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Old 04-04-2011, 09:24 PM   #121
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And yet, suppose I am a laborer and get a 3% raise, but inflation runs 3%. I have an illusory increase in nominal income (which is taxed at ordinary income rates), but I am no better off.

Perhaps income and capital gains should both be inflation adjusted for tax purposes and taxed at the same rate.
It is possible from the standpoint of pure equity, I don't know. In general, I do not enjoy debates that are directly or indirectly couched as moral questions, because I think that usually the morality, if any, is too subtle to be accurately understood anyway. The fact remains that for most of us, capital gains, when they come at all, are the fruit of many years of foregone consumption and risk acceptance, and also suffering a heavy and variable cut from inflation. It is interesting to read some of Buffet's shareholder letters from the 70s on this topic, before he morphed from capitalist to supposed benfactor of humanity.

To the best of my knowledge, no advanced industrial country taxes capital the same as labor. Labor must go to work to eat. Capital can stay home.

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Old 04-05-2011, 01:04 AM   #122
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The fact remains that for most of us, capital gains, when they come at all, are the fruit of many years of foregone consumption and risk acceptance, and also suffering a heavy and variable cut from inflation.

Ha
+1 You beat me to the response.
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Old 04-05-2011, 05:59 AM   #123
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In general, I do not enjoy debates that are directly or indirectly couched as moral questions, because I think that usually the morality, if any, is too subtle to be accurately understood anyway. The fact remains that for most of us, capital gains, when they come at all, are the fruit of many years of foregone consumption and risk acceptance, and also suffering a heavy and variable cut from inflation.
I was not really intending to introduce a moral dimension. I wanted merely to determine the underlying reason behind the view you earlier expressed. It seems that we agree that it is improper to tax capital for gains attributable solely to inflation. If so, we should solve that problem by indexing them. Simply introducing another distortion (a lower rate) that roughly offsets the first distortion does not seem to be desirable. Leaving aside the direct comparison to labor, why should capital gains earned in a year and a day be taxed at the same rate as those earned in 10 years? Surely the 10-year holder has suffered more from inflation.
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Old 04-05-2011, 07:11 AM   #124
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Income taxes are indeed (CPI) inflation adjusted.

Capital gains are not. The illusion of a capital gain may in reality be only due to inflation. Yet it gets taxed.
One year you may have realized cap gains. You pay tax on that. The next year you may have realized capital losses and you may or may not have cap gains to offset the losses.....As was probably the case with the financial crisis for many. So you now have losses for the cap gains you paid tax on the year before ( or for many years).

Wonder how much previously paid tax (gains and reinvested dividends) to the government was associated with all the losses of the financial crisis? Not only did people have huge losses...but they had originally paid tax on the gains and reinvested dividends....that were then lost. It could take several years to make this up.

Cap gains from year to year ...on stock market investments can be as volatile as the stock market. Not the same as cap gains on hard assets (sale of home and real estate, a business..etc.) ...(unless of course you invest that money in the stock market too!).
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Old 04-05-2011, 07:13 AM   #125
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... why should capital gains earned in a year and a day be taxed at the same rate as those earned in 10 years? Surely the 10-year holder has suffered more from inflation.
If we are talking theoretically, the inflation adjustment on cap gains seems to make sense. And not so difficult, a simple table for a CPI adjustment is one added calculation, not too difficult for a pencil pusher and not an issue at all for a computer.

But this is thinking along the lines that our tax code is an attempt at anything sensible, rather than the mish-mosh of counter productive over-complex bits and pieces that it is.

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Old 04-05-2011, 07:30 AM   #126
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To the best of my knowledge, no advanced industrial country taxes capital the same as labor. Labor must go to work to eat. Capital can stay home.

Ha
+1
Cap gains are not ordinary income and your point is well taken. For a person to have cap gains...they did something right many years before or are "trying" to to do something right for themselves and their families. To tax them as ordinary income ...is somewhat counter productive...
Plus...the money ...originally was ordinary income and ordinary income taxes were paid on it ...before it was invested to generate those cap gains. Cap gains..is the tax...on the new dollars the original dollar made.
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Old 04-05-2011, 08:49 AM   #127
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I agree with this. I think carried interest is a travesty, but it actually has nothing to do with bonuses, which are in fact taxed as ordinary income, as are stock grants and options. These partnerships use a different accounting, and hedge fund managers seem to be able to sqeak through the doors on that.

Ha
It appears that we're just using different words to get to the same conclusion. If you believe "carried interest is a travesty", then I think you're agreeing that hedge fund managers should pay regular tax rates on the fees they get for managing their funds, regardless of the words we use to describe the fees.
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Old 04-05-2011, 09:06 AM   #128
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Capital gains are a tax for doing well............
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Old 04-05-2011, 09:09 AM   #129
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I'm seeing people say "We shouldn't tax capital gains because people have to forgo consumption in order to get capital gains." The second half of that statement is true, but it doesn't prove the first half is true.

Does anybody here believe "We shouldn't tax labor income because people have to give up their free time and go out and produce something useful in order to get labor income"?
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Old 04-05-2011, 09:35 AM   #130
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Does anybody here believe "We shouldn't tax labor income because people have to give up their free time and go out and produce something useful in order to get labor income"?
I think that misses the 'big picture' point. We need to collect taxes somehow, in order to fund the things we want/need our govt to do (obviously, there will be disagreement on what this should be limited to). So the question overall is, how do we collect those funds?

You can't get blood from a rock, so some form of getting the money from the people who have it comes into play. All this minutia of getting a little here an a little there and complex and indistinct rules about what is and isn't taxed is crazy IMO.

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Old 04-05-2011, 10:20 AM   #131
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It is true we have low tax rates across the board, in a historical sense. However, I have yet to meet ANY taxpayer that thinks they are NOT paying their fair share.

9/11 sent our economy almost to a standstill. The Congress voted with wide support on both sides to lower tax rates in an effort to stimulate the economy. The tech wreck of 2000 wasn't even recovered from when 9/11 hit. Mutiple wars later and a trillion or so spent, and let's see, a housing bubble, a tech bubble, a gold bubble, a credit bubble, the Treasury printing money as fast as they can, and sure, let's raise taxes on the rich.........I'm sure that will end well..........
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Old 04-05-2011, 10:21 AM   #132
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Originally Posted by Gumby View Post
I was not really intending to introduce a moral dimension. I wanted merely to determine the underlying reason behind the view you earlier expressed. It seems that we agree that it is improper to tax capital for gains attributable solely to inflation. If so, we should solve that problem by indexing them. Simply introducing another distortion (a lower rate) that roughly offsets the first distortion does not seem to be desirable. Leaving aside the direct comparison to labor, why should capital gains earned in a year and a day be taxed at the same rate as those earned in 10 years? Surely the 10-year holder has suffered more from inflation.
I believe the reason that it has been done as it has is that indexation introduces an incredible record keeping burden.

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It appears that we're just using different words to get to the same conclusion. If you believe "carried interest is a travesty", then I think you're agreeing that hedge fund managers should pay regular tax rates on the fees they get for managing their funds, regardless of the words we use to describe the fees.
That is correct. I just used the terms that are normally used, rather than applying other terms that already have other established meanings. I did not understand the limits of what you were referring too as "re-lableled bonuses".

Ha
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Old 04-05-2011, 10:33 AM   #133
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Capital gains are a tax for doing well............
Tax on earned income is a tax for workin' hard.
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Old 04-05-2011, 12:19 PM   #134
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I think that misses the 'big picture' point. We need to collect taxes somehow, in order to fund the things we want/need our govt to do (obviously, there will be disagreement on what this should be limited to). So the question overall is, how do we collect those funds?

You can't get blood from a rock, so some form of getting the money from the people who have it comes into play. All this minutia of getting a little here an a little there and complex and indistinct rules about what is and isn't taxed is crazy IMO.

-ERD50
I agree with all this. That's why I generally favor simpler rules, a broader tax base, and lower rates. IMO, taxing capital income and labor income at the same rate is one of those simplifying things. It eliminates the non-productive activities of trying to reclassify labor income as capital income.
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Old 04-05-2011, 12:46 PM   #135
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I agree with all this. That's why I generally favor simpler rules, a broader tax base, and lower rates. IMO, taxing capital income and labor income at the same rate is one of those simplifying things. It eliminates the non-productive activities of trying to reclassify labor income as capital income.
Which is why I'm (theoretically) in favor of the National Sales Tax in place of 'income tax'. It eliminates the non-productive activities of trying to classify one type of income from another. You spend it, you pay taxes. Period.

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Old 04-05-2011, 12:53 PM   #136
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However, I have yet to meet ANY taxpayer that thinks they are NOT paying their fair share.
Actually, I've said that the past few years, as has one of my friends in a similar situation.

We have reasonable taxable income, but we get a bunch of credits for procreating and sending those kids to college. Our FIT is ridiculously low (I think my friend even got an overall credit, and he lives in a big fancy house, has fancy cars, takes fancy vacations, plenty of toys, etc).

Heh-heh, no I'm not going to make a donation. I've paid much higher rate in other years for similar (but opposite) oddities in the tax code. It averages out, but it's a crazy way to collect tax.

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Old 04-05-2011, 12:55 PM   #137
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Actually, I've said that the past few years, as has one of my friends in a similar situation.
No worries, I'll pass your quote along to one of Obama's "czars" so you can make up for lost time........
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Old 04-05-2011, 02:32 PM   #138
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Yeah, I used to be paying the highest marginal rates of the country (just under when FICA gets phased out). I was single and renting. I was a little bitter about my tax rate at that point.

Once I got married and bought a house my taxes went down a ton.

This year I got $1500 back for installing a new furnance.

I'm about to have my first child deduction soon.

Taxes are no longer on my radar as a big problem.


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Actually, I've said that the past few years, as has one of my friends in a similar situation.

We have reasonable taxable income, but we get a bunch of credits for procreating and sending those kids to college. Our FIT is ridiculously low (I think my friend even got an overall credit, and he lives in a big fancy house, has fancy cars, takes fancy vacations, plenty of toys, etc).

Heh-heh, no I'm not going to make a donation. I've paid much higher rate in other years for similar (but opposite) oddities in the tax code. It averages out, but it's a crazy way to collect tax.

-ERD50
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Old 04-06-2011, 04:51 AM   #139
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Inheritance tax is going cause the least economic impact... as opposed to just increasing payroll, div, and cap gains.

There are few ways to balance the books... either cut spending, increase funding, or both.

I am for both cutting and increased funding... a balance. But changing Medicare or SS in a way that essentially means "you paid into these systems all your life and now we are going to cut your benefit" (that was paid for) or "try to recast it as welfare" are not acceptable approaches to me.

Once one gets past philosophical debate... there are hard issues. The money is going to have to come from somewhere. Let's face it, a higher inheritance tax will take money that is pent up and circulate it into the economy.

Here is where is shakes out:

  1. The wealthy do not want to pay back the tax money they acquired the last 30 years. They essentially look at it as their money fair and square (even if it was acquired through political influence and contributions)
  2. The Middle Class Boomers that played by the rules and paid in to those systems do not want to suffer cuts to their lifestyle severely because it is too late to recover. Why should they be penalized... they played by the rules and have essentially been pawns in this whole thing.
  3. The working poor other low income people scraping by could never cover the debt... they have trouble making ends meet in any scenario.

Those wealthy families will retain large portions of the obscene wealth they acquire (much of it through tax manipulation... some through govt subsidies or set asides).


This is a "who pays" argument. The fact is that we (middle class) paid (for those programs) and they spent it.... now that the shell game has ended. Who is going to pay!
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Old 04-06-2011, 06:54 AM   #140
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This is a "who pays" argument. The fact is that we (middle class) paid (for those programs) and they spent it.... now that the shell game has ended. Who is going to pay!

Can you show the math to demonstrate that this is viable?


And I'll question (and I mean question) whether that money is "pent up". Isn't at work somehow, providing liquidity to banks, or something? Maybe that's not the best use, I don't know.


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