# Do Capital Gains Screw the Poor? **URL:** \ **Category:** Great Debates\ **Created:** [July 5, 2023, 2:37pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644 "2023-07-05T14:37:13Z")\ **Posts on this page:** 20\ **Page:** 8
**Author:** ![Banquet\_Bear](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/banquet_bear/32/373_2.png) [@Banquet\_Bear](https://boards.straightdope.com/u/Banquet_Bear)\ **Post date:** [July 9, 2023, 3:49am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/141 "2023-07-09T03:49:09Z")
> [@Hypno-Toad](#): > > I’m sure someone got pretty rich off of bitcoins… …that wasn’t the question. You said it hardly impossible. So it was possible, right? Did anyone actually do it or not? ---
**Author:** ![Hypno-Toad](https://avatars.discourse-cdn.com/v4/letter/h/b2d939/32.png) [@Hypno-Toad](https://boards.straightdope.com/u/Hypno-Toad)\ **Post date:** [July 9, 2023, 3:53am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/142 "2023-07-09T03:53:48Z")
I do not know. Why is that important? If you can refute the “hardly impossible” part, you’d be alleviating my ignorance, at least… ---
**Author:** ![Banquet\_Bear](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/banquet_bear/32/373_2.png) [@Banquet\_Bear](https://boards.straightdope.com/u/Banquet_Bear)\ **Post date:** [July 9, 2023, 4:06am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/143 "2023-07-09T04:06:01Z")
> [@Hypno-Toad](#): > > I do not know. Why is that important? …it was important enough to start a thread about it. I posit that the scenario you outlined in the OP _is_ impossible. I think if you want an answer to the question “do capital gains screw the poor” I think we need to look _beyond_ the hypothetical. Because you can’t accidentally become a billionaire. If we accept that the scenario in your OP isn’t going to happen, then in order to examine this assertion: > [@Hypno-Toad](#): > > One of the assertions was that the process of becoming a billionaire was immoral. Then we can look at the process of becoming a billionaire, we examine that, then we can make a judgement on morality. So lets start with Elon. What process did he go through to become a billionaire? ---
**Author:** ![Hypno-Toad](https://avatars.discourse-cdn.com/v4/letter/h/b2d939/32.png) [@Hypno-Toad](https://boards.straightdope.com/u/Hypno-Toad)\ **Post date:** [July 9, 2023, 4:15am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/144 "2023-07-09T04:15:42Z")
So it’s not possible to have spent $10k on bitcoins in 2011? Or is it not possible to have held onto it for 10 years? Which of those things is not possible? ---
**Author:** ![Banquet\_Bear](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/banquet_bear/32/373_2.png) [@Banquet\_Bear](https://boards.straightdope.com/u/Banquet_Bear)\ **Post date:** [July 9, 2023, 4:28am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/145 "2023-07-09T04:28:06Z")
> [@Hypno-Toad](#): > > So it’s not possible to have spent $10k on bitcoins in 2011? Or is it not possible to have held onto it for 10 years? Which of those things is not possible? …the assertion that you actually disputed was that “the process of becoming a billionaire was immoral.” The process of becoming a billionaire by “spending 10K on bitcoins in 2011” isn’t a process that we can examine, it isn’t a process that we can test, because you aren’t able to produce a single person that has been able to do so. I don’t think its possible. Not without: > [@Hypno-Toad](#): > > What if I diversified the BC into other stocks? So already the process isn’t as simple as “spending 10K on bitcoins in 2011." So lets examine a real-world process instead. Let’s start with Elon. What process did he go through to become a billionaire? ---
**Author:** ![Hypno-Toad](https://avatars.discourse-cdn.com/v4/letter/h/b2d939/32.png) [@Hypno-Toad](https://boards.straightdope.com/u/Hypno-Toad)\ **Post date:** [July 9, 2023, 4:34am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/146 "2023-07-09T04:34:10Z")
Just because I can’t name a person who did it, doesn’t mean it can’t be done. But remember, the reason I’m asking questions is because I **don’t** know this stuff. Educate me. ---
**Author:** ![Banquet\_Bear](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/banquet_bear/32/373_2.png) [@Banquet\_Bear](https://boards.straightdope.com/u/Banquet_Bear)\ **Post date:** [July 9, 2023, 4:45am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/147 "2023-07-09T04:45:47Z")
> [@Hypno-Toad](#): > > Educate me. …this thread is in Great Debates. I have no desire nor inclination to “educate you.” I’m questioning the premise of this thread. I’m putting it to you that if you really want to question the assertion “that the process of becoming a billionaire was immoral” then examining a situation that, for the purposes of this thread, is essentially a strawman, isn’t the way to go about it. Nobody is putting 10K into an IRA and magically becoming a billionaire a decade later. That isn’t the process in which billionaires are made. And if you want to examine the morality of the _process_, then you need to start by examining the actual process. How did all of these billionaires become billionaires? How did Musk? How did Kalanick? Larry Page? Jim and Rob and Alice Walton? Julia and Charles Koch? None of them did it by putting 10K in bitcoin into a IRA. ---
**Author:** ![Hypno-Toad](https://avatars.discourse-cdn.com/v4/letter/h/b2d939/32.png) [@Hypno-Toad](https://boards.straightdope.com/u/Hypno-Toad)\ **Post date:** [July 9, 2023, 5:16am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/148 "2023-07-09T05:16:46Z")
Yeah, but I posted it in Factual Questions because I wanted factual answers. That’s why I used that specific scenario in the OP. I just wanted to know how wealth accrued by an increase in value of investments harmed the poor. I wasn’t interested in how specific people became billionaires. Just that one very narrow question. This thread has turned out pretty good and I think I’ve gotten some good answers from it. I feel more knowledgeable on financial morality. Moving it to GD was a good idea as it turned out. Very passionate opinions all around. ---
**Author:** ![Banquet\_Bear](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/banquet_bear/32/373_2.png) [@Banquet\_Bear](https://boards.straightdope.com/u/Banquet_Bear)\ **Post date:** [July 9, 2023, 7:44am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/149 "2023-07-09T07:44:43Z")
> [@Hypno-Toad](#): > > I just wanted to know how wealth accrued by an increase in value of investments harmed the poor. …but this wasn’t what your friend asserted, though. Your friend asserted that the process of becoming a billionaire was immoral. That process isn’t hypothetical. We’ve got multiple real world examples we could examine, but you just don’t want to do that. Which is fine. It’s your thread, after all. But this: > [@Hypno-Toad](#): > > But I still haven’t heard **how** an increase in the value of my investments harms the poor. Nobody has _asserted that they do_. What the person you were arguing with asserted was “that the **process** of becoming a billionaire was immoral”. I’ve bolded the relevant word. If you want to test that: then an increase in the value of your investments isn’t what needs to be examined. But if you are fine setting up an impossible hypothetical scenario that you have used to prove that you were correct in your argument with your online friend, then this thread has done the job. ---
**Author:** ![ASL\_v2.0](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/asl_v2.0/32/3525_2.png) [@ASL\_v2.0](https://boards.straightdope.com/u/ASL_v2.0)\ **Post date:** [July 9, 2023, 2:00pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/150 "2023-07-09T14:00:26Z")
In a bit of a cross thread, what @Banquet_Bear is describing (discussing a real world problem with real world implications, but with discussion grounded in a hypothetical that doesn’t reflect reality) is precisely why I have qualms about the trolley problem. IMHO, moral problems must be grounded in reality to be meaningful. I have no more conception of a billionaire who has earned their money through the passive investment of a mere $10k than I do standing at a junction and having to decide whether to throw a switch to send a trolley (with all its occupants) careening off the edge of a cliff on the one hand, or plowing through an innocent victim tied to the tracks on the other. Such are problems that do no manifest in reality. They are, therefore, not moral problems to me. I might posit a guess as to how they should be evaluated, but I cannot confidently draw any moral lessons from them because they bear no resemblance to reality as I have experienced it. > [@Is there a rational argument for Deontology?](https://boards.straightdope.com/t/is-there-a-rational-argument-for-deontology/984590/38): > > The problem with the trolley problem (one of many problems, but I think the central one) is it attempts to take morality out of reality. It also ignores the process by which decisions are made by encouraging people to “solve” the problem in a vacuum. But the closer you get to injecting real world nuance into something like the trolley problem, the less of a “gotcha” it becomes for utilitarianism. False. A consequentialist—a rule utilitarian if you prefer—can easily justify declining to kill 1… ---
**Author:** ![Common\_Tater](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/common_tater/32/13846_2.png) [@Common\_Tater](https://boards.straightdope.com/u/Common_Tater)\ **Post date:** [July 9, 2023, 4:04pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/151 "2023-07-09T16:04:27Z")
> [@fedman1](#): > > I disagree–up till the 50s the US (and Britain) taxed high incomes at about 80% (Nero Wolfe cited this in stories) Disagree with what? Did you see the part about “initial”? The modern income tax was enacted in 1913 and rates were low, but indeed by the 1950s tax rates had increased greatly, which was my point to begin with. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [July 9, 2023, 4:12pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/152 "2023-07-09T16:12:16Z")
> [@Hypno-Toad](#): > > Yeah, but I posted it in Factual Questions because I wanted factual answers. That’s why I used that specific scenario in the OP. I just wanted to know how wealth accrued by an increase in value of investments harmed the poor. I wasn’t interested in how specific people became billionaires. Just that one very narrow question. Generally speaking, the answer to your question is “it doesn’t”. Joe Averageinvestor tossing some money into a 401k or even speculating on cybercurrency and receiving a windfall does not in and of itself hurt the poor. Except… The things people invest in - real estate, securities (equities and debt), cybercurrency, etc - are really just abstracted representations of things people value. Which is to say people buy and sell them on markets as digital representations. So in a way, it often makes it easy for people to earn money off of outcomes that are often decoupled from their real world consequences. And in many cases, it causes people to dismiss or ignore negative real world consequences, because addressing them may cause them to lose value in their investments. Some examples: - Investing in cybercurrencies drives massive consumption of energy and materials used for “mining” to create something that has no intrinsic value or utility. - Investing in high end Manhattan apartments as a store of wealth for the super rich has created a bunch of supertall residential towers that no one lives in. That space could have been used for two or three times as many or more units of apartments and condos that could actually have been occupied…by the regular rich. - More broadly, public companies often are beheld to their Wall Street investors, requiring them to make short term profitability decisions that affect hiring, layoffs, investment in infrastructure. So it’s not so much that “billionaires” are the problem. They are more like a symptom of a problem with a system that focuses on short term gains over everything else and those gains tend to go to a small segment of the population. So while I am against income redistribution, I am not against regulation that determines how business must be conducted, so long as those regulations make sense, even if they cuts into profitability. Stuff like you can’t just dump your waste wherever you like or you need to manage risk if you are handling people’s money. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [July 9, 2023, 4:12pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/153 "2023-07-09T16:12:59Z")
> [@Hypno-Toad](#): > > The reason I chose the scenario in the OP is that in 2011, bitcoins were 30 cents each. $10k would get you 33,333 of them. 10 years later, in November 2021, each bitcoin was worth $68,000. That’s $2,266,644,000. All one had to do was sit on the investment for 10 years, not a long time at all for an IRA. It’s an extreme example, to be sure. But hardly impossible. Turning ten thousand dollars into two billion by buying lottery tickets or placing a series of Superbowl bets isn’t impossible either. But it’s not the basis for a sound financial plan. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [July 9, 2023, 4:19pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/154 "2023-07-09T16:19:44Z")
It’s not exactly “$10k magically becoming $2.2B while sitting in an IRA account,” but [this article from ProPublica](https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank) describes how a small group of established investors have been able to acquire _very_ large amounts in Roth IRA accounts, which are limited to contributions of $7,000 annually. One Berkshire Hathaway executive had more than $260 million in his Roth IRA at the end of 2018, while a hedge fund manager had $250 million. And perhaps the most extreme example; venture capitalist Peter Thiel accumulated _five billion_ in his Roth IRA account over two decades. How do they do it? The article says > Open a Roth with $2,000 or less. Get a sweetheart deal to buy a stake in a startup that has a good chance of one day exploding in value. Pay just fractions of a penny per share, a price low enough to buy huge numbers of shares. Watch as all the gains on that stock — no matter how giant — are shielded from taxes forever, as long as the IRA remains untouched until age 59 and a half. Then use the proceeds, still inside the Roth, to make other investments. ---
**Author:** ![Common\_Tater](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/common_tater/32/13846_2.png) [@Common\_Tater](https://boards.straightdope.com/u/Common_Tater)\ **Post date:** [July 9, 2023, 4:40pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/155 "2023-07-09T16:40:16Z")
> [@Hypno-Toad](#): > > So it’s not possible to have spent $10k on bitcoins in 2011? Or is it not possible to have held onto it for 10 years? One thing to be careful of, Bitcoin is not and never was an _investment_, not even close. It is a form of currency speculation at best. Gambling. That isn’t to say one can’t become very wealthy trading currencies, but it isn’t investing. Words mean things. ---
**Author:** ![I\_Love\_Me\_Vol.I](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/i_love_me_vol.i/32/521_2.png) [@I\_Love\_Me\_Vol.I](https://boards.straightdope.com/u/I_Love_Me_Vol.I)\ **Post date:** [July 9, 2023, 8:14pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/156 "2023-07-09T20:14:59Z")
> [@Banquet\_Bear](#): > > …this thread is in Great Debates. I have no desire nor inclination to “educate you.” I’m questioning the premise of this thread. AFAICT the premise of this thread was not “has anyone ever made $2 billion+ by investing $10,000 in Bitcoin in 2011”, it was “do investing activities hurt the working class.” The hypothetical investment (10K invested in bitcoin) was just that. A hypothetical. It could just as easily have been “10K invested in Apple or Coca-Cola”. ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [July 11, 2023, 10:41pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/157 "2023-07-11T22:41:44Z")
That’s **marginal tax brackets** , from the numbers you’re using I’m guessing it’s 2022 figures, in which case the first person is paying 11.6% of their income in taxes while the second is paying 13.5%. And of course ignoring _any_ deductions; both are making quite a bit higher gross income. So the capital gains person is paying more money in taxes and a higher rate. You might make the argument that it _isn’t progressive enough_ and the second person should pay a higher rate, but that’s a different argument than saying the worker _has a higher rate_. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [July 13, 2023, 4:05am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/158 "2023-07-13T04:05:12Z")
The catch is that a lot of that wealth is paper wealth. Let’s say a company makes 10 million in profit one year. For whatever reason, the company itself started the year valued at say… 50 million, but ends it at 200 million. The owners are the ones who “receive” that extra 150 million, although it’s not necessarily realized, and nor is it anything that can be transferred to the workers. It’s just an arbitrary raise in the value of the stock. The _vast_ majority of billionaires’ wealth is that kind of thing - large ownership stakes in huge profitable companies that they either founded or inherited. > [@FlikTheBlue](#): > > The most direct answer is that money could have gone to the employees. Let’s say your investments include McDonalds, Disney, and Walmart. The money you earned as capital gains could have instead gone to paying a higher salary to the person flipping burgers, stocking the shelves, or wearing a Donald Duck outfit in 100 degree heat at Disneyworld. Had those people been getting paid better, your investment would not have increased in value as much, because the company would have been less profitable due to higher expenses for employee salaries. That’s not how it works at all. Look at my example above- if a company’s stock goes up in value, that’s not something that the company has any control over. Influence sure, but not control. And if I as a stockholder sell my ownership stakes (shares) and realize some capital gains, that’s not the sort of thing that can be paid to the workers. > [@Great\_Antibob](#): > > Not quite. Even if a company is private, there are still stockholders. You’re missing the point. There are shareholders with varying proportions of ownership. And they get to be on/vote for board members, etc… in accordance with that proportion. And yes, get their share of any profit distributed according to that proportion. But there is NO stock price, because the stock isn’t being traded. There isn’t any gain or loss because those shares aren’t being traded on an open market. The company does well, and there’s no gain or loss in wealth because the stock isn’t priced and sold openly. ---
**Author:** ![Great\_Antibob](https://avatars.discourse-cdn.com/v4/letter/g/e47c2d/32.png) [@Great\_Antibob](https://boards.straightdope.com/u/Great_Antibob)\ **Post date:** [July 13, 2023, 5:08am UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/159 "2023-07-13T05:08:41Z")
> [@bump](#): > > You’re missing the point. Um…no The claim was that Gates and Allen took Microsoft public in part to share more greatly in the company’s wealth. This was untrue. Further, even if the stock had no publicly traded price, the employees can still sell their stocks to profit that way (though the value of any share would be tricky to figure), even if they can’t buy any more than they were granted or given options for. Beyond that, the way MS would have been structured, they almost certainly would have had a share of the company’s profits via dividends. So company does well, their stocks actually do perform better. It’s not just a matter of having a certificate saying they own X shares. Those shares actually do generate value as the company does well. As cited (by the company that handled their public offering no less), they did not take the company public out of some desire to share the wealth more broadly. They already had an employee profit sharing scheme via the stocks they got. They went public because they were going to be under greater regulatory oversight anyway after hitting the 500 shareholder mark and went whole hog to an IPO. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [July 13, 2023, 1:11pm UTC](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644/160 "2023-07-13T13:11:59Z")
> [@bump](#): > > The catch is that a lot of that wealth is paper wealth. > > Let’s say a company makes 10 million in profit one year. For whatever reason, the company itself started the year valued at say… 50 million, but ends it at 200 million. > > The owners are the ones who “receive” that extra 150 million, although it’s not necessarily realized, and nor is it anything that can be transferred to the workers. It’s just an arbitrary raise in the value of the stock. > > The _vast_ majority of billionaires’ wealth is that kind of thing - large ownership stakes in huge profitable companies that they either founded or inherited. > > > [@FlikTheBlue](#): > > > > The most direct answer is that money could have gone to the employees. Let’s say your investments include McDonalds, Disney, and Walmart. The money you earned as capital gains could have instead gone to paying a higher salary to the person flipping burgers, stocking the shelves, or wearing a Donald Duck outfit in 100 degree heat at Disneyworld. Had those people been getting paid better, your investment would not have increased in value as much, because the company would have been less profitable due to higher expenses for employee salaries. > > That’s not how it works at all. Look at my example above- if a company’s stock goes up in value, that’s not something that the company has any control over. Influence sure, but not control. Sorta. Now imagine all the workers were paid in shares every year in addition to their wages. Significant quantities of shares. Some may be newly created shares, but some would be shares given up by the founding owner(s). And this form of worker remuneration was mandated by law for all businesses. _Now_ the employees do have a stake in share price appreciation. That is the way we get capital into the hands of everyone and thereby make capitalism work for everyone. Or at least everyone with a job. [Previous page](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644.md?page=7) [Next page](https://boards.straightdope.com/t/do-capital-gains-screw-the-poor/986644.md?page=9)