want less of, like consumption, pollution, etc, not behavior that you want more of, like work and investment.

Doesn't investment beget consumption?