
Raise the capital gains tax and treat investment earnings like ordinary income - pseudolus
https://www.nytimes.com/2019/01/28/opinion/aoc-wealth-tax.html
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wilkskyes
This wouldn't bring in too much money and it would just discourage long term
investment. The last thing we need is more short term thinking.

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eridius
This article declares that a 70% marginal tax rate on income above $10M/year
is bad policy, but the only justification it offers for it being bad policy is
that adding in NY state/local taxes would raise that number to 82.7%.

So what?

I've seen repeated countless times recently that the marginal tax rate on the
rich used to be as high as 91%. Why is a combined tax rate of 82.7% bad
policy? And if that's really your only justification, then the fix here is to
just make the state/local taxes deductible again.

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munk-a
SALT exemptions should definitely not be restored - I grew up in the north
east where those SALT exemptions are fully utilized but they introduce an
illogical perverse motivation for state and local governments to spend freely
since any taxes they introduce are essentially just that level of government
getting a free non-revokable payment from the federal government.

I do acknowledge that areas with SALT exemptions tend to be areas that pay a
disproportionate amount of taxes for the benefits they receive but I think
this solution to that issue is ludicrous. Investment by the government should
ideally try and maximize the benefits given by that investment means that
denser population areas should be targeted unequally to receive benefits but
SALT exemptions are crazy.

Also, just a note, this portion of their argument seems silly, what is one
number compared to another number without context, if 82.7% is just too much
for the market to bear than let's talk about 58.3% as a base marginal tax rate
on $10M and above - in actuality the utility of assets decreases so steeply
that I don't know if 82.7% really is "silly" but all this talk about specific
numbers should be decided by people way more specialized than the general
public.

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Eridrus
> they introduce an illogical perverse motivation for state and local
> governments to spend freely since any taxes they introduce are essentially
> just that level of government getting a free non-revokable payment from the
> federal government.

This is just not true. The SALT exemption lets you deduct the SALT taxes from
your income, not your tax bill, so this is not just a transfer from the
federal government.

I.e. If you had a flat federal rate of 10%, a flat state rate of 10% and an
income of 100k, the SALT deduction would reduce your taxes from 20k to 19k.
There is some subsidy here since the state gets 10k, whereas you are only
paying 9k for those services, but its clearly not free money.

> what is one number compared to another number without context

Economists have studied the topic of most efficient tax rates, in terms of
bringing in government revenue, and 82.7% is above the point where you
maximize revenue, i.e. you would raise more money with a lower rate.

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eridius
> _Economists have studied the topic of most efficient tax rates, in terms of
> bringing in government revenue, and 82.7% is above the point where you
> maximize revenue, i.e. you would raise more money with a lower rate._

I don't think "raise the most money" is the goal we're shooting for though. I
mean, it's important, but it's not the only goal.

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hackeraccount
When you start talking about rates in the 90% range what you're really asking
for is for rich people to hire a tax attorney or account to lie to you about
how much money the rich person makes. It's the definition of dead weight loss.

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eridius
Rich people find tax loopholes to exploit. Outright lying can get them thrown
in jail.

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ratsmack
More importantly, remove all of the many loopholes that are used by the very
wealthy to prevent themselves from paying tax at all. I would greatly be in
favor of a flat tax for everyone earning $30K and above.

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hnmonkey
That massively massively penalizes people who are more poor or middle class vs
someone that has millions or billions. 30% of a million is 333k, but 30% of
31k is 10.3k. I imagine losing that 10.3k hurts the 30k person far more than
losing the 333k does to the person who is now making 667k.

Why would you want a flat tax for everyone above 30k?

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ratsmack
The $30K I noted is arbitrary and only chosen because that is the approximate
poverty line currently.

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hnmonkey
Just so you know the poverty line is $12k-$15k for single people and $25k-$31k
for a family of 4.

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StudentStuff
Taxing investments more than standard labor should be the baseline. Us workers
should not be subsidizing the significantly discounted rate that investment
earning are taxed at.

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umvi
"If you want more of something, subsidize it; if you want less of something,
tax it."

If you raise taxes on capital gains you'll get less investment. Maybe that's a
good thing.

Either way, I'm in favor of tax simplification in all of its forms; Tax law is
like that spaghetti legacy codebase that is just dying for a refactor/rewrite.

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gamegoblin
Genuine question, as I am not well versed in finance:

What else would those with capital do other than invest? That is, it seems
like investment is clearly better than holding cash, regardless of the tax
rate (with some caveats, e.g. not being in a deflationary economic state).

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walshemj
They invest in lower risk securities which leads to a bull market in bonds and
guilts which has its own problems.

It also stifles innovation and messes up pensioners as their income is based
on gilt yields.

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munk-a
I don't understand why investors would do this, it seems like an unnatural
response. If all capital gains are being taxes as income these investors would
just voluntarily be choosing to make less money if they picked this strategy.

Their strategy selection would equalize to being about what it is now but each
cycle would yield them less money to reinvest and yield the government more
money to invest. It can be your opinion that private investors are more
efficient than the government but funding our "necessary services" (i.e.
having an army, what not) is so deprived of income that it is being extracted
through a regressive income tax.

FYI, I'm all for cutting pork, but the income stream and what we end up
spending that money on are two different issues.

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RickJWagner
Just prior to reading this article I left the kitchen table where my wife and
I were going over tax forms.

I work for a tech company that has done well, we're getting acquired. I've
accumulated a little bonus stock, I'll be forced to sell when the acquisition
happens.

I wouldn't like an increase in capital gains. As it is, it's already taking a
sizeable bite out of what was a nice bonus. If the government was well-run and
spent money efficiently, I might feel differently. A quick Google search for
'porkbarrel spending' reveals that there's room for budget trimming that could
leave my bonus (and yours) intact. I'd like that economic plan better.

A wise man once noted that if we paid taxes weekly by writing a check for a
man who came to the door, we'd kill that man in anger. I can understand the
sentiment.

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GreaterFool
> But the 2017 tax cut legislation reduced the tax rate on corporate profits
> to 21 percent, from 35 percent. So if taxes on capital gains and dividends
> were raised by those 14 percentage points, we capitalists would be no worse
> off — and American companies would still be more competitive globally, the
> theory behind reducing the corporate tax rate.

Right. So when someone gives a handout to big corporations then we should
squeeze the last drop of blood from pension funds and small investors?
Brilliant idea for reducing income inequality!

I don't expect wealthy investors to rely on dividend stocks too much. Those
are the scraps left from common people after the vultures have already picked
the carcass clean.

Also, dividend stocks might be "safe"-er than some other stocks but it's still
a relatively risky investment (the markets are crazy). If dividend taxes were
40% percent I would simply not bother. Too risky!

Here's an idea for making life easier for a lot of people: MAKE RENT DEDUCIBLE
FROM SALARY BEFORE TAX

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skrap
In supply-constrained markets, wouldn't any benefit from this eventually
accrue to landlords rather than renters? Put another way, if landlords are
charging what the market can bear, and the market can suddenly bear 25% more,
won't they just raise prices over a few years to eat up that new wealth?

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munk-a
You are correct, all of this benefit would end up being taken by landlords due
to their ability to dictate prices - btw government subsidized housing can be
a different situation and the government can be an intentionally inefficient
market actor to benefit the renters. I think there are still more accurate way
to subsidize the lower class though, a reduced income tax is more likely to
directly translate into a higher savings rate and more consumer power - and
that last bit benefits us all by increasing the velocity of money.

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gremlinsinc
Here's a simplified and better plan.

1\. There's no normal 'filing', instead you just submit a statement of
previous year earnings from all sources.

2\. Institute a tiered GBI as follows:

 _0-25k = 100%

_ 25-50k = 66%

 _50-100k = 33%

3\. Then get rid of income tax and institute flat sales tax that can be easily
modified by congressional approval, but no more than 1-2% per year up or down.

_This tax should be applied across the board. If money changes hands, tax is
taken out, kind of like crypto transaction fees, in fact if we moved to all
electronic currency it'd be easier to just do that from the get go. So if
you're getting money back from capital gains -- that money loses the
transaction tax before you get it in your account.

 _Stop worrying about border control, and illegals stealing jobs, instead make
the transaction tax higher if you aren 't a citizen. If we have only
electronic currency, it can also cut down on paying people under the table
with cash, since cash doesn't exist. Furthermore, if cash doesn't exist - we
can save a mint, by getting rid of the whole minting process. By making tax
more for immigrants, we can stop saying they don't 'contribute', and only
citizens would receive GBI, and healthcare.

_Worried about whether it's even stevens or not? Everyone is a taxpayer, no
refunds, loopholes, etc. You buy real estate, property, pay rent, pay a
commercial lease, pay an employee the money is automatically taxed in transit.
It's all programmatically controlled and simple, easy for everyone to
understand, and doesn't require an entire industry of professionals just to
figure it out. (Sorry CPA's).

Benefits: Get rid of most of IRS, CPA's, Fed, Welfare, Housing Assistance,
etc... Save a ton GDP-wise, and get more money in the hands of the people to
keep the wheels of industry spinning.

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dsr_
Treating capital gains differently from general income is a policy move
designed to increase investment by making the profits larger.

Eventually, a large portion of employment compensation got pushed through to
look like capital gains -- for example, by issuing stock options or actual
shares as part of overall compensation.

It's perfectly fair to kill that loophole by modifying the capital gains tax.
One option would be to make it progressive and marginal like the income tax:
E.g. if you make under $20,000 in capital gains in a year, you pay no tax on
that; then 10% on the next 10K, then 20% on the next 10K, 30% on the next 10K,
and so on.

The structure of startup corporations might change as a result. An LLC might
be much more attractive, and profitability a more attractive goal.

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dragonwriter
> Treating capital gains differently from general income is a policy move
> designed to increase investment by making the profits larger.

Surplus wealth is largely going to be invested unless you actively prevent it,
you don't need to tax favor capital income to get that result. Tax favoring
capital income (i.e., tax penalizing other, most notably labor, income) just
means that those that already have significant capital accumulate more faster
while other people have a drag force applied preventing them from accumulating
signficant capital.

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ergothus
I'm not an economist.

I understand the theory that capital gains being taxed at a lower rate is that
we want to encourage investment - putting capital where it will grow more
jobs/more needs being met by companies.

I also understand the theory that this is nice in theory but isn't describing
the actual results.

And while I _believe_ that's a problem, what I don't have is an understanding
of the data. Like with HFT, I can react with my gut, but I'd be happier if I
could understand a bit more about whether the system is working or not, and if
not, where does it bend? What's the equivalent of the Laffer Curve for capital
gains?

Are there any explanations that aren't overly preachy of one way or another
that can explain to someone without the econ background?

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zozbot123
As a general rule, taxation of returns on savings is _always_ double taxation.
Money today is _not_ worth the same as an equal amount of money five years
from now, or an equal amount of money after it has been invested in a risky
venture with a substantial chance of losses. Returns from capital are, in
expectation, a compensating differential for such differences in value.

Now, this is not to say that _some_ taxation on savings isn't sometimes
appropriate; for instance, some forms of investment are non-transparent and
might be used to shield earned income from taxes that _should_ bear on it;
also, higher-income folks tend to save more and to choose riskier investments
that yield higher expected returns; so returns correlate with ability to pay
in a way that's worthy of note because it doesn't impact incentives too much.
Taxes that bear on some peculiar assets, such as the land-value of urban real
estate, EM spectrum rights, or investment into highly-polluting industries,
also don't adversely affect incentives. However, existing taxation on capital
appears broadly appropriate to take advantage of these things; the bulk of
taxes should still fall on tax bases other than savings and investment, such
as the portion of income that's not saved but spent on non-baseline
consumption of goods and services.

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dragonwriter
> As a general rule, taxation of returns on savings is always double taxation.

Not any more than any other taxation.

> Money today is not worth the same as an equal amount of money five years
> from now

That's a good reason for inflation adjusting basis values when computing
gains, but it's not a good argument for not taxing them, or for taxing them at
a preferential rate.

> an equal amount of money after it has been invested in a risky venture with
> a substantial chance of losses.

The loss either happens or it doesn't, once it has or hasn't, what is left is
the same as the same amount of money acquired by other means.

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adpirz
Taxes raise revenue to pay for things, but we've been debt financing on the
strength and stability of the country forever, and unlike the oft-cited
comparisons to individual households, it doesn't seem like there will be any
serious collections from our debt holders both foreign and domestic any time
soon. The US deficit in 2019 is going to come pretty close to $1 trillion, but
the general outlook seems fine, bond yields are low, etc.

Is there even an incentive at that point to find ways to earn more revenue?

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ch4s3
Yeah, we live on cheap debt for now, but interest rates will rise eventually,
there will eventually be another downturn, and the interest payments are
stacking up. If we end up in a position where all discretionary spend is
displaced by servicing the debt, we’ll be in real trouble.

We’ve never been able to pull in more than 18% of GDP in tax receipts for more
than a short time period. We’re currently collecting ~17%, so we have a tiny
bit of head room based on historical precedents. Beyond that, I don’t know
what we can do other than cut some spending. Auditing the DoD and means
testing Medicare might pick up some low hanging fruit. Hard to say what’s most
likely to work, IMO.

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pseudolus
Raising the capital gains tax level to match the level imposed on ordinary
income might be too extreme but the tax code should definitely be modified so
that the various schemes and loopholes created to disguise income as capital
gains can be ended.

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dharmon
Or at a minimum, increase the "long-term capital gains" holding period from 1
year to somewhere around 3 to 5 years. This maintains the lower rate for
people genuinely investing for retirement.

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dragonwriter
> This maintains the lower rate for people genuinely investing for retirement.

Insofar as we need tax favored retirement vehicles, we have plenty—general
taxation of capital income need not be concerned with that. There are two
legitimate interests I see addressed by special consideration of long term
capital gains (but the current “jist give it a lower rate” approach is
suboptimal for addressing them.)

(1) Gains over >1 year taxed as current income in the year realized, when this
is not repeatable (that is, when the owner doesn't have a large pool of long
term investments to liquidate some of each year) is unfair in a progressive
tax system because you will get high taxes in the realization year because of
a high bracket, but you need to use the income across multiple years.

This can be simply addressed by allowing taxpayers to recognize income for tax
purposes before realizing it (and/or allowing deferring some of the income
received in a spike year.) I prefer combining both.

(2) Because of inflation, the real net gain from capital may be much lower
than the nominal gains for assets held for a long time. (If appreciation is
less than inflation, you may have a real loss with a nominal gains.) This is
best dealt with by inflation-adjusting basis values when computing capital
gains.

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ladon86
I’d be very happy if my investment income was taxed at the same rate as my
salary income.

I’d be even happier if it was taxed higher. My time (labor) should be worth
more than my money (capital).

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bassman9000
This is a great way to cause another combined housing and fixed income bubble.

