Raising Taxes For Fairness

Great Debates
61

[QUOTE=cosmosdan]
Well yah, I know what it means. I tend to favor the flat tax myself, with a lot fewer tax credits and deductions. It still doesn’t address all the issues. Depending on the cost of living that 6K at 40 grand is a lot more crucial for a family at that level than the the 15k for a family at that 100K level.
You might be of the opinion that it doesn’t matter as long as it looks really fair on paper, or appeals to your own particular sense of fairness but that’s not reality.

How about a family of four earning 30k or less? Do they pay the same? What if that 15% they pay means they can’t buy health insurance for their kids? Still fair? If not and we start figuring deductions then who gets them and how much do they get.
Then we’re off and running into tax laws being manipulated and what seems fair to different groups.
[/QUOTE]

I look at the equity that would be there if there were zero taxes. If someone makes 40k and someone else makes 100k, the 100k family will be having an easier time of it. That’s just the way things are. The tax system should not seek to redistribute wealth. The government should not put its hand in my pocket and take money and put it into someone else’s pocket. Whatever a man earns by the sweat of his brow or his intellect—or his luck—is his. I think there is one exception to this. We, as a society, understand that there are people who cannot pay. The homeless, for instance. So we give them a pass. Similarly, we give a pass to the extremely poor. We can discuss where that line should be, but then everyone else should be an equal share.

And as I mentioned earlier, I’d be in favor of mandating that they do some volunteer work in lieu of their payment, e.g., sweeping sidewalks, mowing municipal lawns, etc. I f they don’t want to do it, and they’re able-bodied, maybe they shouldn’t be allowed to vote. No, this is not like a poll tax. It’s just clarifying that we all enjoy the benefits of the country, so we all have to contribute, based on our ability. If I were poor, I would see this as a source of dignity, not a burden. Then, maybe that’s just me: someone who likes paying their own way.

62

[QUOTE=DrDeth]
No, no flat tax program seriously suggested was anything like that. Some had a floor- it would be 28% above $15,000 a year and nothing below. No revenue neutral program can be 15% either, it is more like 30%, it all depends on whether or not the flat tax also replces FICA and if everything is taxed.

In general, every semi-realistic revenue neutral “flat tax” program I have seen makes the poor pay the same (nothing) the rich pay less, and thus the middle class pays more.
[/QUOTE]

First, I wasn’t outlining a specific plan, just laying out the most basic construct. As far as the rich paying less, how is that possible. If someone makes 400K and is taxed at the flat rate of say, 20%, he pays $80k in takes. someone making 70k would be taxed $14k. How is 14k more than 80k? Unless you meant in comparison to what they pay now? Which is immaterial, really. By definition, any more fair system would be replacing a less fair system and correcting it’s inequities. But even so, I’d bet there are quite a few wealthy people who would pay more under a flat tax system than they do now with the myriad loopholes that is part and parcel to our current tax system.

63

[QUOTE=Magiver]
Anyway you slice a tax hike there will be a removal of real money from the market system.
[/QUOTE]

Because Unca Government likes going swimming in its Money Bin and never spends the money it [del]stole[/del]took on anything, ever…:dubious:

64

[QUOTE=magellan01]
I look at the equity that would be there if there were zero taxes. If someone makes 40k and someone else makes 100k, the 100k family will be having an easier time of it. That’s just the way things are. The tax system should not seek to redistribute wealth. The government should not put its hand in my pocket and take money and put it into someone else’s pocket. Whatever a man earns by the sweat of his brow or his intellect—or his luck—is his. I think there is one exception to this. We, as a society, understand that there are people who cannot pay. The homeless, for instance. So we give them a pass. Similarly, we give a pass to the extremely poor. We can discuss where that line should be, but then everyone else should be an equal share.

And as I mentioned earlier, I’d be in favor of mandating that they do some volunteer work in lieu of their payment, e.g., sweeping sidewalks, mowing municipal lawns, etc. I f they don’t want to do it, and they’re able-bodied, maybe they shouldn’t be allowed to vote. No, this is not like a poll tax. It’s just clarifying that we all enjoy the benefits of the country, so we all have to contribute, based on our ability. If I were poor, I would see this as a source of dignity, not a burden. Then, maybe that’s just me: someone who likes paying their own way.
[/QUOTE]

I’m in favor of workfare rather than welfare although that brings it’s own set of problems. I’m sure a lot of people would fall off the welfare rolls if they were required put some effort in.

Once you decide people below X income level shouldn’t pay any taxes and those above it should you’ve already agreed that a progressive tax code works. So if 20k pays no tax and 20.5k pays 15%, then the family at 20.5K actually earns less.
Is that equitable?

There are other issues as well. Some people earn their money through their sweat etc. Some do it through technically legal but unethical means. Should certain businesses be regulated? How much?
There are lazy people willing to let others pay their bills while they watch cable and have another beer. There are those on the flip side of that coin who are willing to exploit the hard work of others and keep them poor and dependent in order to enrich themselves and stay in control.

I totally agree the tax code can be made much simpler and people should pay their own way but I’ve come to understand that there are a lot of factors that come into play and need to be addressed. Dynamics between business owners and labor. Greed and manipulation in free markets that affects the cost of goods. etc.

btw, I think the tax rates on the upper end are ridiculous and it’s a waste to have rates that high while creating loopholes so they can be avoided.

65

[QUOTE=Magiver]

Gambling is a game of chance and is devoid of ownership. The stock market involves purchasing a percentage of a company. Anyway you slice a tax hike there will be a removal of real money from the market system.
[/QUOTE]

When a buy a stack of $100 chips I own them. I am “investing” in that Casino even more directly than someone buying a $100 share of a stock a hundred time removed from the IPO.

66

[QUOTE=magellan01]
First, I wasn’t outlining a specific plan, just laying out the most basic construct. As far as the rich paying less, how is that possible. If someone makes 400K and is taxed at the flat rate of say, 20%, he pays $80k in takes. someone making 70k would be taxed $14k. How is 14k more than 80k? Unless you meant in comparison to what they pay now? Which is immaterial, really. By definition, any more fair system would be replacing a less fair system and correcting it’s inequities. .
[/QUOTE]

  1. It’s a “basic concept” which is BS- no relistic Flat Tax plan works that way, so there’s no use saying so.

  2. The rich would pay less that they currently do so. Most Flat Tax plans are promulgaged by Billionaires so they get to oay less.

  3. Nor are “Flat Taxes” any more fair. You beleive cutting Capital Gains as that is “an investment” but todays tax system rewards buying a home for ones family as an investment. If a Flat Tax was passed, many of those now struggling to pay for their homes would have to let their house be foreclosed.

4> Charitable giving would greatly decrease as it would no longer be deductable. How is that “fair”?

What is so fair about a Flat Tax anyway? Let us take the Flatest of Flat Taxes- a flat 20% no deductions, revenue neutral, does not replace FICA. (all these figures are rough, I am not running them thru a tax comp program)
Mr & Mrs Struggling Worker Earns 30K & 20K, for $50K. They’d pay something like $1000 now, Plus 5K or so FICA +Medicare = 6K.
Mr Gotbucks has only Capital gains, etc, for 200,000. He pays around 40K now, due to Alt Min Tax.

Under a straight 20% FT, with added FICA:Mr & Mrs Struggling Worker now pay 16K - they now pay10K more. How is that Fair?
Mr Gotbucks pays $40k, same.

Under the Armey Plan the couple would pay around $2K, plus 5K FICA for 7K, a little more.
Mr Gotbucks earned no “income” and thus pays nothing. How is that fair?

67

[QUOTE=DrDeth]
When a buy a stack of $100 chips I own them. I am “investing” in that Casino even more directly than someone buying a $100 share of a stock a hundred time removed from the IPO.
[/QUOTE]
The chips are a substitute for money for the convenience of betting. They have nothing to do with ownership in a business. A stock transaction is the purchase of a piece of a company. Whether it’s purchased as an IPO or from another owner it’s still represents a share of the company. There is no rational comparison between the 2.

68

I have a related question - why aren’t capital gains just counted as regular income?

69

[QUOTE=spazattak]
I have a related question - why aren’t capital gains just counted as regular income?
[/QUOTE]

In the past they have been. There are three reason why they aren’t.

The first is that long term capital investment ties up your money over a period of years, during which your money is worth less due to inflation. A lower LTCG rate is suppose to compensate the investor for the time value of money (although, if they REALLY wanted to do this, they’d index it as previously mentioned).

The second is that a lower LTCG tax rate encourages investment. Which is good for any number of reasons. Though as DrDeth points out, its actual direct impact on corporate investment is (adding jobs, buying equipment) is pretty diluted - and is no longer guarenteed to have an impact on the U.S. economy when it does happen (if it ever did). Microsoft could issue more stock, have a billion dollars to invest from the sale, and put more offices and jobs in China or India.

The cynic has to mention that wealthy people earn a lot of their money from LTCG, are interested in having small tax bills (isn’t everyone), donate a lot of money to political campaigns, and have powerful friends capable of passing tax law in their favor.

70

‘Raising taxes for fairness’ is one of the things that did Maggie Thatcher in. She instituted the Community Charge / Poll Tax which charged by the person rather than by the building. Great if you’re a singleton; disastrous if you’re a single wage-earner with adult children at home.

71

[QUOTE=Dangerosa]
In the past they have been. There are three reason why they aren’t.

The first is that long term capital investment ties up your money over a period of years, during which your money is worth less due to inflation. A lower LTCG rate is suppose to compensate the investor for the time value of money (although, if they REALLY wanted to do this, they’d index it as previously mentioned).

The second is that a lower LTCG tax rate encourages investment. Which is good for any number of reasons. Though as DrDeth points out, its actual direct impact on corporate investment is (adding jobs, buying equipment) is pretty diluted - and is no longer guarenteed to have an impact on the U.S. economy when it does happen (if it ever did). Microsoft could issue more stock, have a billion dollars to invest from the sale, and put more offices and jobs in China or India.

The cynic has to mention that wealthy people earn a lot of their money from LTCG, are interested in having small tax bills (isn’t everyone), donate a lot of money to political campaigns, and have powerful friends capable of passing tax law in their favor.
[/QUOTE]

On your first point - why are LTCG special and not other long-term investments? They’re not the only long term investment vehicle in town, so why are they treated differently than the rest?

On the second point - I would think the increased rate of returns and the hedge against failure (capital loss deduction) would be plenty encouragement without the lower tax rate. In fact, I’m pretty sure people were investing and making all kinds of money, even when the rate was 35%

On the 3rd.. I’m looking for a good idealogical reason for the differentiation. The 1st reason comes the closest.. but I just don’t see the justification when income from annuities, bonds, CDs, etc are get lumped in with ‘normal’ income and LTCG don’t.

72

[QUOTE=DrDeth]

What is so fair about a Flat Tax anyway? Let us take the Flatest of Flat Taxes- a flat 20% no deductions, revenue neutral, does not replace FICA. (all these figures are rough, I am not running them thru a tax comp program)
Mr & Mrs Struggling Worker Earns 30K & 20K, for $50K. They’d pay something like $1000 now, Plus 5K or so FICA +Medicare = 6K.
Mr Gotbucks has only Capital gains, etc, for 200,000. He pays around 40K now, due to Alt Min Tax.

Under a straight 20% FT, with added FICA:Mr & Mrs Struggling Worker now pay 16K - they now pay10K more. How is that Fair?
Mr Gotbucks pays $40k, same.

Under the Armey Plan the couple would pay around $2K, plus 5K FICA for 7K, a little more.
Mr Gotbucks earned no “income” and thus pays nothing. How is that fair?
[/QUOTE]

Based on how you put forth your examples, I can see that you might have a hard time with the concept of fairness. First, to compare any plan with the current plan and when you see taxes go up for a group to declare that plan as unfair is beyond meaningless. It assumes that the current plan is a model of fairness. If that were the case, no one would be trying to replace it.

Something is fair or it isn’t fair. You evidently think that a more progressive system is fair. I think it is offensively unfair. It takes money from the pocket of Peter and gives it to Paul.

Your example doesn’t compare apples and apples. To be fair, if you don’t mind, assume that both groups are working to earn that money. Your first family pays $10,000. Your second family pays $40,000. Seems beyond fair to me. One family contributes $40,000 to the collective society. The other just $10,000. When you add in income tax, the higher earning family will also be contributing more than the other family, that’s on top of their already higher payment to the government.

As far as charity goes, people don’t just give to charity to lower their tax bill. Charitable giving is still a net drain on a family’s bottom line. I can’t place it, but I recall a study that showed that when tax rates go down, charitable giving goes up. That would make sense.

Now, after a flat income tax is in place, we can discuss how to handle capital gains taxes and estate taxes. For instance I think their is a higher moral claim for lowering someone’s income tax as I do for their inheritance. One is 100% earned by the sweat of their brow, the other is a windfall as a result of the work of others.

73

[QUOTE=magellan01]
What some politicians don’t seem to understand, particularly those with a “D” next to their names, it is NOT THEIR MONEY.
[/QUOTE]
What some politicians don’t seem to understand, particularly those with a “R” next to their names, is that the federal deficit is NOT THEIR CREDIT CARD.

74

[QUOTE=Fear Itself]
What some politicians don’t seem to understand, particularly those with a “R” next to their names, is that the federal deficit is NOT THEIR CREDIT CARD.
[/QUOTE]

While I agree wholeheartedly, I think it can be simplified:

What most politicians don’t seem to understand is that the money people have is NOT THEIR MONEY and the federal deficit is NOT THEIR CREDIT CARD.

75

[QUOTE=magellan01]
While I agree wholeheartedly, I think it can be simplified:

What most politicians don’t seem to understand is that the money people have is NOT THEIR MONEY and the federal deficit is NOT THEIR CREDIT CARD.
[/QUOTE]
I’ll buy that. There is enough blame for fiscal irresponsibility to flog both parties.

76

[QUOTE=John Mace]
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.
[/QUOTE]

Sure, let’s index taxes on salaries for inflation, too, since we want to be fair and all.

77

[QUOTE=spazattak]
On your first point - why are LTCG special and not other long-term investments? They’re not the only long term investment vehicle in town, so why are they treated differently than the rest?

On the second point - I would think the increased rate of returns and the hedge against failure (capital loss deduction) would be plenty encouragement without the lower tax rate. In fact, I’m pretty sure people were investing and making all kinds of money, even when the rate was 35%

On the 3rd.. I’m looking for a good idealogical reason for the differentiation. The 1st reason comes the closest.. but I just don’t see the justification when income from annuities, bonds, CDs, etc are get lumped in with ‘normal’ income and LTCG don’t.
[/QUOTE]

What sort of long term investments wouldn’t be capital gains? Capital gains covers selling any sort of capital property - stock is what most people are selling, but if you manage to buy a car and sell it at a gain, you’d pay capital gains tax. Real property (house, land) is capital gains. There are some exceptions - the sale of art and collectables is taxed at a different rate.

Annuities, bonds, etc. are annual income as opposed to capital gains - they get taxed at the dividend and interest tax rate - which is currently (surprise!) the same as the LTCG rate.

78

[QUOTE=Dangerosa]
What sort of long term investments wouldn’t be capital gains? Capital gains covers selling any sort of capital property - stock is what most people are selling, but if you manage to buy a car and sell it at a gain, you’d pay capital gains tax. Real property (house, land) is capital gains. There are some exceptions - the sale of art and collectables is taxed at a different rate.

Annuities, bonds, etc. are annual income as opposed to capital gains - they get taxed at the dividend and interest tax rate - which is currently (surprise!) the same as the LTCG rate.
[/QUOTE]

OK. Thanks. So the consensus seems to be that the only reason for LTCG to be treated differently is because of inflation.

If your investment only kept pace with inflation over say.. 15 years. Wouldn’t that be a pretty friggin bad investment? Especially when considering compounded growth? Don’t you think you’d move your money into something that performed better after 5-10 years of that kind of performance (1-3% anual growth)? And isn’t that just part of the risk associated with the potential for much higher gains and compounded growth from this type of investment?

79

[QUOTE=Dangerosa]
Annuities, bonds, etc. are annual income as opposed to capital gains - they get taxed at the dividend and interest tax rate - which is currently (surprise!) the same as the LTCG rate.
[/QUOTE]
Not true. Interest is taxed as income at the person’s marginal income tax rate. Dividends are taxed at the same rate as LTCG if they are “qualified dividends”. Dividends from a US company stock will qualify, but dividends from things like bond mutual funds do not qualify and are therefore also taxed as income.

80

[QUOTE=amarone]
Not true. Interest is taxed as income at the person’s marginal income tax rate. Dividends are taxed at the same rate as LTCG if they are “qualified dividends”. Dividends from a US company stock will qualify, but dividends from things like bond mutual funds do not qualify and are therefore also taxed as income.
[/QUOTE]

You sure? I’m pretty sure that when I did my taxes, my interest income was taxed at the dividend rate. But I could be misremembering it. I also remember that tax provision was set to expire, but I could be misremember that as well.