This article declares that a 70% marginal tax rate on income above $10M/year is bad policy, but the only justification it offers for it being bad policy is that adding in NY state/local taxes would raise that number to 82.7%.
So what?
I've seen repeated countless times recently that the marginal tax rate on the rich used to be as high as 91%. Why is a combined tax rate of 82.7% bad policy? And if that's really your only justification, then the fix here is to just make the state/local taxes deductible again.
SALT exemptions should definitely not be restored - I grew up in the north east where those SALT exemptions are fully utilized but they introduce an illogical perverse motivation for state and local governments to spend freely since any taxes they introduce are essentially just that level of government getting a free non-revokable payment from the federal government.
I do acknowledge that areas with SALT exemptions tend to be areas that pay a disproportionate amount of taxes for the benefits they receive but I think this solution to that issue is ludicrous. Investment by the government should ideally try and maximize the benefits given by that investment means that denser population areas should be targeted unequally to receive benefits but SALT exemptions are crazy.
Also, just a note, this portion of their argument seems silly, what is one number compared to another number without context, if 82.7% is just too much for the market to bear than let's talk about 58.3% as a base marginal tax rate on $10M and above - in actuality the utility of assets decreases so steeply that I don't know if 82.7% really is "silly" but all this talk about specific numbers should be decided by people way more specialized than the general public.
I've seen repeated countless times recently that the marginal tax rate on the rich used to be as high as 91%
Between 1950 and 1959, he notes, the highest earning 1 percent of Americans paid an effective tax rate of 42 percent. By 2014, it was only down to 36.4 percent—a substantial but by no means astronomical decline.
<...>
There are a few obvious reasons why the taxes the rich actually paid in the 1950s were so much lower than the confiscatory top rates that sat on the books. For one, the max tax rates on investment income were far lower than on wages and salaries, which gave a lot of wealthy individuals some relief. Tax avoidance may have also been a big problem. Moreover, there simply weren’t that many extraordinarily rich households. Those fabled 90 percent tax rates only bit at incomes over $200,000, the equivalent of more than $2 million in today’s dollars. As Greenberg notes, the tax may have only applied to 10,000 families.
More importantly, remove all of the many loopholes that are used by the very wealthy to prevent themselves from paying tax at all. I would greatly be in favor of a flat tax for everyone earning $30K and above.
That massively massively penalizes people who are more poor or middle class vs someone that has millions or billions. 30% of a million is 333k, but 30% of 31k is 10.3k. I imagine losing that 10.3k hurts the 30k person far more than losing the 333k does to the person who is now making 667k.
Why would you want a flat tax for everyone above 30k?
Taxing investments more than standard labor should be the baseline. Us workers should not be subsidizing the significantly discounted rate that investment earning are taxed at.
"If you want more of something, subsidize it; if you want less of something, tax it."
If you raise taxes on capital gains you'll get less investment. Maybe that's a good thing.
Either way, I'm in favor of tax simplification in all of its forms; Tax law is like that spaghetti legacy codebase that is just dying for a refactor/rewrite.
I agree with the sentiment here but would be interested to see what portion of US tax revenue is coming from the same people who are benefiting from the discounted rate for investment earnings. Basically, is the "subsidy" essentially coming from the beneficiaries and ultimately just undermining the progressive tax structure rather than the poor paying to subsidize lower tax rates for the investments of the rich.
That would reduce the capital for companies and / or make it more expensive - know what happens when companies run out of capital "workers" get made redundant.
I don't mean to be harsh but your user name indicates you haven't actually entered the work force yet.
Just prior to reading this article I left the kitchen table where my wife and I were going over tax forms.
I work for a tech company that has done well, we're getting acquired. I've accumulated a little bonus stock, I'll be forced to sell when the acquisition happens.
I wouldn't like an increase in capital gains. As it is, it's already taking a sizeable bite out of what was a nice bonus. If the government was well-run and spent money efficiently, I might feel differently. A quick Google search for 'porkbarrel spending' reveals that there's room for budget trimming that could leave my bonus (and yours) intact. I'd like that economic plan better.
A wise man once noted that if we paid taxes weekly by writing a check for a man who came to the door, we'd kill that man in anger. I can understand the sentiment.
> But the 2017 tax cut legislation reduced the tax rate on corporate profits to 21 percent, from 35 percent. So if taxes on capital gains and dividends were raised by those 14 percentage points, we capitalists would be no worse off — and American companies would still be more competitive globally, the theory behind reducing the corporate tax rate.
Right. So when someone gives a handout to big corporations then we should squeeze the last drop of blood from pension funds and small investors? Brilliant idea for reducing income inequality!
I don't expect wealthy investors to rely on dividend stocks too much. Those are the scraps left from common people after the vultures have already picked the carcass clean.
Also, dividend stocks might be "safe"-er than some other stocks but it's still a relatively risky investment (the markets are crazy). If dividend taxes were 40% percent I would simply not bother. Too risky!
Here's an idea for making life easier for a lot of people:
MAKE RENT DEDUCIBLE FROM SALARY BEFORE TAX
In supply-constrained markets, wouldn't any benefit from this eventually accrue to landlords rather than renters? Put another way, if landlords are charging what the market can bear, and the market can suddenly bear 25% more, won't they just raise prices over a few years to eat up that new wealth?
I disagree, we shouldn't subsidize renting as it encourages a bad economic behavior. But! Any deductions or tax credits for home ownership/property taxes should be removed.
Some of the specialized property tax reductions (like urban agriculture) can stay, but ideally we'll be pretty selective and get rid of the silly religious property tax exemptions.
1. There's no normal 'filing', instead you just submit a statement of previous year earnings from all sources.
2. Institute a tiered GBI as follows:
0-25k = 100%
25-50k = 66%
50-100k = 33%
3. Then get rid of income tax and institute flat sales tax that can be easily modified by congressional approval, but no more than 1-2% per year up or down.
This tax should be applied across the board. If money changes hands, tax is taken out, kind of like crypto transaction fees, in fact if we moved to all electronic currency it'd be easier to just do that from the get go. So if you're getting money back from capital gains -- that money loses the transaction tax before you get it in your account.
Stop worrying about border control, and illegals stealing jobs, instead make the transaction tax higher if you aren't a citizen. If we have only electronic currency, it can also cut down on paying people under the table with cash, since cash doesn't exist. Furthermore, if cash doesn't exist - we can save a mint, by getting rid of the whole minting process. By making tax more for immigrants, we can stop saying they don't 'contribute', and only citizens would receive GBI, and healthcare.
Worried about whether it's even stevens or not? Everyone is a taxpayer, no refunds, loopholes, etc. You buy real estate, property, pay rent, pay a commercial lease, pay an employee the money is automatically taxed in transit. It's all programmatically controlled and simple, easy for everyone to understand, and doesn't require an entire industry of professionals just to figure it out. (Sorry CPA's).
Benefits: Get rid of most of IRS, CPA's, Fed, Welfare, Housing Assistance, etc... Save a ton GDP-wise, and get more money in the hands of the people to keep the wheels of industry spinning.
Treating capital gains differently from general income is a policy move designed to increase investment by making the profits larger.
Eventually, a large portion of employment compensation got pushed through to look like capital gains -- for example, by issuing stock options or actual shares as part of overall compensation.
It's perfectly fair to kill that loophole by modifying the capital gains tax. One option would be to make it progressive and marginal like the income tax: E.g. if you make under $20,000 in capital gains in a year, you pay no tax on that; then 10% on the next 10K, then 20% on the next 10K, 30% on the next 10K, and so on.
The structure of startup corporations might change as a result. An LLC might be much more attractive, and profitability a more attractive goal.
> Treating capital gains differently from general income is a policy move designed to increase investment by making the profits larger.
Surplus wealth is largely going to be invested unless you actively prevent it, you don't need to tax favor capital income to get that result. Tax favoring capital income (i.e., tax penalizing other, most notably labor, income) just means that those that already have significant capital accumulate more faster while other people have a drag force applied preventing them from accumulating signficant capital.
I understand the theory that capital gains being taxed at a lower rate is that we want to encourage investment - putting capital where it will grow more jobs/more needs being met by companies.
I also understand the theory that this is nice in theory but isn't describing the actual results.
And while I _believe_ that's a problem, what I don't have is an understanding of the data. Like with HFT, I can react with my gut, but I'd be happier if I could understand a bit more about whether the system is working or not, and if not, where does it bend? What's the equivalent of the Laffer Curve for capital gains?
Are there any explanations that aren't overly preachy of one way or another that can explain to someone without the econ background?
As a general rule, taxation of returns on savings is always double taxation. Money today is not worth the same as an equal amount of money five years from now, or an equal amount of money after it has been invested in a risky venture with a substantial chance of losses. Returns from capital are, in expectation, a compensating differential for such differences in value.
Now, this is not to say that some taxation on savings isn't sometimes appropriate; for instance, some forms of investment are non-transparent and might be used to shield earned income from taxes that should bear on it; also, higher-income folks tend to save more and to choose riskier investments that yield higher expected returns; so returns correlate with ability to pay in a way that's worthy of note because it doesn't impact incentives too much. Taxes that bear on some peculiar assets, such as the land-value of urban real estate, EM spectrum rights, or investment into highly-polluting industries, also don't adversely affect incentives. However, existing taxation on capital appears broadly appropriate to take advantage of these things; the bulk of taxes should still fall on tax bases other than savings and investment, such as the portion of income that's not saved but spent on non-baseline consumption of goods and services.
Taxes raise revenue to pay for things, but we've been debt financing on the strength and stability of the country forever, and unlike the oft-cited comparisons to individual households, it doesn't seem like there will be any serious collections from our debt holders both foreign and domestic any time soon. The US deficit in 2019 is going to come pretty close to $1 trillion, but the general outlook seems fine, bond yields are low, etc.
Is there even an incentive at that point to find ways to earn more revenue?
Yeah, we live on cheap debt for now, but interest rates will rise eventually, there will eventually be another downturn, and the interest payments are stacking up. If we end up in a position where all discretionary spend is displaced by servicing the debt, we’ll be in real trouble.
We’ve never been able to pull in more than 18% of GDP in tax receipts for more than a short time period. We’re currently collecting ~17%, so we have a tiny bit of head room based on historical precedents. Beyond that, I don’t know what we can do other than cut some spending. Auditing the DoD and means testing Medicare might pick up some low hanging fruit. Hard to say what’s most likely to work, IMO.
Taxes raise revenue to pay for things -- that's true for households, cities and states. It's even true for many countries. It's not true for the US Federal Government: as you can see, the debt that we send out is a representation of the value we add to the world economy.
US Federal taxes are not primarily paying for things. They are to encourage use of the dollar; to redistribute wealth; to act as tools of policy. The government needs to issue debt in quantities similar to the expansion rate of the economy: when less is issued, the economy will suffer, and when more is issued, inflation begins.
Raising the capital gains tax level to match the level imposed on ordinary income might be too extreme but the tax code should definitely be modified so that the various schemes and loopholes created to disguise income as capital gains can be ended.
Or at a minimum, increase the "long-term capital gains" holding period from 1 year to somewhere around 3 to 5 years. This maintains the lower rate for people genuinely investing for retirement.
> This maintains the lower rate for people genuinely investing for retirement.
Insofar as we need tax favored retirement vehicles, we have plenty—general taxation of capital income need not be concerned with that. There are two legitimate interests I see addressed by special consideration of long term capital gains (but the current “jist give it a lower rate” approach is suboptimal for addressing them.)
(1) Gains over >1 year taxed as current income in the year realized, when this is not repeatable (that is, when the owner doesn't have a large pool of long term investments to liquidate some of each year) is unfair in a progressive tax system because you will get high taxes in the realization year because of a high bracket, but you need to use the income across multiple years.
This can be simply addressed by allowing taxpayers to recognize income for tax purposes before realizing it (and/or allowing deferring some of the income received in a spike year.) I prefer combining both.
(2) Because of inflation, the real net gain from capital may be much lower than the nominal gains for assets held for a long time. (If appreciation is less than inflation, you may have a real loss with a nominal gains.) This is best dealt with by inflation-adjusting basis values when computing capital gains.
[+] [-] wilkskyes|7 years ago|reply
[+] [-] eridius|7 years ago|reply
So what?
I've seen repeated countless times recently that the marginal tax rate on the rich used to be as high as 91%. Why is a combined tax rate of 82.7% bad policy? And if that's really your only justification, then the fix here is to just make the state/local taxes deductible again.
[+] [-] munk-a|7 years ago|reply
I do acknowledge that areas with SALT exemptions tend to be areas that pay a disproportionate amount of taxes for the benefits they receive but I think this solution to that issue is ludicrous. Investment by the government should ideally try and maximize the benefits given by that investment means that denser population areas should be targeted unequally to receive benefits but SALT exemptions are crazy.
Also, just a note, this portion of their argument seems silly, what is one number compared to another number without context, if 82.7% is just too much for the market to bear than let's talk about 58.3% as a base marginal tax rate on $10M and above - in actuality the utility of assets decreases so steeply that I don't know if 82.7% really is "silly" but all this talk about specific numbers should be decided by people way more specialized than the general public.
[+] [-] nopriorarrests|7 years ago|reply
Between 1950 and 1959, he notes, the highest earning 1 percent of Americans paid an effective tax rate of 42 percent. By 2014, it was only down to 36.4 percent—a substantial but by no means astronomical decline.
<...>
There are a few obvious reasons why the taxes the rich actually paid in the 1950s were so much lower than the confiscatory top rates that sat on the books. For one, the max tax rates on investment income were far lower than on wages and salaries, which gave a lot of wealthy individuals some relief. Tax avoidance may have also been a big problem. Moreover, there simply weren’t that many extraordinarily rich households. Those fabled 90 percent tax rates only bit at incomes over $200,000, the equivalent of more than $2 million in today’s dollars. As Greenberg notes, the tax may have only applied to 10,000 families.
https://slate.com/business/2017/08/the-history-of-tax-rates-...
[+] [-] ratsmack|7 years ago|reply
[+] [-] hnmonkey|7 years ago|reply
Why would you want a flat tax for everyone above 30k?
[+] [-] walshemj|7 years ago|reply
[+] [-] StudentStuff|7 years ago|reply
[+] [-] umvi|7 years ago|reply
If you raise taxes on capital gains you'll get less investment. Maybe that's a good thing.
Either way, I'm in favor of tax simplification in all of its forms; Tax law is like that spaghetti legacy codebase that is just dying for a refactor/rewrite.
[+] [-] longerthoughts|7 years ago|reply
[+] [-] icedchai|7 years ago|reply
[+] [-] walshemj|7 years ago|reply
I don't mean to be harsh but your user name indicates you haven't actually entered the work force yet.
[+] [-] RickJWagner|7 years ago|reply
I work for a tech company that has done well, we're getting acquired. I've accumulated a little bonus stock, I'll be forced to sell when the acquisition happens.
I wouldn't like an increase in capital gains. As it is, it's already taking a sizeable bite out of what was a nice bonus. If the government was well-run and spent money efficiently, I might feel differently. A quick Google search for 'porkbarrel spending' reveals that there's room for budget trimming that could leave my bonus (and yours) intact. I'd like that economic plan better.
A wise man once noted that if we paid taxes weekly by writing a check for a man who came to the door, we'd kill that man in anger. I can understand the sentiment.
[+] [-] GreaterFool|7 years ago|reply
Right. So when someone gives a handout to big corporations then we should squeeze the last drop of blood from pension funds and small investors? Brilliant idea for reducing income inequality!
I don't expect wealthy investors to rely on dividend stocks too much. Those are the scraps left from common people after the vultures have already picked the carcass clean.
Also, dividend stocks might be "safe"-er than some other stocks but it's still a relatively risky investment (the markets are crazy). If dividend taxes were 40% percent I would simply not bother. Too risky!
Here's an idea for making life easier for a lot of people: MAKE RENT DEDUCIBLE FROM SALARY BEFORE TAX
[+] [-] skrap|7 years ago|reply
[+] [-] munk-a|7 years ago|reply
Some of the specialized property tax reductions (like urban agriculture) can stay, but ideally we'll be pretty selective and get rid of the silly religious property tax exemptions.
[+] [-] gremlinsinc|7 years ago|reply
1. There's no normal 'filing', instead you just submit a statement of previous year earnings from all sources.
2. Institute a tiered GBI as follows:
0-25k = 100%
25-50k = 66%
50-100k = 33%
3. Then get rid of income tax and institute flat sales tax that can be easily modified by congressional approval, but no more than 1-2% per year up or down.
This tax should be applied across the board. If money changes hands, tax is taken out, kind of like crypto transaction fees, in fact if we moved to all electronic currency it'd be easier to just do that from the get go. So if you're getting money back from capital gains -- that money loses the transaction tax before you get it in your account.
Stop worrying about border control, and illegals stealing jobs, instead make the transaction tax higher if you aren't a citizen. If we have only electronic currency, it can also cut down on paying people under the table with cash, since cash doesn't exist. Furthermore, if cash doesn't exist - we can save a mint, by getting rid of the whole minting process. By making tax more for immigrants, we can stop saying they don't 'contribute', and only citizens would receive GBI, and healthcare.
Worried about whether it's even stevens or not? Everyone is a taxpayer, no refunds, loopholes, etc. You buy real estate, property, pay rent, pay a commercial lease, pay an employee the money is automatically taxed in transit. It's all programmatically controlled and simple, easy for everyone to understand, and doesn't require an entire industry of professionals just to figure it out. (Sorry CPA's).
Benefits: Get rid of most of IRS, CPA's, Fed, Welfare, Housing Assistance, etc... Save a ton GDP-wise, and get more money in the hands of the people to keep the wheels of industry spinning.
[+] [-] dsr_|7 years ago|reply
Eventually, a large portion of employment compensation got pushed through to look like capital gains -- for example, by issuing stock options or actual shares as part of overall compensation.
It's perfectly fair to kill that loophole by modifying the capital gains tax. One option would be to make it progressive and marginal like the income tax: E.g. if you make under $20,000 in capital gains in a year, you pay no tax on that; then 10% on the next 10K, then 20% on the next 10K, 30% on the next 10K, and so on.
The structure of startup corporations might change as a result. An LLC might be much more attractive, and profitability a more attractive goal.
[+] [-] dragonwriter|7 years ago|reply
Surplus wealth is largely going to be invested unless you actively prevent it, you don't need to tax favor capital income to get that result. Tax favoring capital income (i.e., tax penalizing other, most notably labor, income) just means that those that already have significant capital accumulate more faster while other people have a drag force applied preventing them from accumulating signficant capital.
[+] [-] chrismcb|7 years ago|reply
[+] [-] ergothus|7 years ago|reply
I understand the theory that capital gains being taxed at a lower rate is that we want to encourage investment - putting capital where it will grow more jobs/more needs being met by companies.
I also understand the theory that this is nice in theory but isn't describing the actual results.
And while I _believe_ that's a problem, what I don't have is an understanding of the data. Like with HFT, I can react with my gut, but I'd be happier if I could understand a bit more about whether the system is working or not, and if not, where does it bend? What's the equivalent of the Laffer Curve for capital gains?
Are there any explanations that aren't overly preachy of one way or another that can explain to someone without the econ background?
[+] [-] zozbot123|7 years ago|reply
Now, this is not to say that some taxation on savings isn't sometimes appropriate; for instance, some forms of investment are non-transparent and might be used to shield earned income from taxes that should bear on it; also, higher-income folks tend to save more and to choose riskier investments that yield higher expected returns; so returns correlate with ability to pay in a way that's worthy of note because it doesn't impact incentives too much. Taxes that bear on some peculiar assets, such as the land-value of urban real estate, EM spectrum rights, or investment into highly-polluting industries, also don't adversely affect incentives. However, existing taxation on capital appears broadly appropriate to take advantage of these things; the bulk of taxes should still fall on tax bases other than savings and investment, such as the portion of income that's not saved but spent on non-baseline consumption of goods and services.
[+] [-] adpirz|7 years ago|reply
Is there even an incentive at that point to find ways to earn more revenue?
[+] [-] ch4s3|7 years ago|reply
We’ve never been able to pull in more than 18% of GDP in tax receipts for more than a short time period. We’re currently collecting ~17%, so we have a tiny bit of head room based on historical precedents. Beyond that, I don’t know what we can do other than cut some spending. Auditing the DoD and means testing Medicare might pick up some low hanging fruit. Hard to say what’s most likely to work, IMO.
[+] [-] dsr_|7 years ago|reply
US Federal taxes are not primarily paying for things. They are to encourage use of the dollar; to redistribute wealth; to act as tools of policy. The government needs to issue debt in quantities similar to the expansion rate of the economy: when less is issued, the economy will suffer, and when more is issued, inflation begins.
[+] [-] pseudolus|7 years ago|reply
[+] [-] dharmon|7 years ago|reply
[+] [-] dragonwriter|7 years ago|reply
Insofar as we need tax favored retirement vehicles, we have plenty—general taxation of capital income need not be concerned with that. There are two legitimate interests I see addressed by special consideration of long term capital gains (but the current “jist give it a lower rate” approach is suboptimal for addressing them.)
(1) Gains over >1 year taxed as current income in the year realized, when this is not repeatable (that is, when the owner doesn't have a large pool of long term investments to liquidate some of each year) is unfair in a progressive tax system because you will get high taxes in the realization year because of a high bracket, but you need to use the income across multiple years.
This can be simply addressed by allowing taxpayers to recognize income for tax purposes before realizing it (and/or allowing deferring some of the income received in a spike year.) I prefer combining both.
(2) Because of inflation, the real net gain from capital may be much lower than the nominal gains for assets held for a long time. (If appreciation is less than inflation, you may have a real loss with a nominal gains.) This is best dealt with by inflation-adjusting basis values when computing capital gains.
[+] [-] wilkskyes|7 years ago|reply
[+] [-] ladon86|7 years ago|reply
I’d be even happier if it was taxed higher. My time (labor) should be worth more than my money (capital).
[+] [-] bassman9000|7 years ago|reply
[+] [-] unknown|7 years ago|reply
[deleted]