Lets talk about capital gains taxes

[NobleSavage]

I don't think it's fair for someone who works for a living to have to pay taxes at a higher rate that someone who just lives off investments, with qualifications. Saving or investing money for retirement should not count. Making good investments needs to be rewarded. Being able to make enough money so you can retire early isn't a bad thing. The argument I've always heard from the "no tax" crowd is that it is good for the economy and we need to encourage investments as much as possible. This doesn't make a whole lot of sense to me, because if I have $500 million invested and the government raises capital gains, I'm not going to turn around and blow it all. Haven't we pretty much proven that "trickle down" doesn't work that well? So what do you think is fair? What do you think is best for the economy?

 

[dismal]

I don't think it's fair for someone who works for a living to have to pay taxes at a higher rate that someone who just lives off investments, with qualifications.

What do you imagine the average tax rate is for people who "work for a living"?

 

[NobleSavage]

I don't think it's fair for someone who works for a living to have to pay taxes at a higher rate that someone who just lives off investments, with qualifications.

What do you imagine the average tax rate is for people who "work for a living"?

Are you asking me to list all the progressive tax brackets and figure out how many people get EITC? I'm aware that the top whatever percent pay the majority of income taxes collected.

 

[dismal]

What do you imagine the average tax rate is for people who "work for a living"?

Are you asking me to list all the progressive tax brackets and figure out how many people get EITC? I'm aware that the top whatever percent pay the majority of income taxes collected.

No, I'm asking you what rate you think the average rate people who "work for a living" pay in taxes.

Where: Rate = taxes paid/income.

Data are commonly available by income quintile for various sorts of taxes paid for this sort of thing, but I'm not sure how to adjust "income quintile" to "people who work for a living".

 

[ksen]

Are you asking me to list all the progressive tax brackets and figure out how many people get EITC? I'm aware that the top whatever percent pay the majority of income taxes collected.

No, I'm asking you what rate you think the average rate people who "work for a living" pay in taxes.

Where: Rate = taxes paid/income.

Data are commonly available by income quintile for various sorts of taxes paid for this sort of thing, but I'm not sure how to adjust "income quintile" to "people who work for a living".

According to here the average federal taxes paid on income is around 31.3%.

While the highest possible federal capital gains tax rate is 23.8%.

 

[dismal]

No, I'm asking you what rate you think the average rate people who "work for a living" pay in taxes.

Where: Rate = taxes paid/income.

Data are commonly available by income quintile for various sorts of taxes paid for this sort of thing, but I'm not sure how to adjust "income quintile" to "people who work for a living".

According to here the average federal taxes paid on income is around 31.3%.

While the highest possible federal capital gains tax rate is 23.8%.

That seems several orders of magnitude off.

Lots of data here:

https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44604-AverageTaxRates.pdf

Page 9 table 2 has average income tax rates by quintile and overall:

Q1: -9.2%
Q2: -2.3%
Q3: 1.6%
Q4: 5.0%
Q5: 13.8%
All quintiles: 7.7%

 

[Nice Squirrel]

According to here the average federal taxes paid on income is around 31.3%.

While the highest possible federal capital gains tax rate is 23.8%.

That seems several orders of magnitude off.

Lots of data here:

https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44604-AverageTaxRates.pdf

Page 9 table 2 has average income tax rates by quintile and overall:

Q1: -9.2%
Q2: -2.3%
Q3: 1.6%
Q4: 5.0%
Q5: 13.8%
All quintiles: 7.7%

Income taxes are not all taxes.

 

[dismal]

That seems several orders of magnitude off.

Lots of data here:

https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44604-AverageTaxRates.pdf

Page 9 table 2 has average income tax rates by quintile and overall:

Q1: -9.2%
Q2: -2.3%
Q3: 1.6%
Q4: 5.0%
Q5: 13.8%
All quintiles: 7.7%

Income taxes are not all taxes.

Surely NobleSavage was comparing capital gains rates on income to regular income tax rates on income. Else his point is entirely nonsensical as opposed to just being mathematically false.

 

[skepticalbip]

I don't think it's fair for someone who works for a living to have to pay taxes at a higher rate that someone who just lives off investments, with qualifications. Saving or investing money for retirement should not count. Making good investments needs to be rewarded. Being able to make enough money so you can retire early isn't a bad thing. The argument I've always heard from the "no tax" crowd is that it is good for the economy and we need to encourage investments as much as possible. This doesn't make a whole lot of sense to me, because if I have $500 million invested and the government raises capital gains, I'm not going to turn around and blow it all. Haven't we pretty much proven that "trickle down" doesn't work that well? So what do you think is fair? What do you think is best for the economy?

You seem to misunderstand the reason for the capital gains tax being lower than you want it to be. Investment capital goes to where it earns the best return. Taxes on those returns reduce the total earned so any savvy investor will look for countries to invest where their investments do best. Countries with low capital gains tax and good investment opportunity will attract investment capital from other countries. Countries with high capital gains tax and/or poor investment opportunity will see their country's investment capital move offshore. Investment capital flowing into a country improves that country's economy. Investment capital flowing out of a country will destroy that country's economy.

 

[Bronzeage]

I don't think it's fair for someone who works for a living to have to pay taxes at a higher rate that someone who just lives off investments, with qualifications. Saving or investing money for retirement should not count. Making good investments needs to be rewarded. Being able to make enough money so you can retire early isn't a bad thing. The argument I've always heard from the "no tax" crowd is that it is good for the economy and we need to encourage investments as much as possible. This doesn't make a whole lot of sense to me, because if I have $500 million invested and the government raises capital gains, I'm not going to turn around and blow it all. Haven't we pretty much proven that "trickle down" doesn't work that well? So what do you think is fair? What do you think is best for the economy?

You seem to misunderstand the reason for the capital gains tax being lower than you want it to be. Investment capital goes to where it earns the best return. Taxes on those returns reduce the total earned so any savvy investor will look for countries to invest where their investments do best. Countries with low capital gains tax and good investment opportunity will attract investment capital from other countries. Countries with high capital gains tax and/or poor investment opportunity will see their country's investment capital move offshore. Investment capital flowing into a country improves that country's economy. Investment capital flowing out of a country will destroy that country's economy.

In order to pay a capital gains tax, there must be some capital gains. A losing investment pays no taxes, so a low tax rate is irrelevant. The incentive to invest is always the prospects of the investment, not the taxes on the profits.

The prevailing wisdom behind the push for lower CGT rates, in recent years, was to spur rich people to invest their capital, and thus grow the economy, which is expected to be reflected by increased employment, which increases income tax revenue, and replaces the lost CGT.

Unfortunately, lower capital gains taxes does not seem to have the desired effect, other than to please the GOP base.

 

[dismal]

I don't think it's fair for someone who works for a living to have to pay taxes at a higher rate that someone who just lives off investments, with qualifications. Saving or investing money for retirement should not count. Making good investments needs to be rewarded. Being able to make enough money so you can retire early isn't a bad thing. The argument I've always heard from the "no tax" crowd is that it is good for the economy and we need to encourage investments as much as possible. This doesn't make a whole lot of sense to me, because if I have $500 million invested and the government raises capital gains, I'm not going to turn around and blow it all. Haven't we pretty much proven that "trickle down" doesn't work that well? So what do you think is fair? What do you think is best for the economy?

You seem to misunderstand the reason for the capital gains tax being lower than you want it to be. Investment capital goes to where it earns the best return. Taxes on those returns reduce the total earned so any savvy investor will look for countries to invest where their investments do best. Countries with low capital gains tax and good investment opportunity will attract investment capital from other countries. Countries with high capital gains tax and/or poor investment opportunity will see their country's investment capital move offshore. Investment capital flowing into a country improves that country's economy. Investment capital flowing out of a country will destroy that country's economy.

Capital gains taxes are also highly avoidable as they can be indefinitely deferred by not selling or offset with capital losses. If you set the rate high people avoid them, you collect less, and you reduce the fluidity of capital markets.

 

[skepticalbip]

You seem to misunderstand the reason for the capital gains tax being lower than you want it to be. Investment capital goes to where it earns the best return. Taxes on those returns reduce the total earned so any savvy investor will look for countries to invest where their investments do best. Countries with low capital gains tax and good investment opportunity will attract investment capital from other countries. Countries with high capital gains tax and/or poor investment opportunity will see their country's investment capital move offshore. Investment capital flowing into a country improves that country's economy. Investment capital flowing out of a country will destroy that country's economy.

In order to pay a capital gains tax, there must be some capital gains. A losing investment pays no taxes, so a low tax rate is irrelevant. The incentive to invest is always the prospects of the investment, not the taxes on the profits.

The prevailing wisdom behind the push for lower CGT rates, in recent years, was to spur rich people to invest their capital, and thus grow the economy, which is expected to be reflected by increased employment, which increases income tax revenue, and replaces the lost CGT.

Unfortunately, lower capital gains taxes does not seem to have the desired effect, other than to please the GOP base.

The incentive to invest is the net return on investment. This would include both the prospect of gain and how much of that gain doesn't end up in the investor's pocket because of taxes. Any investor looking to invest in, for example, a new hotel in either a country with no or low CGT or a country with high CGT will invest in the first... if the investor knows anything about economics.

 

[ksen]

According to here the average federal taxes paid on income is around 31.3%.

While the highest possible federal capital gains tax rate is 23.8%.

That seems several orders of magnitude off.

Lots of data here:

https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44604-AverageTaxRates.pdf

Page 9 table 2 has average income tax rates by quintile and overall:

Q1: -9.2%
Q2: -2.3%
Q3: 1.6%
Q4: 5.0%
Q5: 13.8%
All quintiles: 7.7%

You're not including the other taxes on income in that table and that table ignores the employer portion of those taxes as well. When those are figured in you get the tax rate I referenced above.

 

[Bronzeage]

In order to pay a capital gains tax, there must be some capital gains. A losing investment pays no taxes, so a low tax rate is irrelevant. The incentive to invest is always the prospects of the investment, not the taxes on the profits.

The prevailing wisdom behind the push for lower CGT rates, in recent years, was to spur rich people to invest their capital, and thus grow the economy, which is expected to be reflected by increased employment, which increases income tax revenue, and replaces the lost CGT.

Unfortunately, lower capital gains taxes does not seem to have the desired effect, other than to please the GOP base.

The incentive to invest is the net return on investment. This would include both the prospect of gain and how much of that gain doesn't end up in the investor's pocket because of taxes. Any investor looking to invest in, for example, a new hotel in either a country with no or low CGT or a country with high CGT will invest in the first... if the investor knows anything about economics.

Yeah, I got that. Taxes or no taxes, investors don't put money into losing propositions.

 

[skepticalbip]

The incentive to invest is the net return on investment. This would include both the prospect of gain and how much of that gain doesn't end up in the investor's pocket because of taxes. Any investor looking to invest in, for example, a new hotel in either a country with no or low CGT or a country with high CGT will invest in the first... if the investor knows anything about economics.

Yeah, I got that. Taxes or no taxes, investors don't put money into losing propositions.

Well, not on purpose anyway.

 

[dismal]

That seems several orders of magnitude off.

Lots of data here:

https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/44604-AverageTaxRates.pdf

Page 9 table 2 has average income tax rates by quintile and overall:

Q1: -9.2%
Q2: -2.3%
Q3: 1.6%
Q4: 5.0%
Q5: 13.8%
All quintiles: 7.7%

You're not including the other taxes on income in that table and that table ignores the employer portion of those taxes as well. When those are figured in you get the tax rate I referenced above.

Surely no one is clueless enough to attempt to include things like property taxes and sales taxes in a discussion of why capital gains income is taxed at a different rate than other income?

 

[ksen]

You're not including the other taxes on income in that table and that table ignores the employer portion of those taxes as well. When those are figured in you get the tax rate I referenced above.

Surely no one is clueless enough to attempt to include things like property taxes and sales taxes in a discussion of why capital gains income is taxed at a different rate than other income?

I wasn't talking about property and sales taxes. I was talking about other taxes on income like social security and medicare.

 

[Loren Pechtel]

As far as I'm concerned all this shows is a bad yardstick.

I consider the capital gains tax rate to be higher than the income tax rate.

The issue is inflation. You pay capital gains tax not only on the increased value of your investment but on the increase in it's price due to inflation even though you gain no benefit from this. (And, yes, the same problem applies to interest--you usually pay an infinite tax rate on interest as it rarely exceeds the inflation rate.)

Thus I would tax them as ordinary income but I would index the value for inflation. You only pay tax on true gains. Note that this means that most interest would actually have negative income. I would group interest and capital gains for purposes of what losses are allowed.

 

[NobleSavage]

Surely NobleSavage was comparing capital gains rates on income to regular income tax rates on income. Else his point is entirely nonsensical as opposed to just being mathematically false.

Yes.

 

[NobleSavage]

You seem to misunderstand the reason for the capital gains tax being lower than you want it to be. Investment capital goes to where it earns the best return. Taxes on those returns reduce the total earned so any savvy investor will look for countries to invest where their investments do best. Countries with low capital gains tax and good investment opportunity will attract investment capital from other countries. Countries with high capital gains tax and/or poor investment opportunity will see their country's investment capital move offshore. Investment capital flowing into a country improves that country's economy. Investment capital flowing out of a country will destroy that country's economy.

If I invest in a foreign company or investment doesn't the IRS count that? I'm sure there are ways to hire very expensive tax lawyers to come up with ways to work around the system.

- - - Updated - - -

Capital gains taxes are also highly avoidable as they can be indefinitely deferred by not selling or offset with capital losses. If you set the rate high people avoid them, you collect less, and you reduce the fluidity of capital markets.

I assume, never had the money to look into it.

- - - Updated - - -

As far as I'm concerned all this shows is a bad yardstick.

I consider the capital gains tax rate to be higher than the income tax rate.

The issue is inflation. You pay capital gains tax not only on the increased value of your investment but on the increase in it's price due to inflation even though you gain no benefit from this. (And, yes, the same problem applies to interest--you usually pay an infinite tax rate on interest as it rarely exceeds the inflation rate.)

Thus I would tax them as ordinary income but I would index the value for inflation. You only pay tax on true gains. Note that this means that most interest would actually have negative income. I would group interest and capital gains for purposes of what losses are allowed.

Good point.