Capital gains taxes will tend to encourage investment with a somewhat higher rate of return - which is likely a good thing for the economy. But it is unlikely that someone seeing a slightly smaller return is going to go out and just spend the money.
As for the double taxation nonsense, consider the case where someone makes $100K, gets $70K after taxes, invests it, and loses it all. In that case the tax rate reduces his loss by $30K. So there everyone!
Once again you are treating income that COULD have been earned on money that was taxed earlier on in the timeline as additional tax. By that token it doesn’t really matter if you use a consumption tax or an income tax does it? You still end up with a loss of income on investment that you COULD have made if you weren’t subject to a consumption tax. remember it is not the capital gains tax in your example that is causing the skew it is the income tax.
You are using bad math. You are positing that he paid taxes on money he never earned because he COULD have earned money if he hadn’t been taxed earlier in the timeline.
There is also a problem with income tax, it discourages labor. There is also a problem with a consumption tax, it discourages consumption. And frankly we don’t need to encourage labor or investment right now, we need to encourage consumption.
The capital gains tax predates supply side economics. It was alargely a response to the inequity of taxing someone at high marginal rates on an investment they had held for multiple years at a time when marginal rates could get very high. Today the argument has morphed into an argument that says our tax code should encourage investmtent more than any other facet of economic activity as if investment in and of itself could drive an economy.
Your consumption tax sounds highly regressive and would do nothing to helps us get out of this recession. The best consumption tax I have seen is the FAIRTAX and it is fairly retarded.
So the guy who is selling the DVD. Isn’t he making a return on his investment? he bought a bunch of DVDs hoping to sell them for more than he bought them for. How about the guy that is collecting interest on the mortgage? Isn’t he merely collecting income on money he already paid taxes on? You don’t find the double taxation difficult to spot because you are looking for some way to distinguish dividends from other types of income.
WTF are you talking about? During a recession which is partly defined by underutilized capital stock, you are looking for more demand not more investment. Noone opens a new store because the taxes on whatever income they might make will be a bit lower, they open a store because they think people will buy stuff. In this chicken and egg problem demand begets investment and not the other way around.
Yeah but if noone wants to (or can afford to) buy the shoe society would be better off with if guy A just got his plants watered. If noone can or wants to buy the shoe, he might as well pay guy B to dig a hole and fill it up.
That’s right, for the full lifetime of a person, it doesn’t matter if we use income tax or consumption tax.
That’s not bad maths. I’m trying to compare guy A to a guy B living in a world without taxes. If potential earnings are lost as an effect of a tax, then in effect he is taxed those money.
A consumption tax doesn’t really discourage consumption any more than an income tax. You are supposedly earning money in order to consume them at some point.
Hmm, I didn’t mean to decide what levels the tax should be on. I just think that with whatever tax progressiveness we decide, it’s better to take it all through the income tax or consumption tax.
So the guy who is selling the DVD. Isn’t he making a return on his investment? he bought a bunch of DVDs hoping to sell them for more than he bought them for. How about the guy that is collecting interest on the mortgage? Isn’t he merely collecting income on money he already paid taxes on? You don’t find the double taxation difficult to spot because you are looking for some way to distinguish dividends from other types of income.
It’s basic microeconomics. If the incentives to do something are higher, people will do that to a higher degree. It’s apparent if you focus on the margin. We look at a guy who is considering to open a store, but his evaluated income is just a little too low that he wants to do it. After a small tax decrease, he evaluates the income to be just high enough, so he opens the store.
He can supposedly find something that someone wants to pay above $0 for, otherwise he is not a very good investor. And as long what he produces has a value of above $0, then it’s better for society if he invests than if he spends.
The shop owner presumably also works in the store, so I guess his income is a result of both work and investment. I have no knowledge at all about the tax system for small businesses in the US, but I don’t think they are taxed in the same way as employees.
I don’t see anything with mortgage in the cartoon?
So now do you see why your statement about double taxation doesn’t make sense?
Oh I see, you are arguing that because the 30% tax on the initial $100 resulted in me only being able to invest $70 at 50%, that 30% tax actually cost me 30% of the initial $100 and 30% of the additional money I could have earned with the $30 that the gubmint took away from me. So if I earn $100 (in a tax free jurisdiction) and I spend $5 on a happy meal and then I invest that money in something that earns 50%, then that happy meal actually costs me $7.50?
Thats a bit silly don’t you think?
And, if you are talking about societal wealth taxes may be a net benefit to society as a whole.
Are you kidding me? Unless I have no choice, my consumption (at least domestic consumption) will decrease. And no I don’t intend to consume everything I earn and I certainly don’t intend to consume it all domestically.
When you decide on a consumption tax over an income tax you ARE deciding on the level of consumption taxation you want to impose, unless you are ok with signficant reductions in tax receipts. And if you don’t want to make it more regressive than what you have now the rate gets even higher, it is only with a lot of regressivity that you can be revenue nuetral.
You are going from a system that taxes consumption plus net savings to a system that only taxes the consumption. Of course the rate has to be hgiher for someone and I suggest that it might be for those who consume more of their income.
I think you intended to respond to this and screwed up the quotes.
I am familiar with what happens at the amrgins but its a really thin fucking margin. You have an exaggerated view of how much extra investment you would see during a recession due to a tax cut. And at the same time you discount the effects of a top line (gross revenue) increase that you would get from more demand.
Not if he has to pay more than he can get for it. And the point is that there aren’t as many good investments when demand is low. When demand is high you can sell just about anything.
Where are you from that the laws of economics operates differently than they do here?
hmm you are right, what I was talking about was towards the bottom someone makes a car payment which is a payment on a car loan (i.e. interest income).
Yes, exactly. No, I don’t think it’s silly. I think it’s the only way to view the impact of the taxes (or the Happy Meal).
Spending internationally would also have to be taxed, otherwise it doesn’t really work.
And no, I’m not kidding you. If you don’t spend it, I guess you will give it to someone else, who will then presumably spend it.
Why do you think I have an exaggerated view of the amount of extra investment you would see? I haven’t stated any numbers at all. All I’ve said is that there would be an increase in investments.
It was my example, so I think that I should decide what the point was. And the point was that, for the rest of society (that is all of society, excluding the person with the money), it is better if he invests the money than if he spends them. (Or at least not worse, in case he cannot produce any value at all with his investment.)
I think that shop owners income are a result of a combination of work and investment. So in a theoretical optimum he should be taxed for his work, but not for the return of investment. And in fact I think the tax code for companies is a middle way between the tax for work and the tax for capital gains. But I don’t really know.
I’m looking at this one: http://web.acsalaska.net/~fmurtley/doubletaxation.gif
I don’t see anything about cars?
Transaction D (the fourth transaction) is a car payment.
Ah right. Yeah, I’m not sure I understand that. What exactly is it the bank pays taxes on? In the other cases, people pay taxes on the amount of money that are handed to them in the picture, but that can’t be right here.
The interest on the car loan.
Hmm, I think you are right. That seems to also be double taxation.
I think it’s funny that Romney’s accountant (or was it his lawyer, or even a spokesman?) said that Romney closed his Swiss account last year because he just didn’t need it. Last year, the US government was trying mightily to get the Swiss to fork over the names of US tax dodgers who were hiding untaxed money in Swiss accounts.
How convenient.
http://www.reuters.com/article/2011/10/07/idUSL5E7L709D20111007
It’s not. Interest is new income.
If I invest $100 (post tax) in chewing gum, and sell it for $130, am I taxed on my $30 profits? You bet I am. If a banker lends $100 (post tax) and receives $130 in principal and interest, he pays tax on the $30 interest, because it is his profit.
No double taxation.
Okay. Wikipedia calls that double taxation, though. But I don’t really care whether something is called “double taxation” or not. My original point was that it’s not right to say that Romney pays ~15% taxes.
13.9% is ~15%.
Yes, but I don’t think it’s accurate to say that he pays 13.9% taxes. If you compare him to an identical guy who didn’t pay any taxes, that guy would earn a lot more than 13.9% more.
Lost opportunity is not the same as taxes.
Wikipedia is wrong, then.
If you have less of something as a result of taxes, then.. well.. it’s a result of taxes. So you are taxed it.
What if we assume income taxes were higher, and there was no capital gains tax, in such a way that Romney’s income from capital gains was exactly the same.
Then that Romney would “pay 0% taxes” according to the logic that says that he now pays 13.9%. Would you then think that is more morally unfair than it is now, even though the result for him is the same?
Wrong.
I don’t understand this at all. Is he paying income tax (35%) instead of capital gains tax (15%)?
