If you're poor and only have your work to sell, you'll get taxed progressively until you're rich enough to save money and invest. Meaning your effective tax rate increases as you get reasonably rich (from work) and then when you're really rich, the rate slowly decreases down to the level of capital gain tax. I don't understand why this is accepted. I find this revolting as I'm in the position to benefit (my tax rate going below that of people far less wealthy than me).
capital gains is income from investing, which is how new productivity gets funded (via buying new plant and equipment, etc).
Encouraging investments is not a bad idea. Of course, it's possible to be too pro-investment, but a 25% flat rate on investment based income is not too low, but not too high. It's slightly lower than wage income as an incentive for people to save and invest.
>capital gains is income from investing, which is how new productivity gets funded (via buying new plant and equipment, etc).
How does that justify taxing work more than capital? For people with high salary, any extra income (from work) is taxed almost 2x that of capital gains.
Also, only a small % of investment actually goes funding productivity. Most is just rich people's money changing hands, base only on speculation with zero regards for impact on businesses/society.
>a 25% flat rate on investment based income is not too low, but not too high
Do you have a study on this, or is this your opinion?
This argument is brought up over and over, but people forget that companies in Germany pay roughly 30% (depending on county) tax on their profits. As a solo entrepreneur with a registered company, that would mean if I make 100€ of profit, 30€ company tax are deducted, and then 25% of the remaining 70€ as capital gains tax when I pay myself the dividends - so I am left with ~53€. That is 47% tax in total, which is actually higher than the maximum personal income tax bracket (42%).
But if you get dividends or profits from stock as a private person that doesn’t apply and you just pay capital gains.
If you have a company or are a solo entrepreneur you can also reduce your profits by expensing things via the company (tech, cars, etc.) or investing further.
I does apply equally if you got stocks - at least on a national level as AG (Aktiengesellschaft in Germany) pay equal amount of corporate taxes. But yes, it got kind of skewed with international companies like amazon etc. paying no taxes at all. But we should fix that (them not paying any corporate tax), and not punish small shops like me (again, I am a solo-enterpreneur/developer - if you tax me 30% corporate tax + 42% on dividends, I will leave germany next day).
I am just wondering which kind of „Selbstständigkeit“/incorporation you are talking about. If you are solo-selbstständig no special tax of 30% applies, maybe Gewerbesteuer which is much lower.
If you are running a GmbH or UG or GbR things might be different, but then why don’t you keep assets inside of the entity? Then the entity could grow its assets and you could only take what you need and save some assets for the future. (Assuming you make more than what you need to maintain your lifestyle)
Yes, a "Selbstständiger" is taxed with personal income tax, but as I wrote, I am incorporated ("1-Mann GmbH"). I was tax "Selbstständig" for over 5 years and moved to a GmbH (=LLC) for various reasons completely unrelated to tax discussions (mostly protection of private assets and limited liability but also other reasons).
Edit: Corporate tax in Germany consists of two parts, Gewerbesteuer and Körperschaftssteuer. Those vary depending on where you are incorporated in Germany (Hebesatz), but 30% is a good rough estimate.
Regarding cars: Yes, it is cheaper to run business cars but its pretty limited. There is the 1% rule in germany, then a monthly of 1% of the cars shop-price (we use the nice word Bruttolistenneupreis) is considered income and taxed regularly. If a car costs 30.000€, that means you have to add 300€/monthly (virtually) onto your tax bill that is taxed as personal income. There are limits to the "you can tax deduct everything as a business" in Germany.
yes, this is double taxation, which i don't personally like.
In australia, there's franked dividends, which basically passes the tax credits down to shareholders (effectively, companies pay a 30% tax, but give that same dollar amount as credits to shareholders, who can then use it as tax paid in lieu). See https://www.investopedia.com/terms/f/frankeddividend.asp
it is an opinion. The policy setting is not a fact based research, but ideologically based opinion. i would argue that any research is basically paid opinion pieces to try and convince someone on the fence.
> How does that justify taxing work more than capital?
the justification is in my comment above - it is taxed less than wage income to encourage people to spend their money investing, rather than spending it in consumption.
But capital gains tax alone doesn't make the entire equation of risk vs reward, unless you're putting capital gains tax all the way to 100%. Even if it was 90%, if the risk was zero, the time investment was near zero and the reward was your assets going up by 4% post-tax, you'd bet people would still invest, regardless of income tax.
in any case, the 90% tax would discourage the investment for some people - because that investment might not return enough to be worth the opportunity cost of consumption instead. The point is, more investments means more possible productivity in the future, and any consumption->investment switch is good.
This is the same calculus as wage tax of course, but since most people don't have a choice but to work for a wage, they don't need to be incentivized to work by lower taxes.
Not always: It is possible to over-invest and under-consume. Don't forget that the purpose of investment in the present is to enable consumption in the future. In the extreme case, a society which only invested and never consumed would starve to death. There is a natural balance point, and moving away from that point in either direction results in a less efficient allocation of resources.
> It is possible to over-invest and under-consume.
certainly is, but i would argue that more people under-invest and over-consume! I would also argue that the minimal amount of consumption (let's say, you keep yourself alive, just barely), and maximizing your investment amount, is the best outcome for your future, and is the most efficient allocation of resources.
> I would also argue that the minimal amount of consumption (let's say, you keep yourself alive, just barely), and maximizing your investment amount, is the best outcome for your future, and is the most efficient allocation of resources.
If you always prioritize your future over your present then your sacrifices are wasted—you live your entire life just barely keeping yourself alive and never claim any of the proceeds from your investments for yourself. As I said before, there needs to be a balance. Investment is pointless and wasteful without a plan to eventually consume more than you could have without investing.
>it is taxed less than wage income to encourage people to spend their money investing, rather than spending it in consumption.
Did you mean speculating? A few % of so-called investors are actually supporting new businesses. I believe it's obvious when you think about investing in crypto.
I feel the same way. Income is income. Hell if I lose my $150k a year job and take a $120k job just because I need money coming in I can't get a $30k "capital losses" advantage on my taxes like I can with stocks. Tax system is rigged against middle and lower classes everywhere it seems.
