# Democrats' latest tax proposal **URL:** \ **Category:** Great Debates\ **Created:** [January 17, 2015, 4:53pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075 "2015-01-17T16:53:53Z")\ **Posts on this page:** 20\ **Page:** 8
**Author:** ![Bone](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bone/32/407_2.png) [@Bone](https://boards.straightdope.com/u/Bone)\ **Post date:** [January 22, 2015, 12:46am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/141 "2015-01-22T00:46:54Z")
I think Sam did a pretty bang up job on explaining it. Is there anything that would convince you? ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [January 22, 2015, 12:47am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/142 "2015-01-22T00:47:05Z")
> [@Happy\_Fun\_Ball](#): > > No, I am just making the point that we don’t tax capital gains unless we sell the capital; I don’t think many people actually realize this. Coming back to this though, if I get a dividend (income) and roll it over back into my fund and reinvest it, I do not pay taxes on that income. But if I work and invest 100 percent of my income into the same fund, I still have to pay taxes on the income before I can invest it. Why is that? ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [January 22, 2015, 12:48am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/143 "2015-01-22T00:48:06Z")
> [@Bone](#): > > I think Sam did a pretty bang up job on explaining it. Is there anything that would convince you? Where? I must have missed it (seriously). ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [January 22, 2015, 12:54am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/144 "2015-01-22T00:54:04Z")
> [@Happy\_Fun\_Ball](#): > > Coming back to this though, if I get a dividend (income) and roll it over back into my fund and reinvest it, I do not pay taxes on that income. But if I work and invest 100 percent of my income into the same fund, I still have to pay taxes on the income before I can invest it. Why is that? If you haven’t been paying taxes on your reinvested dividends, you may want to talk to an accountant and a lawyer. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 22, 2015, 12:57am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/145 "2015-01-22T00:57:42Z")
> [@Bone](#): > > I think Sam did a pretty bang up job on explaining it. Why should government encourage investment? Doesn’t the free market do a good enough job of that? It’s not like the investor class has somewhere else to put their wealth. The notion that capital will flee the market if they don’t get preferential rates is nonsense. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [January 22, 2015, 12:59am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/146 "2015-01-22T00:59:24Z")
> [@Happy\_Fun\_Ball](#): > > I still have not heard a convincing reason that income from capital gains, interest income, or dividends should be taxed at a lower rate that income earned by working. Sam claimed that it had to do with risk, but he seems to be unable to quantify in numbers how that works. Does anybody have a convincing reason why we should not tax all forms of income at the same rate? Please describe the cost benefit analysis you perform for your investments, and we’ll show you how the tax rate fits in. ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [January 22, 2015, 1:02am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/147 "2015-01-22T01:02:32Z")
> [@Ruken](#): > > If you haven’t been paying taxes on your reinvested dividends, you may want to talk to an accountant and a lawyer. Oh, then I guess I do pay taxes on my dividends when I roll them over. To be honest, I probably don’t pay the attention that I should to all the crap that I send to my accountant every February. I’m an engineer not an accountant and i truly hate dealing with investments and money… ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [January 22, 2015, 1:11am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/148 "2015-01-22T01:11:21Z")
> [@Ruken](#): > > Please describe the cost benefit analysis you perform for your investments, and we’ll show you how the tax rate fits in. Oh, I understand cost/benefit analysis and risk, I do it all the time at work. Hell, I have weekly risk management meetings where we talk about likelihoods, impacts, costs, and mitigation strategies. I think you and Bone are missing the point. My guess is that when Bone said Sam did a bang up job he was talking about this: > [@](#): > > When considering investments under conditions of risk, you have to look at expectation, not the profit if you’re right. An investment that loses $20,000 four times out of five but gains $100,000 if it comes in has an expected return of $20,000 ((4 X -20,000) + (1 X 100,000)). The problem is that if it does come in, the government tax is based on the $100,000. Any tax over 20% of that value turns the expectation negative. I agree with everything here, but the numbers are just pulled out of his ass. How many investments fail 80% of the time and give a 400% ROI 20% of the time? I asked Sam to quantify the average risk of investing given the data over the last 20 years. I tried to help, by comparing my “guaranteed” (Sam’s words, not mine) income against the average rate of the S&P 500 but I don’t think he understands what I am asking. I understand that a tax over 20% makes the ROI of the hypothetical investment negative, my question is how realistic given real world market data in aggregate is the hypothetical. I am unconvinced that a 32% percent tax on capital gains over a certain amount (call it 186,000 since that is roughly the marginal tax bracket) will make a majority of potential investments non-viable. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [January 22, 2015, 1:16am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/149 "2015-01-22T01:16:47Z")
> [@Fear\_Itself](#): > > Why should government encourage investment? Doesn’t the free market do a good enough job of that? It’s not like the investor class has somewhere else to put their wealth. The notion that capital will flee the market if they don’t get preferential rates is nonsense. I for one would like the government to not discourage it any more than it already does, as my earned income benefits from others’ risky investments. As does my quality of life due to the consumer goods those investments have brought about. Money may not leave “the market”, but portfolios are allocated based on risk and expected return. I’d rather have the wealthy pumping money into VCs and tech IPOs so that I can have my iBrainImplant rather than driving bond rates to shit and holding more cash. ---
**Author:** ![Terr](https://avatars.discourse-cdn.com/v4/letter/t/839c29/32.png) [@Terr](https://boards.straightdope.com/u/Terr)\ **Post date:** [January 22, 2015, 1:19am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/150 "2015-01-22T01:19:55Z")
> [@Happy\_Fun\_Ball](#): > > I understand that a tax over 20% makes the ROI of the hypothetical investment negative, my question is how realistic given real world market data in aggregate is the hypothetical. I am unconvinced that a 32% percent tax on capital gains over a certain amount (call it 186,000 since that is roughly the marginal tax bracket) will make a majority of potential investments non-viable. It doesn’t have to make them non-viable. It just has to make them much less attractive, which will cause a corresponding reduction in the level and amount of investments. And you have to agree that it does. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [January 22, 2015, 1:21am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/151 "2015-01-22T01:21:25Z")
> [@Happy\_Fun\_Ball](#): > > I agree with everything here, but the numbers are just pulled out of his ass. How many investments fail 80% of the time and give a 400% ROI 20% of the time? The VCs I work with typically have 80% of their companies tank. And they’re making OK returns overall. ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [January 22, 2015, 1:35am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/152 "2015-01-22T01:35:49Z")
> [@Terr](#): > > It doesn’t have to make them non-viable. It just has to make them much less attractive, which will cause a corresponding reduction in the level and amount of investments. And you have to agree that it does. Yes, but I could make the same argument about labor, why do we use taxes as a disincentive to those wanting to work? ---
**Author:** ![Terr](https://avatars.discourse-cdn.com/v4/letter/t/839c29/32.png) [@Terr](https://boards.straightdope.com/u/Terr)\ **Post date:** [January 22, 2015, 1:43am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/153 "2015-01-22T01:43:03Z")
> [@Happy\_Fun\_Ball](#): > > Yes, but I could make the same argument about labor, why do we use taxes as a disincentive to those wanting to work? We shouldn’t. Glad you agree. ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [January 22, 2015, 1:55am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/154 "2015-01-22T01:55:31Z")
> [@Ruken](#): > > The VCs I work with typically have 80% of their companies tank. And they’re making OK returns overall. I believe it. I have worked at several VC funded startups and I am well aware of their track records. But that is not what I am asking, I want to know if your VC is a fair example of all investors? Can we set national tax policies on capital gains based upon the investments of the company you work with or do we have to take into account the performance of all investors? What is the average experience of investors? Can we use the S&P as a proxy? In that case, I out performed the S&P but I make more than twice the averager working in this country. Do you understand what I am asking? This is my problem with the Laffer curve. We can all agree that tax revenue goes to zero at the extremes of zero percent tax and 100% tax, but this tells us nothing about the optimal tax rates. ---
**Author:** ![Terr](https://avatars.discourse-cdn.com/v4/letter/t/839c29/32.png) [@Terr](https://boards.straightdope.com/u/Terr)\ **Post date:** [January 22, 2015, 2:01am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/155 "2015-01-22T02:01:15Z")
> [@Happy\_Fun\_Ball](#): > > This is my problem with the Laffer curve. We can all agree that tax revenue goes to zero at the extremes of zero percent tax and 100% tax, but this tells us nothing about the optimal tax rates. First we have to agree what “optimal” in the “optimal tax rate” is. Optimal to extract as much money from people as you can? Optimal to maximize growth of the economy? Optimal to only get the money to fund the government? Optimal to let the Congress play their various social engineering games? ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [January 22, 2015, 2:07am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/156 "2015-01-22T02:07:41Z")
> [@Terr](#): > > We shouldn’t. Glad you agree. I assume you are a fan of the FAIR tax. I don’t like it becasue it is too regressive; people just scraping by would pay 20% of their income (or whatever the rate is - poor people spend 100% of their income and save nothing) in tax, while I would pay much less as I save or invest more than 30% of my income. People who make twice as much as I do or more (and i know several people like this) don’t spend that much more than I do. So tax rates are flat for those making less than 50-80 thousand a year at whatever rate you set the consumption tax to, but then decrease rapidly to small percentages of income as you go up the income ladder. I would prefer a flat tax with capital gains treated like income. ---
**Author:** ![Happy\_Fun\_Ball](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/happy_fun_ball/32/17664_2.png) [@Happy\_Fun\_Ball](https://boards.straightdope.com/u/Happy_Fun_Ball)\ **Post date:** [January 22, 2015, 2:15am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/157 "2015-01-22T02:15:08Z")
> [@Terr](#): > > First we have to agree what “optimal” in the “optimal tax rate” is. Optimal to extract as much money from people as you can? Optimal to maximize growth of the economy? Optimal to only get the money to fund the government? Optimal to let the Congress play their various social engineering games? No, I am not a fan of social engineering. I am not a socialist and don’t believe in income redistribution. What I want to know is why I pay twice the tax rate on the money I make by going into the office everyday and working 50 hours a week compared to my neighbor who is selling off investments that he made 20 years ago and is living off the gain which just happens to be equal to my income. ---
**Author:** ![Terr](https://avatars.discourse-cdn.com/v4/letter/t/839c29/32.png) [@Terr](https://boards.straightdope.com/u/Terr)\ **Post date:** [January 22, 2015, 2:22am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/158 "2015-01-22T02:22:30Z")
> [@Happy\_Fun\_Ball](#): > > No, I am not a fan of social engineering. I am not a socialist and don’t believe in income redistribution. What I want to know is why I pay twice the tax rate on the money I make by going into the office everyday and working 50 hours a week compared to my neighbor who is selling off investments that he made 20 years ago and is living off the gain which just happens to be equal to my income. The “why” question is kinda silly. The answer is “because the tax code says so”. The answer for “why does the tax code say so” is “because the Congress wrote it this way”. And the answer for “why did the Congress write it this way” is unfathomable unless you can read the minds of the Congress-critters that voted for it and the Congress-worker-drones who wrote the actual legislation. You may try to guess at the answer. My guess is that it’s the mixture of “encouraging investments is more important than encouraging work” and “workers don’t give us campaign contributions, investors do”. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [January 22, 2015, 2:29am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/159 "2015-01-22T02:29:03Z")
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**Author:** ![D\_Anconia](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@D\_Anconia](https://boards.straightdope.com/u/D_Anconia)\ **Post date:** [January 22, 2015, 2:35am UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/160 "2015-01-22T02:35:31Z")
> [@Happy\_Fun\_Ball](#): > > What I want to know is why I pay twice the tax rate on the money I make by going into the office everyday and working 50 hours a week compared to my neighbor who is selling off investments that he made 20 years ago and is living off the gain which just happens to be equal to my income. What if your neighbor earned all of that money through employment, before he invested it? Should he be taxed twice? [Previous page](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075.md?page=7) [Next page](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075.md?page=9)