He is in an alternative world where there is no capital gains tax, but the income tax is higher, in such a way that his capital gains income will be identical.
Romney receives only capital gains; he has no earned income. What tax does he pay?
He earned income to begin with. Before he invested money, he earned that money as income.
When he invests that money, he owes taxes on the capital gains. This is not double taxation, because it is new income.
Okay. I am not really interested in whether something semantically is called “double taxation.”
Let me repaste the question:
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?
But the result for him is not the same.
Why do you think it isn’t? (It’s assuming he spends the same amount of time earning money to invest with as he does in this world, in case that’s what you are disagreeing with.)
Because you said he pays no capital gains tax. Since he has no earned income, he pays no tax at all, so he has 13.9% more money than in the real world.
How is that the same for him?
In the alternative world, alternative Romney spends all his time. First he earns some money, then he invests it, and then receives the capital gains. So he has earned income, which he paid taxes on. Alternative Romney paid higher taxes on his initial income, so he had less money to invest. But when he receives his capital gains of the investment, even though the capital gains themselves are smaller, the amount he receives is exactly the same as our Romney because he doesn’t pay capital gains tax on them.
I don’t understand this at all. I don’t think we are using the same definitions for earned income, or for capital gains.
When I said “earned”, I meant earned by being paid a salary for working.
If the capital gains tax was 0%, and Romney’s income was all capital gains, then yes, I think nearly everyone would say that he was taxed at 0%, regardless of how things might have turned out in an alternate reality.
So if we look at the Romney in that world, with higher income tax and no capital gains tax. He is (according to you) taxed at 0%. Is that then more unfair than in our world, where Romney is taxed at 13.9%? Even though they receive the same amount of money in capital gains?
I’m completely bewildered as to what point you are trying to make.
To the extent that I understand it, yes, it would be unfair. Capital gains should be considered income, and should be taxed as income.
I don’t understand why some people see a difference between capital gains on equity investments, and earned income from a salary or wages. I just don’t see any difference. Both should be taxed the same.
That was not the question I am trying to ask.
We have Romney A. He lives in our world, and pays capital gains tax, which is lower than income tax. Based on your answer, you think that this is unfair.
Now, let’s look at Romney B. He lives in a world with higher income tax and no capital gains tax. Is this more unfair than the Romney A situation? If yes, how can it be more unfair, if they both end up with the same earnings after tax each year?
Now, let’s look at Romney C. He lives in a world with lower income tax, and a capital gains tax equal to the income tax rate. (The income tax is lower by such an amount that his capital gains after taxes will be equal to that of Romney A and Romney B.) Is this then less unfair? If yes, how can it be less unfair, if he ends up with the same earnings after tax?
Let’s say all left handed people have to pay 50% tax on capital gains and all right handed people have to pay 15% tax. Since Romney is right handed, and already pays 15% tax, it wouldn’t change anything for him, therefore the system would be fair.
I still don’t get it. Romney has virtually no earned income. Almost all of his income comes from capital gains.
It’s simply impossible for your scenarios to wind up with Romney paying the same amount of tax in all of them.
And, for me, I don’t care where his income comes from. Whether it’s salary, contract pay, interest, capital gains, it’s all income, and he should pay income tax on all of it. Any of your scenarios that result in Romney paying less income tax than he would if all his income was treated equally is unfair.
The thing it seems that you don’t understand about the point I am trying to make, is that I am also considering money he earned previously. Like 30 years ago, or whatever, when he had a job that paid a salary. I am trying to make examples of hypothetical worlds that change both the taxes he pays this year, and the taxes he paid 30 years ago.
Not really “according to (me)”. According to pretty much everyone. A tax rate is based on actual money sent off to the government. If an individual pays $0 in a given year, then their effective tax rate for that year was 0%.
The government isn’t concerned with hypothetical dollars. Hypothetical dollars don’t build bridges and pay troops. Taxes is money that the government actually receives. In a parallel universe there may be a Mitt Romney with much more money because he paid a little less in taxes thirty years ago, but the difference in wealth between Goatee Romney and Normal Romney in this reality isn’t in the hands of the government, it simply doesn’t exist.
And still there’s another universe where Mitt spent the money he saved on taxes on a few new pairs of slacks, and he now has the same amount of money as Normal Romney. Why do you assume any money not paid in income taxes will necessarily be smartly invested?