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  #51  
Old 12-12-2018, 09:06 PM
Wesley Clark Wesley Clark is offline
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Originally Posted by Ravenman View Post
Wealthy investor-type people have better lobbyists than those who rely on ordinary income.
Thats my assumption.

Being in the top 1% is around 500k a year in income. That is very high income, but not rich. Thats what a good doctor or maybe lawyer makes.

They pay about 40-45% of their gross income in taxes while someone who lives off investments pays 10-20%.
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  #52  
Old 12-12-2018, 09:51 PM
Batano Batano is offline
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The risk argument is bullshit. Starting a business is more risky than buying property, but we tax business income at a higher rate. Historically, capital gains taxes have been higher than they are now and the number of years to qualify as "long term" was higher.

People with money have just gotten better at convincing people to vote against there own interests. Same as the estate tax.

Taxes are too complicated for most people to understand. How many times have you heard "I'm in a higher tax bracket so my paycheck is smaller". Utter nonsense.

Last edited by Batano; 12-12-2018 at 09:51 PM.
  #53  
Old 12-12-2018, 10:27 PM
Manlob Manlob is offline
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There are lots of investments other than stocks that qualify as capital gains. If I buy a Van Gogh and sell it ten years later at a profit, the Van Gogh wasn't paying taxes all those years. Why should my profit be treated differently from ordinary earnings?
Although selling a Van Gogh for a long term gain is treated differently than ordinary income, the tax rate on collectibles, such as art and even gold bullion, is 28%, not the lower rate mentioned in the OP. As with other capital gains, there is an additional tax of 3.8% for those with taxable income over $200,000 if single ($250,000 if married).

The higher rate on collectibles is evidently because the government believes a collectible sitting in a closet is of less value to the economy than investing in employers and innovators. Still, the rate on collectibles is lower than the maximum rate on ordinary income, and this may be due to the inflation effect.
  #54  
Old 12-13-2018, 09:16 AM
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I believe the LTCG tax is only 15% if earning under $425,000
That's correct. I used the highest CG and normal rates in my examples.
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  #55  
Old 12-13-2018, 09:26 AM
Shodan Shodan is offline
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If that's the case, I'd suggest a wealth tax. You either give it to a charity benefiting people or spend it paying sales tax and stimulating the economy or keep it and get taxed on it. I'm sure yo'd support a wealth tax, right?
That kind of misses the point. If a wealth tax applies equally to wealth you got from earnings and to wealth you got from investments, then you incur the same deadweight loss earlier described.

A wealth tax incentivizes spending. If investment stimulates economic activity, and the consensus among economists is that it does, then a wealth tax would tend to work against investment in the same way that taxing capital gains as ordinary income would.

It can be done - property taxes are used to fund schools and so forth in many states - but the effect exists.

I am assuming that this would be a wealth tax instead of capital gains taxes - otherwise it would be even more of a double taxation objection. And a wealth tax has other problems. For many people, their major asset is their house. Do you exempt houses from the wealth tax, so that you don't have to pay 10% of the value of your house every year (or whatever rate is proposed)? And a wealth tax would have to be progressive, so working class and lower middle class people are hit less than wealthy people, and that means exemptions and loopholes. There's a reason that a good tax lawyer can earn six figures.

And it is virtually impossible to write a tax code that will do what you want, instead of what actually happens. As I said above, people will adjust rather than simply pay up.

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  #56  
Old 12-13-2018, 09:58 AM
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Although selling a Van Gogh for a long term gain is treated differently than ordinary income, the tax rate on collectibles, such as art and even gold bullion, is 28%, not the lower rate mentioned in the OP. As with other capital gains, there is an additional tax of 3.8% for those with taxable income over $200,000 if single ($250,000 if married).

The higher rate on collectibles is evidently because the government believes a collectible sitting in a closet is of less value to the economy than investing in employers and innovators. Still, the rate on collectibles is lower than the maximum rate on ordinary income, and this may be due to the inflation effect.
Aaargh. I am undone by my laziness in choosing examples. Thanks for the clarification!
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  #57  
Old 12-13-2018, 12:28 PM
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Interesting. Let me see if I understand.

Since it's much harder for me to change jobs (or quit working altogether) than it is for me to sell a capital asset, taxation on my work-derived income is less of a disincentive than taxation on selling capital assets. In other words, you can go ahead and tax my income at a higher rate because I don't have the option of not working, but you have to sharply reduce capital gains taxes because I have the option of not investing in capital at all.

Makes sense as a model. In practice, isn't it kind of perverse?
Perverse, in what sense? Taxes should raise as much money as necessary with as little economic destruction as possible. Knowingly having taxes that cause more economic damage than is necessary because you don't like rich people seems more perverse to me.
  #58  
Old 12-13-2018, 01:14 PM
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Being in the top 1% is around 500k a year in income. That is very high income, but not rich.
You have got to be kidding.
  #59  
Old 12-13-2018, 03:03 PM
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Perverse, in what sense? Taxes should raise as much money as necessary with as little economic destruction as possible. Knowingly having taxes that cause more economic damage than is necessary because you don't like rich people seems more perverse to me.
Broadly speaking, the money many people earn is money they need for normal, near term expenses. If they set aside money for investing, it's money they don't need right away, a.k.a. surplus.

So it seems perverse (to a non-economist) that people who earn well enough to have surplus money pay a lower tax rate on that money's earnings than people who don't have a surplus pay on their earnings. Or, to be utterly simplistic, rich folk pay less than poor folk.

(Yes, I'm aware two people with identical earnings can have more or less surplus based on their life decisions or various other life events.)

I get the economic argument, which has been explained better in this thread than almost anywhere else I've seen. (Thanks again, all!) But income has been flat for a good chunk of the population for several decades while the top tiers of the population have seen much stronger income growth. Maybe it's time we asked if there isn't a flaw in the way the economics are being applied.
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  #60  
Old 12-13-2018, 04:27 PM
Shodan Shodan is offline
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Broadly speaking, the money many people earn is money they need for normal, near term expenses. If they set aside money for investing, it's money they don't need right away, a.k.a. surplus.

So it seems perverse (to a non-economist) that people who earn well enough to have surplus money pay a lower tax rate on that money's earnings than people who don't have a surplus pay on their earnings. Or, to be utterly simplistic, rich folk pay less than poor folk.
Again, ISTM that you are being too binary in your thinking.

It isn't two groups of people, one of whom has extra money to invest and the other doesn't. There are certainly people who do fall into those groups, but economics operates at the margins.

Imagine two guys, Joe and Bill. Both earn the same amount. Joe buys a new car every two years. Bill buys used cars, and drives them into the ground before he drives another. Stuff like that - both live within their means, but Bill moreso. And Bill invests what Joe spends.

Fast forward thirty years. Bill is much better off than Joe. He invested more, and, overall, what he invested stimulated the economy more than Joe's immediate spending. What you seem to imply is that Bill has done Joe an injustice - that somehow it's not fair that Bill delayed gratification and let other people use his money to create businesses and hire people and produce stuff. He should have to pay the same level of taxes as Joe, who didn't do any of those things.

Yes, you need consumers to buy the goods. But you also need investors to build up the companies that produce the goods and invent new goods and figure out more efficient ways of producing old goods so that more people can afford more goods.
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(Yes, I'm aware two people with identical earnings can have more or less surplus based on their life decisions or various other life events.)
Then you get it.
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But income has been flat for a good chunk of the population for several decades while the top tiers of the population have seen much stronger income growth. Maybe it's time we asked if there isn't a flaw in the way the economics are being applied.
I think this is a basic disagreement. People who invest their money eventually tend to have more of it than those who don't. That's not a bug; it's a feature.

A gentleman of my acquaintance founded a small business. He didn't come from wealth. His father sold furniture in a retail store. Then he founded the business, lived on a lot less than he could have, plowed a lot back into the business and built it up until eventually he was employing people from about twenty different families, and paying them all well. He also invested pretty heavily. He could have spent the money, but he didn't. And the business could have failed, but it didn't.

Now he's retired, having sold the business. And he is quite well off, by most standards. The risk paid off, not only for him, but for everyone who worked for him and for the community in general. (His business was selected as Civic Improvement of the Year a few years after he founded it.)

The point of capital gains taxes being lower than for ordinary earnings is to get people to do that. And the more we say "OK you took all the risks and did all the work and benefitted all your employees and clients, but you don't get anything more than the guy who treated it all as easy come, easy go" the less of it you are going to get.

All the time? No. Enough of the time to make it worthwhile to treat them differently? IMO, yes.

Regards,
Shodan
  #61  
Old 12-13-2018, 06:07 PM
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Again, ISTM that you are being too binary in your thinking.

It isn't two groups of people, one of whom has extra money to invest and the other doesn't. There are certainly people who do fall into those groups, but economics operates at the margins.

Imagine two guys, Joe and Bill. Both earn the same amount. Joe buys a new car every two years. Bill buys used cars, and drives them into the ground before he drives another. Stuff like that - both live within their means, but Bill moreso. And Bill invests what Joe spends.

Fast forward thirty years. Bill is much better off than Joe. He invested more, and, overall, what he invested stimulated the economy more than Joe's immediate spending. What you seem to imply is that Bill has done Joe an injustice - that somehow it's not fair that Bill delayed gratification and let other people use his money to create businesses and hire people and produce stuff. He should have to pay the same level of taxes as Joe, who didn't do any of those things.
Really? The Bill vs Joe lecture? After I already said I understood that equal income does not translate to equal ability to invest? How about this then:

Sara and Jane earn the same amount. Sara's kids are healthy, graduate college and become productive adults. Jane's kids are born with health issues, have learning disabilities and require extensive services just to get them through high school. Sara gets a special tax rate on her investment income; Jane never has extra income to invest, so she has to pay normal tax rates on every dime. How dare she be such a drag on the economy?

Spare me the morality play.

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Yes, you need consumers to buy the goods. But you also need investors to build up the companies that produce the goods and invent new goods and figure out more efficient ways of producing old goods so that more people can afford more goods.
Then you get it.
I think this is a basic disagreement. People who invest their money eventually tend to have more of it than those who don't. That's not a bug; it's a feature.

A gentleman of my acquaintance founded a small business. He didn't come from wealth. His father sold furniture in a retail store. Then he founded the business, lived on a lot less than he could have, plowed a lot back into the business and built it up until eventually he was employing people from about twenty different families, and paying them all well. He also invested pretty heavily. He could have spent the money, but he didn't. And the business could have failed, but it didn't.

Now he's retired, having sold the business. And he is quite well off, by most standards. The risk paid off, not only for him, but for everyone who worked for him and for the community in general. (His business was selected as Civic Improvement of the Year a few years after he founded it.)

The point of capital gains taxes being lower than for ordinary earnings is to get people to do that. And the more we say "OK you took all the risks and did all the work and benefitted all your employees and clients, but you don't get anything more than the guy who treated it all as easy come, easy go" the less of it you are going to get.

All the time? No. Enough of the time to make it worthwhile to treat them differently? IMO, yes.

Regards,
Shodan
I've been an entrepreneur myself, and worked for small businesses my whole life. I understand the risks business founders take and their value to the community. But they already have all the incentive they need to take the risk of founding a business -- e.g., they can get filthy stinkin' rich. No matter how extensively or how many times you claim we need a lower capital gains tax rate to incentivize risk-taking, the argument still doesn't hold water.
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  #62  
Old 12-14-2018, 02:41 AM
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Corporations must pay pay tax on their earnings. Then shareholders must pay tax again on those earnings, either through the taxation of dividends if the corporation distributes those earnings, or through the taxation of capital gains if the corporation retains the earnings (retaining earnings implies a higher stock price).
When I hear this argument I like to quote "Corporations are people too". You don't,or at least shouldn't, get to have the benefits of a company being legally distinct from yourself for liability purposes and then claim all it's assets and income are really yours. And that it's unfair to tax the transfer from the company to yourself.
  #63  
Old 12-14-2018, 06:45 AM
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I've never understood the idea that investors should have a lower rate because they have higher risk, because they don't. When Warren Buffett makes an investment, his risk is extremely small. When a single mother works as a waitress, her risk is extremely large. Nothing that Warren Buffett does could possibly lead to him losing his home, for instance, but the waitress could lose her home just from one capricious decision by a manager. That's what real risk looks like.
You are looking at this too broadly. Nobody debates the fact that Warren Buffett is far more financially comfortable than a waitress. That is not the risk that is being discussed. The risk is what is put out in order to make the money.

If I invest $1000 in the hopes of getting $100 in gains, I may get my $100; I may get $200. I may also get $0 or perhaps lose some or all of my initial $1000 investment. That is risk of losing that particular $1000. It doesn't matter if I am otherwise rich and losing $1000 means nothing to me in the long term; I'm still not going to fritter away my money for the hell of it.

A higher capital gains tax may make me look at the proposed investment and say that it is not worth it. If enough other investors come to the same conclusion then there was a viable business that never started solely because of the higher tax rate.

The waitress making $100 bears absolutely no risk as properly defined. She does not have to risk $1000 to make that $100. If she shows up and does her job, she has a contractual guarantee to her $100.

The risk of getting fired next week is not the risk that is being discussed. Of course that would be devastating for her short term earnings, but getting fired simply puts a person back at square one. Having a business fail means that you will start losing the principal that was invested to start, and possibly assets that you put up as collateral for loans.

When you are fired, you walk away free from all of that.
  #64  
Old 12-14-2018, 07:07 AM
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When I hear this argument I like to quote "Corporations are people too". You don't,or at least shouldn't, get to have the benefits of a company being legally distinct from yourself for liability purposes and then claim all it's assets and income are really yours. And that it's unfair to tax the transfer from the company to yourself.
Some businesses being separate legal entities does not natural lead to limited liability, nor does it naturally have any tax implications. We have chosen to limit liability under certain circumstances because of the benefits of doing so. That doesn't change the fact that the company's assets are ultimately owned by a human.
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Old 12-14-2018, 08:26 AM
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Really? The Bill vs Joe lecture? After I already said I understood that equal income does not translate to equal ability to invest? How about this then:

Sara and Jane earn the same amount. Sara's kids are healthy, graduate college and become productive adults. Jane's kids are born with health issues, have learning disabilities and require extensive services just to get them through high school. Sara gets a special tax rate on her investment income; Jane never has extra income to invest, so she has to pay normal tax rates on every dime. How dare she be such a drag on the economy?

Spare me the morality play.



I've been an entrepreneur myself, and worked for small businesses my whole life. I understand the risks business founders take and their value to the community. But they already have all the incentive they need to take the risk of founding a business -- e.g., they can get filthy stinkin' rich. No matter how extensively or how many times you claim we need a lower capital gains tax rate to incentivize risk-taking, the argument still doesn't hold water.
To your first point, the lower capital gains tax rate is not meant to promote or to punish individuals. As investment is crucial to any functioning economy, the government must promote investment through tax policy.

Any tax represents a dead weight loss to society, however, the government also needs money to function. Any tax policy must take into account this careful balance. If you tax investments at the same rate as ordinary income, then there will undoubtedly be many fine businesses that will not get off the ground because the original investor believes that by taking into account the higher tax rate, it is not worth the risk. Tens of thousands of jobs that would have been created are now not created.

That's not to say that no investment at all would take place, but it would certainly be less. As has been said, the issues lie at the margins.

As to Jane in your hypothetical, the tax system benefits here by providing child care deductions, earned income tax credits, and deductions for excessive health care expenses. She undoubtedly pays far less in taxes than Sara, if indeed she pays any taxes at all.

To your second point, I believe there is the disconnect. Yes, everyone starts a business in the hopes of becoming rich. Those hopes don't always materialize and you also risk losing your house if things go south. So is it worth the risk? One of the key factors to consider is the tax rate you will be paying. If the rate is too high, you may rationally conclude that the risk is not worth the potential reward. To say that is not a consideration because I could be stinking rich is a recipe for failure.
  #66  
Old 12-14-2018, 09:38 AM
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To your first point, the lower capital gains tax rate is not meant to promote or to punish individuals. As investment is crucial to any functioning economy, the government must promote investment through tax policy.

(snip)

To your second point, I believe there is the disconnect. Yes, everyone starts a business in the hopes of becoming rich. Those hopes don't always materialize and you also risk losing your house if things go south. So is it worth the risk? One of the key factors to consider is the tax rate you will be paying. If the rate is too high, you may rationally conclude that the risk is not worth the potential reward. To say that is not a consideration because I could be stinking rich is a recipe for failure.
We're just going to have to agree to disagree on this. I remain unconvinced that aspiring entrepreneurs need a tax incentive to step out on their own, when their far greater potential earnings are incentive enough to undertake the added risk.

I will grant, as Shodan has pointed out, that I may be seeing this as too binary. It's not one aspiring entrepreneur deciding yes/no, but thousands. Perhaps out of 1000 aspiring entrepreneurs, 750 will take the plunge at 20% CGT, 650 at 25%, 550 at 30% and only 450 at the normal marginal rate of 37%. That would be unfortunate, if true, but none of the entrepreneurs I've worked for would have been deterred by paying a few more cents on the dollar in taxes when they dreamed of making millions.

And starting a business is only one form of capital investment. Many others are more passive, with less impact on job creation. And while the tax code may not be designed to "promote or to punish individuals," in this case I maintain its effect is to reward individuals who, through hard work or pure luck, have already attained greater rewards in life.
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Old 12-14-2018, 09:52 AM
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You are correct that you haven't paid tax on the earnings, but the reason the earnings are taxed at a lower rate than ordinary income is that you incurred more risk by investing, and also provided more stimulus to the economy and other people. So it is different from earning $100 waiting tables.
You are correct about that, and it is also different in that $100 waiting tables is, well, work. As in productive labor. Being that business depends directly on labor and indirectly on the consumption of laborers, it seems like incentivizing investment at the expense of labor is a losing strategy, long-term.
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Old 12-14-2018, 09:58 AM
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We're just going to have to agree to disagree on this. I remain unconvinced that aspiring entrepreneurs need a tax incentive to step out on their own, when their far greater potential earnings are incentive enough to undertake the added risk.

I will grant, as Shodan has pointed out, that I may be seeing this as too binary.
Correct - you are thinking too binary. It isn't that entrepreneurs will invest, or not invest, no matter what. Taxes affect ROI and therefore calculations of what risks they will accept and what they will not. The higher the taxes, the less the potential earnings and therefore the less incentive to take the risk.
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And while the tax code may not be designed to "promote or to punish individuals," in this case I maintain its effect is to reward individuals who, through hard work or pure luck, have already attained greater rewards in life.
Because their investments rewarded others as well as themselves.

Successful investment is good for everyone. Therefore you want to encourage successful investment.
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Spare me the morality play.
ISTM that you were making a moral argument. If you understand the economic arguments, great. I was trying to show how the economic arguments justify the moral ones.

Regards,
Shodan
  #69  
Old 12-14-2018, 10:19 AM
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You are correct about that, and it is also different in that $100 waiting tables is, well, work. As in productive labor. Being that business depends directly on labor and indirectly on the consumption of laborers, it seems like incentivizing investment at the expense of labor is a losing strategy, long-term.
Bolding mine.

"Incentivizing investment at the expense of labor" is what we've been doing, to one degree or another, since the Reagan era. The result? Stagnant wage growth, widening income disparities, and a large portion of the middle class desperate enough to vote for a con man who promises them he'll turn back the clock.

I'm not a socialist. I believe people who build businesses and create jobs should reap every benefit of their success. But enough already.
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Old 12-14-2018, 10:39 AM
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Bolding mine.

"Incentivizing investment at the expense of labor" is what we've been doing, to one degree or another, since the Reagan era. The result? Stagnant wage growth, widening income disparities, and a large portion of the middle class desperate enough to vote for a con man who promises them he'll turn back the clock.

I'm not a socialist. I believe people who build businesses and create jobs should reap every benefit of their success. But enough already.
This is factually inaccurate. The effective capital gains tax rate was in the teens for over 30 years before 1986 when it was raised and it stayed high until 1996 when it started going down to its current level which is historically normal.

Conventional economics says that capital raises productivity of labor which leads to higher wages to labor. See the Solow growth model. Wages tend to follow total factor productivity so the more capital the better for wages.

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  #71  
Old 12-14-2018, 10:51 AM
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You are correct about that, and it is also different in that $100 waiting tables is, well, work. As in productive labor. Being that business depends directly on labor and indirectly on the consumption of laborers, it seems like incentivizing investment at the expense of labor is a losing strategy, long-term.
Incentivizing investment isn't at the expense of labor overall - it is (mostly) what makes labor valuable in the first place. If people are not encouraged to invest, there will be fewer opportunities for labor in the first place.

See my previous example of the small business founder. How was it at the expense of his employees that he invested in founding the business? It certainly worked out better in the long run, both for him and for his employees.

Regards,
Shodan
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Old 12-14-2018, 10:58 AM
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I'm not a socialist. I believe people who build businesses and create jobs should reap every benefit of their success. But enough already.
What do you mean when you say "enough"? Are you saying that we have enough business and enough jobs, and we don't need to encourage anyone to create any more? No more expansion, no more innovation, no new businesses need be created - that doesn't seem right to me.

Regards,
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  #73  
Old 12-14-2018, 11:28 AM
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What do you mean when you say "enough"? Are you saying that we have enough business and enough jobs, and we don't need to encourage anyone to create any more? No more expansion, no more innovation, no new businesses need be created - that doesn't seem right to me.

Regards,
Shodan
I mean the socioeconomic trends of the last 30 years -- stagnating wages, widening inequality, etc. -- indicate that whatever we're doing isn't working for a huge swath of the population.

As puddleglum points out (and thanks for the clarification), CGT rates have been up and down during that era relative to normal rates, so maybe they have nothing to do with these trends. If that's the case, where's the evidence that a lower CGT rate actually promotes investment, job creation, etc.? With a lower rate since 1996, it clearly hasn't remedied these issues.
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Old 12-14-2018, 11:47 AM
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Given standards of living now vs what one could get for the same real wage 30 years ago, I'm not buying that things aren't working.
  #75  
Old 12-14-2018, 12:23 PM
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Given standards of living now vs what one could get for the same real wage 30 years ago, I'm not buying that things aren't working.
There are hundreds of communities across the midwest who would disagree with you.
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Old 12-14-2018, 01:15 PM
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This is factually inaccurate. The effective capital gains tax rate was in the teens for over 30 years before 1986 when it was raised and it stayed high until 1996 when it started going down to its current level which is historically normal.
Do you have any idea how that "effective" capital gains tax rate was computed?
  #77  
Old 12-14-2018, 01:55 PM
Ruken Ruken is offline
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There are hundreds of communities across the midwest who would disagree with you.
Which is meaningless wrt to the state of the nation (not meaningless wrt how irrational people vote.) Even in the best of times you will find individuals and individual communities or even broad regions that are doing better or worse than others. There are ~1.7M layoffs and discharges each month! That probably sucks for just about everyone on the receiving end. But that doesn't negate that we have (net) 155k more jobs in October than in September and (net) 2.4M more jobs than the year before, continuing the (very positive IMO) trend of job growth that started back in 2010.

We've been adding so many new people to the workforce and retiring so many experienced people that it's been masking the wage growth we're seeing for the others. https://www.frbsf.org/our-district/a...wth-good-news/

That doesn't mean we have an optimal tax structure. But it's not clear to me what anyone is trying to optimize. Your OP asks us to "justify" the rate, and I'm not sure anyone can justify any specific rate. I think many of the reasons given thus far for having a capital gains rate that is lower than the earned income rate are sound. But whether the specific rate is optimal, too low, or even too high? Fuck if I know.
  #78  
Old 12-14-2018, 01:59 PM
Ruken Ruken is offline
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Do you have any idea how that "effective" capital gains tax rate was computed?
If you click through to the source:

Total capital gains taxes paid / total realized capital gains. Many people pay 0%, thus contributing only to the denominator.

Last edited by Ruken; 12-14-2018 at 01:59 PM.
  #79  
Old 12-14-2018, 02:04 PM
Ruken Ruken is offline
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Oh it also includes short-term gains, which get taxed at a higher rate.
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Old 12-14-2018, 05:52 PM
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Which is meaningless wrt to the state of the nation (not meaningless wrt how irrational people vote.) Even in the best of times you will find individuals and individual communities or even broad regions that are doing better or worse than others. There are ~1.7M layoffs and discharges each month! That probably sucks for just about everyone on the receiving end. But that doesn't negate that we have (net) 155k more jobs in October than in September and (net) 2.4M more jobs than the year before, continuing the (very positive IMO) trend of job growth that started back in 2010.

We've been adding so many new people to the workforce and retiring so many experienced people that it's been masking the wage growth we're seeing for the others. https://www.frbsf.org/our-district/a...wth-good-news/

That doesn't mean we have an optimal tax structure. But it's not clear to me what anyone is trying to optimize. Your OP asks us to "justify" the rate, and I'm not sure anyone can justify any specific rate. I think many of the reasons given thus far for having a capital gains rate that is lower than the earned income rate are sound. But whether the specific rate is optimal, too low, or even too high? Fuck if I know.
You make good points, as have many of the other posters since my OP. The situation is a good deal more nuanced than I originally believed. (I know -- duh.) Thanks again, everyone -- going offline for the weekend!
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  #81  
Old 12-15-2018, 07:53 AM
Textual Innuendo Textual Innuendo is offline
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What do you mean when you say "enough"? Are you saying that we have enough business and enough jobs, and we don't need to encourage anyone to create any more? No more expansion, no more innovation, no new businesses need be created - that doesn't seem right to me.
I can't speak for Akaj, but one thing I haven't seen brought up yet is the fact that a healthy majority of capital gains investment is probably going into Fortune 500 companies, and the recent trend for them has NOT been in fact to invest and create more jobs and spend on R&D and such, but instead to amass gigantic dragon-like hoards of cash that they then just sit on.

A lot of the "expand and create new businesses and improve communities" arguments are from a small business lens, but I doubt most small businesses are funded by retail investors.

And as above, the biggest businesses that ARE funded by retail investors are just growing and sitting on gigantic hoards of cash without putting that cash to any particularly good use, arguing there are indeed inefficiencies in the current system.

The argument can be made that this is more an issue of multi-nationals who made the money overseas and don't want to be taxed by repatriating a lot of that cash, but if they have gigantic cash hoards, they don't necessarily need the retail investor money they're soaking up anyways.
  #82  
Old 12-15-2018, 12:11 PM
Ruken Ruken is offline
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I can't speak for Akaj, but one thing I haven't seen brought up yet is the fact that a healthy majority of capital gains investment is probably going into Fortune 500 companies, and the recent trend for them has NOT been in fact to invest and create more jobs and spend on R&D and such, but instead to amass gigantic dragon-like hoards of cash that they then just sit on.

A lot of the "expand and create new businesses and improve communities" arguments are from a small business lens, but I doubt most small businesses are funded by retail investors.
"Capital gains investment" is not a term of art, so I'm hoping you'll return to explain what you mean by it, as well to share your sources for the claims that Fortune 500 companies are neither creating more jobs nor spending on "R&D and such".
  #83  
Old 12-15-2018, 12:37 PM
Textual Innuendo Textual Innuendo is offline
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"Capital gains investment" is not a term of art, so I'm hoping you'll return to explain what you mean by it, as well to share your sources for the claims that Fortune 500 companies are neither creating more jobs nor spending on "R&D and such".
I meant something like "investments the returns from which are going to be taxed at the capital gains rate," which for the vast majority of people is going to be in publicly traded stocks and bonds.

My claim was more that companies are accumulating vast reserves of cash , which I think is pretty well attributed and non-controversial.

But the only reasons companies do that (beyond repatriation worries) is because they literally have nothing better to invest it in internally. Any internal investments are exactly those things like R&D and job creation for new/expanding divisions, so the fact that many companies are growing and hoarding cash indicates that their "create jobs and R&D" spending isn't keeping pace.
  #84  
Old 12-15-2018, 02:27 PM
Ruken Ruken is offline
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I meant something like "investments the returns from which are going to be taxed at the capital gains rate," which for the vast majority of people is going to be in publicly traded stocks and bonds.
Thank you. This gets complicated, because most shares in publicly-traded C corps held domestically are held either in tax-advantaged accounts or by entities that aren't taxed (institutions, pension funds). I always have a devil of a time finding that cite but will do my best to dig it up if anyone is curious. And inherited shares get a basis reset. So I was hoping you had some special insight into the origin of most taxed realized capital gains.

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Originally Posted by Textual Innuendo View Post
My claim was more that companies are accumulating vast reserves of cash , which I think is pretty well attributed and non-controversial.

But the only reasons companies do that (beyond repatriation worries) is because they literally have nothing better to invest it in internally. Any internal investments are exactly those things like R&D and job creation for new/expanding divisions, so the fact that many companies are growing and hoarding cash indicates that their "create jobs and R&D" spending isn't keeping pace.
Gotcha -- so you didn't actually know or look up any numbers before posting that. Here's where you can find them:
Fortune Magazine (for employment figures)
NSF Business R&D and Innovation Survey (for all business R&D spending, since I don't believe Fortune tracks this for their list)

Best of luck on your educational journey.
  #85  
Old 12-16-2018, 10:23 AM
Textual Innuendo Textual Innuendo is offline
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Gotcha -- so you didn't actually know or look up any numbers before posting that. Here's where you can find them:
Fortune Magazine (for employment figures)
NSF Business R&D and Innovation Survey (for all business R&D spending, since I don't believe Fortune tracks this for their list)

Best of luck on your educational journey.
I just looked for data, and found that the % of people employed by Fortune 500 has remained stable for the last 20 years.

On the NSF business R&D and Innovation survey, all I could find looking for this survey was conclusions about R&D in the period 2006-2008, which is 10 years out of date and outside of the window of major cash accumulation.

Perhaps you could pull out some choice tidbits supporting your point from these sources?

Because right now, I'm not seeing anything contradicting what I said. I'm willing to be convinced otherwise if you actually point me to data refuting the fact that cash reserves have been growing while job creation and R&D have remained flat, though.
  #86  
Old 12-16-2018, 12:23 PM
Ruken Ruken is offline
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Which means Fortune 500 companies employ approximately 3.9 million more people now than they did 20 years ago. (0.17 x 22,652,000, see BLS CES0000000001). And therefore your statement that "the recent trend for them has NOT been in fact to invest and create more jobs" is false. The recent trend for them has been to create more jobs. Not disproportionately, mind you; the recent trend for most everyone has been to create more jobs.

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Originally Posted by Textual Innuendo View Post
IOn the NSF business R&D and Innovation survey, all I could find looking for this survey was conclusions about R&D in the period 2006-2008, which is 10 years out of date and outside of the window of major cash accumulation.

Perhaps you could pull out some choice tidbits supporting your point from these sources?
Oh you want me to pull out some choice tidbits when you're the one who made the original unsupported claim without having even bothered to look anything up. You've been here nearly 9 years and should know better. But the data tables are here: https://www.nsf.gov/statistics/srvyindustry/#tabs-2
That's $375 billion in 2016 vs $356B in 2015, $341B in 214, etc., etc.
And here's a plot from last year, courtesy of Science, for those of who like pretty pictures (I know I do): http://www.sciencemag.org/news/2017/...falls-below-50
Conclusion: businesses are spending more on R&D.
  #87  
Old 12-16-2018, 05:27 PM
HMS Irruncible HMS Irruncible is offline
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Incentivizing investment isn't at the expense of labor overall - it is (mostly) what makes labor valuable in the first place.
Wrong. What is capital worth without labor? Without someone to do the work, your capital is worth nothin.

Quote:
See my previous example of the small business founder. How was it at the expense of his employees that he invested in founding the business? It certainly worked out better in the long run, both for him and for his employees.
1. The OP is talking about the appropriate percentage of capital gains. Profits and wages are a zero-sum gain between owners and workers. The lower the cap gains tax, the more the investor is incentivized to pocket the profits (and not pay better wages or grow the business).

2. Not everyone subject to cap gains tax is a founder. Many of these people were born on third base and do nothing but cash checks on the way to home plate.
  #88  
Old 12-16-2018, 06:45 PM
etasyde etasyde is offline
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It should be pointed out that there is a thing called malinvestment. And our system is rife with it. Malinvestments, like most derivatives (bets), do not produce anything for the economy, they just shift wealth around from the losers (of bets) to the winners.

Right now, we incentivize about as much malinvestment as we do "real" or actually useful activity. Capital expenditures are at parity with stock buybacks. Stock buybacks don't create more factories or jobs, they just transfer wealth. That's mostly from the poor to the rich, because (stick with me):

Stock buy backs drive up the price, allowing the rich to sell on the rise while rising prices cause 401k's/TSPs/mutual fund managers to be forced (by way of losing customers if their return is "below the market" or below competitors) to buy the inflated stock. Unfortunately, because these buybacks are usually fueled by debt or one off gains like Trump's tax cuts/repatriation for example, the actual value of the company has either not changed or decreased due to rising liabilities and eventually the stock price must revert to the mean. Because the stock price is going up, the rich CEO/board member is rewarded with more stock. This continues in unlimited fashion until the reversion hits, and when it does, whatever sucker (usually a 401k or mom/pop stock holder) that' still holding it gets left with an asset that's worth far less than they paid for it - a material loss of wealth. If by some rare chance that sucker is a major financial institution, mom and pop still get stuck with the check either through a tax-payer bail out, or the newly pioneered bail-in (wherein your bank deposits become shares in a now worthless institution).

Stock sales by the rich (CEO's and board members are often rewarded in stock), if timed right, are major beneficiaries of a lower capital gains tax rate, and the lower rate actually encourages them to do this wealth transfer as opposed to capital expenditures.

TLDR: A lot of people are arguing that investment = capital expenditures = growth. In the past, this was totally true and is how Capitalism Conquered The World, but in the current economic conditions, this isn't usually true - it's more profitable to "invest" in things other than capital expenditures.

Raising the capital gains taxes would discourage this particular mechanism.

Last edited by etasyde; 12-16-2018 at 06:47 PM.
  #89  
Old 12-17-2018, 08:24 AM
Shodan Shodan is offline
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Originally Posted by HMS Irruncible View Post
Wrong. What is capital worth without labor? Without someone to do the work, your capital is worth nothin.
How much is your labor worth if you can't get hired?
Quote:
1. The OP is talking about the appropriate percentage of capital gains. Profits and wages are a zero-sum gain between owners and workers. The lower the cap gains tax, the more the investor is incentivized to pocket the profits (and not pay better wages or grow the business).
You are confusing profits, wages, and investment. Your second sentence is incorrect - raising capital gains taxes reduces profits, and de-incentivizes risk-taking.
Quote:
2. Not everyone subject to cap gains tax is a founder. Many of these people were born on third base and do nothing but cash checks on the way to home plate.
So what? Their investments have the same overall effect. You are again confusing capital gains taxes with something else - possibly inheritance tax or a wealth tax.

Regards,
Shodan
  #90  
Old 12-17-2018, 05:37 PM
HMS Irruncible HMS Irruncible is offline
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How much is your labor worth if you can't get hired?
This does not address the point that capital is worthless without labor. Additionally, you're very confused (more likely brainwashed) if you think capital is a prerequisite to job creation.

Quote:
You are confusing profits, wages, and investment.
Nope. Explain your theory if you think I'm wrong.
Quote:
Your second sentence is incorrect - raising capital gains taxes reduces profits, and de-incentivizes risk-taking.
Nope. Explain your theory if you think I'm wrong.

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So what? Their investments have the same overall effect. You are again confusing capital gains taxes with something else - possibly inheritance tax or a wealth tax.
Again, no. Here I specifically refer to people who inherit large amounts of money and spend their lives doing nothing but investing. Many don't found anything, many just make bets and the winnings go to whoever wins that bet, endlessly doing no work except inflating the holdings of people who already have them.

You think every capital gain involves the creation of value, but that's wishful thinking employed by people who want to convince themselves they're doing everyone else a favor by having a lot of money.
  #91  
Old 12-18-2018, 08:35 AM
Shodan Shodan is offline
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This does not address the point that capital is worthless without labor. Additionally, you're very confused (more likely brainwashed) if you think capital is a prerequisite to job creation.
I am not sure what you mean.

I want to work and earn money doing something like, say, mowing lawns. I need a lawn mower to do that. Either I buy - that is, invest in - a lawn mower, or I find someone else with a lawn mower and use that. That is, I get someone else to invest his lawn mower in my business. Maybe I can't find any lawns to mow, so I go out of business. I might be able to sell the lawn mower, if I bought it, or return it to whoever let me use his, but the lawn mower is worth less because it has been used, or just because it aged. The investment thus lost money.

Or I am successful, so I want to expand. I want to hire someone else to also mow lawns. I need another lawn mower for my new employee to use. So, I have to invest.

Unless you were talking about something else.
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Nope. Explain your theory if you think I'm wrong.
You seemed to be saying that if capital gains taxes were lower than those on ordinary income, people would pocket the profits instead of investing, or paying higher wages. I assume by "pocket" you didn't mean "invest". Raising capital gains tax cuts into profits. I don't see how lower profits means more or the same level of investment, nor how lower profits mean higher wages for employees.

Again, if you were talking about something else, feel free to clarify.
Quote:
Again, no. Here I specifically refer to people who inherit large amounts of money and spend their lives doing nothing but investing. Many don't found anything, many just make bets and the winnings go to whoever wins that bet, endlessly doing no work except inflating the holdings of people who already have them.
Markets don't care about who made the investment. And investments by the laziest investor in the world have the same effect as those made by anybody else.

I loan the lawn mowing guy above $500 to buy another lawn mower. I don't do anything else, except collect a part of the profits of the lawn mowing business. I just sit on my ass and cash the checks. It doesn't make any difference from if I were actually mowing lawns myself - my $500 has created a job.


Quote:
You think every capital gain involves the creation of value, but that's wishful thinking employed by people who want to convince themselves they're doing everyone else a favor by having a lot of money.
Not by "having a lot of money" - by investing.

Regards,
Shodan
  #92  
Old 12-19-2018, 12:39 AM
Manlob Manlob is offline
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When a corporation sells shares of stock to their first owner, the corporation get money. But how does the corporation benefit when the first owner of that stock sells it to another person for a gain?

One way government influences behavior is by offering tax incentives. Even if you are hoping for higher capital gains tax, it would be wise to take advantage of this opportunity while you can. Lower income people can't always benefit from incentives (can't get a break on solar panels for the home, if you are a renter, or for an electric car when you don't own a car), but 0% tax rate on long term capital gains should be a good motivator to save. An individual taking the standard deduction can earn up to around $50,000 per year in long term capital gains and owe nothing in federal income tax or social security or medicare taxes.
  #93  
Old 12-22-2018, 04:32 PM
Steven_Maven Steven_Maven is offline
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I'm not an economist either, but aren't you ignoring the risk factor? Investments can go down as well as up, and it's incentivising the investor to take the risk. To continue your example, there's no risk waiting tables, but you could lose all of that $1000 in a bad investment.
So what? If the reason for a lower tax rate on capital gains is risk, why arenít gambling winnings taxed at a lower rate than salaries?
  #94  
Old 12-22-2018, 07:58 PM
Ruken Ruken is offline
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Originally Posted by Steven_Maven View Post
So what? If the reason for a lower tax rate on capital gains is risk, why arenít gambling winnings taxed at a lower rate than salaries?
Because, as dumb as our legislators might be, most of them probably understand the difference between risk and gambling. Not everyone does.
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