Biden eyeing tax rate as high as 43.4% in next economic package(bloomberg.com)
bloomberg.com
Biden eyeing tax rate as high as 43.4% in next economic package
https://www.bloomberg.com/news/articles/2021-04-22/biden-to-propose-capital-gains-tax-as-high-as-43-4-for-wealthy
198 comments
> To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?
That's exactly right, but you're only looking at it from the point of view of someone clicking "buy" on their phone. Instead, look at it through the eyes of someone who has twenty years of working the daily grind saved up and is thinking about building something new out of nothing. Maybe it's worth the risk of losing that savings. If you tax that even more, then the balance tips even more into riskier territory and makes it less likely that you take on that new business venture.
You're saying that the market corrects for that, and it does... by disincentiving the investment by making the potential payoff less.
That's exactly right, but you're only looking at it from the point of view of someone clicking "buy" on their phone. Instead, look at it through the eyes of someone who has twenty years of working the daily grind saved up and is thinking about building something new out of nothing. Maybe it's worth the risk of losing that savings. If you tax that even more, then the balance tips even more into riskier territory and makes it less likely that you take on that new business venture.
You're saying that the market corrects for that, and it does... by disincentiving the investment by making the potential payoff less.
Capital gains default to being taxed at the same rate as income in this country (as they should be). There are exceptions for certain long term capital gains, and for qualified dividends.
The rationale for this is that corporate profits are already taxed. The effective tax rate is about 25% for US corporations. For income from corporate profits to be taxed at the same rate as normal income, it should be taxed at a lesser rate once it's been distributed via dividends or buybacks (which is how the system is set up).
Changing the system would have several negative effects. It would encourage companies to take on leverage. Interest expenses are deductible for the purposes of corporate taxes. While interest earnings are and have always been taxed as ordinary income. So companies would likely shift their balance sheets to compensate. It would also make short term speculative trading more attractive for US citizens (and lord knows we have enough of that). And lead to greater foreign ownership of US equities, which is not necessarily desirable.
There are certainly fairly indefensible aspects of the US tax code. This just isn't one of them.
There's also an interesting argument that it's less distortionary to tax wage income than investment income. Because wages (and especially the variation thereof) are substantially driven by unearned human capital endowments.
The rationale for this is that corporate profits are already taxed. The effective tax rate is about 25% for US corporations. For income from corporate profits to be taxed at the same rate as normal income, it should be taxed at a lesser rate once it's been distributed via dividends or buybacks (which is how the system is set up).
Changing the system would have several negative effects. It would encourage companies to take on leverage. Interest expenses are deductible for the purposes of corporate taxes. While interest earnings are and have always been taxed as ordinary income. So companies would likely shift their balance sheets to compensate. It would also make short term speculative trading more attractive for US citizens (and lord knows we have enough of that). And lead to greater foreign ownership of US equities, which is not necessarily desirable.
There are certainly fairly indefensible aspects of the US tax code. This just isn't one of them.
There's also an interesting argument that it's less distortionary to tax wage income than investment income. Because wages (and especially the variation thereof) are substantially driven by unearned human capital endowments.
> Capital gains generally are taxed at the same rate as income in this country
Maybe I'm missing something but the "Sales of Capital Assets Reported on Individual Tax" from 2012 shows 7.5x as many long term Capital Gains as short term. https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita...
Doesn't this mean the majority of individual investment gains are not taxed as income?
Maybe I'm missing something but the "Sales of Capital Assets Reported on Individual Tax" from 2012 shows 7.5x as many long term Capital Gains as short term. https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita...
Doesn't this mean the majority of individual investment gains are not taxed as income?
You're right. That's a slightly misleading way to put it, and I have revised my original post. My point was that the "default" method of taxation is the same as ordinary income. Long term capital gains and qualified dividends are legally an exception to that rule. Though I don't think it diminishes my broader point.
The argument I have heard is corporate profits are already taxed. The capital gains tax + corporate profit tax roughly equals normal income tax.
Personally, I'd prefer higher capital gains tax and lower corporate tax. I think it would be more transparent and easier to collect.
Personally, I'd prefer higher capital gains tax and lower corporate tax. I think it would be more transparent and easier to collect.
And that argument is complete junk: https://i.imgur.com/QpvGlnV.gif
The money I spend of my income buying goods from other businesses is "already taxed" and then when those businesses collect it from me its "taxed again".
Mysteriously, the one form of taxation the already wealthy benefit from is very concerned about this happening.
The money I spend of my income buying goods from other businesses is "already taxed" and then when those businesses collect it from me its "taxed again".
Mysteriously, the one form of taxation the already wealthy benefit from is very concerned about this happening.
The argument is not junk, there's value in understanding how taxes work through the value chain.
A little bit like a VAT, we don't want to tax, tax and tax some product that has a long and complicated line of distributors, rather, tax the final product, either using VAT rebates etc.. This is more economically beneficial.
With corporate and individual incomes, we think at little bit the same way - i.e. how the taxation will flow through via corp tax, income tax, dividend tax and cap gains.
In Ontario, if you pay small business corp tax and then a dividend, it's pretty much the same as if you were to take a salary and pay income tax. Obviously, this because the million or so small businesses out there would rig their outgoing cash flows one way or the other, depending on tax treatment.
While cap gains is a special situation, it does still form part of those block of taxes that should naturally relate to one another in terms of how net surpluses are taxed.
When you spend your 'already taxed income' on an entirely new product or service, then that's separate economic activity, and so it's taxed without consideration to your 'previously taxed income'.
A little bit like a VAT, we don't want to tax, tax and tax some product that has a long and complicated line of distributors, rather, tax the final product, either using VAT rebates etc.. This is more economically beneficial.
With corporate and individual incomes, we think at little bit the same way - i.e. how the taxation will flow through via corp tax, income tax, dividend tax and cap gains.
In Ontario, if you pay small business corp tax and then a dividend, it's pretty much the same as if you were to take a salary and pay income tax. Obviously, this because the million or so small businesses out there would rig their outgoing cash flows one way or the other, depending on tax treatment.
While cap gains is a special situation, it does still form part of those block of taxes that should naturally relate to one another in terms of how net surpluses are taxed.
When you spend your 'already taxed income' on an entirely new product or service, then that's separate economic activity, and so it's taxed without consideration to your 'previously taxed income'.
Ah, yes, double taxed: once at 0%, due to Ireland, and once at 15%, due to the special capital gains rate. I wish my income was double taxed like that! Where do I sign up?
What proportion of businesses are taxed like that?
Different scenario, but tech giants in the US have some amazing arrangements. I’m in New Zealand and their clever arrangements here see them paying minuscule bills on massive revenue
“In 2018 Google NZ Ltd (an entity of Alphabet group) paid income tax of NZ$398,341 – about 0.055 per cent of the estimated gross ad revenue “extracted” from the New Zealand market.”
Facebook, Apple and Amazon have all been in and out of the news here for their arrangements too.
https://i.stuff.co.nz/business/121505796/google-and-facebook...
“In 2018 Google NZ Ltd (an entity of Alphabet group) paid income tax of NZ$398,341 – about 0.055 per cent of the estimated gross ad revenue “extracted” from the New Zealand market.”
Facebook, Apple and Amazon have all been in and out of the news here for their arrangements too.
https://i.stuff.co.nz/business/121505796/google-and-facebook...
You have to be a multinational by definition to do this, and yet the proposed taxes will hit most medium sized businesses.
“It will hurt Apple and Amazon” is not a problem. “It will hurt most growing businesses”, is.
“It will hurt Apple and Amazon” is not a problem. “It will hurt most growing businesses”, is.
On account of where campaign finance comes from, I'm afraid politicians see it the other way around.
Better question: what proportion of corporate profits are taxed like that? Because the cheesemonger down the street isn't pulling a Double Irish to avoid taxes on the ~0% of GDP that they're generating.
Agreed - I would like to know what the effect would be on regular businesses are growing, not a few giant multinationals.
If people care about this loophole, how about just closing it, rather than taxing everyone else?
If people care about this loophole, how about just closing it, rather than taxing everyone else?
How do you close a loophole without bought politicians replacing one loophole with ten?
A bit of an "angels dancing on a pinhead" question, I'll admit
A bit of an "angels dancing on a pinhead" question, I'll admit
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Look up double Irish with a Dutch sandwich. Not really my area of expertise, but in the past at least basically all big tech companies used that strategy.
I don’t need to look it up, I know what it is.
The proposal would hit every business not just a few tech giants.
The proposal would hit every business not just a few tech giants.
Yeah, everyone knows what it is, and has known for a long time. It goes to show that the loophole is not an accident but rather an intentional result of our political process. Unfortunately.
True - but of the business activity is in EU, then really it's Ireland's issue to sort out with the EU, it's a separate issue from the 'other side' of the taxation in the US. What they should do is sort it out.
> capital gains tax + corporate profit tax roughly equals normal income tax
Doesn't this apply exclusively to the corporate profits not shielded in a Double Irish (or it's latest incarnation) arrangement [0]?
[0]https://en.wikipedia.org/wiki/Double_Irish_arrangement
Doesn't this apply exclusively to the corporate profits not shielded in a Double Irish (or it's latest incarnation) arrangement [0]?
[0]https://en.wikipedia.org/wiki/Double_Irish_arrangement
That doesn't make sense. Those are taxes with different bases. It would make sense to talk that way about corporate profit tax and corporate dividend tax for example.
> Personally, I'd prefer higher capital gains tax and lower corporate tax.
Same, but it'd mean more tax money for foreign governments, too, since those untaxed profits would be contributing to cap gains tax in another country (in the case of foreign investors) instead of domestic corporate tax.
Same, but it'd mean more tax money for foreign governments, too, since those untaxed profits would be contributing to cap gains tax in another country (in the case of foreign investors) instead of domestic corporate tax.
> The argument I have heard is corporate profits are already taxed
I've heard time and time again that it's a moral imperative for corporations to reduce their tax burden to zero using every loophole available. Are big corporations actually paying tax?
I've heard time and time again that it's a moral imperative for corporations to reduce their tax burden to zero using every loophole available. Are big corporations actually paying tax?
https://www.washingtonpost.com/business/2021/04/05/corporati...
>55 corporations had zero federal tax liability in 2020, including household names like Nike, FedEx and Dish Network, analysis finds
>55 corporations had zero federal tax liability in 2020, including household names like Nike, FedEx and Dish Network, analysis finds
That's not relevant. If you pay out dividends, you cant evade those taxes. Capitol gains is supposed to be based on expected future dividends.
shifting even more the tax burden to the citizen why?
The concept of “tax burden” or more precisely “tax incidence” is a rather complex topic. For instance, no consumer pays gas taxes since the gas station pays them all, but most people are smart enough to realize the consumer bears a lot of the burden of fuel taxes even though none pays it directly. There is the question of who faces the burden of corporate taxes? Executives? Stock holders? Employees? Consumers? This question has been studied extensively, and with so many multinational companies, in the long term employees are the most burdened by the tax because corporations make investments in lower tax areas. The cost of an investment in a location are wages+taxes. If taxes are high, then wages must be lower for the investment to make sense. This only becomes true in the long term, but it is a good argument for lower corporate taxes and higher capital gains taxes.
The argument is that dragging on corporations hurts customers and staff as well as owners. It's better to precisely target the owners.
However, I think it misses that most of the benefit to owners is in the form of unrealized gains, not subject to any of the tax rates that people talk about tweaking.
However, I think it misses that most of the benefit to owners is in the form of unrealized gains, not subject to any of the tax rates that people talk about tweaking.
Pension funds you mean ?
It's not a gain if you don't realize it.
That's certainly a perspective you can take. Then you'd really want to look at consumption inequality instead of wealth inequality. Consumption inequality is both much lower at an absolute level than either wealth or income inequality, and pretty much flat over time [0].
To the extent that we care about the distribution of net worth, though, unrealized gains are an important part of the story.
[0] https://voxeu.org/article/consumption-and-income-inequality-...
To the extent that we care about the distribution of net worth, though, unrealized gains are an important part of the story.
[0] https://voxeu.org/article/consumption-and-income-inequality-...
You can still borrow against it.
You need to realize it to pay back the loan. No free lunch.
Under current US tax law the original value of an asset is rebased upon death. Thus, you can borrow against an asset, such as stocks, and then your heirs can repay the loan immediately after your death and pay zero capital gains.
This only costs you the interest of the loan and exposes you to the risk of declining value in the assets securing the loan. Appreciation of the assets or dividends may fully offset the interest or more.
Additionally if you a founder, for example, you retain the influence/control of your company that you derive from the stock ownership, while still be able to enjoy their cash value.
This only costs you the interest of the loan and exposes you to the risk of declining value in the assets securing the loan. Appreciation of the assets or dividends may fully offset the interest or more.
Additionally if you a founder, for example, you retain the influence/control of your company that you derive from the stock ownership, while still be able to enjoy their cash value.
No, corporate tax is of corporate profits, which is just capital gains that haven't been dispersed and may be dispersed in the future (or may be reinvested). Salaries and wages are not profits, so they are not subject to the corporate tax. In theory, the sum of the capital gains rate + corporate tax rate is supposed to approximate the individual income tax rate.
But because most people will never understand this, we can't have a tax code that makes sense. Mass democracy is incompatible with sensible rulemaking in this area.
But because most people will never understand this, we can't have a tax code that makes sense. Mass democracy is incompatible with sensible rulemaking in this area.
True. Although a dollar from investing money is potentially worth less, risk-adjusted, than a dollar from working a job. So it makes sense that the proposed tax brackets are at higher incomes than earned income. But definitely the top rate should be increased; why the heck should a middle-class retiree pay the same rate on their cap gains as someone with way higher income?
You're also not factoring in risk that comes from investing, the argument is lower taxes on investments encourages people to invest their money. If there is risk of loss, plus high taxes when there are actual gains, there is lower return on investment and therefore, less incentive to risk your money in investments.
It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends.
I imagine large investors will just break up their investments into so many shell companies/trusts that each entity will never carry more than 1M in investments. There's always a loophole.
It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends.
I imagine large investors will just break up their investments into so many shell companies/trusts that each entity will never carry more than 1M in investments. There's always a loophole.
> It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends.
I never understood "double taxation" arguments. Currency circulates, of course a given dollar will get taxed more than once as it moves around the economy.
I never understood "double taxation" arguments. Currency circulates, of course a given dollar will get taxed more than once as it moves around the economy.
The issue here isn't "double taxation" so much as "equitable taxation". There's a theory that economically equivalent situations should face equal tax burdens; if you compare the situations of "person is a sole proprietor" vs "person creates a corporation which earns profits and pays them out as dividends" you conclude E = C + (1-C) D, where E is the tax rate on earned income, C is the corporate tax rate, and D is the dividend tax rate.
In Canada, we don't have a separate "dividend tax rate" but instead taxpayers who receive dividends get a credit for the amount of taxes the corporation paid "on their behalf".
In Canada, we don't have a separate "dividend tax rate" but instead taxpayers who receive dividends get a credit for the amount of taxes the corporation paid "on their behalf".
If you can still credit past losses against your gains, that should account for the risk shouldn't it?
only if you are assume that each person is coming out positive in eventuality. there exist always some person who has lose, maybe he is having for to withdraw money for covering expenses or retirementing.
If you never come out positive, capital gains tax is the least of your worries.
Investment risk is already addressed with this proposal. The top tax bracket for earned income is way lower - something like $450k.
Given current interest rates it seems like the world has too much money to invest and not enough people spending.
Shares are a kind of property. Perhaps it would be reasonable to charge a property tax on their value. The market would fix inflated valuations right quick.
Cash is also a kind of property or more technically a "security", and a tax on it would be a "wealth" tax. The progressive vs regressive tax question can be reworded into asking how much freedom or our own wealth should we give up to the government to provide "security"?
I think inflation is the tax on cash as a security. That's what all the cryptocoin people are harping about.
It to incentivise investment to make up for the possible loss.
you might want to think about what happens when companies run out of capital.
you might want to think about what happens when companies run out of capital.
Isn't incentivizing for risk the market's job? Why should the government be in the business of rewarding risk taking, and secondly, where else would they put their money? It's not like there's a secret, riskless investment out there that has a high return and doesn't generate capital gains. Your options are to invest, or lose money to inflation in a certificate of deposit.
Lots of reasons the government should be in that business.
And artificially pushing people to invest in income vs capital gains will increase bond/guilt prices.
And artificially pushing people to invest in income vs capital gains will increase bond/guilt prices.
The median home price in California is rapidly approaching $1M, Wouldn't this just lock up the real estate market even more?
Selling a $1M home doesn't mean you have $1M in income, so I think in general it wouldn't impact the real estate market except perhaps at the much higher end - maybe $5M or higher.
Our housing market would probably be more sane if developers had more pressure to focus on building units in the middle to low end of the market anyway in California.
Our housing market would probably be more sane if developers had more pressure to focus on building units in the middle to low end of the market anyway in California.
You can exclude 250k / 500k for single / married folks. It's quite generous.
> ...For those making 1M / yr or more.
Does that mean if someone makes $1M of capital gains and has no other job, he'll get taxed at the high rate?
Does that mean if someone makes $1M of capital gains and has no other job, he'll get taxed at the high rate?
The new rules have not been written, voted on, or enacted, so who knows. But under the current law, yes, capital gains count towards your total income.
> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor.
It's pretty simple in my mind: Retiring is hard enough, and at some point I won't be able to do any labor. Market investments are the current way that most people are able to retire, whether we like it or not.
Raising it for anything above 1M / year? No problem. They've got enough money to retire comfortably.
For everyone though? My god.
It's pretty simple in my mind: Retiring is hard enough, and at some point I won't be able to do any labor. Market investments are the current way that most people are able to retire, whether we like it or not.
Raising it for anything above 1M / year? No problem. They've got enough money to retire comfortably.
For everyone though? My god.
Except most people in America don't pay capital gains taxes on their retirement savings anyway.
401ks and IRAs are free from capital gains taxes. Anyone can save enough money in those vehicles for retirement unless they start saving really late in life. For those who start saving late, most of their wealth will be in basis anyway.
401ks and IRAs are free from capital gains taxes. Anyone can save enough money in those vehicles for retirement unless they start saving really late in life. For those who start saving late, most of their wealth will be in basis anyway.
Right 401ks and IRA are taxed as regular old income when withdrawn and are subject to the same tax brackets as everyone else.
Right but they're only taxed once (either you don't pay income tax going in or you have a Roth account and you don't pay it going out). Either way, ignoring the fact that you might change tax brackets, it's as if you took the money post tax, invested it, and then didn't have to pay any capital gains on it.
Pretty simple to me, investing is mostly discretionary. If it's encouraged, there will be more of it. If it's not, there will be less.
IMHO, mr market is more than capable enough of pricing his assets to attract investments. I fail to see why this is a government concern.
>investing is mostly discretionary
*investing is basically a luxury for many, if not most
*investing is basically a luxury for many, if not most
The government wants to incentivize investment because it causes the economy to grow. More investment = faster growth = everyone better off in the long run.
capital gains tax doesnt effect investment levels. here's a chart: https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...
Capital gains is levied on assets other than Stocks - such as bonds, real estate, royalties.
That chart doesn't even have investment levels on it. Even if it did correlation isn't causation.
I don't really see how it's fair to tax investment returns at all. When you invest money in something you are taking a risk that you will lose that investment. It's not like the government steps in to make you whole when you lose money, so how is it fair that they get to go through your pockets if you make money?
Granted probably much income that counts as 'capital gains' right now should be classified as regular income and taxed as such.
Granted probably much income that counts as 'capital gains' right now should be classified as regular income and taxed as such.
>It's not like the government steps in to make you whole when you lose money
They let you deduct losses from gains and income for tax purposes. This saved me thousands after '08.
IMHO it's the market's job to price assets and reward risk taking, not the government
They let you deduct losses from gains and income for tax purposes. This saved me thousands after '08.
IMHO it's the market's job to price assets and reward risk taking, not the government
Why is everyone so downvote happy on this site now? Its kind of nuts. Are there really a bunch of sad people just reading through the comments for things that they disagree with to downvote? Maybe you're a communist you thinks taxes should be 100%, fine, but why downvote this? Do you think your socialist utopia is just a few HN downvotes away?
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I think it's because investment money can be moved away easier and faster than labor. As a result, taxes have to be more competitive relative to other areas.
I also don't think it's about incentivizing investing relative to labor. The incentives are for investing relative to other things you could do with money, like spend it, save it, move it elsewhere, etc.
I also don't think it's about incentivizing investing relative to labor. The incentives are for investing relative to other things you could do with money, like spend it, save it, move it elsewhere, etc.
Money belongs to people, and those people don't tend to move. Heck, the US is especially good at taxing people abroad. How many would really renounce citizenship just to save on taxes, and where would they go that taxes less?
There's always a pull between spending and saving, but if you save, you're either investing, or losing money to inflation.
There's always a pull between spending and saving, but if you save, you're either investing, or losing money to inflation.
> Money belongs to people, and those people don't tend to move.
The tax isn't for their money, it's for their capital gains, which only happen when they realize those gains (e.g. sell assets). High net worth individuals absolutely can and do move to lower tax areas if the incentive is sufficient, or otherwise choose not to move to higher tax areas. It happens between US states all the time.
> Heck, the US is especially good at taxing people abroad.
Has it improved significantly since 2014 [1]?
> How many would really renounce citizenship just to save on taxes, and where would they go that taxes less?
Perhaps somewhere other than Canada, France, Holland, Denmark or Sweden, and without renouncing their citizenship.
There seems to be this idea that simply because the IRS tax rules apply to expatriates, that everyone bends over backwards to report their incomes and pay their taxes the same way they would in the US. I just haven't seen evidence that's the case--particularly among high net worth individuals leaving for that purpose.
And regardless, ideally our rates would be competitive and investors should want to put their money here. A "where else are you gonna go" attitude only works while there aren't better options, which may not be forever for all taxpayers.
[1] https://www.forbes.com/sites/procedurallytaxing/2014/11/18/i...
The tax isn't for their money, it's for their capital gains, which only happen when they realize those gains (e.g. sell assets). High net worth individuals absolutely can and do move to lower tax areas if the incentive is sufficient, or otherwise choose not to move to higher tax areas. It happens between US states all the time.
> Heck, the US is especially good at taxing people abroad.
Has it improved significantly since 2014 [1]?
> How many would really renounce citizenship just to save on taxes, and where would they go that taxes less?
Perhaps somewhere other than Canada, France, Holland, Denmark or Sweden, and without renouncing their citizenship.
There seems to be this idea that simply because the IRS tax rules apply to expatriates, that everyone bends over backwards to report their incomes and pay their taxes the same way they would in the US. I just haven't seen evidence that's the case--particularly among high net worth individuals leaving for that purpose.
And regardless, ideally our rates would be competitive and investors should want to put their money here. A "where else are you gonna go" attitude only works while there aren't better options, which may not be forever for all taxpayers.
[1] https://www.forbes.com/sites/procedurallytaxing/2014/11/18/i...
...For those making 1M / yr or more.
Note however that capital gains tend to be "bursty", so having $1M of capital gains in one year doesn't imply having $1M of income in a normal year. (To take a personal example: I had a very large amount of capital gains in 2020 because I sold my entire portfolio of ETFs and bought a house.)
Note however that capital gains tend to be "bursty", so having $1M of capital gains in one year doesn't imply having $1M of income in a normal year. (To take a personal example: I had a very large amount of capital gains in 2020 because I sold my entire portfolio of ETFs and bought a house.)
> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor
The reason is caring about the seniors/elderly and a pro-home ownership policy.
As you age, your ability to earn a living from labor goes down, for a number of reasons (ageism, family obligations, less energy), but your costs go up (healthcare, family obligations).
Having investments and being able to sell off capital, taxed at a lower rate than income is an insurance policy against reduced earning potential in senior years.
Is that in and of itself enough to say the tax rate should be half? Maybe not. But the argument is solid. It just doesn't determine the exact percentages.
The reason is caring about the seniors/elderly and a pro-home ownership policy.
As you age, your ability to earn a living from labor goes down, for a number of reasons (ageism, family obligations, less energy), but your costs go up (healthcare, family obligations).
Having investments and being able to sell off capital, taxed at a lower rate than income is an insurance policy against reduced earning potential in senior years.
Is that in and of itself enough to say the tax rate should be half? Maybe not. But the argument is solid. It just doesn't determine the exact percentages.
> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor.
A laborer gets paid $1 for working hard.
An investor gets paid for $1 for doing something smarter.
Work smarter, not harder, as a civilization. Deliver the most value to the greatest number with the lowest labor input. That's how we get scale, grow an economy, and prosper.
A laborer gets paid $1 for working hard.
An investor gets paid for $1 for doing something smarter.
Work smarter, not harder, as a civilization. Deliver the most value to the greatest number with the lowest labor input. That's how we get scale, grow an economy, and prosper.
The hard work of the laborer is what allows the investor to sit on their lazy ass all day long. The infrastructure the “smart” investor exploits day-to-day doesn’t just magic out of the ground…
Correct. Investors pay laborers to build said infrastructure.
Like, the investor pays all the laborer's wages even if the infrastructure idea was stupid and the investor loses his shirt in the process. The laborer still cashes paychecks while the capital lasts.
Like, think stupid VCs. Investors might just be stupid VCs. A laborer can pocket money from stupid, stupid VCs while the laborer's work provides no value to humanity.
That's why smart investors aren't bastards. And why stupid investors aren't bastards for trying but failing. It's hard to not be a stupid VC. It takes skill. And capital. And understanding what people want. And grokking the shifting regulatory environment. And a whole lot of other crap beyond fizz buzz and and and...
Like, the investor pays all the laborer's wages even if the infrastructure idea was stupid and the investor loses his shirt in the process. The laborer still cashes paychecks while the capital lasts.
Like, think stupid VCs. Investors might just be stupid VCs. A laborer can pocket money from stupid, stupid VCs while the laborer's work provides no value to humanity.
That's why smart investors aren't bastards. And why stupid investors aren't bastards for trying but failing. It's hard to not be a stupid VC. It takes skill. And capital. And understanding what people want. And grokking the shifting regulatory environment. And a whole lot of other crap beyond fizz buzz and and and...
An investor get paid $1 because...they had money to invest.
Labor need not be taxed at all if you ask me.
Labor need not be taxed at all if you ask me.
> ...For those making 1M / yr or more.
This is on a graduated tax schedule, correct?
If so, then only the 1,000,001st dollar gets the higher tax (and every dollar thereafter).
This is on a graduated tax schedule, correct?
If so, then only the 1,000,001st dollar gets the higher tax (and every dollar thereafter).
My understanding is, to encourage people to invest their money, rather than sick it in a mattress.
"The asset price should reflect the inherit risk..." How? The risk of investing is losing everything. How do you add that to the price?
Perhaps income should be income. It would definitely simplify the tax code. But money needs to circulate, that is how you have a booming economy. You asked how is a dollar earned from an investment with more than a dollar from labor. Well that dollar from labor might only exist because of the dollar from investment.
Perhaps income should be income. It would definitely simplify the tax code. But money needs to circulate, that is how you have a booming economy. You asked how is a dollar earned from an investment with more than a dollar from labor. Well that dollar from labor might only exist because of the dollar from investment.
And that's just the base Federal rate. If you add NIIT at 3.8%, I believe that is the highest long-term capital gains rate in the developed world. And that is before you add State taxes, like the 13.3% in California.
Unlike some other countries, there is no cost-basis adjustment for inflation and there is a limited ability to deduct capital losses, both of which can be substantial for long-term investments and risk capital.
All in, this makes it very difficult to get a competitive return on long-term high-risk investments, like tech startups, biotech, etc compared to almost any other asset class. Instead, it strongly incentives cashflow and rent-seeking investments, which have better risk and tax profiles in almost every regard if this goes through.
As a second-order effect, this would cause an extraordinary amount of capital to be moved into real estate which is already experiencing very high price inflation.
Unlike some other countries, there is no cost-basis adjustment for inflation and there is a limited ability to deduct capital losses, both of which can be substantial for long-term investments and risk capital.
All in, this makes it very difficult to get a competitive return on long-term high-risk investments, like tech startups, biotech, etc compared to almost any other asset class. Instead, it strongly incentives cashflow and rent-seeking investments, which have better risk and tax profiles in almost every regard if this goes through.
As a second-order effect, this would cause an extraordinary amount of capital to be moved into real estate which is already experiencing very high price inflation.
There is also legislation kicking around to reinstate the SALT exemption, so if that happened the state taxes would offset the federal.
yes you are make very good points. we are doing better if we make consumption and land value taxes our majority for federal. then try maybe different models at state level, make states fund their own things once more. we try fifty different models, we find the best and use it, then we try new ones on that basis and find better again. one federal model is create the unintended consecuence for each state in nation, state model is damage only one. let us play once more to strengths of federal models.
I don't think land value taxes will ever be implemented in a way that actually lives up to the ideals. Switching from land ownership to ground leases is less disruptive to the current tax system and has similar benefits.
most countries in the developed world dont have special carve outs for capital gains and tax them as ordinary income
This is false, as any who knows how to use Google can attest to.
For those of us that apparently don't know how to use Google could you share to add something interesting to the discussion?
Virtually every country in the developed world has much lower LTCG taxes than income taxes. It is so ubiquitous that I'm not even aware of a counter-example. Quite a few countries in western Europe have lower max LTCG rates than Silicon Valley has today.
Instead of making a low-effort post, you could have done a single Google search with any of the obvious keywords and discovered this yourself.
Instead of making a low-effort post, you could have done a single Google search with any of the obvious keywords and discovered this yourself.
Tax lawyer here.
Virtually every country in the developed world has much lower LTCG taxes than income taxes. It is so ubiquitous that I'm not even aware of a counter-example. Quite a few countries in western Europe have lower max LTCG rates than Silicon Valley has today.
That's simply false. The US has the lowest effective individual capital tax rates in the world outside of tax shelter countries. When I was at a firm, I had many (former EU) clients who came to the US who marveled at how low our taxes were here in CA compared to what they were paying at home.
Virtually every country in the developed world has much lower LTCG taxes than income taxes. It is so ubiquitous that I'm not even aware of a counter-example. Quite a few countries in western Europe have lower max LTCG rates than Silicon Valley has today.
That's simply false. The US has the lowest effective individual capital tax rates in the world outside of tax shelter countries. When I was at a firm, I had many (former EU) clients who came to the US who marveled at how low our taxes were here in CA compared to what they were paying at home.
That isnt the point, the point was that capital gains taxes are lower than general income taxes. For example in Germany its 25% capital gains vs 42% general income (the latter is a progressive rate, but 42% starts at 58k/116k eur single/married).
Yes, those rates are higher than the US, but capital gains taxes are lower than wage income taxes.
https://taxsummaries.pwc.com/germany/individual/income-deter...
Yes, those rates are higher than the US, but capital gains taxes are lower than wage income taxes.
https://taxsummaries.pwc.com/germany/individual/income-deter...
No, his point was trying to claim that the U.S. has higher rates than other Western countries, and that was simply false.
(Yes, capital gains rates are generally lower than normal income rates everywhere in the world, but the rest of the world also defines capital gains more narrowly than the U.S. does, and for example, sales of startup stock would likely not qualify for cap gains treatment in Germany).
(Yes, capital gains rates are generally lower than normal income rates everywhere in the world, but the rest of the world also defines capital gains more narrowly than the U.S. does, and for example, sales of startup stock would likely not qualify for cap gains treatment in Germany).
> The US has the lowest effective individual capital tax rates in the world outside of tax shelter countries.
The capital gains rate in the UK is 20%.
https://www.gov.uk/capital-gains-tax/rates
The top capital gains rate in the US is 23.8% + state taxes.
The capital gains rate in the UK is 20%.
https://www.gov.uk/capital-gains-tax/rates
The top capital gains rate in the US is 23.8% + state taxes.
The top US capital gains tax is 20%. The 3.8% is a separate tax...
That being said, I'm taking about effective (i.e. Actual tax liabilities) and you are all focusing on theoretical liabilities without understanding that the tax bases are different.
It's honestly not worth the effort to keep correcting all the GUD in this thread.
That being said, I'm taking about effective (i.e. Actual tax liabilities) and you are all focusing on theoretical liabilities without understanding that the tax bases are different.
It's honestly not worth the effort to keep correcting all the GUD in this thread.
> The top US capital gains tax is 20%. The 3.8% is a separate tax
A tax on, among other things, capital gains. See:
https://www.irs.gov/newsroom/questions-and-answers-on-the-ne...
"8. What is included in Net Investment Income?
In general, investment income includes, but is not limited to: interest, dividends, capital gains..."
A tax on, among other things, capital gains. See:
https://www.irs.gov/newsroom/questions-and-answers-on-the-ne...
"8. What is included in Net Investment Income?
In general, investment income includes, but is not limited to: interest, dividends, capital gains..."
It wasn't meant to be snarky, though I can see how it could be seen that way. I still can't find any data to back up your claim though so yet again I ask that you share it instead of just claiming that is how it is.
I'm not taking a position on the truth or falsehood of the claim. But if you're writing a post, and you make a claim, and your readers have to look it up, that's a net waste of time. There's one writer, and many readers. Writers should supply the data, not make everyone else do the search.
Are capital gains taxes lower in real estate investing? (I'm not an American)
If you're investing in real estate you can do what's called a 1031 exchange to ultimately defer capital gains from the sale of one property - as you are merely exchanging one investment property for another. Unless you are actually selling the property for cash then you don't necessarily have to pay capital gains since you're acquiring a new loan at the time of sale.
So you start with a small apartment and you end up with an apartment complex and still you don't pay any cap gains eh. Nice loophole?
Not to mention that the fed is now aiming for 2+% inflation (and let's be real, it's going to be higher), so cashing out even after a 10-year breakeven investment that earned nothing is going to cost you over 10% on withdrawl.
i am not understand why you have downvote, constant hedonic adjustmint from fed is making inflation disapear. cpi is failing to include many important things and we are therefore have missing much inflation over past years. you must see m1 graph over past year, then tell me there have been less than 2% inflation? https://fred.stlouisfed.org/series/M1SL
Downvotes here are reflexive. Nobody is actually reading or thinking about the fact that inflation + unindexed cap gains is just a wealth tax.
Considering the state of the US economy over the last 20 years, that's exactly what's needed. You can peddle this idea in countries that are struggling to find investors. It certainly makes sense in economies that are prone to high inflation.
>then tell me there have been less than 2% inflation?
Good for you because nobody says that there is less than 2% inflation right now. I mean, bad for you because that government manipulation theory is on shaky ground now, the only real issue is that changing the definition of M1 is annoying and breaks the charts.
https://www.bls.gov/charts/consumer-price-index/consumer-pri...
Good for you because nobody says that there is less than 2% inflation right now. I mean, bad for you because that government manipulation theory is on shaky ground now, the only real issue is that changing the definition of M1 is annoying and breaks the charts.
https://www.bls.gov/charts/consumer-price-index/consumer-pri...
The Fed has been targeting 2% inflation for years now, and it has never materialized. Inflation can be caused by money supply expansion, but also economic capacity losses (eg. think chip shortages, climate disasters, and cargo ships stuck in canals).
The Fed has also never attempted anything even approaching the QE and stimulus of the past year. It's really completely uncharted territory.
The post 2008 QE was 4.3T in the same order of magnitude of the QE of the past year. There was no runaway money supply driven inflation. If you look at work from macro economist Claudia Stam, who as part of the Fed studied the effects of 2008 recession aid programs - her work concludes that we actually have more margin for monetary stimulus and we can alleviate a lot of economic disruption by undertaking that stimulus for valuable infrastructure investments.
If one were to compare to 2008 to the pandemic, I'd actually hypothesize that the main inflation driver now is not from QE (though it is affecting the stock market somewhat like it did in 2008), but driven from disrupted lines of production from a mix of pandemic and climate change driven infrastructure disruption.
And it's that capacity drop that is pushing most of the inflation we're seeing now.
If one were to compare to 2008 to the pandemic, I'd actually hypothesize that the main inflation driver now is not from QE (though it is affecting the stock market somewhat like it did in 2008), but driven from disrupted lines of production from a mix of pandemic and climate change driven infrastructure disruption.
And it's that capacity drop that is pushing most of the inflation we're seeing now.
Everybody commenting on this should be familiar with the historic income and capital gains tax rates in the U.S. Here's a chart from 1954-2020: https://www.taxpolicycenter.org/sites/default/files/styles/o...
That's a rather misleading graph though.
https://checkyourfact.com/2019/01/09/fact-check-90-percent-t...
> The top 1 percent of income earners paid an average effective income tax rate of 16.9 percent in the 1950s, according to data compiled by the Tax Foundation from a 2017 paper by economics professors. That figure includes all federal, state and local income taxes.
> Congressional Research Service calculations of data from the Internal Revenue Service similarly found in a 2012 report that the very top income earners – the top 0.1 percent and 0.01 percent – also paid effective tax rates lower than the 91 percent top marginal tax rate in the 1950s. The average rate for the top 0.1 percent fell from the low 40 percent range to the high 30 percent range during the 1950s. For the top 0.01 percent, it fell from the 50 percent range to the mid-40 percent range.
https://checkyourfact.com/2019/01/09/fact-check-90-percent-t...
> The top 1 percent of income earners paid an average effective income tax rate of 16.9 percent in the 1950s, according to data compiled by the Tax Foundation from a 2017 paper by economics professors. That figure includes all federal, state and local income taxes.
> Congressional Research Service calculations of data from the Internal Revenue Service similarly found in a 2012 report that the very top income earners – the top 0.1 percent and 0.01 percent – also paid effective tax rates lower than the 91 percent top marginal tax rate in the 1950s. The average rate for the top 0.1 percent fell from the low 40 percent range to the high 30 percent range during the 1950s. For the top 0.01 percent, it fell from the 50 percent range to the mid-40 percent range.
That article is... not informative. It says (paraphrasing) "people didn't pay 91% of their income!" and then just defends that by explaining what a marginal tax system is. Explaining what a marginal tax system is doesn't change the fact that the highest bracket was taxed at 91%.
Unless someone is seriously proposing taxing all brackets at 91%, that article is being very misleading, and arguing against a strawman.
Unless someone is seriously proposing taxing all brackets at 91%, that article is being very misleading, and arguing against a strawman.
To be even more explicit: the people with the very highest incomes in the 1950s did not have any significant part of their income fall into the top tax bracket. They did whatever they had to do to not make that happen. They structured it as capital gains and dividends from their businesses, they used deductions for real estate depreciation, etc etc. (To do otherwise would have been insane.)
> the 91 percent rate kicked in for each dollar earned over $400,000 – the equivalent of $3,426,776 in constant 2013 dollars
So, the top 0.01% (the top 1% of the top 1%) must have made significantly less than $800k ($7 million today) yearly throughout the 1950s in order to pay around 50% total on average each year. I'm sure _some_ of them were executives that would have made a million or two in salary, if the top income bracket was much lower. But instead they had most of their salary turned into benefits and shares or whatever/however it would not be classified "income", and they were successful at this.
> the 91 percent rate kicked in for each dollar earned over $400,000 – the equivalent of $3,426,776 in constant 2013 dollars
So, the top 0.01% (the top 1% of the top 1%) must have made significantly less than $800k ($7 million today) yearly throughout the 1950s in order to pay around 50% total on average each year. I'm sure _some_ of them were executives that would have made a million or two in salary, if the top income bracket was much lower. But instead they had most of their salary turned into benefits and shares or whatever/however it would not be classified "income", and they were successful at this.
checkyourfact.com is run by The Daily Caller and so ultimately Tucker Carlson. It definitely has a viewpoint
So basically, if passed as proposed this would be a higher rate of capital gains tax than at any point in US history?
what nice of a cherry-picking graph. it have picked start point of highest rates in history for to make the appearing that there have been some extraordinary cut. but in real seeing it is the high rate that was the extraordinary. here we have longer-view graph for to illustrate: https://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c85dc53...
in similarity, we are see that capital gains tax today still exist above historical past, the graph you link again cherry-pick. longer-term view is showing of a different picture: https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com...
under here we are see a recover to normal over time not the "cuts for rich" things you are saying.
in similarity, we are see that capital gains tax today still exist above historical past, the graph you link again cherry-pick. longer-term view is showing of a different picture: https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com...
under here we are see a recover to normal over time not the "cuts for rich" things you are saying.
I doubt you can compare the American economy of 1850 to that of today... the reason we needed lower taxes before 1920 is because we had a fairly underdeveloped economy. You’re right that it’s best to present the full history, but then you also have to provide context. The period before 1920s was the Gilded Age (then Progressive Era) which was when America was industrializing. I think by “recover to normal over time” you’re making a claim that you’d prefer the economics of 1910 America over 1970 America, which is where we disagree.
Sure, if you’re making a founding fathers style argument, it makes sense, but I doubt anyone really wants to go back to a world where America doesn’t have an interstate highway system or Medicare.
Sure, if you’re making a founding fathers style argument, it makes sense, but I doubt anyone really wants to go back to a world where America doesn’t have an interstate highway system or Medicare.
My biggest issue with all the "Tax the Wealthy" stuff... we have 5 Trillion to work with... how much more do they need? What will they possibly spend it on given we already spend more than other countries on pretty much everything.
Giving our current leaders more money to spend is just wasteful.
Giving our current leaders more money to spend is just wasteful.
Big money spent by bureaucracy does not have a reputation of not being wasteful.
Most of the money goes towards social security and medical expenses, and the percentage is going up. So it's not so much about giving politicians more to play with, but being able to honor the debts that have been incured to the citizens.
100% but those debts are unsustainable as a society.
A reminder - in the US by default capital gains are levied at the same rate as any other income - the "capital gains tax" is a LOWER tax on some forms of capital gain intended to encourage some forms of investment (long term rather than stock/house flipping for example)
You can flip houses all day long and not pay any tax as long as you buy another piece of real estate within 6 months.
https://www.investopedia.com/financial-edge/0110/10-things-t...
https://www.investopedia.com/financial-edge/0110/10-things-t...
Yes, BUT... that money is reinvested... you are allowed a 1 time deduction for your primary residence to downsize... otherwise you are always going to pay the tax when you eventually try to realize gains.
Why does it only apply to real estate? It’s clearly a handout to real estate investors.
The US tax policy is beneficial towards real estate in general- you can debate the reasons why but some things that are commonly brought up:
1) real estate is relatively illiquid, which encourages long term investment
2) real estate is culturally significant as it differentiates us against the British
3) real estate is the primary source of gaining wealth for the middle class in the US
4) real estate ownership encourages community involvement
Is it really debatable why a historically rich, politically influential class would have favorable tax laws?
It's debatable whether the reasons that class put forth for policies they preferred are valid for society as a whole.
This is A Good Thing and by design. Isn't encouraging investment the whole point?
This particular loophole seems like it was meant to shield homeowners who are moving house. Not for encouraging investment.
It only applies to investment property. If you own your home the first 250-500k of capital gains is exempt depending on your filing status. 1031 exchanges are a decent amount of work and have some additional requirements (it's not really for house flipping). They are also a tax deferral strategy. The tax eventually comes due.
> They are also a tax deferral strategy.
Carved out only for real estate investors. I don’t see why it shouldn’t either apply to everyone, or no one.
Carved out only for real estate investors. I don’t see why it shouldn’t either apply to everyone, or no one.
1031 is not for properties the owner lives in. For owner occupied properties, there is a $250k per taxpayer exemption on gain if requirements are met.
As I understand it, it's possible to use both rules on the same property, but it takes many years and specific facts.
As I understand it, it's possible to use both rules on the same property, but it takes many years and specific facts.
Investment or Speculation?
Flipping houses usually means buying a house -> making improvements to the house -> selling it for a profit. I wouldn't call that "speculation".
Speculation in this case could just be buying a house and trying to sell it for a profit later without improving the property.
Speculation in this case could just be buying a house and trying to sell it for a profit later without improving the property.
Or building a house without a buyer already under contract, and trying to sell it for a profit.
I'd say you've got it opposite. By default capital gains are taxed at the capital gains rate, but if you don't hold the assets long enough you get the short term capital gains rate which is normal income tax.
Exactly, this is backed up by individual income stats on short term and long term capital gains: https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita...
It routinely shows >7x long term vs. short term capital gains.
It routinely shows >7x long term vs. short term capital gains.
Mostly I was trying to explain US tax law to non-USAians ... but in general you need to lock in your investment in a way that the IRS can tell that you meet the long term holding requirements (often your broker will do that for you in your 1099 these days if you're dealing in shares)
A sensible capital gains tax should remove the inflation part.
Say you buy a stock for $1000 in year 1. Suppose monthly cost for living in that year is $1000.
In year 10, you sell the stock for $2500. Suppose monthly cost for living in year 10 is $2000. Your investment essentially just beat the inflation by $500 at year 10. In other words, real capital gain is not $1500.
Say you buy a stock for $1000 in year 1. Suppose monthly cost for living in that year is $1000.
In year 10, you sell the stock for $2500. Suppose monthly cost for living in year 10 is $2000. Your investment essentially just beat the inflation by $500 at year 10. In other words, real capital gain is not $1500.
This is a good move. It'll raise tax revenues, hopefully reduce inequality, and potentially bring equities' valuations down to something more reasonable (and I say this as someone with a healthy stock portfolio).
How will it address people financing their spending with pledged asset line loans against their portfolios? Interest on that is tax deductible if the loan is used for an investment; which doesn't seem like a high barrier.
How will it address people financing their spending with pledged asset line loans against their portfolios? Interest on that is tax deductible if the loan is used for an investment; which doesn't seem like a high barrier.
I disagree.
Raise taxes if you need money. I guess the government does?
But doing it to solve inequality and bring down equity valuations? That seems like irresponsible tinkering with the economic chemistry set, and not the right way to set govt policy.
Raise taxes if you need money. I guess the government does?
But doing it to solve inequality and bring down equity valuations? That seems like irresponsible tinkering with the economic chemistry set, and not the right way to set govt policy.
I don't believe I said anything about the administration's motivations behind this proposal. I only described some potential positive (to me) side-effects .
If you're a fan, that's fair, and I hope the side effects work out for you the way you hope.
>hopefully reduce inequality
Depends how the money is used. If we spend it on social programs, reducing taxes on lower-income earners, infrastructure, then it will.
But if it just gets spent on more weapons? I don't know that that does anyone any good.
Depends how the money is used. If we spend it on social programs, reducing taxes on lower-income earners, infrastructure, then it will.
But if it just gets spent on more weapons? I don't know that that does anyone any good.
People will find loopholes, that's how the game is played. Nothing will get solved because the system is broken at a fundamental level, and no amount of patching will fix it.
Do you want actual, proper change that will benefit society? Ban interest and all the shenanigans that come out of it (shorting, puts and calls, etc.). I guarantee things will dramatically improve - it's been done before.
Do you want actual, proper change that will benefit society? Ban interest and all the shenanigans that come out of it (shorting, puts and calls, etc.). I guarantee things will dramatically improve - it's been done before.
The economy already banned interest, sort of and we have less growth because of it. Low interest rates are a boon to unproductive companies and if those unproductive companies go under they may cause a recession. The reason why we have interest in the first place is to encourage savings and stave off inflation.
Low interest rate != 0 interest rate, so it's not banned. I'm talking about literally zero interest rates, that way proper investments can be encouraged instead of building an empire on usurious and exploitative money lending.
> The reason why we have interest in the first place is to encourage savings and stave off inflation.
It's the other way around, interest causes inflation, because the government has to print money to pay off its debts, thereby devaluing everyone else's hard earned money.
> The reason why we have interest in the first place is to encourage savings and stave off inflation.
It's the other way around, interest causes inflation, because the government has to print money to pay off its debts, thereby devaluing everyone else's hard earned money.
It’s important to remember that this is just a proposal, and even if passed, it will likely be negotiated to be a less dramatic change (as with all legislation in the US).
The problem with this particular proposal is it would hit most members of congress (on both sides of the aisle) and their friends right in the pocketbook. Being flawed humans, the people in congress rarely vote against their personal self interest.
I expect to see at most 30% cap gains rates and likely for people making $5M or more, with carve outs for about 15 special interest groups to the point where it’s basically ineffectual.
The problem with this particular proposal is it would hit most members of congress (on both sides of the aisle) and their friends right in the pocketbook. Being flawed humans, the people in congress rarely vote against their personal self interest.
I expect to see at most 30% cap gains rates and likely for people making $5M or more, with carve outs for about 15 special interest groups to the point where it’s basically ineffectual.
Maybe it would make companies go back to dividends instead of favoring stock buybacks - which imho would be a nice reduction of financialization behavior
This would have literally no effect on buybacks vs dividends as both are taxed as capital gains. In fact, it might favor buybacks even more since you aren’t forced to pay taxes on share price increases until you sell. Dividends give you a tax bill every year, even if reinvested.
Also, there’s nothing nefarious about buybacks. It’s just a more tax efficient way to return money to shareholders. There’s no boogie man there.
Also, there’s nothing nefarious about buybacks. It’s just a more tax efficient way to return money to shareholders. There’s no boogie man there.
I don't see how. Qualified dividends are taxed at long term capital gains rates; if those rates go up (for high income) stockholders, those stockholders will be generally less pleased about recognizing the income rather than defering it with a buyback.
As a stockholder, I can always make my own dividend by selling shares; but I can't make my own stock buyback, because I only get a portion of the dividend.
As a stockholder, I can always make my own dividend by selling shares; but I can't make my own stock buyback, because I only get a portion of the dividend.
And add a small say $5k allowance for small stockholders like the UK does.
Finally, a common sense tax proposal. Fix the brackets before any of this wealth tax nonsense. We already have a thorough and effective system of measuring income in this country.
I would add another bracket for 100mm+, as well as stretch the brackets out for regular income. It's ridiculously broken when people make 10,000 times as much as the highest bracket. If someone makes more than an order of magnitude above the highest level, it's time for an update, imo.
I would add another bracket for 100mm+, as well as stretch the brackets out for regular income. It's ridiculously broken when people make 10,000 times as much as the highest bracket. If someone makes more than an order of magnitude above the highest level, it's time for an update, imo.
Who is realizing $100mm in taxable ordinary income? That is one hell of a wage. Much more likely you "make" $100mm by owning a company that increases in value by $100mm. That is not subject to any tax rate or bracket at all. Only the portion that you sell for diversification / consumption is.
Founders and early investors cash out billions in capital gains at a time every year. The brackets should reflect that.
It will be a great time to build a small SaaS business. Get QSBS tax treatment, pay no federal taxes when you sell the business after 5 years.
The problem (other than double taxation)is that people whose wealth is predominantly held in a diversified portfolio will be able to avoid this sort of tax much more easily than people who have more concentrated holdings.
Someone who sells a $2 million business is rich, but they aren't that rich. The rules for houses and incentive equity compensation are complex. But this would generally be bad for people who get equity compensation in companies whose value is very volatile (read early stage startup workers). This is very problematic for Silicon Valley's current economic model.
Someone who sells a $2 million business is rich, but they aren't that rich. The rules for houses and incentive equity compensation are complex. But this would generally be bad for people who get equity compensation in companies whose value is very volatile (read early stage startup workers). This is very problematic for Silicon Valley's current economic model.
>This is very problematic for Silicon Valley's current economic model.
Is that a bad thing?
Is that a bad thing?
You never know. But this would make building or joining early stage companies in the US dramatically less attractive. Especially for people who have the option of living abroad. I think that would be incredibly bad.
Looming high (fed-directed) inflation + a high capital gains tax unindexed to inflation... seems like a shadow wealth tax. Dunno if I feel great about this in combination.
It's not perfectly equivalent to a wealth tax because the effective tax rate would merely approach the current capital gains tax. Assuming 1000% inflation the worst that could happen is that you pay capital gains on your entire investment rather than the gains.
I can speak to this - a long time coming.
A HUGE amount of complexity in tax code, tax preparation, and tax audit is the characterization of earnings.
Pop quiz, if you are going to be bringing in $100M, do you want to pay 40% tax or 15% tax? Long term capital gains = 15%. So a lot of hoop jumping to turn things into capital gains, then long term capital gains. What a pain.
Just for simplicyt I wish they would say, for everyone making more than $150K/year (300K married) investment income is taxed as any other type of income.
Cut overall rates if needed if you want it revenue neutral.
The next step is to tax unrealized gains. I know, lots of hand wringing, but if you can defer gains until death (not too hard) you can come out golden in terms of family wealth (lots of like kind property exchanges etc).
A HUGE amount of complexity in tax code, tax preparation, and tax audit is the characterization of earnings.
Pop quiz, if you are going to be bringing in $100M, do you want to pay 40% tax or 15% tax? Long term capital gains = 15%. So a lot of hoop jumping to turn things into capital gains, then long term capital gains. What a pain.
Just for simplicyt I wish they would say, for everyone making more than $150K/year (300K married) investment income is taxed as any other type of income.
Cut overall rates if needed if you want it revenue neutral.
The next step is to tax unrealized gains. I know, lots of hand wringing, but if you can defer gains until death (not too hard) you can come out golden in terms of family wealth (lots of like kind property exchanges etc).
Taxing unrealized gains doesn’t make any sense. Many people would end up forced to sell part of their equity to afford paying tax on the gains.
Not only that, but if they are going to tax unrealized gains annually, it seems they also would have to issue annual tax credits for unrealized losses. You can't just tax the unrealized gains. What if the stock goes to a penny and you sell it?
The end result is the same as now, you tax the capital gain from the time you bought the stock to the time you sold it.
I have heard rumblings of removing the stepped-up basis that occurs when assets pass to heirs. But I think the problem with this is keeping track of the basis over generations. What if stock has been in the family for 3 generations? Who knows and tracks what great-great grandma paid for a stock?
The end result is the same as now, you tax the capital gain from the time you bought the stock to the time you sold it.
I have heard rumblings of removing the stepped-up basis that occurs when assets pass to heirs. But I think the problem with this is keeping track of the basis over generations. What if stock has been in the family for 3 generations? Who knows and tracks what great-great grandma paid for a stock?
Many people have to pay tax on their income before they use it too. Why should the person sitting on a fat investment portfolio not have to?
Can I borrow against these unrealized gains you say make no sense to tax and still spend the money, but perhaps never pay taxes on the gains ever??
If instead of taking income I take a carried interest in my portfolio can I defer taxes - maybe forever?
By the way, all these are the loopholes that are CURRENTLY being used by the well off to avoid paying taxes.
Seriously - why do you think portfolio lines of credit are so popular?
Can I borrow against these unrealized gains you say make no sense to tax and still spend the money, but perhaps never pay taxes on the gains ever??
If instead of taking income I take a carried interest in my portfolio can I defer taxes - maybe forever?
By the way, all these are the loopholes that are CURRENTLY being used by the well off to avoid paying taxes.
Seriously - why do you think portfolio lines of credit are so popular?
$150k may sound large for you, but $150k in california is around $90k after tax, and with $2800-$5000/month rents that is not a lot of money left over.
Federal tax rates should not be optimized for localized dysfunctional housing markets.
Please remember that punitive changes like limiting SALT hurts actual people before it causes changes in the way state governments run.
I assume that the SALT limitation will be removed by this administration, as it was punitive and not grounded in effective policy.
I agree that it was totally punitive but I fail to see how it's not fair policy. By letting people deduct state and local taxes you're basically saying that they don't have to pay fed dues so long as they're paying someone something. In effect this is a discount for high tax/high service states. Conversely you can look at it as being a tax on low tax/low service states (a discount for one thing is effectively a price increase for another). If some state wants to be low tax/low service they should be able to do that without the feds taxing them for it. The feds shouldn't be picking favorites when it comes to that kind of thing. I fail to see any justification for taxing states differently based on their own tax rates.
We disagree on the topic.
California needs to fix their housing market by repealing prop 13 and opening up zoning. That's not the federal governments problem.
California needs to stop subsidizing republican states with their federal tax dollars and separate from the union with the rest of the west coast if we keep on going down that road of logic.
Why not both?
Even in California $150k places you at around the 85% household (let alone personal) income percentile, median household income is only 75k. I.e., the bulk of Californians have to make do with far less.
Wouldn't that latter be better fixed by adjusting estate & inheritance rules? You could even make it simple, e.g. all unrealized gains upon death.
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Are people actually stupid enough to think anyone earning over $1M a year aren't just going to hire an accountant that can play the stupid tax games?
This is going to do shit all and just cascade to the middle class, just like all tax hikes do
This is going to do shit all and just cascade to the middle class, just like all tax hikes do
What stupid tax games are there to play?
There seems to be some myth going around that high income folks can just pay a CPA to absolve themselves of tax obligations. That's really not how this works.
There seems to be some myth going around that high income folks can just pay a CPA to absolve themselves of tax obligations. That's really not how this works.
2024 or even 2022 is going to be a very interesting election if this ever gets passed.
here's a chart of market returns vs cap gains tax rate, you will notice there is no correlation. So dont argue that there is!
https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...
https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...
the proposal is to remove capital gains and tax it as ordinary income above 1 million, clickbait headline
It should be made retroactive to 2020.
Theater for the masses...
Why? Because do you think for a moment someone making $1 million in "Capital Gains" doesn't have access to a financial professional to avoid paying any tax?
If you want to tax the wealthy, you'll have to find a different way.
Why? Because do you think for a moment someone making $1 million in "Capital Gains" doesn't have access to a financial professional to avoid paying any tax?
If you want to tax the wealthy, you'll have to find a different way.
Where is this fantasyland where making a high amount of money means you don't pay any taxes?
What would you propose?
Mind to elaborate what kind of loopholes you’re talking about?
Aren't things like this the way you would tax the wealthy?
Think of this as a patch which fixes a bug that said financial professional would exploit.
Think of this as a patch which fixes a bug that said financial professional would exploit.
This argument doesn't make sense at all. Rich people always have access to financial professionals. Shifting tax burdens isn't free and nobody's expecting that people won't change their portfolios/tax declarations/whatever to reflect this.
What it does do is alter the effective tax rate, and even a partial effect is desirable.
What it does do is alter the effective tax rate, and even a partial effect is desirable.
Someone making $1M is often part of the working wealthy. No amount of advise from financial professionals will help them avoid paying tax on things like salaries, RSUs etc.
As someone who has access to and regularly works with (pays) tax professionals and financial advisors, I've yet to be able to take advantage of much, if any, way to avoid paying any tax.
Most of the things I'm aware of, and have been advised of, are things like QSBS (Qualified Small Business Stock) which I've been able to claim once. In that case it was a 5 figure gain. So the tax benefit was not particularly amazing. Yeah, others have been able to benefit much more from this. But it's a pretty narrow situation where you can.
I've recently early exercised some ISOs, so if this proposed tax change didn't pass, I'd have the long term cap gains rate.
I think there are some interesting things you can do with charitable trusts, but I think you're mostly deferring taxes, and I haven't had a situation where it made sense.
But all in all, in the years that I've paid, what I think, are a pretty competent set of financial professionals, I've yet to come across any magical way to avoid paying any taxes. I've actually paid a large amount of taxes and have to ensure my investments and finances are planned so I can pay the tax bill when it comes due.
I think most stories we hear about the wealthy not paying any taxes are either tax fraud, or substantial capital losses that offset all gains.
In the capital loss situation, that's probably a temporary thing for that person, otherwise they won't be wealthy for long.
Most of the things I'm aware of, and have been advised of, are things like QSBS (Qualified Small Business Stock) which I've been able to claim once. In that case it was a 5 figure gain. So the tax benefit was not particularly amazing. Yeah, others have been able to benefit much more from this. But it's a pretty narrow situation where you can.
I've recently early exercised some ISOs, so if this proposed tax change didn't pass, I'd have the long term cap gains rate.
I think there are some interesting things you can do with charitable trusts, but I think you're mostly deferring taxes, and I haven't had a situation where it made sense.
But all in all, in the years that I've paid, what I think, are a pretty competent set of financial professionals, I've yet to come across any magical way to avoid paying any taxes. I've actually paid a large amount of taxes and have to ensure my investments and finances are planned so I can pay the tax bill when it comes due.
I think most stories we hear about the wealthy not paying any taxes are either tax fraud, or substantial capital losses that offset all gains.
In the capital loss situation, that's probably a temporary thing for that person, otherwise they won't be wealthy for long.
The key difference is that as a multinational company, you have more options than as an individual. It would be even better if you have your company provide you services which are then written off as business expenses. Not having a US citizenship might be even better as you can earn your money by being a resident in a tax friendly country (say Dubai) and traveling in and out carefully.
Sounds like the news of this spooked a lot of investors to cause a surprise sell off. Most notable drops in Deliveroo, Coinbase and GameStop stock.
At the time when everyone was scrambling to buy into the Coinbase direct listing, I was downvoted to warn them that the early investors will dump it immediately. [0] [1]
In fact, I shorted it on direct listing day and here we are the news are now reporting it trading down last week [2] the hype squad are no where to be seen leaving the retail investor bag holding at >$375. And now the news of US tax increases dealt another blow to the markets and boosted my short position in Coinbase.
Well done me, I guess.
[0] https://news.ycombinator.com/item?id=26673100
[1] https://news.ycombinator.com/item?id=26790725
[2] https://www.cnbc.com/2021/04/15/coinbase-coin-climbs-11perce...
At the time when everyone was scrambling to buy into the Coinbase direct listing, I was downvoted to warn them that the early investors will dump it immediately. [0] [1]
In fact, I shorted it on direct listing day and here we are the news are now reporting it trading down last week [2] the hype squad are no where to be seen leaving the retail investor bag holding at >$375. And now the news of US tax increases dealt another blow to the markets and boosted my short position in Coinbase.
Well done me, I guess.
[0] https://news.ycombinator.com/item?id=26673100
[1] https://news.ycombinator.com/item?id=26790725
[2] https://www.cnbc.com/2021/04/15/coinbase-coin-climbs-11perce...
Can you share some screenshots of your short position and which brokerage allowed you to trade options? Because this would be a historic first that a brokerage allowed options trading of a stock on the first week, let alone the first day, of hitting the market.
Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. Income is income. Plenty of other countries tax it the same and we should too.
Edit: To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?