Thank you for providing a cogent example of the deficiencies in raising capital gains. I can see how it would have the effect of dampening investment in start-ups. I think the question in my mind is whether activity as risk-laden as small-firm private investment would be drastically affected.
After all, as you mentioned, there are a multitude of safer investment opportunities like treasuries, real estate, or stock. It would seem that those looking to invest in new start-ups are essentially treating their capital as “informed gambling money,” given the high propensity for failure. I’m not sure I believe that the added factor of having to pay higher capital gains–should you strike a winner–would be a major inhibitor to new investment. I imagine the impact would be minor.
Distributions from 401(k)'s or Traditional IRA’s are taxed at ordinary income tax rates, not capital gains rates. So a change in capital gains taxes has zero effect on anyone’s 401(k) plans, as any trades within the retirement plan are not subject to taxes and all distributions are subject to ordinary instead of capital gains taxes.
You know, even ignoring how problematic this implication is, that’s totally where we are right now. After the housing bubble, we had a massive drop in demand caused by everyone trying to pay off some of the massive household debt overhang, which led to the economy freezing and the effects we’re seeing to this day. And there’s been extensive analysis on this, examining things like the lost GDP and even lost potential GDP.
Yet the survey’s cash levels are more than twice the levels registered in the equivalent survey from the height of the pre-crisis go-go years in 2006 and 2007.
The problem is, indeed, at least in part, that rich people are just sitting on it. Because why should they invest now? Demand sucks. People are trying to save money. The idea that this recession is somehow supply-side is just ridiculous, and I have trouble believing that people can still believe that.
This is an interesting intellectual exercise, but it has 0% chance of getting through Congress. We all know that, right?
What’s ridiculous is the idea that we’re in a recession. The “Great Recision” ended years ago. If we were still in one, it would surely be called The Obama Recession, and it would have been the longest one in history.
Well, what’s the term for an economy that’s slowly recovering but still acting far below its potential? We’re still in a slump (or maybe not, this year was pretty great, but we have been for quite a while). And the cause of this slump is almost entirely demand-based.
Can you show me some documentation of this? I have read papers on the effect of taxes on migration, and the correlation is not clear in the papers I have seen.
I have little doubt that sufficiently high taxes can do all sorts of bad things, but I see no reason to believe that the levels proposed come even close to these levels.
“The economy” is doing just fine. It’s those pesky people in it that are hurting!
I don’t know that we have a term for economic well being and fairly stagnant wages. Could be that we’re in some new type of business cycle, or could be that employers are still gun shy after TGR.
We had the strongest economy in the world because all the other industrialized countries suffered significant war damage from WWII and were still rebuilding. It was a one time economic gift.
FYI, gains on investments are either short-term and taxed just like regular income, or long term and taxed at whatever the capital gains tax rate is.
Except, the threshold for an asset to be long-term is only 12 months. There’s no difference between long-term and *very *long-term investment. It’s not like if you hold your mutual fund for 50 years you’re slowly earning a lower tax rate on its gains.
People in this thread have been talking about specifically about raising the capital gains rate, so it doesn’t make any sense to point out they’re typically taxed at lower rates. That’s exactly what people are talking about changing.
Also as people pointed out, 401(k) disbursements are already taxed as regular income.
If it can’t be* afforded,* the only thing producing more product will do is result in closed factories and a fuller landfill. The world economy has been suffering from too much-productive capacity for decades, not *under-*production.
Giving even more money to the wealthy won’t cause them to invest more in factories to build products no one can buy.
If the argument is being presented that raising capital gains will affect middle-class retirement savings, then the bracket wherein middle-class incomes fall is important, as well as whether typical middle-class retirement packages would even be affected.
I was not the one who suggested 401k’s would be affected by raising capital gains.
That’s a nonsensical statement as it assumes capacity is fungible. There’s too much capacity for buggy whips and typewriters but not enough for smartphones or electric cars. Spend $10B on a state-of-the-art IC plant, and it’s pretty much worthless a decade later.
Well, Tesla’s business plan is the double production every year for the foreseeable future. That’s peanuts, of course, but the more important thing in terns of US jobs is whether or not rich people and corporations are going to invest in capacity in the US. And that’s a complicated process of which taxes are just a part.
Table 2 in that paper is very useful (Page 13). It shows that in 1960, the top marginal rate for people in the top 1% to top .5% was 34%. For the top .5% to the top .1%, it was 41%. For the top .1% to the top .01%, it was 55.3%. The highest top marginal rate was 71%, and only affected the top .01% of the population. So the vast bulk of ‘rich people’ paid between 34% and 50% in tax.
The effective tax rate for the top 1% dropped during the recession, both because income dropped and more losses occurred that could be deducted, but as of this year it’s right back up around 34% So the ‘91% tax bracket’ is a myth when used to argue that the top 1% are severely under-taxed compared to the past. The top .01% and up are really the only group that pay substantially less tax now. And the upper-middle class pay more in tax today than it did then.
However… One thing that 91% tax bracket and all its exemptions did was distort the economy by forcing people to make decisions for tax reasons other than for optimal efficiency reasons. So when Kennedy lowered the top rate to 71%, and then Reagan lowered it all the way to 28%, the government’s tax revenue actually went UP from 15% of GDP to 18% of GDP.
In fact, tax revenue has hovered between 15% and 20% of GDP from the 1950’s to today. Top marginal rates have very little to do with revenue because they apply to so few people, and because the higher rates lead to more tax avoidance activity.