1) if you ask people what the dollar amount is to make someone rich, it's invariably more money than they are currently making. how do you fairly draw a line on who is rich and who isn't? someone who makes $100k in bumblefuck wisconsin, might be pretty well off, but $100k in washington dc or new york or san francisco you are probably dumping at least half your pay check on your rent.
2) it's too easy to argue that it's unfair. poor people don't think rich people don't pay enough. rich people think poor people don't pay enough. poor people think rich people are greedy assholes. rich people think poor people are lazy and consume a disproportionate amount of the services the government provides. the only "fair" way is for everyone to pay the same rates. at least if you assume "fair" to mean allowing for the least amount of complaining.
by increasing the capital gains rate, you completely the eliminate the question of who is rich and who isn't and everyone who is paying taxes, is paying the same rate, with no perceived favoritism.
but wait! increasing the capital gains rate will stop investment! bullshit. think about it. you're a wealthy investor. you want to make more money so you invest it. right now you have to pay 15% in taxes on your gains. well what if you had to pay 30%. are you going to decide, ah fuck, it's not worth it anymore and just go swan dive in your giant coin vault, scrooge mcduck style? of course you aren't. you're going to invest it and pay 30% on your earnings because paying 30% on your earnings is better than not earning anything, right? right.
problem solved. you're welcome america. (debate is of course welcome.)
here's some other general thoughts on taxes:
- the home mortgage interest tax deduction makes no sense and has nothing to do with anything. the government does not need to incentivize activities that people would do naturally anyway. it should be phased out. and i say this, whilst holding three mortgages, not as someone who has nothing to lose and thinks everyone else should be paying, but not me
- an effective tax rate (not marginal) of 15% actually seems like a reasonable amount to be paying. an effective tax rate of 25-30% does not. you should not have to work 1/4 of the year just to pay your taxes.
8 comments:
Wow I agree with 90% of this. The argument for a capital gains rate this low is pretty weak. As you said, what else are you going to do with the money? Expand your business? Invest in startups? Good!
The last point you made seems like an arbitrary demarcation which goes counter to what you were saying earlier about where you draw the line. I think the % you pay really depends on what services you're receiving.
yes, totally arbitrary... i should have said "independent of what services the government actually provides".
Those are all good arguments, but I think they will not fly.
Why? Because people believe what they hear on TV, and most people don't understand what "marginal rate" means.
They think the tax code is incomprehensible, and that everyone else has a "loophole".
WORST OF ALL, there are many "poor" people (in the 15% bracket) who really think that "Bush cut my taxes" and that the "death tax" (Gifts and Estates tax) will somehow apply to them, even though their estate is worth far less than a million dollars.
That is the perception of the great unwashed masses.
Of course, the great thing about Capital Gains tax, is that, if you are a working Joe, you can invest in a real estate property, depreciate the property on your taxes (deducting at a 35% marginal rate, for example) and then paying capital gains later on at 15-25% rate (the latter for recapture).
Sweet deal if you could swing it. And it explains why so many people invested in Real Estate before the bubble burst....
See:
http://livingstingy.blogspot.com/2010/01/converting-ordinary-income-to-capital.html
actually i think the fact that people in general don't seem to understand marginal tax rates makes this idea easier to sell. all they know is it doesn't affect them because they aren't making any money off of investments which means someone else is paying more taxes and they aren't.
as for your comments about real estate (i read your post), i don't think that works for everyone. i believe you need to be a "real estate professional" in order to write off loses on rental properties against your w-2 income. you cannot deduct passive loses from active income. also, i am of the understanding that when you sell a rental property, the IRS assumes you depreciated it whether you actually did or not, so you best depreciate it. of course i am not a tax professional, i only know just enough to get myself in trouble.
Interesting ideas. Its the same type of thing in the UK. 100K Pounds goes a lot further in rural England then in London.
The other argument used to justify _abolishing capital gains tax entirely_ (this is the argument, not that I agree with it) is that to some extent, capital gains taxes inflation.
Say you invest $1000 ten years ago. The rate of inflation has been, say, 2% a year. Your investment made only about 2% a year, so you end up with $1,218.99 after ten years.
You owe 15% of that "gain" in taxes, or $32.85, leaving you with a gain of $186.14 - a rate of return of about 1.75%, or less than the rate of inflation.
Of course, others (including myself) would say a simple way to fix this is to factor in an inflation rate, but it gets messy, as you would have to calculate when you made the investment, and then the inflation rates for every year and then subtract that from the capital gains tax.
Others take this a step further and argue that not taxing capital gains at all would encourage all of us to save and invest, rather than work. This is, of course, a nice self-serving argument for someone living off their investments.
The thing to bear in mind is that our taxing portals - entry points into our economic system where we collect taxes - are often arbitrary. We tax wages, tax capital gains, we tax sales, we tax property.
Image an economy where all taxes were made at the sales level - as well as the other mandates we force on employers today.
You go to McDonald's to buy a Big Mac, and the sales price has your social security, medicare, and Federal tax factored in. Moreover, they have set aside money for your 401(k), health insurance, and also check your immigration status.
You laugh - this is what they make employers do now, which is why I stopped being one.
The long and the short of it is this: Radical overhauls of our tax system are not likely to occur - nor should they. If you change the incentives too greatly, you could bankrupt scores of people overnight.
For example, the arguments against the home mortgage interest deduction are sound - and many in the GOP favor eliminating this deduction. But you would have to phase it out over at least 10 years, otherwise homeowners today could end up losing their homes, as their effective mortgage payments (without the deduction) go up significantly.
I think eliminating the Bush era tax cuts (3% cuts for the top three brackets) is a modest and workable proposal.
And one that is slated to take effect next year, provided Congress does not reauthorize it and the President does not sign it into law.
And this may very well happen if Obama is re-elected. It will not, if Romney is. Pretty basic choice, IMHO.
Earning the money, not hate the rich. Get some education of investing at http://stockmarketstudy.org, you will thank me for that in the future.
Frankly, I've always thought the capital gains, earned income, was backward.
You have to WORK to make earned income. It's harder to come by. With invested money, you sit on your ass and do nothing and the money comes in.
So it seems to me the taxes on invested income should be HIGHER, not lower, than earned income.
Plus... if that were the case, it gives people with lots of money a slight incentive to start a business that might provide jobs... as their income from that would be earned income, at a lower tax rate.
But let's face it... the rich SHOULD pay a higher tax rate. Why? Because they can afford to. Plus, if they are rich they either inherited the money, or made it themselves in business... using the infrastructure provided by society, the customers provided by society and the (most likely) exploited work force they used to do all the heavy lifting.
Frankly... people that are really wealthy have more money than they, or their kids, or their kids kids, could spent in their lifetimes. Whether their tax rate is 15% or 35%, they are really not going to notice the difference, nor will it affect their lifestyle at all.
But what could affect their life is that they get car jacked and shot by some low life criminal that became a low life criminal being raised in desperate poverty with no hope or opportunity for escape from that life and with only gang members as role models.
This is a society... we are all in this together. We should keep that in mind.
Post a Comment