"Tax the Super Rich Now or Face a Revolution"

[misanman]

I recently attended a program where the speaker's topic was government programs available to help a particular "industry" - the use of "industry" to characterize this group is mine. It was a topic which which I was unfamiliar, but she went on and on with slide after slide on each of about 7 programs that were available, how to apply for them, and what the potential pay out could be.

I'm not in a position to judge whether this particular group deserves to be on the receiving end of all these programs but I certainly was struck by the breadth and complexity of the government aid programs that were available.

Hard to believe that some simplification or elimination wouldn't be in order and that it wouldn't result in a reduction of government spending. Oh, I forgot that the only things worth cutting are defense, social security, and medicare. Sorry.

 

[Independent]

Isn't that a bit like shooting your wife so the incentive for other men to be attracted to her will be removed? BTW, I understand carried interest. What I do not understand and would like you to help me with is this:
Could you give some real life examples of relabeling bonuses so that they will qualify for capital gains treatment?

I won't try to debate your populist zeal to tax capital gains as if they were ordinary income. Every capitalist country has found out that does not work. One of many reasons is that much of capital gain is illusory nominal income.

Ha

Maybe I'm misunderstanding "carried interest". To me, in the hedge fund example, it means giving the manager shares of the fund rather than cash compensation. So I see this as just transparent re-labeling.

I appreciate the fact that if you're going to dismiss discussion of capital gains taxes as "populist zeal", there probably isn't enough common ground to even start a discussion on making tax rates equal.

 

[haha]

Maybe I'm misunderstanding "carried interest". To me, in the hedge fund example, it means giving the manager shares of the fund rather than cash compensation. So I see this as just transparent re-labeling.

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

 

[sheehs1]

I don't understand your question as year end cash bonuses to employees are treated as ordinary income. Or are we thinking of different kind of bonuses?

I was talking about the Wall STreet people. Someone here said their bonuses were reclassified and they only pay 15% income tax...not ordinary income tax.
Not certain how they do that...unless it is with stock options.

For the rest of us...bonuses are taxed as ordinary income.

 

[haha]

I was talking about the Wall STreet people. Someone here said their bonuses were reclassified and they only pay 15% income tax...not ordinary income tax.
Not certain how they do that...unless it is with stock options.

For the rest of us...bonuses are taxed as ordinary income.

Just a misunderstanding. Just because something gets said here doesn't mean it is correct.

Ha

 

[Gumby]

I won't try to debate your populist zeal to tax capital gains as if they were ordinary income. Every capitalist country has found out that does not work. One of many reasons is that much of capital gain is illusory nominal income.

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.

 

[MasterBlaster]

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.

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.

 

[Retire Soon]

Hedge fund managers should pay taxes on their salaries based on "ordinary income" just like doctors and lawyers. Instead, they are a privileged class that is able to count their income as "capital gains." Ordinary income is taxed at 35% while capital gains is taxed at 15%

This special treatment of hedge fund managers robs our annual tax revenue of an estimated 6 Billion dollars. Why do we tolerate a tax break for billionaires that deprives the taxpayers of such a large amount of money when everyone knows that the collective burden will be shifted to the middle and working classes?

Tax breaks for billionaires: Loophole for hedge fund managers costs billions in tax revenue

 

[Gumby]

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.

That argues for inflation indexing capital gains, not assessing a different rate.

 

[MasterBlaster]

That argues for inflation indexing capital gains, not assessing a different rate.

It does, the issue of whether or how to tax capital is still available for pontification.

 

[ERD50]

That argues for inflation indexing capital gains, not assessing a different rate.

It does, the issue of whether or how to tax capital is still available for pontification.

Yes, and it really gets complicated the more you think about it. That's why (in theory) I like the idea of nothing but a National Sales Tax (with the pre-bate). You spend money, you pay taxes, regardless of how/when it was earned. End of story.

-ERD50

 

[Rambler]

Here are some things to think about:

GNP = approx $60 trillion
Fed budget = approx $4 trillion
- of which SS & Medicare = approx 1 trillion

Fed budget net of SS & Medicare = $3trillion or 5% of GNP

So here is a proposal:

1) Everyone including corporations pays a ~5% flat tax on all their revenues, including salary or wage, dividends, muni bonds, ...everything.

2) No more credits, exemptions, deductions, etc. It all comes off the top.

3) tax could be recharacterized from a "net income" tax to a "gross receipts tax", and could be "taken at the register" everytime a sale (including the sale your and my time and talent to our megacorps).

4) SS and Medicare to be paid separately based on TOTAL income, not capped, and would include income from dividends, munis, etc. Everyone pays into SS and medicare from their gross receipts, even us ERs, because we too benefit from these programs. This would effectively reduce the rate at which we all pay but would increase the total taxes paid by the so called super rich.

5) States would also need to implement a system similar to the fed system.

6) the long-term unemployed who receive unemployment benefits, as well as welfare recipients would need to be put to work for their pay. There are plenty of infrastructure issues that could be addressed by the work of those who are able bodied yet do nothing for their "pay" currently. Further, those who cannot do the physical work but who could do "something" should be given "something" to do.

The reason for all of this is that all people and companies who live in or operate in our great country receive the benefits of living or operating there. We should all bear some of that burden. I see no reason that someone could not afford 5% of his or her gross receipts, if it meant the protection of his/her family. At the same time, I think the benefits of SS and medicare should be borne by everyone who receives those benefits, but that those who receive a higher income are able to pay on their total income rather than just up to a cap. Doing so would likely lower the SS and medicare rate (%) but would mean that the heavier burden would be borne by higher earners.

Finally, if 5% of our gross receipts is "too much" to bear for the benefits received, then we need to re-think our spending. We do that by going to the polls.

R

 

[MasterBlaster]

Here are some things to think about:

GNP = approx $60 trillion
Fed budget = approx $4 trillion
- of which SS & Medicare = approx 1 trillion

Fed budget net of SS & Medicare = $3trillion or 5% of GNP

So here is a proposal:

1) Everyone including corporations pays a ~5% flat tax on all their revenues, including salary or wage, dividends, muni bonds, ...everything.

2) No more credits, exemptions, deductions, etc. It all comes off the top.

3) tax could be recharacterized from a "net income" tax to a "gross receipts tax", and could be "taken at the register" everytime a sale (including the sale your and my time and talent to our megacorps).

4) SS and Medicare to be paid separately based on TOTAL income, not capped, and would include income from dividends, munis, etc. Everyone pays into SS and medicare from their gross receipts, even us ERs, because we too benefit from these programs. This would effectively reduce the rate at which we all pay but would increase the total taxes paid by the so called super rich.

5) States would also need to implement a system similar to the fed system.

6) the long-term unemployed who receive unemployment benefits, as well as welfare recipients would need to be put to work for their pay. There are plenty of infrastructure issues that could be addressed by the work of those who are able bodied yet do nothing for their "pay" currently. Further, those who cannot do the physical work but who could do "something" should be given "something" to do.

The reason for all of this is that all people and companies who live in or operate in our great country receive the benefits of living or operating there. We should all bear some of that burden. I see no reason that someone could not afford 5% of his or her gross receipts, if it meant the protection of his/her family. At the same time, I think the benefits of SS and medicare should be borne by everyone who receives those benefits, but that those who receive a higher income are able to pay on their total income rather than just up to a cap. Doing so would likely lower the SS and medicare rate (%) but would mean that the heavier burden would be borne by higher earners.

Finally, if 5% of our gross receipts is "too much" to bear for the benefits received, then we need to re-think our spending. We do that by going to the polls.

R

Your numbers are flawed. The US GDP is around $14.5 trillion.

If we had a $60T economy then all these isuues awould be so easy to solve.

 

[Rambler]

Perhaps I mis-read the report that I took those figures from, reading it as a quarter rather than a full year:

http://www.bea.gov/newsreleases/national/gdp/2011/txt/gdp4q10_3rd.txt

If so, it certainly does change the numbers. At the end of the day, though, we as a nation can not and should not accept that people are not required at all to shoulder ANY of the burden of running our society. Companies do need to pay tax if they operate in the US. Everyone who benefits from national defense needs to pay some towards it, same with welfare, unemployment benefits, SS, medicare, etc. If we want them, we have to pay for them. If we don't want to pay, we cannot expect to receive the benefits.

So maybe the rate is higher, maybe not. The concept though, is the same. Simple? No, of course not. But something has to be done. I don't see anyone with the cajones to do it in office right now.

R

 

[GregLee]

What is this thing so many of you seem to have for simplicity? The tax system never is going to become simple, so why not just get used to it? Complexity is a condition of modern life.

 

[ERD50]

So maybe the rate is higher, maybe not. The concept though, is the same. Simple? No, of course not. But something has to be done. I don't see anyone with the cajones to do it in office right now.

R

In a way it is simple. It's just LBYM on a national level.

Companies do need to pay tax if they operate in the US.

That sounds good to many, but those costs just get passed on to the consumer. I'd rather simplify things and have ZERO corp taxes. Let corps concentrate on delivering products/services. Every $1 they invest in accountants/lawyers to reduce their taxes by $2 is a huge return for them. But the consumers need to make up the $1 in lost tax income, and pay for the $1 it cost the company to reduce their tax liability. It's a lose-lose.

-ERD50

 

[ERD50]

What is this thing so many of you seem to have for simplicity? The tax system never is going to become simple, so why not just get used to it? Complexity is a condition of modern life.

Some complexity serves a purpose. The complex tax laws are counter-productive. But we should always strive to reduce needless complexity. A wise man said:


"Make everything as simple as possible, but not simpler." -- Albert Einstein

-ERD50

 

[samclem]

Rambler,
Thanks. An interesting proposal, especially the idea that everone has an obligation to help pay for running this place.

3) tax could be recharacterized from a "net income" tax to a "gross receipts tax", and could be "taken at the register" everytime a sale (including the sale your and my time and talent to our megacorps).

This could be a problem at a corporate level (corporations and sub-entities would restructure to avoid paying the tax, adding a lot of complexity and costs). But, if we get rid of the corporate tax, it all gets simpler: the taxation occurs when the money goes to an individual (or between individuals). As ERD50 points out, taxing corps is really just an indirect tax on individuals anyway, so lets dispense with the whole thing (and bring a lot of industries, and their jobs, back to the US).

 

[Westernskies]

Just because something gets said here doesn't mean it is correct.Ha

Well, that certainly changes everything.

 

[Westernskies]

(and bring a lot of industries, and their jobs, back to the US).

NO, NO, NO! We don't need industries or jobs, we just need higher taxes.

 

[haha]

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.

Ha

 

[packrat44]

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.

 

[Gumby]

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.

 

[sheehs1]

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!).

 

[ERD50]

... 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.

-ERD50