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.
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.
You've confused the effect of a deduction with that of a 100% credit.
What SALT deductions do is they avoid creating perverse disincentives for state/local taxpayer-funded programs that create economic benefit for both the state/local taxpayers and the federal treasury.
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.
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.
That's basically cutting off your nose to spite your face IMO.
The goal of taxes has never been "raise as much money for the government as possible", it's "raise enough money for the government to fund government operations, hopefully without hurting the economy in the process".
So yes, if taxing rich people more means getting less money from them, and if the reasoning for this leads to not-so-rich people earning more money, then that seems like a win.
Between 1950 and 1959, he notes, the highest earning 1 percent of Americans paid an effective tax rate of 42 percent. By 2014, it was only down to 36.4 percent—a substantial but by no means astronomical decline.
There are a few obvious reasons why the taxes the rich actually paid in the 1950s were so much lower than the confiscatory top rates that sat on the books. For one, the max tax rates on investment income were far lower than on wages and salaries, which gave a lot of wealthy individuals some relief. Tax avoidance may have also been a big problem. Moreover, there simply weren’t that many extraordinarily rich households. Those fabled 90 percent tax rates only bit at incomes over $200,000, the equivalent of more than $2 million in today’s dollars. As Greenberg notes, the tax may have only applied to 10,000 families.
And the proposed 70% tax rate only applies to incomes over $10 million in today's dollars.
Why would you want a flat tax for everyone above 30k?
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.
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).
It's a pretty simple issue of a high pressure leaky container, jam a wedge in one leak and the other leaks need to contribute more if you want to maintain the same amount of water coming out. Simplify the tax code and we even end up losing less money to trying to remember where all the leaks are.
In actuality these businesses exist (even much more dirty: in practice, bank employees on occasion demand they be offered this, in trade for not sabotaging a loan. This is pretty common practice). But even "fairly", with actual investments, these businesses exist.
And no, this is not illegal, nor do you want to make this illegal.
These sorts of soft benefits should be taxed at their value as their value is being incorporated into the decision to purchase or continue to hold. And, bonus thing, most people at the lower end of the income scale have no access to these soft benefits so excluding them from taxation is a regressive policy.
It'd be nice if everyone came to the realization that the easiest way to exchange a gained/earned asset would be money and then companies just rented out use of a yacht at the market appropriate price. This can cause a bit of craziness for things like "family discounts" but those, again, are discretionary benefits which are being offered to tip the ideal price point, and things of that class come with the added benefit that they usually will fall foul of discrimination laws under any casual examination.
How about the office in which you work ? Should you be taxed on the value of the office building in which you work ? How about the value of the machines ? How about the coffee machine (which you may or may not use) ? How do you intend to check this ?
Even that is the very tip of the iceberg in terms of problems with this policy. Will you be able to catch abuses at the extreme ? Sure. Will you be able to prevent this from becoming a widespread alternative to paying out dividends using policy ? No.
Even that doesn't help because "taxed" in this case is a big word for "taken out of what the company pays the person". Which means the company pays in situations where the person controls the company, for obvious reasons.
It also stifles innovation and messes up pensioners as their income is based on gilt yields.
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.
That's still investing and the idea that higher taxes on capital income would reduce yield targets for capital investments is backwards.
I don't mean to be harsh but your user name indicates you haven't actually entered the work force yet.
And I have had to chair a meeting of a worker coop when we had to restructure due to running out of capital in the last dot.com crash so I have some idea what I am talking about.
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.
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
Some of the specialized property tax reductions (like urban agriculture) can stay, but ideally we'll be pretty selective and get rid of the silly religious property tax exemptions.
What's your alternative? Become a slave for 30 years to maybe afford to buy a house?
If you could deduce rent (or mortgage for that matter) then more money would stay in the hands of ordinary people. It would also encourage cities to make housing affordable. If housing costs get too high then tax revenue would drop. I think that's a good incentive overall.
It is a good life choice to try and recoup some of the money you're paying into housing as an accrued asset, if you're currently renting I'd suggest looking at the numbers in greater detail - if you move frequently the tax your government levies on selling properties may tip this equation the other way but generally property ownership is a good idea.
To return to your original question, a subsidy on renting allows property owners to shift the price point on their rentals in their favor and ends up going into the owner's pockets, they can reinvest and grow their assets faster while people who are in the rental market will find it harder to escape due to an increased growth in property values - also a rental subsidy is great for anyone who already owns but I don't really think that's a section of the population we need to actively subsidize.
I bought my place for 150k back in 2002. I paid it off in less than 7 years, and have been mortgage free for over a decade now. I know another guy who did something similar, paying off his place is less than 6 years.
I realize this is very uncommon. Most people I know are perpetually refi-ing, and have no desire to ever pay off their mortgage.
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.
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.
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.
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?
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.
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.
Is there even an incentive at that point to find ways to earn more revenue?
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.
US Federal taxes are not primarily paying for things. They are to encourage use of the dollar; to redistribute wealth; to act as tools of policy. The government needs to issue debt in quantities similar to the expansion rate of the economy: when less is issued, the economy will suffer, and when more is issued, inflation begins.
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.
I’d be even happier if it was taxed higher. My time (labor) should be worth more than my money (capital).