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Hillary's Tax Plan is Disastrous

ResponsiblyIrresponsible
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7/26/2015 2:38:01 PM
Posted: 1 year ago
Hillary Clinton unveiled part uno of her tax plan regarding income from capital gains. You can find comprehensive summaries of her plan both here [http://www.businessinsider.com...] and here [http://www.vox.com...].

The crux of her proposal is to tax capital gains on a sliding scale, whilst maintaing the logic of the current system which provides preferential tax treatment to longer-term capital gains. Under the current system, investments held for under one year are taxed as ordinary labor income, plus the 3.8 percent ACA surcharge. In reality, of course, that isn't *actually* a rate of 39.6 percent, and here's why: capital income is, inherently, a double tax. It was taxed once as labor income prior to people opting to invest that money in a stock or a bond to earn a return, and then a second time as investment income. Therefore, the actual tax rate on a one-year investment can be calculated as follows:

Let's say you earn $100 in PV terms. You pay 39.6 percent -- of course, let's assume for the sake of argument this is the effective rate, which in reality, after accounting for state and local taxes, is a pretty fair assessment -- or $39.60 in taxes. You then invest the remaining $60.4 in lieu of consuming with it now, the implication being that you're *withholding* gratification today for the sake of a longer-term gain, and thus you ought to be rewarded for it. Irrespective of what your return is -- i.e., what the discount rate is -- we could levy the tax on the PV of your before-tax investment earnings, which is $60.4. Drop the 39.6 percent tax, plus the 3.8 percent surcharge (or, in other words, a 43.4 percent tax) on that, and we get an additional $26.21 paid from the initial $100.

$39.60 + $26.21 = $65.81/100 = 65.81 percent

Sounds pretty harsh, right? If you knew you were bearing a 65.81 percent tax, in lieu of a 39.6 percent tax if you consumed with your earnings today, wouldn't you merely spend now? That is the inherent problem with capital taxation: it's a double taxation that discincentivizes saving today for the sake of consumption, and that has costs for longer-term trend growth. That's why there's a wide body of literature stipulating the optimal capital tax rate is 0 percent. If you were to look at a basic Solow model, for instance, capital accumulation can be expressed as follows:

delta k = [savings * TFP * k^a] - [(delta + n)k]

where delta k = change in capital, savings is the savings rate, TFP is total factory productivity, a is a parameter for the capital's share of income, delta is the depreciation rate, and n is population growth. If you drop the savings rate, you end up with a chronic imbalance of investment over savings, which reduces the PV of consumption today relative to the golden-rule capital-labor ratio.

Now, Hillary's idea of impacting corporate culture such that they prioritize longer-term investments over short-term, quarterly earnings reports, is well-intentioned. However, it's not the least bit practical nor desirable in practice. Primarily, this is because of a well-documented phenomenon called "habitat preference": investors desired to hold assets of certain maturities. They're not, magically, going to switch to a six-year maturity or hold onto their assets for a longer period of time to receive preferential treatment under Hillary's tax plan: it's incredibly naive and devoid of reality to reason as much. Rather, they're simply going to forego investments and spend more today. Savings rates would plummet, trend growth -- which is already sh1t because of a number of other structural factors -- would fall further, and innovation would crater.

This is possibly the worst way Hillary could seek to raise revenue, even worse than Bernie Sander's proposed tax on financial transactions. If more revenue is what she desires, the only reasonable way to go about it is with a transition to a progressive consumption tax.
~ResponsiblyIrresponsible

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lannan13
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7/27/2015 12:16:34 PM
Posted: 1 year ago
Indeed it's scary. That's the main reason a lot of jobs are leaving, because we're discouring them. Hell she almost wants to double it to 40%.
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slo1
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7/29/2015 2:42:52 PM
Posted: 1 year ago
At 7/26/2015 2:38:01 PM, ResponsiblyIrresponsible wrote:
Hillary Clinton unveiled part uno of her tax plan regarding income from capital gains. You can find comprehensive summaries of her plan both here [http://www.businessinsider.com...] and here [http://www.vox.com...].

The crux of her proposal is to tax capital gains on a sliding scale, whilst maintaing the logic of the current system which provides preferential tax treatment to longer-term capital gains. Under the current system, investments held for under one year are taxed as ordinary labor income, plus the 3.8 percent ACA surcharge. In reality, of course, that isn't *actually* a rate of 39.6 percent, and here's why: capital income is, inherently, a double tax. It was taxed once as labor income prior to people opting to invest that money in a stock or a bond to earn a return, and then a second time as investment income. Therefore, the actual tax rate on a one-year investment can be calculated as follows:

Let's say you earn $100 in PV terms. You pay 39.6 percent -- of course, let's assume for the sake of argument this is the effective rate, which in reality, after accounting for state and local taxes, is a pretty fair assessment -- or $39.60 in taxes. You then invest the remaining $60.4 in lieu of consuming with it now, the implication being that you're *withholding* gratification today for the sake of a longer-term gain, and thus you ought to be rewarded for it. Irrespective of what your return is -- i.e., what the discount rate is -- we could levy the tax on the PV of your before-tax investment earnings, which is $60.4. Drop the 39.6 percent tax, plus the 3.8 percent surcharge (or, in other words, a 43.4 percent tax) on that, and we get an additional $26.21 paid from the initial $100.

$39.60 + $26.21 = $65.81/100 = 65.81 percent

Sounds pretty harsh, right? If you knew you were bearing a 65.81 percent tax, in lieu of a 39.6 percent tax if you consumed with your earnings today, wouldn't you merely spend now? That is the inherent problem with capital taxation: it's a double taxation that discincentivizes saving today for the sake of consumption, and that has costs for longer-term trend growth. That's why there's a wide body of literature stipulating the optimal capital tax rate is 0 percent. If you were to look at a basic Solow model, for instance, capital accumulation can be expressed as follows:

delta k = [savings * TFP * k^a] - [(delta + n)k]

where delta k = change in capital, savings is the savings rate, TFP is total factory productivity, a is a parameter for the capital's share of income, delta is the depreciation rate, and n is population growth. If you drop the savings rate, you end up with a chronic imbalance of investment over savings, which reduces the PV of consumption today relative to the golden-rule capital-labor ratio.

Now, Hillary's idea of impacting corporate culture such that they prioritize longer-term investments over short-term, quarterly earnings reports, is well-intentioned. However, it's not the least bit practical nor desirable in practice. Primarily, this is because of a well-documented phenomenon called "habitat preference": investors desired to hold assets of certain maturities. They're not, magically, going to switch to a six-year maturity or hold onto their assets for a longer period of time to receive preferential treatment under Hillary's tax plan: it's incredibly naive and devoid of reality to reason as much. Rather, they're simply going to forego investments and spend more today. Savings rates would plummet, trend growth -- which is already sh1t because of a number of other structural factors -- would fall further, and innovation would crater.

This is possibly the worst way Hillary could seek to raise revenue, even worse than Bernie Sander's proposed tax on financial transactions. If more revenue is what she desires, the only reasonable way to go about it is with a transition to a progressive consumption tax.

I don't get it. Your calculation of combining labor income tax with capital gains tax seems to be missing a capital gain. Are you really stating that Hillary wants to implement a tax on investment in addition to a capital gain tax? Something seems wonky here.
slo1
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7/29/2015 2:49:52 PM
Posted: 1 year ago
I just read the article. What you have calculated is not right.

If I make a $60 investment. I don't pay any taxes unless there is a capital gain, just like it works today. In other words, if I sell it at $60 there is zero gain and zero taxes. There is no double taxation. If I make a gain say I sell it at $70, my gain is $10 and I only pay taxes on the $10. That is new income separate and distinct from the $60 invested, no double taxation.

If I loose $10 in the investment, I actually get to write it off so my original income tax liability is reduced on the labor income, no double taxation.
ResponsiblyIrresponsible
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7/29/2015 3:20:15 PM
Posted: 1 year ago
At 7/29/2015 2:42:52 PM, slo1 wrote:
I don't get it. Your calculation of combining labor income tax with capital gains tax seems to be missing a capital gain. Are you really stating that Hillary wants to implement a tax on investment in addition to a capital gain tax? Something seems wonky here.

No, not at all. I calculated an effective tax on short-term investment -- under one year -- under Hillary's tax plan, using PV terms. Every part of it was sound: income is taxed first as labor and then again as capital gains. To actually find an effective rate, I used a present value with a constant discount rate as the rate of return. Every step was perfectly sound.
~ResponsiblyIrresponsible

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ResponsiblyIrresponsible
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7/29/2015 3:24:21 PM
Posted: 1 year ago
At 7/29/2015 2:49:52 PM, slo1 wrote:
I just read the article. What you have calculated is not right.

If I make a $60 investment. I don't pay any taxes unless there is a capital gain, just like it works today. In other words, if I sell it at $60 there is zero gain and zero taxes. There is no double taxation. If I make a gain say I sell it at $70, my gain is $10 and I only pay taxes on the $10. That is new income separate and distinct from the $60 invested, no double taxation.

There was double taxation; you're just obfuscating the issue entirely. The $60 you had to invest was already taxed once as labor income, and applying some discount rate it'll grow if invested over X period of time. The additional income -- yes, you're right that I mistaken;y didn't calculate a tax rate solely on the marginal difference -- was already taxed once because it's merely pushing a cash flow forward a few years.

If I loose $10 in the investment, I actually get to write it off so my original income tax liability is reduced on the labor income, no double taxation.

All that means is you were applying a negative discount rate; technically, that's a negative tax.
~ResponsiblyIrresponsible

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ResponsiblyIrresponsible
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7/29/2015 7:35:49 PM
Posted: 1 year ago
I thought this over a lot, and slo is right -- I did make a slight mistake in the calculation, which would significantly push downward the effective tax rate on capital taxation. I maintain that it's a double tax nevertheless, but not nearly as profound as 65 percent.

Let's re-do this.

Starting pre-tax labor income: $100
Labor income tax rate: 39.6 percent
After-tax income: $60.40

Then let's say we take the entirety of that $60.40 and invest it over a 1-year period. For the sake of argument, let's say you put it in a safe asset, like a Treasury build. The current 1-year rate is 32 basis points, so that'll be our return. Therefore, after one year the $60.40 will turn into $60.59 -- that's merely pushing the cash flow one year into the future. The resulting .19, because it's a one-year investment, is taxed at 39.6 percent, meaning you pay 7.65 cents (let's not round to keep the calculation precise). In present value terms, using our same discount rate, that 7.65 cents is 7.62 cents (7.65/1.0032). That means that, without question, the effective tax burden in PV terms is higher. In particular, in PV terms you paid:

$39.60 + $0.0765 = $39.68 >>>> 39.68%

Granted, that doesn't look like much, but that's because I used a risk-free, one-year discount rate. If that rate were higher, as it would be for any high-grade stock, our tax burden in PV terms would be far higher, and that's the problem with Ms. Clinton's proposal.
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16kadams
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7/29/2015 11:46:52 PM
Posted: 1 year ago
yeah, her tax plan is cancerous. She has jumped to the left because of Bernie, and I dunno how moderate she will be in her first term if she were to win (because running to the center would label her a flip flop, which would hurt her for a second term).

I much prefer Jeb to Hillary right now.
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"A trend is a trend, but the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?" -- Alec Cairncross
tejretics
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7/30/2015 3:55:28 AM
Posted: 1 year ago
At 7/29/2015 11:46:52 PM, 16kadams wrote:
yeah, her tax plan is cancerous. She has jumped to the left because of Bernie, and I dunno how moderate she will be in her first term if she were to win (because running to the center would label her a flip flop, which would hurt her for a second term).

I much prefer Jeb to Hillary right now.

I'm so surprised that *you* prefer Jeb to Hillary. I mean, you've always supported Hillary the most, right?

/sarcasm
"Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe." - Frederick Douglass
16kadams
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7/30/2015 5:13:52 AM
Posted: 1 year ago
At 7/30/2015 3:55:28 AM, tejretics wrote:
At 7/29/2015 11:46:52 PM, 16kadams wrote:
yeah, her tax plan is cancerous. She has jumped to the left because of Bernie, and I dunno how moderate she will be in her first term if she were to win (because running to the center would label her a flip flop, which would hurt her for a second term).

I much prefer Jeb to Hillary right now.

I'm so surprised that *you* prefer Jeb to Hillary. I mean, you've always supported Hillary the most, right?

/sarcasm

Jeb is better in pretty much every way :P
https://www.youtube.com...
https://rekonomics.wordpress.com...
"A trend is a trend, but the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?" -- Alec Cairncross
tejretics
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7/30/2015 5:14:31 AM
Posted: 1 year ago
At 7/30/2015 5:13:52 AM, 16kadams wrote:
At 7/30/2015 3:55:28 AM, tejretics wrote:
At 7/29/2015 11:46:52 PM, 16kadams wrote:
yeah, her tax plan is cancerous. She has jumped to the left because of Bernie, and I dunno how moderate she will be in her first term if she were to win (because running to the center would label her a flip flop, which would hurt her for a second term).

I much prefer Jeb to Hillary right now.

I'm so surprised that *you* prefer Jeb to Hillary. I mean, you've always supported Hillary the most, right?

/sarcasm

Jeb is better in pretty much every way :P

Lol
"Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe." - Frederick Douglass
16kadams
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7/30/2015 5:16:06 AM
Posted: 1 year ago
At 7/30/2015 5:14:31 AM, tejretics wrote:
At 7/30/2015 5:13:52 AM, 16kadams wrote:
At 7/30/2015 3:55:28 AM, tejretics wrote:
At 7/29/2015 11:46:52 PM, 16kadams wrote:
yeah, her tax plan is cancerous. She has jumped to the left because of Bernie, and I dunno how moderate she will be in her first term if she were to win (because running to the center would label her a flip flop, which would hurt her for a second term).

I much prefer Jeb to Hillary right now.

I'm so surprised that *you* prefer Jeb to Hillary. I mean, you've always supported Hillary the most, right?

/sarcasm

Jeb is better in pretty much every way :P

Lol

I mean, except for a few things (like breaking up the big banks, which I don't even know if Hillary has a position on) Jeb is better in every way.
https://www.youtube.com...
https://rekonomics.wordpress.com...
"A trend is a trend, but the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?" -- Alec Cairncross
Fly
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7/30/2015 5:37:13 AM
Posted: 1 year ago
At 7/29/2015 7:35:49 PM, ResponsiblyIrresponsible wrote:
I thought this over a lot, and slo is right -- I did make a slight mistake in the calculation, which would significantly push downward the effective tax rate on capital taxation. I maintain that it's a double tax nevertheless, but not nearly as profound as 65 percent.

Let's re-do this.

Starting pre-tax labor income: $100
Labor income tax rate: 39.6 percent
After-tax income: $60.40

Then let's say we take the entirety of that $60.40 and invest it over a 1-year period. For the sake of argument, let's say you put it in a safe asset, like a Treasury build. The current 1-year rate is 32 basis points, so that'll be our return. Therefore, after one year the $60.40 will turn into $60.59 -- that's merely pushing the cash flow one year into the future. The resulting .19, because it's a one-year investment, is taxed at 39.6 percent, meaning you pay 7.65 cents (let's not round to keep the calculation precise). In present value terms, using our same discount rate, that 7.65 cents is 7.62 cents (7.65/1.0032). That means that, without question, the effective tax burden in PV terms is higher. In particular, in PV terms you paid:

$39.60 + $0.0765 = $39.68 >>>> 39.68%

Granted, that doesn't look like much, but that's because I used a risk-free, one-year discount rate. If that rate were higher, as it would be for any high-grade stock, our tax burden in PV terms would be far higher, and that's the problem with Ms. Clinton's proposal.

Not your best analysis to be honest, RI. First and foremost, you don't seem to understand how marginal tax rates work, and it is throwing off your math by a lot. Also, we are talking about the TOP rate here-- over $400,000 income bracket. Second, you assume that investments are paid with labor income when they are surely often paid for by earnings from other investments.

Also, you seem to be criticizing capital gains tax in general without actually addressing Clinton's plan specifically. It is similar to the current system except with a sliding scale tax penalty for investments held under 6 years rather than the current set penalty for holdings under one year.
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ResponsiblyIrresponsible
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7/30/2015 5:48:58 AM
Posted: 1 year ago
At 7/30/2015 5:37:13 AM, Fly wrote:
Not your best analysis to be honest, RI. First and foremost, you don't seem to understand how marginal tax rates work, and it is throwing off your math by a lot.

This is totally false, and that you would even attribute a minor error, even if I made one (and I did, though not on marginal rates--*and* my second calculation actually left out the ACA surcharge), to me "not understanding" is highly offensive and wrongheaded.

I do understand how marginal rates work. You'll note that in my very first post I made the *assumption*, and stated it as much, that I was assuming an effective labor force tax rate of 39.6 percent after accounting for state and local taxes. This *accounts* for a marginal rate structure and for loopholes/deductions. On capital income, it's my understanding that low levels of earnings are exempted, and the taxes apply to high earners, anyway, so applying the actual rate people would pay under Hillary's proposal is the only plausible method. I challenge you to correct my numbers if you think I failed to account for a "marginal tax structure."

Also, we are talking about the TOP rate here-- over $400,000 income bracket.

When in the world did I say otherwise? The "top," or the institutional investors, are the ones who would make these types of investments. I know a lot of people seek to demonize "the top" and to make these nonsensical strawman arguments that only demand-side tax cuts geared toward the middle class are effective, but it just isn't true, irrespective of what Bernie Sanders, Elizabeth Warren, or Paul Krugman tell you.

Second, you assume that investments are paid with labor income when they are surely often paid for by earnings from other investments.

That wasn't an assumption. It was a simplification that the money was taken out of labor income. But even if I bought your premise that capital income was rolled over to another investment, you're still missing the point: to make that *initial* investment, the money had to be at one point earned as labor income, and thus it was subject to a double tax. If the money was funneled from investment to investment, the tax burden in PV terms is merely compounded.

Also, you seem to be criticizing capital gains tax in general without actually addressing Clinton's plan specifically.

No, I did both. I took her specific plan and ran the numbers for short-term investments, and I pointed out how completely naive her logic was, which hinged on people holding onto their investments for six years to earn a preferable tax rate. Did you completely skip the entire section of my post on habitat preference? That was *precisely* geared toward Clinton's proposal.

It is similar to the current system except with a sliding scale tax penalty for investments held under 6 years rather than the current set penalty for holdings under one year.

I know what Hillary's proposal is. In fact, I gave a summary of it in my opening post and mentioned the sliding scale. It's a piss-poor idea. Granted, the capital gains tax itself is a horrible idea, but her proposal, while possibly not as bad as simply jacking the rate up as I'm sure Bernie Sander would do, is nevertheless horrid.
~ResponsiblyIrresponsible

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Fly
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7/30/2015 6:36:51 AM
Posted: 1 year ago
At 7/30/2015 5:48:58 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 5:37:13 AM, Fly wrote:
Not your best analysis to be honest, RI. First and foremost, you don't seem to understand how marginal tax rates work, and it is throwing off your math by a lot.

This is totally false, and that you would even attribute a minor error, even if I made one (and I did, though not on marginal rates--*and* my second calculation actually left out the ACA surcharge), to me "not understanding" is highly offensive and wrongheaded.

I do understand how marginal rates work. You'll note that in my very first post I made the *assumption*, and stated it as much, that I was assuming an effective labor force tax rate of 39.6 percent after accounting for state and local taxes. This *accounts* for a marginal rate structure and for loopholes/deductions. On capital income, it's my understanding that low levels of earnings are exempted, and the taxes apply to high earners, anyway, so applying the actual rate people would pay under Hillary's proposal is the only plausible method. I challenge you to correct my numbers if you think I failed to account for a "marginal tax structure."

Well, you imagine a percentage that just so happens to perfectly coincide with the top marginal tax rate, right down to the tenths place, in the article you cited, but otherwise, I will take you at your word on understanding marginal tax rates.

Still, your 39.6% figure seems quite high for even a combined income tax rate. For example, Romney disclosed an effective federal income tax rate of less than 20%.

Also, we are talking about the TOP rate here-- over $400,000 income bracket.

When in the world did I say otherwise? The "top," or the institutional investors, are the ones who would make these types of investments. I know a lot of people seek to demonize "the top" and to make these nonsensical strawman arguments that only demand-side tax cuts geared toward the middle class are effective, but it just isn't true, irrespective of what Bernie Sanders, Elizabeth Warren, or Paul Krugman tell you.

Well, it's just that you use $100 for your example, and that is a misleading figure to use as an example of top tier income. You make it sound as though someone of very limited means is taking home only 60 cents on the dollar. How about using an even half mil for your income example? And, as I already said, a much lower effective tax rate?

Second, you assume that investments are paid with labor income when they are surely often paid for by earnings from other investments.

That wasn't an assumption. It was a simplification that the money was taken out of labor income. But even if I bought your premise that capital income was rolled over to another investment, you're still missing the point: to make that *initial* investment, the money had to be at one point earned as labor income, and thus it was subject to a double tax. If the money was funneled from investment to investment, the tax burden in PV terms is merely compounded.

But that is not the most fitting representation of reality yet again. Investment earnings are often rolled over toward other investments-- more so than with labor income. And it doesn't HAVE to be bought initially with labor income. Investment capital can, of course, be inherited.

As slo1 pointed out, only capital gains are taxed, not the initial capital-- so that also undercuts your double taxation complaint. For that matter, there are several taxes that constitute a double tax.

Either way, it muddles your capital gains tax argument to focus as much on regular income tax as you do in your math examples.

Also, you seem to be criticizing capital gains tax in general without actually addressing Clinton's plan specifically.

No, I did both. I took her specific plan and ran the numbers for short-term investments, and I pointed out how completely naive her logic was, which hinged on people holding onto their investments for six years to earn a preferable tax rate. Did you completely skip the entire section of my post on habitat preference? That was *precisely* geared toward Clinton's proposal.

Granted, and I would really like to hear more about habitat preference. But your main focus was on the extent of current labor + capital gains taxes and using a made up labor tax rate to illustrate the majority of your argument...

It is similar to the current system except with a sliding scale tax penalty for investments held under 6 years rather than the current set penalty for holdings under one year.

I know what Hillary's proposal is. In fact, I gave a summary of it in my opening post and mentioned the sliding scale. It's a piss-poor idea. Granted, the capital gains tax itself is a horrible idea, but her proposal, while possibly not as bad as simply jacking the rate up as I'm sure Bernie Sander would do, is nevertheless horrid.

Granted, but as I said, this is not a well formulated argument. Perhaps start by outlining what's wrong with capital gains tax in general, and how the Clinton plan exacerbates the faults.

Another idea would be to explore the history of capital gains-- the economy and innovation prior to its enactment, and why it was enacted, and the trends that have followed since. THAT would be good stuff!
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Chang29
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7/30/2015 7:04:32 AM
Posted: 1 year ago
At 7/26/2015 2:38:01 PM, ResponsiblyIrresponsible wrote:
Hillary Clinton unveiled part uno of her tax plan regarding income from capital gains. You can find comprehensive summaries of her plan both here [http://www.businessinsider.com...] and here [http://www.vox.com...].

The crux of her proposal is to tax capital gains on a sliding scale, whilst maintaing the logic of the current system which provides preferential tax treatment to longer-term capital gains. Under the current system, investments held for under one year are taxed as ordinary labor income, plus the 3.8 percent ACA surcharge. In reality, of course, that isn't *actually* a rate of 39.6 percent, and here's why: capital income is, inherently, a double tax. It was taxed once as labor income prior to people opting to invest that money in a stock or a bond to earn a return, and then a second time as investment income. Therefore, the actual tax rate on a one-year investment can be calculated as follows:

Let's say you earn $100 in PV terms. You pay 39.6 percent -- of course, let's assume for the sake of argument this is the effective rate, which in reality, after accounting for state and local taxes, is a pretty fair assessment -- or $39.60 in taxes. You then invest the remaining $60.4 in lieu of consuming with it now, the implication being that you're *withholding* gratification today for the sake of a longer-term gain, and thus you ought to be rewarded for it. Irrespective of what your return is -- i.e., what the discount rate is -- we could levy the tax on the PV of your before-tax investment earnings, which is $60.4. Drop the 39.6 percent tax, plus the 3.8 percent surcharge (or, in other words, a 43.4 percent tax) on that, and we get an additional $26.21 paid from the initial $100.

$39.60 + $26.21 = $65.81/100 = 65.81 percent

Sounds pretty harsh, right? If you knew you were bearing a 65.81 percent tax, in lieu of a 39.6 percent tax if you consumed with your earnings today, wouldn't you merely spend now? That is the inherent problem with capital taxation: it's a double taxation that discincentivizes saving today for the sake of consumption, and that has costs for longer-term trend growth. That's why there's a wide body of literature stipulating the optimal capital tax rate is 0 percent. If you were to look at a basic Solow model, for instance, capital accumulation can be expressed as follows:

delta k = [savings * TFP * k^a] - [(delta + n)k]

where delta k = change in capital, savings is the savings rate, TFP is total factory productivity, a is a parameter for the capital's share of income, delta is the depreciation rate, and n is population growth. If you drop the savings rate, you end up with a chronic imbalance of investment over savings, which reduces the PV of consumption today relative to the golden-rule capital-labor ratio.

Now, Hillary's idea of impacting corporate culture such that they prioritize longer-term investments over short-term, quarterly earnings reports, is well-intentioned. However, it's not the least bit practical nor desirable in practice. Primarily, this is because of a well-documented phenomenon called "habitat preference": investors desired to hold assets of certain maturities. They're not, magically, going to switch to a six-year maturity or hold onto their assets for a longer period of time to receive preferential treatment under Hillary's tax plan: it's incredibly naive and devoid of reality to reason as much. Rather, they're simply going to forego investments and spend more today. Savings rates would plummet, trend growth -- which is already sh1t because of a number of other structural factors -- would fall further, and innovation would crater.

This is possibly the worst way Hillary could seek to raise revenue, even worse than Bernie Sander's proposed tax on financial transactions. If more revenue is what she desires, the only reasonable way to go about it is with a transition to a progressive consumption tax.

Mrs. Clinton's capital gains tax is perfect for her voter base. The plan is not to raise revenue or for economic growth. It is to give the appearance of punishing those nasty rich republicans and uncaring libertarians, while she gives a wink and a nod to her altruist donors that they will receive a waiver from policies like these. Mrs. Clinton's base voters will never accept any tax plan that is does not appear to punish nasty and uncaring rich people.

The numbers and real affects are not relevant. She has a group of hack economists that will support anything with government funded models and studies to back it up. Not one base democrat voter cares about the math, and only a handful can do math.
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7/30/2015 7:06:01 AM
Posted: 1 year ago
Oops-- I meant *the history of capital gains TAX*
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7/30/2015 7:17:29 AM
Posted: 1 year ago
At 7/30/2015 6:36:51 AM, Fly wrote:
Well, you imagine a percentage that just so happens to perfectly coincide with the top marginal tax rate, right down to the tenths place, in the article you cited, but otherwise, I will take you at your word on understanding marginal tax rates.

It's close to the actual effective rate. I could've said 40 percent, and had *exactly* the same results, but them the point I was making regarding equalizing the tax rate on short-term investments in labor income would've been less clear.

You don't have to "take me at my word." You can see it in my first post. Why in the world would I take the time to say "effective" tax rate if I didn't understand how marginal rates work? Hell, I advocated for a progressive consumption tax in my first post -- that is predicated on marginal rates. I've railed against a flat tax for years. The mere insinuation that I don't understand the tax code is, again, wrongheaded and offensive.

Still, your 39.6% figure seems quite high for even a combined income tax rate. For example, Romney disclosed an effective federal income tax rate of less than 20%.

Romney earns his income solely for investments. He's by every stretch and so as as I know a complete anomaly. I'm using IRS number. The effective federal tax rate is about 32 percent, and state and local taxes add about another 5 or 6 percent. Adding in payroll taxes and the ACA taxes get us close to 40.

Well, it's just that you use $100 for your example, and that is a misleading figure to use as an example of top tier income.

It wasn't to represent top-tier income; it was to make the math easy and understandable. Add as many zeroes as you'd like, and the point still stands.

You make it sound as though someone of very limited means is taking home only 60 cents on the dollar. How about using an even half mil for your income example? And, as I already said, a much lower effective tax rate?

I wouldn't use a "much lower effective tax rate" because then my example wouldn't be indicative of reality, but of Bernie Sander's fantasy whereby rich people are stashing hundreds of millions of dollars in the Cayman Islands and pay negative effective tax rates. It's flat-out wrong. Hell, 40 percent is probably a conservative estimate of the actual effective rate.

And, no, I'm not making it sound like that at all. Again, add as many zeroes as you want. I was illustrating the point of double taxation.

Second, you assume that investments are paid with labor income when they are surely often paid for by earnings from other investments.

That wasn't an assumption. It was a simplification that the money was taken out of labor income. But even if I bought your premise that capital income was rolled over to another investment, you're still missing the point: to make that *initial* investment, the money had to be at one point earned as labor income, and thus it was subject to a double tax. If the money was funneled from investment to investment, the tax burden in PV terms is merely compounded.

But that is not the most fitting representation of reality yet again. Investment earnings are often rolled over toward other investments-- more so than with labor income. And it doesn't HAVE to be bought initially with labor income. Investment capital can, of course, be inherited.

No, it's perfectly indicative of reality because, in the vast majority of cases, it was *at one time* earned as labor income. Assuming a society of inherited wealth is, again, succumbing to Bernie Sander's fantasy -- though if you cited Thomas Pikkety, at least I'd give you kudos.

But let me even entertain your example. Let's say the money was inherited and subject to an estate tax -- another form of a tax on savings. At one point in time, it was taxed as labor income. We can keep going as far back as you want and rolling over investment income into future investments, but at one point it was earned from labor income. That's just a fact.

As slo1 pointed out, only capital gains are taxed, not the initial capital-- so that also undercuts your double taxation complaint.

It doesn't undercut it, which is where the second example came into play. Yes, only the net increase in earnings is taxed, but that still raises the PV of the current tax bill. Earning a return on capital is literally applying a positive discount rate and pushing that cash flow one year into the future, foregoing consumption for the sake of earning a return. In PV terms, the value of that bill rises if you apply a double tax on capital. I already proved this, and if you read my posts, you would see this.

For that matter, there are several taxes that constitute a double tax.

Yes, there are -- corporate income taxes are another. Let's get rid of them.

Either way, it muddles your capital gains tax argument to focus as much on regular income tax as you do in your math examples.

No, that couldn't possibly be the case because initial income taxation is the first tax -- and Hillary wants to extend that tax.

Also, you seem to be criticizing capital gains tax in general without actually addressing Clinton's plan specifically.

No, I did both. I took her specific plan and ran the numbers for short-term investments, and I pointed out how completely naive her logic was, which hinged on people holding onto their investments for six years to earn a preferable tax rate. Did you completely skip the entire section of my post on habitat preference? That was *precisely* geared toward Clinton's proposal.

Granted, and I would really like to hear more about habitat preference.

What about it? The concept is simple: people prefer investments with certain maturities. They're not going to miraculously save for six years to earn Hillary's preference for long-term cap gains. The savings rate under her proposal would plummet.

But your main focus was on the extent of current labor + capital gains taxes and using a made up labor tax rate to illustrate the majority of your argument...

A "made up" labor tax rate? Are you seriously accusing me of fabricating numbers? You couldn't be more full of sh1t on this point. I'm sorry that you're so disconnected with reality -- and, for that matter, with the actual arithmetic of the federal tax code -- that you can only levy ad hominem attacks in lieu of actually engaging in substance. I didn't make a single number up: these are objective facts, irrespective of how they make you feel, and whether you want to believe that rich people have it so easy.

Yes, that was the main argument, minus the "made up tax rate."

Granted, but as I said, this is not a well formulated argument. Perhaps start by outlining what's wrong with capital gains tax in general, and how the Clinton plan exacerbates the faults.

I did. I did exactly that. I explained how it's double taxation, inherently, and that gave an example of both the Solow model and habitat preference, the latter of which applied more specifically to Ms. Clinton's proposal and the former more broadly to capital taxation. Have you even bothered to read and understand my post?

Another idea would be to explore the history of capital gains-- the economy and innovation prior to its enactment, and why it was enacted, and the trends that have followed since. THAT would be good stuff!

I could, but it would largely boil down -- at least in the way you're describing it -- to a post-hoc ergo propter hoc fallacy.
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7/30/2015 7:20:20 AM
Posted: 1 year ago
At 7/30/2015 7:04:32 AM, Chang29 wrote:
Mrs. Clinton's capital gains tax is perfect for her voter base. The plan is not to raise revenue or for economic growth. It is to give the appearance of punishing those nasty rich republicans and uncaring libertarians, while she gives a wink and a nod to her altruist donors that they will receive a waiver from policies like these. Mrs. Clinton's base voters will never accept any tax plan that is does not appear to punish nasty and uncaring rich people.

While I agree with this to some extent, I wouldn't give her that much credit: I think she and her supporters are actually stupid and ignorant enough to think that this is a good idea. It's almost as dumb as Obama suggesting that productivity gains induce job losses. These people don't understand even basic Econ 101, and debating with them is truly an utter waste of time.

The numbers and real affects are not relevant. She has a group of hack economists that will support anything with government funded models and studies to back it up. Not one base democrat voter cares about the math, and only a handful can do math.

On this, I disagree. She has a number of exceptional economists working with her. The best example would be Larry Summers, who's an absolutely brilliant guy and a phenomenal economist -- in fact, I'd support him for Fed Chair.
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7/30/2015 7:48:47 AM
Posted: 1 year ago
At 7/30/2015 7:20:20 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:04:32 AM, Chang29 wrote:
Mrs. Clinton's capital gains tax is perfect for her voter base. The plan is not to raise revenue or for economic growth. It is to give the appearance of punishing those nasty rich republicans and uncaring libertarians, while she gives a wink and a nod to her altruist donors that they will receive a waiver from policies like these. Mrs. Clinton's base voters will never accept any tax plan that is does not appear to punish nasty and uncaring rich people.

While I agree with this to some extent, I wouldn't give her that much credit: I think she and her supporters are actually stupid and ignorant enough to think that this is a good idea. It's almost as dumb as Obama suggesting that productivity gains induce job losses. These people don't understand even basic Econ 101, and debating with them is truly an utter waste of time.

Agreed


The numbers and real affects are not relevant. She has a group of hack economists that will support anything with government funded models and studies to back it up. Not one base democrat voter cares about the math, and only a handful can do math.

On this, I disagree. She has a number of exceptional economists working with her. The best example would be Larry Summers, who's an absolutely brilliant guy and a phenomenal economist -- in fact, I'd support him for Fed Chair.

Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

The Clintons reward loyalty, read Carville's book "Stickin'."
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7/30/2015 10:03:44 AM
Posted: 1 year ago
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?
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Chang29
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7/30/2015 12:55:35 PM
Posted: 1 year ago
At 7/30/2015 10:03:44 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?

His split with Obama and exit from Harvard.
A free market anti-capitalist

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7/30/2015 2:54:34 PM
Posted: 1 year ago
At 7/30/2015 12:55:35 PM, Chang29 wrote:
At 7/30/2015 10:03:44 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?

His split with Obama and exit from Harvard.

I heard about his comments regarding women being "intellectually inferior" with math and science. I didn't know there was any split with Obama, though.
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16kadams
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7/30/2015 8:41:48 PM
Posted: 1 year ago
At 7/30/2015 2:54:34 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 12:55:35 PM, Chang29 wrote:
At 7/30/2015 10:03:44 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?

His split with Obama and exit from Harvard.

I heard about his comments regarding women being "intellectually inferior" with math and science. I didn't know there was any split with Obama, though.

We need a candidate that just has the balls to end the Fed. The Fed is printing way too much money and has reduced unemployment way too much with their QE. End this successful institution and go back to the gold standard. It will be so unstable that it is stable, and help investors stop screwing us by making them bankrupt. That way we can live in a depression where we are all equally poor.

END THE FED
https://www.youtube.com...
https://rekonomics.wordpress.com...
"A trend is a trend, but the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?" -- Alec Cairncross
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7/30/2015 8:44:17 PM
Posted: 1 year ago
At 7/30/2015 8:41:48 PM, 16kadams wrote:
At 7/30/2015 2:54:34 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 12:55:35 PM, Chang29 wrote:
At 7/30/2015 10:03:44 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?

His split with Obama and exit from Harvard.

I heard about his comments regarding women being "intellectually inferior" with math and science. I didn't know there was any split with Obama, though.

We need a candidate that just has the balls to end the Fed. The Fed is printing way too much money and has reduced unemployment way too much with their QE. End this successful institution and go back to the gold standard. It will be so unstable that it is stable, and help investors stop screwing us by making them bankrupt. That way we can live in a depression where we are all equally poor.

END THE FED

this ^^^
~ResponsiblyIrresponsible

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16kadams
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7/30/2015 9:00:29 PM
Posted: 1 year ago
At 7/30/2015 8:44:17 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 8:41:48 PM, 16kadams wrote:
At 7/30/2015 2:54:34 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 12:55:35 PM, Chang29 wrote:
At 7/30/2015 10:03:44 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?

His split with Obama and exit from Harvard.

I heard about his comments regarding women being "intellectually inferior" with math and science. I didn't know there was any split with Obama, though.

We need a candidate that just has the balls to end the Fed. The Fed is printing way too much money and has reduced unemployment way too much with their QE. End this successful institution and go back to the gold standard. It will be so unstable that it is stable, and help investors stop screwing us by making them bankrupt. That way we can live in a depression where we are all equally poor.

END THE FED

this ^^^

wanna write in Ron next election?
https://www.youtube.com...
https://rekonomics.wordpress.com...
"A trend is a trend, but the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?" -- Alec Cairncross
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7/30/2015 9:01:13 PM
Posted: 1 year ago
At 7/30/2015 9:00:29 PM, 16kadams wrote:
At 7/30/2015 8:44:17 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 8:41:48 PM, 16kadams wrote:
At 7/30/2015 2:54:34 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 12:55:35 PM, Chang29 wrote:
At 7/30/2015 10:03:44 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?

His split with Obama and exit from Harvard.

I heard about his comments regarding women being "intellectually inferior" with math and science. I didn't know there was any split with Obama, though.

We need a candidate that just has the balls to end the Fed. The Fed is printing way too much money and has reduced unemployment way too much with their QE. End this successful institution and go back to the gold standard. It will be so unstable that it is stable, and help investors stop screwing us by making them bankrupt. That way we can live in a depression where we are all equally poor.

END THE FED

this ^^^

wanna write in Ron next election?

I'd rather vote for Schiff, tbh.
~ResponsiblyIrresponsible

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16kadams
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7/30/2015 9:01:37 PM
Posted: 1 year ago
At 7/30/2015 9:01:13 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 9:00:29 PM, 16kadams wrote:
At 7/30/2015 8:44:17 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 8:41:48 PM, 16kadams wrote:
At 7/30/2015 2:54:34 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 12:55:35 PM, Chang29 wrote:
At 7/30/2015 10:03:44 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?

His split with Obama and exit from Harvard.

I heard about his comments regarding women being "intellectually inferior" with math and science. I didn't know there was any split with Obama, though.

We need a candidate that just has the balls to end the Fed. The Fed is printing way too much money and has reduced unemployment way too much with their QE. End this successful institution and go back to the gold standard. It will be so unstable that it is stable, and help investors stop screwing us by making them bankrupt. That way we can live in a depression where we are all equally poor.

END THE FED

this ^^^

wanna write in Ron next election?

I'd rather vote for Schiff, tbh.

Mises 2016
https://www.youtube.com...
https://rekonomics.wordpress.com...
"A trend is a trend, but the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?" -- Alec Cairncross
ResponsiblyIrresponsible
Posts: 12,398
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7/30/2015 9:07:19 PM
Posted: 1 year ago
At 7/30/2015 9:01:37 PM, 16kadams wrote:
At 7/30/2015 9:01:13 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 9:00:29 PM, 16kadams wrote:
At 7/30/2015 8:44:17 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 8:41:48 PM, 16kadams wrote:
At 7/30/2015 2:54:34 PM, ResponsiblyIrresponsible wrote:
At 7/30/2015 12:55:35 PM, Chang29 wrote:
At 7/30/2015 10:03:44 AM, ResponsiblyIrresponsible wrote:
At 7/30/2015 7:48:47 AM, Chang29 wrote:
Apparently, these economists put loyalty first. As I remember, Summers had to be taken to the wood shed for some remarks, he should now too understand the importance of loyalty.

Which remarks are you referring to?

His split with Obama and exit from Harvard.

I heard about his comments regarding women being "intellectually inferior" with math and science. I didn't know there was any split with Obama, though.

We need a candidate that just has the balls to end the Fed. The Fed is printing way too much money and has reduced unemployment way too much with their QE. End this successful institution and go back to the gold standard. It will be so unstable that it is stable, and help investors stop screwing us by making them bankrupt. That way we can live in a depression where we are all equally poor.

END THE FED

this ^^^

wanna write in Ron next election?

I'd rather vote for Schiff, tbh.

Mises 2016

Mises 2016 and Friedman for Fed Chair?
~ResponsiblyIrresponsible

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ResponsiblyIrresponsible
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7/31/2015 12:00:09 AM
Posted: 1 year ago
And, as for the claim that I "fabricated" the 40 percent effective labor-income tax rate...

Here's the CBO: http://www.cbo.gov...

Look at the table on page 21. The "top 1 percent" paid an average tax rate in 2013 of 33.6 percent. Granted, that rate is probably higher now, but this is the latest I could find.

Next, a 2015 report from the Institute on Taxation and Economic Policy finds that the top 1 percent, on the state and local level, paid an average tax rate of 5.4 percent.

33.6 + 5.4 = 39

Pretty damn close to the number I used, and probably an underestimate since the latest report I could find on federal taxes was 2013.

This is why facts, not emotions and feelings, are crucial to actually evaluating policy. Whether or not 40 percent is "too high" or "too low" is a secondary judgment, but that this is actually the rate very rich people pay is beyond question.
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