Campaign 2016 Part XVI: KICK THE BABY!

[alfablue]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Sorry, I think I wasn't very clear regarding the 18% number. The average capital gains tax in countries around the world is about 18%. The US is the 6th highest at the moment with a top tax of 20% plus a 3.8% ACA surcharge for highest income earners. In the example of the CA residents, taxing it as ordinary income would result in them paying a total State and Federal rate of 43.3% as presumably it would be income on top of their normal 250k and taxed at their top rate. CA top earners would pay the top rate of 39.4 plus 13.3 for a total of 52.7%.

Now I'm not saying it isn't a bit of a complicated matter, so much so that there is considerable disagreement as to what the rate should be or if there should even be one. ( I believe in Switzerland and the Netherlands for example, it's 0% and in Denmark 42%) As to why there is a break at all though, (there has been since 1927) the original idea is to encourage saving and investment, which it seems, it does.

I appreciate the argument that all income should just be income and treated the same for everyone, but the argument for a lesser rate is to increase realizations (and probably market liquidity) and generate more revenue for the government, not to make the rich, richer. (By the way I believe Mr. Sanders, Mr. Trump, and probably Mrs. Clinton are all of one mind on eliminating the carried interest loophole for fund managers.) Capital gains tax is not a recurring tax like income tax is, it obviously only kicks in when an asset is sold and a gain is realized. Now if the rate on gains becomes putative, there is little incentive for a wealthy person to turn over their assets and reinvest. (just to be clear, cap gains taxes are currently paid on assets held more than one year, so for day traders and flippers etc. it's normal income. The time element for that has varied, it was up to 5 years under Bush and I believe Mrs. Clinton proposes a regressive tax rate for up to 6 years)

For a different example, let's say I was Steve Jobs college roommate (I wasn't) and I invested some money in his startup (sadly, I didn't) and today that is worth 1 billion dollars. I could divest and reinvest somewhere, paying the government a reasonable share of the profits I've realized. Or if the rate is rather high, like the normal income example in CA I could pay $530 million to the government and pocket $470 million on the sale. Or under the same rules you suggest I could simply borrow against it to live, keep it 'til I die and my kids receive it at it's stepped up basis of a billion dollars and the government never collects a penny on the gain. I know which of those 3 scenarios I prefer, but certainly there is disagreement on the subject.

We did the break for angel investors and IPO's during the bailout because there was literally no cash available in the market, but I'm not a fan. (established companies do sell their owned stock all the time to raise capital. Or they sell bonds.) The fact that a tax break generated investment under those conditions though may very well speak to a reasonable gains rate increasing market activity and therefore realizations and revenues.


Briefly on double taxation: A stock is ownership in a company. If that company makes a profit, the stock's value increases a corresponding amount. The profits of the company are reduced by the amount of tax the company pays the Federal government. The stock's value can then be said to have been reduced by an amount corresponding to the tax paid by the company it represents ownership in. The owner of the stock sells it and is again taxed on the profit he makes, which has already been reduced by federal taxes.

The argument has some merit but I'm not trying to force it on anybody.

Again, if the idea is direct investment into companies- that is a valid argument to reduce taxes to increase investments into companies. But once it's originally sold by the company into the market, then all further sales are trades, and have no real bearing on a company. The company I work for has been as high as 40 (equivalent) and as low as 1.4, and now it's mid teens. Rarely has it ever tracked our actual performance, nor has it had any impact on our investments into new products.

Also, while your example of double taxation has some merit for dividend payments, it bears no impact on capitol gains taxes- you are taxed on the value someone else is willing to pay you for the stick, which doesn't have actual reflection of a company's performance. Google and Facebook produce nothing, and pretty much sell ads, but are worth more than the GM and Ford combined, who have combined sales of stuff close to $500BILLION. There is no real relationship between value and performance in the market- it reflects some feeling of potential.

If one wants to encourage savings and whatnot- fine, we can tune the rules to that.

But the resulting side effects of the capitol gains tax has been terrible. We should be encouraging people to work and earn a living instead of betting of the future value of stuff- which is actually called unearned income in your taxes. It's a good name for it.

[alfablue]

Re: Campaign 2016 Part XVI: KICK THE BABY!

It's not double taxation. You're only taxed on the gains, and you can offset those with your losses, and even carry over losses to future years.

There's no reason to tax earned income higher than unearned income.

That's a good point- you get taxed at a lower rate if you make money, but if you lose money, the loss is a direct loss on your income- so losses are benefited at your income bracket. Both should be the same.

[rufus]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Sorry, I think I wasn't very clear regarding the 18% number. The average capital gains tax in countries around the world is about 18%. The US is the 6th highest at the moment with a top tax of 20% plus a 3.8% ACA surcharge for highest income earners.

Those countries also have much higher income tax rates.

[Slap Shot]

Re: Campaign 2016 Part XVI: KICK THE BABY!

And the silence you hear from one camp is Lambeau Field.

[unofan]

Re: Campaign 2016 Part XVI: KICK THE BABY!

but the argument for a lesser rate is to increase realizations (and probably market liquidity) and generate more revenue for the government, not to make the rich, richer.

That's grade A malarkey, right there. A person who has the money to invest at that level isn't going to park their money on the sidelines earning 0% when they could be making X% even after taxes. The reason for the lower capital gains rate is because it was sold as trickle down economics. Which, as Kansas shows, doesn't farking work.

and my kids receive it at it's stepped up basis of a billion dollars and the government never collects a penny on the gain. I know which of those 3 scenarios I prefer, but certainly there is disagreement on the subject.

Which is why we have the inheritance tax, and why anything over $5.something million is subject to it.

[FadeToBlack&Gold]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Explain why, in the legendary Eisenhower 1950s - Eisenhower had a 90% top rate, BTW, what a Commie! - more Americans lived comfortably middle class than they do today?

Under Eisenhower, Kennedy, and LBJ, most of the interstate freeway system was built. It has now crumbled to worthlessness, or gone to semi-private tollways, in many states. I paid over $6 in freeway tolls in Orlando last week - their roads are nice enough (about the only good thing I can say about Bore-lando), but no one should have to pay tolls just to commute to work on-time every day. That's just a hidden income tax.

[WeAreNDHockey]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Explain why, in the legendary Eisenhower 1950s - Eisenhower had a 90% top rate, BTW, what a Commie! - more Americans lived comfortably middle class than they do today?

Under Eisenhower, Kennedy, and LBJ, most of the interstate freeway system was built. It has now crumbled to worthlessness, or gone to semi-private tollways, in many states. I paid over $6 in freeway tolls in Orlando last week - their roads are nice enough (about the only good thing I can say about Bore-lando), but no one should have to pay tolls just to commute to work on-time every day. That's just a hidden income tax.

How can it be a freeway if you pay every time you drive it? And actually it's not a very hidden tax at all.

[ExileOnDaytonStreet]

Re: Campaign 2016 Part XVI: KICK THE BABY!

And the silence you hear from one camp is Lambeau Field.

Was this supposed to go in the NFL thread?

[5mn_Major]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Can't agree with you here. As an example a roughly $250k earning CA resident would pay 33% plus 10.3% on long term returns in an environment where the real world average tax of this sort is around 18%. Investing has risk so there needs to be reward or Mr./Ms. California might just as well stuff the mattress with $100 bills. Setting aside the double taxation argument, raising long term capital gains rates in this manner, despite the notion that we'd all be really sticking it to the rich, would very likely have an extremely negative economic result. Since capital formation is critical to improved productivity and, therefore, to GDP and real-wage growth it is important to find a proper balancing point in which investment is still encouraged by real return incentives. (And it would hardly seem fair to me to advantage IPO's for capital investment over existing concerns that they are often entering the market to compete against.)

I think that unless we're prepared to just have the state seize assets of the rich above a certain valuation, the fact of the matter is that job growth, GDP growth, and even wage growth is going to come at the expense of some rich people getting even richer.

In addition to other arguments, low LT capital gains tax does not encourage the behavior we want. So you have someone who's talented and has money. They are being penalized for going out and starting a new company or earning money with a high value add job...whereas they are rewarded for sitting on their duff focused on investing their money. Not what you want for the American dream or even a productive society.

[bronconick]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Trump puts Breitbart News runner in charge of campaign, ends effort to "moderate tone"

[Handyman]

Re: Campaign 2016 Part XVI: KICK THE BABY!

This was his campaign being moderate? My lord the GOP must be freaking out with how nuts this will go

And EODS, I think Slappy is paraphrasing a bit from KFAN (PA uses it) but like 95% of the people here wouldnt get that. If he isnt...then I got nothing

[BassAle]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Trump puts Breitbart News runner in charge of campaign, ends effort to "moderate tone"

Trump is putting together the ultimate ****** bag dream team

[St. Clown]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Explain why, in the legendary Eisenhower 1950s - Eisenhower had a 90% top rate, BTW, what a Commie! - more Americans lived comfortably middle class than they do today?

Under Eisenhower, Kennedy, and LBJ, most of the interstate freeway system was built. It has now crumbled to worthlessness, or gone to semi-private tollways, in many states. I paid over $6 in freeway tolls in Orlando last week - their roads are nice enough (about the only good thing I can say about Bore-lando), but no one should have to pay tolls just to commute to work on-time every day. That's just a hidden income tax.

You need to look at the effective income tax rates people were paying in each tax bracket and not focus on the marginal rates when comparing different eras. When Eisenhower was in office, you could purchase a rug or drapes and deduct them as housing investments. Kennedy made an actual cut to the top marginal rate, from 90% to 70%, which actually affected the effective rates the most over the past sixty years. When you look at the big changes Reagan made to the system, he actually made the tax code more transparent. He dropped the TMR down to 25%, but he eliminated almost every deduction out there; the effective tax rates barely budged. After that point, some deductions were reintroduced (hello, mortgage interest tax credit), then the marginal tax rates were given their bump (graphed out, it looks like a nipple to a 20-year-old college student) under Bush I, then Clinton eliminated the drop on the higher income earners, and Bush II then pushed through his warmly received tax cut. And along the way, more and more tax credits and deductions were added.

[Rover]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Trump is putting together the ultimate ****** bag dream team

What else has he got? Only prayer he has is if the mythical unaccounted for angry white male voter shows up and reverses 3 decades of a dwindling share of the total voter pool.

[Wisko McBadgerton]

Re: Campaign 2016 Part XVI: KICK THE BABY!

Again, if the idea is direct investment into companies- that is a valid argument to reduce taxes to increase investments into companies. But once it's originally sold by the company into the market, then all further sales are trades, and have no real bearing on a company. The company I work for has been as high as 40 (equivalent) and as low as 1.4, and now it's mid teens. Rarely has it ever tracked our actual performance, nor has it had any impact on our investments into new products.

Also, while your example of double taxation has some merit for dividend payments, it bears no impact on capitol gains taxes- you are taxed on the value someone else is willing to pay you for the stick, which doesn't have actual reflection of a company's performance. Google and Facebook produce nothing, and pretty much sell ads, but are worth more than the GM and Ford combined, who have combined sales of stuff close to $500BILLION. There is no real relationship between value and performance in the market- it reflects some feeling of potential.

If one wants to encourage savings and whatnot- fine, we can tune the rules to that.

But the resulting side effects of the capitol gains tax has been terrible. We should be encouraging people to work and earn a living instead of betting of the future value of stuff- which is actually called unearned income in your taxes. It's a good name for it.

I understand the impression and in some cases, the fact, that a given stock is simply the object of speculative gambling and has no correlation to the underlying value it should represent. I'm sure that the example I gave is an oversimplification and could have been at the very least better stated as a stock's value being the market's estimation of a given company's future profits and/or growth. While I can't quite get to the space that allows a stock's value being relatively detached from the company's performance (for example that value is used by many companies to buy others in all stock transactions) I don't entirely disagree with your assertion that it's just gambling. Rather I'd just put forth that all business is gambling in a similar sense. Whether I invest in a start up, a going concern, or own a small laundry mat and sink profits or borrow money toward new and better equipment, I suppose I am gambling that the given action is going to generate a return on investment. But there certainly is a long tradition of outcry against stock speculators and that should be given it's due weight in policy.

There are some other points to be made in favor of the premise I started with, such as inflation cutting into real gain, but I 'd rather point out that we agree at the least in some sense of a public benefit that occurs and should be encouraged through some monetary policy when capital is invested into a start up or even in recapitalization of an existing employer company. We may even, between us, identify certain high risk fields like biotech that we would want to further encourage investment in. An example of another area I'd guess we would agree on is ending High Frequency Trading. I suspect on that foundation alone were we to put a good deal of time and effort into further discussion we could come up with a general policy that is fairly workable and acceptable despite, I assume, neither of us being actual economists. Which sadly, is considerably more then any of our representatives in government have been able to manage.