Sort of. Plenty of people in the “lower classes” have houses, and many even stock or mutual funds. An IRA is eventually going to be treated like a capital gains producing machine once you retire. But richer people tend to have more investments that can be treated that way.
Yes, but very few people can’t afford some form of capital asset, even if it’s just a few shares of stock. Of course, rich people can afford more.
Also, just for the record, preferential capital gains treatment isn’t something only Republicans are interested in. Bush may have pushed to lower the rate to 15%, but it’s been treated differently from ordinary income under administrations from both parties (or Congresses with either party in control, since they’re the ones who have to actually vote it into law).
The top level long term capital gains tax is 15%, but if your income level puts you in the lower 2 income tax brackets, then you only pay 5%. So you pay more if your income is greater. It’s still lower than the tax rate, since the highest income tax rate isn’t 15%, but the lowest income tax bracket is greater than 5% as well.
Critics will point out it’s still skewed toward the wealthy since the highest income tax bracket is 35%, a 20% tax break for capital gains, where the bottom 2 tax brackets that qualify for the 5% capital gains tax are 15% and 10%, only a 10 and 5% break for people in those brackets.
Not at all. I am not sure if tomndebb is warning me; if he is, I would appreciate if he would specify where I attacked a poster instead of a post.
If tomndebb just means me calling John Edwards stupid and an idiot, well, I don’t see Edwards posting to this thread. If it is no longer permissable to call politicians names, then you are going to be rather busy in the nine thousand Bush-bashing threads from now until 2009. If it is something else, tomndebb, you need to be more specific.
I believe Duke of Rat is correct, and I also believe the justification is to encourage long-term holdings over short-term profit. To discourage speculation, in other words. AFAIK, poor people pay the same rate on long-term capital gains as rich people, and short-term as well.
Happily I’m not in the lowest two brackets, so I didn’t know that. I’d suspect that the number of people with significant capital gains in these brackets is fairly small, so I’m more concerned about the middle class in the higher brackets. I’m also assuming that there is no real difference in short terms vs long term gains across brackets. I’m not positive about that, but that is behavior totally under control of the person, and seems to be fair.
Since both middle and high income people would effectively pay at the incremental rate for short term gains, I’m assuming the bulk of income comes from long term gains. Someone not needing the money would have the ability to hold until the long term gains kick in, so the rich might even have a higher percentage of long term gains, but Idon’t think that is the major issue. The percentage of income from capital gains is.
If the sales tax was lower in Tiffany’s than it was in K-mart, they’d have a point. Of course sales tax is regressive since lower income people spend a bigger percentage of their income buying things subject to it - that is not exactly a controversial point.
I didn’t say anything about fairness, I’m just explaining why the rich are doing better - better than the income tax rate may indicate.
You are indeed correct that the middle class has less capital gains to pay tax on. That is my point.
For simplicities sake, say the middle class income tax is 20%, and that on the rich is 40%. (I’m mkaing the rates more different than they are to avoid quibbling.) The capital gains rate is 15%.
Let’s say the middle class person has a taxable income of $100K, and no capital gains. He pays $20K in taxes. Let’s say the rich person has an income of $2M, $400K in salary and $1.6M in capital gains. He pays $160K in income tax and $240K in capital gains or $400K, also 20%.
Remember I made his tax rate very high - yet he pays the same rate on all his income as the guy making 1/20th of his income. If I made his tax rate 35% (still high) he’d be paying at a lower rate.
I’m neglecting dividends here, which makes it worse.
Forget about resentment. I just am fed up with Republicans crying about how much tax the rich pay, when in fact they pay a lower rate due to the higher percentage of their income from capital gains. I would suspect hardly anyone with lots of money is paying anywhere near 35%. It is further magnified because the more money you have, the more there is to invest, which makes your effective rate go down even further.
There is good reason for different treatment of capital gains - recognition of risk, for instance. But that is a good reason why raising the top bracket is unlikely to impact investment - it might even improve it, since it makes capital gains more favorable.
One thing not brought up yet. During the Clinton years, with the bad old high tax rate, people made money and the gap between rich and poor was reduced. Crime and unemployment also went down. That seemed like more of a win-win than what we have today. What’s changed? The tax rates, it seems.
I was quite specific for those who read my words.
Multiple posters in multiple posts with multiple perspectives of the issues had made derogatory comments that were borderline fighting words.
No one violated any specific rules (otherwise I would have named the people who were in violation).
The general heat of the thread was already at the boiling point with only 14 posts.
In the interest of not letting this thread get personal or deterioriating into a trainwreck, I noted that the rule regarding insults was being tightened for this thread only so that this rather serious topic could be discussed without degenerating into personal attacks.
If you (or anyone) is simply not capable of carrying on this discussion without resorting to name-calling, then you (or anyone else) may open a thread in the Pit and hurl insults till the cows come home.
I’ll assume that my question concerning the multiplier effect is going to die, so I’ll pursue this capital gains thing.
Ah. It didn’t occur to me that houses and IRAs fell into this class of assets. Demonstrates my (rather extensive) ignorance in these matters. Thank you; I think most of the rest will be covered in responses to others. Except for the ‘Pub vs. Dem item; even though this is in the context of Edwards’ campaign, I don’t think it affects the point about “class warfare” (not my preferred term) having a legitimate place in political debate, which can be party-neutral and is how I personally view it.
Yes, but zero (i.e., amount of affordable assets) times any number is zero.
Ah, OK. Thank you for the concise explanation.
Which brings me back to Duke of Rat’s blurb. So, the point of setting the long-term capital gains tax lower than the income tax is to encourage long-term investment. Those who have “spare” money are thus encouraged to gather assets that are stable over time, making the economy less volatile. Right?
It’s not clear to me why this is an even trade-off (less tax for long-term assets), however. Perhaps that’s because I’m not sure what is considered a “long-term asset”. It seems like a naked case of “wealth preserving wealth”, but I’d like to hear more.
Can you quote a Republican presidential candidate who is “crying about” that, and can we have a cite for you claim that “the rich” pay a lower rate? And since I explicitly said I’m in favor of taxing capital gains as ordinary income, your beef is with someone else, not with me.
Depends. You don’t pay any tax unless you sell, and not everyone is a trader-- many people are [long term] investors. But if you have a cite that “hardly anyone” with lots of money is paying 35%, it would be interesting to see. Keep in mind that no one pays 35% on all their income.
Are you advocated doing this, so that “the rich” shift more money into long term investments and pay even less tax they “should”?
Cite? (about the gap being reduced, that is).
Well, the crime rate is still declining. Violent crime rate in 2000 = 506.5* and in 2005 = 469.2*. And unemployment rate is declining steadily from the recession that started at the end of Clinton’s term. Not that I blame Clinton-- it was more about the tech bubble bursting than anything else. I’m at a loss to understand what point you’re trying to make…
That’s true, but they aren’t taxed (my posts were mainly concerned with taxes and tax rates) because they have no income from investments. The top of the next to lowest income tax bracket (15%) that will afford you the 5% capital gains tax is $31,850. Around here, you can afford to invest in a 401(k) or IRA at $31,850 if you don’t have a lot of debt. I’ve invested in a 401(k) making less, but that’s anecdotal.
1 year. If you buy an asset and sell it for a profit in less than 1 year, it’s short-term capital gain. Hold it for over a year (like a 401(k) and it’s long-term.
Yup. Money inflates. If I have ten dollars and go spend it at the hardware store, chances are the hardware store will deposit it in a bank (or pay somebody who will deposit it.) The bank will then lend out a portion of this money to somebody else. They will spend it and that will get deposited in another bank, which will then lend out a portion of that money.
I don’t think this has much meaning. We were an economic powerhouse long before the 50s. The roots of that have to do with the industrial revolution, readily available land and resources and goes back to the 1800s.
Hmmm. Interesting question, but not as obvious one to answer as it seems at first glance. Both I think represent extremes that are undesirable for most hypothesized economies.
If the former example represents a stabilized economy wherein it is impossible for a person given to get more than 100k or lose a portion of his 100k than you have removed both risk and incentive and you do not actually have an economy since no actual gain from commerce is possible.
If this is what you are talking about then this would represent a totally stagnant economy without the possibility of growth. Really by definition, no economy at all.
So, certainly the other economy with the wealth concentrated would be preferrable.
If, on the other hand, you are making an imaginary starting where everybody has 100k to start off, than, I would hypothesize that in very short order you would end up with the wealth being concentrated in a relatively few people. In any model of a strong economy there is going to be a wealth incentive whereby work, and risk have the potential to gain you advantage over others. Such an economy will produce a bell curve of wealth distribution. At what level the bell curve is optimal for growth depends on the given economy. I can pretty much guarrantee you that it won’t be flat.
On the other hand, if you continually seek to rebalance the economy by artificially flattening the curve through periodic or continual redistributions you create inefficencies that the markets will seek to countereact to as the economy seeks out the bell curve of wealth distribution prescribed to it by nature of the economy (like water seeking its own level.) You will then need to artificially rebalance again creating more inneficiences and work arounds. If you ever actually succeed in flattening the yield curve you’ve completely removed both risk and incentive and destroyed the economy’s potential for growth or meaningful commerce.
No. It’s quite certain that an unequal distribution of wealth is desirable. How unequal is another matter. What is most desirable and what we have not talked about is the need for motion within this inequality. The more possible it is for someone to move from the bottom of the curve to the top through work and the taking of risk the stronger the incentive is to work and take risk, both of which would be excellent for economic growth potential. Stagnant inequality would be a negative.
You have to be careful because if you are continually rebalancing to flatten the distribution curve you are disincenting the behavior that creates wealth and incenting the behavior that creates poverty.
That depends on what wealthy are doing with their money. If they simply put it in the bank than that money is largely available to be loaned out to enterprising sorts who would like to get ahead. Money will inflate in this fashion, helping the economy and that money will be available to fuel new business ventures and help the economy grow.
I’ll give you the example. I’m a money manager by profession. Imagine a couple who retire in the 1960s. They own their house, have no debt and they have 300k in 1960 dollars. They put their money into long term CDs at 8% and figure they can live off the interest in after tax dollars. 24k was a lot of money back. They have to pay taxes though and inflation runs at an average of 3.1% In reality, they are living on 5.5% after tax. Each year though the sum of their money is dropping by an average of 3.1%. In year two in after inflation terms they have 290k and are living on 5.5% of that. In year three about 280k. In year 4 about 271k. It is not long before they can no longer sustain their 24k in 1960 dollars lifestyle. Though they had tons of wealth the economy has outgrown them and deflated their dollars. By the mid 1990s they are essentially bankrupt.
I’ve seen this case in real life.
Wealth redistributes itself in this fashion all by itself in the economy because work and risk are incented and gain advantage over stasis and the riskfree rate of return is depreciatory.
Wealth redistributes all by itself. The best that we can hope to do from an economic standpoint is try to prevent catastrophic rebalancings and keep things orderly.
Incorrect. As I’ve explained, and even wealth distribution automatically negates the possibility of gaining advantage through competition.
Luxury spending is highly desirable in a given economy as it both incents work and risk and naturally redistributes wealth.
If a wealthy person spends 10k on a watch simply to be cool he was redistributed the $9,960 difference that he could have saved by buying a timex, putting that money back in the economy and paying the workers who created the watch.
There is one area in which the topic has legitimacy, and that is individual political power. Ideally, each citizen is equal in terms of his political power, he has the vote. And he has the power of speech, he is free to persuade his fellows to his views.
But, clearly, the rich citizen has an advantage. He can, for instance, contribute heavily to the Foundation for Reactionary Bloviation, and finance any number of “studies” to prove that the poor are stupid and lazy. (TG, IANAL but I wouldn’t be a bit surprised to find out that he gets a tax break for his “generosity”.) But even if he only gives his individual allowed maximum to his preferred candidate, he still exercises a political advantage over the man who cannot. I see no reason why the middle and lower classes should accept such a disparity in political power.
Hence, it follows, that a struggle to limit such inequity in political power is just and proper. If you want to call that “warfare”…[shrug]
So, to clarify, Dopers are not allowed to insult people who might share opinions with Dopers? Is that the point of your post?
As I mentioned, I have not engaged in any name-calling or personal attacks. If you were warning us all not to start, I have no intention of doing so.
Good enough - thanks for the clarification.
Yes, I think that is correct.I believe the idea is to stimulate investment rather than to make the economy less volatile. I believe the idea is that investment benefits the economy more than immediate spending, so investment (for the long run) is encouraged. An investment that grows a business over time, for instance, is preferred over day trading.
I believe it is a form of"taxation as social engineering" and, as such, I tend to oppose it in principle. I don’t know (off the top of my head) of any studies that showed definitely that long-term investments benefit everyone more than short-term ones, but I am willing to be educated.
My general theory of taxation is that taxes should be solely and exclusively done as a method of raising necessary revenues for government, and as little as possible as a method of using the heavy hand of government to try to manage the economy. Thus I tend to favor a flatter tax and many fewer deductions. And the whole idea that we ought to increase taxes on someone only because he is making more money than somebody else thinks he should is one I oppose. That is what I call “class warfare”. And we need a whole lot less of it. Not because it is unfair to the rich (only), but because it gives too much power to government to decide who should be the winners and losers.
I opened a thread some time ago asking how I was being injured by someone making more money than me. Never got much of an answer. Raising taxes on the rich simply because there is a class of people who can’t sleep nights know that someone else is doing better than they are, or because the rich are evil exploiters of the working class and so forth, cuts very little ice with me. Which is why I asked the question about the millionaire veterinarian. How he has harmed anyone by becoming rich is a question that no one seems willing to tackle. And it seems his experience is more typical of the means by which most US millionaires got their money than the Simon Lagree or robber baron caricatures that get trotted out whenever the topic comes up.
Certainly there is a class of rich folks who got their money in ways less desirable to the economy than others. Take John Edwards*, for instance - a tort lawyer. From one point of view, not only is there no economic thought in his expensively coiffed head that is worth the powder to blow it to hell, not only is he a smarmy smiler with the over-priced charm of an Amway salesman and a carbon footprint the size of Godzilla’s left asscheek, but he is a tort lawyer as well - someone who made a large fortune driving up health care costs.
At least Kerry’s money came from selling something worth having. I like his wife’s ketchup.
I note for the record that I am not calling Edwards stupid because he shares an opinion with any Doper.