I say this against my own self interest: Capital gains should be taxed as regular income. Why should wealthy people have a tax-free-for-perpetuity income producing engine?
@Justonedad I don’t have words to describe that sort of logic.
If you don’t want to buy the Raptors, then don’t buy them, but $25 billion is still $25 billion.
The logic was fairly simple. The US federal budget was about $3.9 trillion last year. $25 billion represents less than 1% of that total. The point was that anyone thinking that screwing around with the estate tax in either direction is going to make a big difference will be sadly disappointed.
@GMTplus7, I am generally a proponent of taxing progressively. I agree that we should tax capital gains as ordinary income, but that means we should index it for inflation. If I have $100,000 that grows to $105,000 over a year with 2% inflation, I haven’t “made” $5,000, but the $3,000 should be taxed as earned income.
But if you made earned income of 105K over the year, it’s the same story with inflation. It’s no different. And you don’t pay tax on your growth unless you cash it in, but you must pay taxes on your earned income.
Indexing with inflation?
Sure, let’s make the thing even MORE complicated! Why not! It’s not a tax its a voluntary contribution. And if you don’t volunteer to contribute you go to jail. In some neighborhoods that would be called bribery but I digress.
The argument against taxing capital gains is that the assets one is investing were already taxed when they were earned. Sure, it would benefit the middle and wealthy classes to not tax capital gains and having a flat tax would benefit the wealthy also because with a flat tax EVERYONE would pay in and the effective tax rates would go down for the wealthy who do in fact pay a disproportionately high amount under the current system.
But, like I said, you can revise the rates all you want but unless you find a way to reduce spending to go with it, it will only add to the government deficits and debt because if you lower rates, you lower government revenues with it. Well, perhaps lower rates would lead to more income (under the rising tide raises all boats theory) which could actually increase government revenues. That is possible but the short answer is rates hardly ever go down because the government needs every penny it can get.
When was the last time the federal government reduced spending?
The answer might be never.
That is the real problem, I think.
The government will spend up to the limit. You never heard they return to surplus. It’s use it or lose it.
@gluttonforstress Actually $25 billion will buy you 2 aircraft carriers and a few planes to put on them.
“So, why do people complain that the rich pay lower rates when they not only pay (much) higher rates, but they pay many more times as much in an absolute sense as well?”
No they don’t, and the problem with this argument is that it is using nominal rates, which basically are bogus. It is the exact same argument you hear about corporate tax rates , that the US has the highest rates in the industrial world, and that is a “yes,but…” answer.
What counts are real rates, and there is where the clinker comes in. In theory, the top tax rate is 35 or 39% (to be honest, I don’t know if they managed to bump it up again, I doubt it), but it doesn’t mean anything, it is like list prices you see at discount stores, they are a fictional number. With deductions and with the nature of the income of the well off, they don’t pay anywhere near that. When Romney ran for president, I think his total federal tax bill was like 11% of his income, whereas for many middle income people it is closer to 15-17%. Likewise, if you look at real tax rates for corporations, the real rate makes the US much lower (other countries real and nominal rates are pretty close).
And if you look at total taxes, the well off do much better than most people. For example, Social Security, that is not a trust fund, but these days is basically just another form of tax (since they use the surplus as general revenue, the whole T note thing is just a dodge to make it look like it isn’t directly being used), hits most Americans at the full 7% (+7 on the employer), whereas the well off, lik
Here we go mention Mitt Romney again. Do you want to drag in Sherry Sandberg too. She is a lot richer than Mitt Romney.
This thread was destined for closure from post 1. There is no good solution. There will never be consensus. The wealthy will always pay the majority of taxes. No use arguing about it. Let the next round of morons(or moronesses?) fight it out in the halls of government. The current group has no chance to do anything useful.
“What counts are real rates, and there is where the clinker comes in. In theory, the top tax rate is 35 or 39% (to be honest, I don’t know if they managed to bump it up again, I doubt it), but it doesn’t mean anything, it is like list prices you see at discount stores, they are a fictional number. With deductions and with the nature of the income of the well off, they don’t pay anywhere near that. When Romney ran for president, I think his total federal tax bill was like 11% of his income, whereas for many middle income people it is closer to 15-17%.”
Actually, I believe his rate was right under 15%, not 11%. I understand why people use MR as an example, as he is someone that people know.
However, I am constantly irritated when people conflate the ultra wealthy, who pay low tax rates due to unearned income, with high income earners, who pay high tax rates on earned income. There is a difference.
The top tax rate is 39.6%, and yes, it means plenty, it is not a list price. If you have income that is earned via work, at a certain income level, that is what you pay. Really. In addition, you pay medicare tax, and Obamacare tax. You lose the ability to take many deductions that other people can, so it’s not even worth claiming them. Rental losses? Forget it. Any tuition deductions? Ha! Job related expenses? Give it up. Anything left is limited by the AMT. The tax rates are real, they are not fictional…that is, if you are a tax donkey who gets taxed on earned income.
@gluttonforstress I see the point was lost on you.
You thought wrong. Even if you think you are going to prove something by holding up a single example out of, well, millions, you missed it.
Mitt was around 14% and I already posted the average rates across different income segments. Middle income people pay 10% or less. Just to recap, the top 1% of income earners pay about 23%.
Before I start, let me state my biases.
1.) I believe in progressive taxes. If you are earning more, I believe you have more of a responsibility to society.
2.) You could call me hypocritical. I don’t enclose a check for more than I am required to pay each April.
Let’s not forget that the top %1 also earn around 15% of the total income of the country.
Source: http://www.politifact.com/texas/statements/2015/jan/30/ted-cruz/ted-cruz-says-top-1-percent-earn-more-national-inc/
The wealth holding numbers are even more disparate. The top 1% hold approximately 35% of the nation’s wealth.
Table 2. The Size Distribution of Wealth and Income, 1983–2007
Percentage Share of Wealth or Income Held by:
Gini Top Next Next Next Top 4th 3rd Bottom
Year Coefficient 1.0% 4.0% 5.0% 10.0% 20.0% 20.0% 20.0% 40.0% All
A. Net Worth
1983 0.799 33.8 22.3 12.1 13.1 81.3 12.6 5.2 0.9 100.0
1989 0.832 37.4 21.6 11.6 13.0 83.5 12.3 4.8 -0.7 100.0
1992 0.823 37.2 22.8 11.8 12.0 83.8 11.5 4.4 0.4 100.0
1995 0.828 38.5 21.8 11.5 12.1 83.9 11.4 4.5 0.2 100.0
1998 0.822 38.1 21.3 11.5 12.5 83.4 11.9 4.5 0.2 100.0
2001 0.826 33.4 25.8 12.3 12.9 84.4 11.3 3.9 0.3 100.0
2004 0.829 34.3 24.6 12.3 13.4 84.7 11.3 3.8 0.2 100.0
2007 0.834 34.6 27.3 11.2 12.0 85.0 10.9 4.0 0.2 100.0
B. Non-home Wealth
1983 0.893 42.9 25.1 12.3 11.0 91.3 7.9 1.7 -0.9 100.0
1989 0.926 46.9 23.9 11.6 11.0 93.4 7.4 1.7 -2.5 100.0
1992 0.903 45.6 25.0 11.5 10.2 92.3 7.3 1.5 -1.1 100.0
1995 0.914 47.2 24.6 11.2 10.1 93.0 6.9 1.4 -1.3 100.0
1998 0.893 47.3 21.0 11.4 11.2 90.9 8.3 1.9 -1.1 100.0
2001 0.888 39.7 27.8 12.3 11.4 91.3 7.8 1.7 -0.7 100.0
2004 0.902 42.2 26.7 12.0 11.6 92.5 7.3 1.2 -1.1 100.0
2007 0.908 42.7 29.3 10.9 10.1 93.0 6.8 1.3 -1.0 100.0
C. Income (SCF)
1982 0.480 12.8 13.3 10.3 15.5 51.9 21.6 14.2 12.3 100.0
1988 0.521 16.6 13.3 10.4 15.2 55.6 20.6 13.2 10.7 100.0
1991 0.528 15.7 14.8 10.6 15.3 56.4 20.4 12.8 10.5 100.0
1994 0.518 14.4 14.5 10.4 15.9 55.1 20.6 13.6 10.7 100.0
1997 0.531 16.6 14.4 10.2 15.0 56.2 20.5 12.8 10.5 100.0
2000 0.562 20.0 15.2 10.0 13.5 58.6 19.0 12.3 10.1 100.0
2003 0.540 17.0 15.0 10.9 14.9 57.9 19.9 12.1 10.2 100.0
2006 0.574 21.3 15.9 9.9 14.3 61.4 17.8 11.1 9.6 100.0
Source: http://www.levyinstitute.org/pubs/wp_589.pdf
Data is a little old, but the trend continues…
Amen!!!
Well, this goes against my financial self-interest, but I’m against both flat and consumption-based taxes. I’d rather see a truly progressive tax system that takes all forms of income into account and treats them equally.
But whatever’s done, the idea of capping the maximum total tax rate at n% is silly, when what really ought to be looked at is the tax rate vs. what the return in services is (and I don’t mean at the level of the individual, but rather at the level of society as a whole). Would I mind my taxes going up a bit in return for pretty much nothing? Sure—but have my taxes go up so that I and those around me can have secure and no-additional-cost access to a public good (like health care or education or such things), well, we might have the basis of a good deal there even if the resulting tax rates are quite a bit higher.
Of course, defining “taxable income” is where the tax laws get complicated (more so when it comes from a business, rental real estate, self-employment, etc. as opposed to wage/salary) and where special interests lobby for their perks (and scream about “raising taxes” when someone tries to get rid of the special interest perks).
The US income tax system is extremely complex relative to the amount of income tax it collects. This is especially true for the corporate income tax, which has high headline tax rates, but so many deductions, credits, etc. that the effective tax rate is much lower.
The 1986 changes lowered tax rates, but also removed many of the deductions and credits that made it so that few people actually paid the previous higher headline tax rates. Unfortunately, politicians have not been able to resist tinkering with the tax laws over the years, so that it is now overgrown with many more deductions and credits than it had just after the 1986 changes.
With capital gains, the original asset value was already taxed, but the additional gain later has not been taxed, so the capital gain tax only applies to the gain in value, as opposed to the original asset value (basis). Note that this is also why capital losses can be deducted against capital gains (and other income to some extent).
It also makes sense to eliminate the special tax rates for capital gains (i.e. just have regular tax rates for capital gains), but index the basis for inflation. This would eliminate the distortion of a 364 vs. 366 day holding period, but would mean that long term holders of assets would not be taxed on “gains” which are merely due to inflation (houses are common assets in such a situation; special rules for houses can be eliminated with this simplication as well).
Eliminating the difference in capital gain tax rates and regular income tax rates would also eliminate the lobbying and such relating to whether such things as “carried interest” are capital gains or ordinary income.
In my experience, this isn’t common knowledge at all. Rather, if you ask ten economists whether that was actually the case, you’ll get twelve diametrically opposed answers.
(And why do people keep pointing to the tax cuts of 1981 and 1986, while ignoring that the tax increases of 1982 and 1984, which essentially cancelled out the cuts, if not more? Really, 1986 wasn’t that huge of a deal, if you look at the decade it was in overall.)