Obama stated in the 4/26 democratic debate that he was in favor of increasing the capital gains tax from its current level of 15% to essentially 28%.
Now when asked why he would increase this tax despite some evidence that an increased tax has not resulted in increased revenues, Obama did not dispute that claim but rather stated that it was an issue of fairness.
I am not interested in debating the claim that raising the capital gains rate lowers revenues and conversely that lowering the rate increases revenues. This was stated and Obama did not question it but rather, in my reading, acted as if that was not the issue: it was an issue of fairness.
Is it rational and/or good policy to increase a tax with no other benefit than a perceived increase in fairness? It seems that this increase in taxes is a punitive measure as opposed to one of any greater merit. It reminds me of the cucumber versus grape experiment for monkeys: link. Is this type of attitude based solely on jealousy and spite?
No, I’d say it was based on pity and compassion (given that Obama himself would probably fall on the higher end of the income spectrum). Whether it is good policy has to be seen, but it certainly seems rational, in the sense that Obama’s “constituency” seems to be more the secretaries than the stock market players.
If you mean - is it jealousy and spite from the ‘secretaries’ of the country? Maybe, but I’m not the one to judge (anti-capitalist)
Did it involve jealousy and spite to lower it in the first place, to give those who make most of their money from capital gains a relative advantage to those in regular jobs?
If a situation existed where there was a clear inequity in the tax rate (for instance lower middle class people paying a bigger percentage of their incomes than the rich) would it be wrong to raise some taxes to correct this? If not, then all we have is a discussion of whether a condition of inequity exists.
I don’t understand this. If the secretaries are completely unaffected from a tax standpoint (their tax rate stays the same and overall the country’s revenues stay the same), how is it compassionate to raise taxes on someone else. Is it simply the idea that “you don’t have enough; we’ll also make sure that these other people are worse off”?
If it doesn’t increase tax revenues, why raise a tax rate?
OK, then assuming that the capital gains tax increase will be revenue neutral, No, it is not good policy.
For the following reasons - If it is revenue-neutral, then the increased rate of taxation must be offset by a decrease in revenue gains to be taxed. In other words, nobody gains anything. The government does not get increased revenue for social spending, so the secretary Mr. Obama claims to be concerned about doesn’t get anything. The fat cat he is not concerned about gains nothing either - he is merely prevented from earning what he might otherwise have gained.
This is pretty much equivalent to “This guy has five hundred bucks in his pocket, his secretary has only fifty bucks in her purse. So take twenty bucks out of his pocket and burn it.” This doesn’t benefit anybody.
Additionally, income inequity is not a reason for government action. The rich guy is not harming his secretary by having $500 in his kip. He took the risks, and earned the money, and the government (and his secretary) have no right to it.
The purpose of taxation is to fund the necessary functions of government. Once those functions have been funded, further taxation is illegitimate.
Now maybe such a policy is “rational” from Obama’s point of view, if he is trying to appeal to a particular group of voters who want the federal government to play “beggar my neighbor”, but envy is an emotion, and therefore not “rational” from the voters’ point of view. If the investor’s secretary has any common sense, she will ask herself where her salary is going to come from if her boss’s profits are going to be arbitrarily reduced and no one sees the money, but perhaps Obama isn’t trying to appeal to people with common sense.
Obama is an idiot, in other words. He wants to soak the rich merely for being rich, not because he wants to increase social spending, but out of simple envy. Now, I have little doubt that if anyone pressed him on it, he would immediately claim that his tax hikes would not be revenue-neutral, and that he would spend all the money on the poor and middle class.
But killing that particular goose to get her golden eggs is a different debate.
The other problem with capital gains taxes is that they aren’t indexed for inflation. If I hold a stock for 10 years, and its gains just keep up with inflation, then I really haven’t made any money.
I’m fine with taxing cap gains as ordinary income, but let’s index it for inflation. No need to make this complicated-- just consider annual inflation rates. I think that takes care of the “fairness” issue.
The benefit, even if revenue neutral, would be a rationalization of the system. If different types of income are taxed at different levels, then the economic system is distorted. Lower taxes on capital gains encourage over-investment in assets that produce capital gains.
Now, that might be something that you want to encourage. But all the free-market devotees should be in favor, if there is to be tax at all, of it distorting the system as little as possible. When they aren’t in favor of that, forgive me for considering their position to be possibly based on self-interest.
Since most free market devotees (such as myself) pretty much want to eliminate all capital gains taxes, all dividend taxes, and all corporate taxes, it seems that we do want a tax system that distorts the system as little as possible. Of course, we have to bow to political reality and only attempt to cut taxes where it’s possible to do so.
If investment income is taxed at a lower rate to wage income, it incentivizes the seeking of investment income over wage income. That may very well be a good thing. But it is the sort of social engineering through the tax system that is often criticized. Just not usually when it benefits the rich, of course.
I agree. Any tax will have some sort of distortion on the market. That’s pretty much inevitable. And you will find a lot of criticism of it among free market folks. I doubt you’ll find many people at the Cato Institute or any other free market think tank or organization who thinks the income tax is a good thing. They may prefer it over alternatives but pretty much every free market tax analysis I’ve read makes the points you say.
You seem to prefer questioning the motives of those who want to reduce capital gains taxes. How about we keep the discussion along the lines of the trade-offs that reducing or increasing these kinds of taxes involves. Trying to call into question the character of your opponents is pretty petty.
And wouldn’t then treating capital gains as income (and hopefully reducing the tax level overall) reduce that distortion? Where as reducing capital gaisn tax without reducing income tax will increase the distortion in favor of investment income…
It was a response to comments such as…
I’ve talked about what I see as a benefit of doing this, even if no other revenue is generated. I don’t think you can reasonably look at one tax alone when considering changes in the tax system. And if a group opposes a particular change, when such a change would logically be consistent with their professed principles, I have to look at what their motive might be.
It’s all well and good to say that the whole tax system distorts, but that practical considerations mean that we can only do so much, when all the proposed changes that make up “so much” increase the distortion, and benefit a particular social group. But forgive me if when that position is held, I doubt the intellectual honesty of groups such as the Cato Institute propounding it.
Sorry, but I won’t forgive you. It’s a cheap way of debating. “They only want the policy that I oppose because they are greedy/evil/hate children/etc.” – that’s essentially what it boils down to. For one, you don’t know their motives. You don’t know how much money the people making these arguments make. You don’t really know anything about them except that they disagree with you and therefore they must be driven by base motives because, after all, there is no good reason to disagree with you other than that. Two, even if they are the most evil people in the world that has nothing to do with the merits of their argument.
Honestly, I am not looking for your forgiveness. I wasn’t the one who started calling “into question the character of [my] opponents.”
Equalizing capital gains and income tax will reduce the distortion effect in favor of investment income. That is a possible benefit which would occur whether or not more revenue was generated, which I thought was a direct response to comments made in this thread.
If people who support higher capital gains tax are to be accused of blindly seeking to soak the rich, then people who support increase the preference given to investment income over wage income should be accused of seeking to benefit the rich.
The reduction in revenue would come from a decreased number of sales, thus making the gains virtual instead of actual. Nothing is preventing a sale - after all there is still a gain - so no one is preventing the fat cat from doing anything. If you mean that a tax prevents him from taking 100% of his gain, then the income tax prevents him (and us) from earning what we would have gained without it. True, but trivial.
No, it means that when United Way comes around asking for a “fair share” donation, the rich guy is expected to pay more than the secretary.
The secretary worked hard for her money also. Why is it fair for the fat cat to get to keep a higher percentage of his money than she does? Let’s cut out the absolutist “taxes are eevil” crap, please. That is about as realistic as Communism.
That ship has sailed a long time ago. An allocation of taxes needed by government is going to have a social and political impact. It is up to the people, through Congress, to decide what that is. Once we realize that, it is not surprising that we also encourage certain behavior (R&D, home ownership) through tax policy.
Oh, the boss is paying her out of his personal money? I suppose your point would be relevant if they were working for a brokerage which would have diminished volume from an increase in the tax, but not for most cases. In fact, if here taxes got cut as his were raised, the company might do better thanks to increased sales to the mass market.
Cite? I don’t know how much he has, but I’m guessing quite a bit from sales of his book. That he didn’t capitalize on his Harvard Law degree to make lots of money, as he clearly could, shows that your claim that he is envious of the wealthy is bogus. He could have been wealthy before his book if he wanted to. Not everyone is as greedy as your average Republican.
(BTW, indexing capital gains for inflation makes a lot of sense. We’re doing that for income tax also, in a way, and that seems fair. So I support it.)
If this is true, then I argue, no, it’s not good policy. Call it what you will (jealousy, spite), but people sincerely do want to level the playing field through the use of taxes.
I argue that if there is to be more “fairness” (I hate what this word has become), i.e. to average out income/wealth generating disparity, then do it through regular income tax. It’s more objective, i.e “fair” (in the real sense). Business rely on investment. People have a tendency to invest nationally, so it’s a great way to strengthen the local economy, and following that, strengthen the local currency and ultimately fight off inflation. Taxing capital gains, imo, has a more chilling effect on the economy, as much as a direct tax (on a specific behavior) or an outright tariff. Taxing regular income also increases revenue.
My tax professor in law school (and my law and economics professors in undergrad) made a very strong argument, and others have noticed it, too, that taxes are a very good mechanism to model behavior (or a sort of social engineering). I’m ok with that too, as long as the tax is applied objectively. With that in mind, it becomes difficult to see the need for a lot of government taxation.
since the OP didn’t want a debate on whether revenue will increase/decrease, I just went with why I think Obama might want this (he might believe it *will *increase revenue)- but like I said, certainly it might be jealousy on the part of the “secretaries”, pure and simple. But they’re not the ones advocating this.