What should be taxed higher: wages or capital gains?

[ProfJohn]

Originally posted by: Craig234
I think there is a justice in taxing passive income at least as highely as wages, and a benefit in preventing the excessive concentration of wealth.

It just kills you that some people have more money than others.

I am sorry to tell you this, but no matter what you do via tax policy the rich will always be the rich and some people will always have more than others.

The idea that capital gains only go to the rich is bogus as well since something around 50% of the country now owns stocks in one form or another.

As I said in an earlier post, you LOVE the way Europe does everything else, why don?t we follow them and eliminate capital gains taxes if you hold the asset for at least a year?

 

[ProfJohn]

Originally posted by: dphantom
Neither. Some form of a consumption tax would be best IMO. The more one spends, the higher the tax rate. Would need some offsets for low income people, but imminently doable.

Automatically progressive in nature as wealthier individuals spend more so they pay more taxes. Below a certain income level, one pays no consumption tax. Simplifies the tax code enormously.

The problem with a consumption tax is that it hits the poor people the hardest.
When a poor person and I both walk up to the counter at GAP with a new pair of jeans are they going to whip out a card that says ?poor person? on it so they don?t pay the sales tax?
Most people who like this system talk about some kind of tax rebate for the poor people so they can get all that money back, that?s great, but until they get that check they are losing a huge chunk of their money.

Income tax seems to be the fairest way to collect taxes, you make more, you pay more. Very simple. Throw out our 1000+ page tax code and install a modified flat tax in which you pay a certain % of your income with NO deductions except personal and children. That way a single mom with two kids pays no income taxes on her first $30,000 in income. So if she makes less than $30,000 she pays no taxes at all, similar to how it works now.

 

[Schadenfroh]

Agreed, ProfJohn, I am not rich and I have to pay a crap load of taxes on income related to my stock investments.

 

[Bowfinger]

Originally posted by: ProfJohn

Originally posted by: Craig234
I think there is a justice in taxing passive income at least as highely as wages, and a benefit in preventing the excessive concentration of wealth.

It just kills you that some people have more money than others.

I am sorry to tell you this, but no matter what you do via tax policy the rich will always be the rich and some people will always have more than others.

The idea that capital gains only go to the rich is bogus as well since something around 50% of the country now owns stocks in one form or another.

As I said in an earlier post, you LOVE the way Europe does everything else, why don?t we follow them and eliminate capital gains taxes if you hold the asset for at least a year?

That's a lovely diversion, but what does it have to do with why capital gains deserve preferential treatment compared to ordinary income? Why isn't it most "fair" to tax both at the same rate?

 

[Moonbeam]

All taxes should be directly tied to war. The moment we go to war all taxes increase to pay for it automatically and by law.

 

[zephyrprime]

They should be taxed at the same rate.

 

[dphantom]

Originally posted by: ProfJohn

Originally posted by: dphantom
Neither. Some form of a consumption tax would be best IMO. The more one spends, the higher the tax rate. Would need some offsets for low income people, but imminently doable.

Automatically progressive in nature as wealthier individuals spend more so they pay more taxes. Below a certain income level, one pays no consumption tax. Simplifies the tax code enormously.

The problem with a consumption tax is that it hits the poor people the hardest.
When a poor person and I both walk up to the counter at GAP with a new pair of jeans are they going to whip out a card that says ?poor person? on it so they don?t pay the sales tax?
Most people who like this system talk about some kind of tax rebate for the poor people so they can get all that money back, that?s great, but until they get that check they are losing a huge chunk of their money.

Income tax seems to be the fairest way to collect taxes, you make more, you pay more. Very simple. Throw out our 1000+ page tax code and install a modified flat tax in which you pay a certain % of your income with NO deductions except personal and children. That way a single mom with two kids pays no income taxes on her first $30,000 in income. So if she makes less than $30,000 she pays no taxes at all, similar to how it works now.

There's a number of possible variations to address those issues. Food stuffs, medical non taxable for instance.

Flat tax is doable as well. I like it too, but prefer consumption as it requires a decision be made on saving or spending.

In either case, I think we can agree a simpler tax code with few deductions/exceptions and a flat or flatter structure than today would be better.

 

[Skotty]

I think the tax code is fine the way it is for now (regarding capital gains). I'm against a flat tax. Maybe it would be okay if it had been that way from the start, but enacting one at this point would either massively raise taxes on poor people, or massively reduce federal tax collections. Any way you slice it, bad news for the poor, good news for the rich. Not a good idea.

Not really on topic, but I agree with moonbeam on the tax/war issue. Continued tax breaks and telling people to go shopping while there is an expensive war going on is a case of trying to have your cake and eat it too. All too easy to "support the troops" when all you have to pay for is a magnet for your car.

 

[ProfJohn]

Originally posted by: Skotty
I think the tax code is fine the way it is for now (regarding capital gains). I'm against a flat tax. Maybe it would be okay if it had been that way from the start, but enacting one at this point would either massively raise taxes on poor people, or massively reduce federal tax collections. Any way you slice it, bad news for the poor, good news for the rich. Not a good idea.

Not really on topic, but I agree with moonbeam on the tax/war issue. Continued tax breaks and telling people to go shopping while there is an expensive war going on is a case of trying to have your cake and eat it too. All too easy to "support the troops" when all you have to pay for is a magnet for your car.

A question on this ?war tax?

So we raise all taxes whenever we are at war, where does that money go? In case you haven?t noticed the budget deficit is smaller now than it was when we started this war.
The problem with your idea is that it will give more money to Washington, and Washington will find new ways to spend it. And when the war goes away do you think they will just let those new spending programs go away as well? Good luck with that?

Remember the telephone tax put in place during the Spanish-American war? It just went away last year, 100 years after the war it was created to fund ended.

 

[ProfJohn]

Skotty You should head over to Wikipedia and read about the Flat tax and the manner in which it is being proposed. There would still be deductions for you and any dependents. In essence the first $24,000 or so of your income would be tax free. After that you would pay a rate of around 15-18%
This means that someone who makes $30,000 will only pay about $1000 in taxes, but someone who makes $75,000 would pay about $7,000 in taxes. Seems rather fair to me, and NO huge tax system, a much smaller IRS, no need for the country to spend a billion dollars each year on tax preparation. That money could be spent on other things that help the economy etc etc

 

[Bowfinger]

Originally posted by: ProfJohn
Skotty You should head over to Wikipedia and read about the Flat tax and the manner in which it is being proposed. There would still be deductions for you and any dependents. In essence the first $24,000 or so of your income would be tax free. After that you would pay a rate of around 15-18%
This means that someone who makes $30,000 will only pay about $1000 in taxes, but someone who makes $75,000 would pay about $7,000 in taxes. Seems rather fair to me, and NO huge tax system, a much smaller IRS, no need for the country to spend a billion dollars each year on tax preparation. That money could be spent on other things that help the economy etc etc

Don't be deceived. A flat tax is just another way to shift taxes to the middle class. The simple fact is the wealthier your are, the lower the percentage of your income you spend. On the average, the wealthy put proportionately more of their income into investments rather than purchases. Couple this with all the other taxes we have, and the overall tax structure will become even more regressive in the middle.

That said, your sales pitch for a flat tax is off-topic. The topic at hand, the one you keep dodging, is why do capital gains deserve preferential treatment compared to ordinary income? Why isn't it most "fair" to tax both at the same rate?

 

[palehorse]

they should be taxed equally. period.

income = income = income, regardless of source (gifts and inheritances excluded of course.. each of those is a case of double-taxation).

I do not believe that taxing gains at the same rate as wages would discourage investments; especially if brings each of them to a happy middle-ground in terms of rates. (ie, lowering wage taxes and raising gains taxes to an equal middle-ground)

 

[ProfJohn]

Originally posted by: Bowfinger
Why isn't it most "fair" to tax both at the same rate?

The easy answer is that you have lower tax rates on capital gains because it encourages investments and it encourages people to cash in on their investments and take that profit and use it to earn even more money. All of which helps the economy.
If you tax capital gains at a high rate it discourages investments because people go into asset protection mode ?how do I keep more of my money from the government.?

It?s a very complicated economic issue and one that is hard to hash out on a board such as this, especially since I am not an economist.
Ask yourself this though? all these countries in Europe with their extremely high rates of income tax have low to virtually NO capital gains taxes? why is that?

 

[Craig234]

Originally posted by: ProfJohn

Originally posted by: Craig234
I think there is a justice in taxing passive income at least as highely as wages, and a benefit in preventing the excessive concentration of wealth.

It just kills you that some people have more money than others.

John,

That's completely untrue.

If you want to have a discussion, to have your view heard, you need to base it on the position I have, not one you make up.

I have always said I am in favor of moderately unequal wealth, unequal income, that the incentives and rewards to obtain behaviors are crucial.

What you fail to understand - resulting in your erroneous and simplistic statement - is when that line is crossed to excessive concentration of wealth which works against the efforts and innovations by the wealthy being able to use their wealth for domination and prevent the 'meritocracy'. You show zero understanding of any upper limit to the usefulness of wealth disparity. I've yet to see you lay out any recognition that the bad old days in the gilded age of the masses working for sustinence was bad for the nation.

You simply equate any concern about concentration of wealth to opposing any disparity. That's your error. The United States thrived when the inequality was reduced, and it's now struggling more and more as the inequality increases, as 80% of people spend an unprecedented 25 years without a wage increase after inflation, as the next generation is plundered for borrowing for giving yet more money - who have already increased their ownership of America from 50% to 75% in the 20 years *before* Bush 43 - yet more.

I did not read past the first sentence above, because you need an accurate basis for your comments.

In the meantime, here's a helpful article on the line between 'wealthy' and 'wealthy to the point it's harmful':

Richest Are Leaving Even the Rich Far Behind

As for your blanket attack on any concern at all over the concentration of wealth, you are attacking the right-wing Reagan appointee Alan Greenspan as well:

"The income gap between the rich and the rest of the U.S. population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself."
- Alan Greenspan

I guess he too hates any inequality of wealth?

 

[Craig234]

Thank you to the many excellent posts from several people here. Some nailed the topic, I thought.

 

[Craig234]

PJ:

The easy answer is that you have lower tax rates on capital gains because it encourages investments and it encourages people to cash in on their investments and take that profit and use it to earn even more money. All of which helps the economy.

That's not enough to make your case. You need to show how most Americans benefit. That includes not must repeating a platitude but showing some data proving the effects of the different tax rates, if you take that argument, and then how that helps the people.

Assuming the increased investments do 'help the economy' - what good does that do if all the gains go to a few at the top? And that is the case now - we have healthy growth and for 25 years, all of it has gone to the top after inflation, with 80% gaining nothing. That actually *hurts* that 80%, since the other 20% - and let's be clear, that mostly means the top 1% - increases their power and ownership of society, their dominance of the political system and so on (which we've seen as the top 5% has gone from owning 50% of American's total wealh to 75% *before* Bush 43).

You *assume* that the investment and growth are good for the nation, but you don't prove it. The facts suggest otherwise.

If you tax capital gains at a high rate it discourages investments because people go into asset protection mode ?how do I keep more of my money from the government.?

So your argument here is that faced with earning 0% on their money by not investing, or earning 72% of the investment's returns rather than 85% of the investment's returns, people will put the money in a mattress and earn 0%. You want us to give you any credit for that?

When the top 5% are skyrocketing their share of the wealth and income, you don't need to push the pendelum further to give them more at the expense of the rest of society.

 

[sdifox]

I think capital gain should be taxed at the same rate as income. However, I would not tax a portfolio, only the portion that has been liquidated and moved out of the portfolio. So if I start a 1000 dollar portfolio, and manage to make it into a 50,000 portfolio, that is my business. But if I try to cash in the earning and take that money out, it gets taxed at capital gain tax rate. You just need to figure out how many percent of the initial portfolio it is.

 

[Genx87]

Originally posted by: Harvey

Originally posted by: TipsyMcStagger
The investments grow businesses which in turn pay wages. Take away the incentive to invest and watch the wages drop. Then what would you do?

Blah, blah, blah... BS!

Higher wages stimulate spending on goods and services which, in turn, stimulates more production and greater returns to those who invest in creating them.

Investment is a legitimate way to earn money. So's fixing your leaky faucet, servicing your car and assembilng, packing, shipping, selling and marketing every product you buy. On one level, capital and labor are both investments. The only difference between them is whether the asset being invested is cash or labor.

Income is income. In the absence of some overriding benefit for promoting one over the other, they should be taxed the same. When such a benefit exists, government should use its power to promote the form of investment that offers the best return to the entire society, not just the wealthy. Then, any such tax benefit should finely tailored to promote the specific targeted goal, not broadly spread across one privileged segment of the population.

If the market requires expansion of production for increased demand. How does a factory go about doing that?

 

[Harvey]

Originally posted by: ProfJohn
It just kills you that some people have more money than others.

It just thrills you that some people get that money at the expense of the health, safety and general well being of others.

I am sorry to tell you this, but no matter what you do via tax policy the rich will always be the rich and some people will always have more than others.

True enough, and the distribution of that wealth will never be equal for any number of legitimate reasons. Greater risks can bring greater rewards, but with no guarantee of success, and there will always be random good and bad fortune. That's not an excuse to tilt the playing field in favor of one group over another.

The idea that capital gains only go to the rich is bogus as well since something around 50% of the country now owns stocks in one form or another.

That's called a logical non-sequitur. Your conclusion doesn't follow from your premise. In fact, it's completely irrelevant. In 2005, [The Federal Reserve Bank of Chicago reported][/l]:

In the United States wealth is highly concentrated and very un-equally distributed: the richest 1% hold one third of the total wealth in the economy.

When executives at the highest levels of major corporations are paid millions per year and given millions more when they leave the company, even when they fail at their job or leave in disgrace, while full time employees at the lowest levels of the same companies are paid near and sub-poverty wages, something is way out of line. When some of those same execs use their positions of power and access to wealth to defraud investors and employees to increase their personal wealth, something is definitely wrong, and when those same execs bribe government officials to buy continued support for their immoral rape of the economic system, or those same government officials are participants in the financial looting, it's time for serious, immediate changes.

Do the names, Halliburton, Enron, Global Crossing, Adelphia, Jack Abramoff, Tom Delay, Randy "Duke" Cunningham, Jeff Silling, Ken Lay, etc. mean anything to you? :roll:

I can only conclude you're part of that crowd, or you're on their payroll. :thumbsdown: :frown: :thumbsdown:

 

[palehorse]

Originally posted by: sdifox
I think capital gain should be taxed at the same rate as income. However, I would not tax a portfolio, only the portion that has been liquidated and moved out of the portfolio. So if I start a 1000 dollar portfolio, and manage to make it into a 50,000 portfolio, that is my business. But if I try to cash in the earning and take that money out, it gets taxed at capital gain tax rate. You just need to figure out how many percent of the initial portfolio it is.

I agree regarding the taxation of portfolios, but i'm not versed enough on how they are taxed right now. I tend to move my investments around quite often, so I'm taxed frequently regardless... it would be great if someone here could explain, in laymen's terms, exactly how CG taxes work now... anyone?

 

[Fern]

Originally posted by: Mardeth
I can invest in American stocks and not pay your taxes. So what stops people going abroad and still invest in America without the big capital gain tax? Hmm, can I invest in RE without paying the the tax? Just wondering...

Yes, if you're a non-resident alien (i.e., foreigner) you can invest in our stock market and gains will not be taxed by the USA.

IIRC, in the early 80's under Pres. Jimmy Carter, Congress passed the F.I.R.P.T.A. (foreign investment in real property tax act). Consequently, I believe foreigners investing in USA real estate ARE subject to tax by the USA.

Fern

 

[Fern]

Originally posted by: CPA
Neither. Goods should be taxed, not production nor investment.

A "production" tax, or a sales tax?

Fern

 

[Fern]

Originally posted by: Craig234
Most Americans receive most of their income from wages. A few wealthy Americans receive most of their income from capital gains, i.e., passive investment income.

What should be taxed higher, income from wages, or income from investments?

I'd argue that income from investments should be taxed higher. Remember, this is not about what amount the total taxes should be, just how much to tax different income types.

I think someone who is earning a wage should pay less tax than someone who can earn the money sitting at the beach.

Yes, some people get both; what they pay more in investment tax, they get as a reduction in the wage tax.

Currently, it caries, but many wage earners pay a higher rate in the 20's or 30's than the capital gains tax of 15%.

The nation has had periods of very good economic progress while the capital gains tax was much higher; lowering it merely increased the wealth of the rich and raised taxes.

I think there is a justice in taxing passive income at least as highely as wages, and a benefit in preventing the excessive concentration of wealth.

I tend to agree with you that wages should not be taxed higher than passive-type investment income. But I believe the disparity betwen is primarily the result of two things

(1) Social Security. We should drop the illusion that SS is some type of government "investment account". The benefits have been extended to so many who don't contribute that SS has become far more than a retirement account, it's more a social welfare program. Let those with investment income also contribute to SS.

(2) Laziness or simplicity on the part of the government. Gains from long-invested capital suffer from inflation, making the gain seem "larger" and the tax smaller. Other countries (not many) actually index capital gains and then tax normally. Since we don't index here, if cap gains were taxed equally as wages their (cap gains) tax would actually be higher.

I.e., what no one has identified yet in this thread is that cap gains get a smaller rate because of inflation. That's one important justification, at least for us finacial "number cruncher" types.

Fern

 

[zephyrprime]

Originally posted by: ProfJohn

Originally posted by: Bowfinger
Why isn't it most "fair" to tax both at the same rate?

The easy answer is that you have lower tax rates on capital gains because it encourages investments and it encourages people to cash in on their investments and take that profit and use it to earn even more money. All of which helps the economy.
If you tax capital gains at a high rate it discourages investments because people go into asset protection mode ?how do I keep more of my money from the government.?

It?s a very complicated economic issue and one that is hard to hash out on a board such as this, especially since I am not an economist.
Ask yourself this though? all these countries in Europe with their extremely high rates of income tax have low to virtually NO capital gains taxes? why is that?

It's to encourage investment and it sure doesn't look like it's working in Europe.

 

[zephyrprime]

Originally posted by: palehorse74

Originally posted by: sdifox
I think capital gain should be taxed at the same rate as income. However, I would not tax a portfolio, only the portion that has been liquidated and moved out of the portfolio. So if I start a 1000 dollar portfolio, and manage to make it into a 50,000 portfolio, that is my business. But if I try to cash in the earning and take that money out, it gets taxed at capital gain tax rate. You just need to figure out how many percent of the initial portfolio it is.

I agree regarding the taxation of portfolios, but i'm not versed enough on how they are taxed right now. I tend to move my investments around quite often, so I'm taxed frequently regardless... it would be great if someone here could explain, in laymen's terms, exactly how CG taxes work now... anyone?

Right now, you are taxed every time you cash out any sort of investment if you make a profit on it. So if you sell amd stock to buy intel stock, you will be taxed on any profits you made on the intel stock. So shuffling money around in your portfolio will trigger taxation. The only exception is for tax sheltered accounts like 401K and IRA's, and etc. Interest and dividend income is taxed yearly unless you make a whole lot in which case it's taxed quarterly.