For discussion

[Craig234]

For discussion:

Change the tax law to tax capital gains, 'realized' or 'unrealized', by the following year, like income is taxed.

Why should people who sweat for their income have to pay tax on it no later than the year after the receive it, while those few who can live off of passive investments with capital gains - who already pay a lower tax rate as well - can enjoy unlimited years of deferring any taxes, allowing them to further increase their proftits by investing that untaxed income into further investments?

If you make $50,000 in wages you want to invest each year, you pay taxes on that money within a year. If you get $50,000 a year for investing from existing investments, if you leave it in the same investments you can pay zero taxes on it, and keep on not paying taxes year after year, decade after decade with the governmnent - the public, you and me - effectively never getting their cuts except the small portion you occassionally withdrawn and realize the gain on.

If the few wealthy enough to have nearly all their income from capital gains had to pay taxes on the gains annualy like wage earners, that revenue would allow for significant tax reductions for wage earners, by equaling the playing field to where everyone had to pay taxes within a year, and not get to put it off indefinitely (imaging letting wage earners put it off indefinitely?)

It's not as if it would end people putting their money in investments - they'd still do so because that's the onoy way they can make the most on their money.

Sure, they'd have to sell part of their invetment annualy to pay taxes, like wage earners have to pay their taxes every year. The benefit would be less taxes for wage earners.

For investments where it's not practical to pay the taxes annually, like real estate, we'd have to figure out a way to handle it. There are man options from just requiring the taxes be paid on appreciated value, to exempting that investment, to having the gain calculated annualy with iinterest at the rate of inflation accumulate until the amount is paid later.

Retirment accounts could remain tax-deferred for the public policy reason of encouraging saving for retirement, jsut as they are now for the same reason.

 

[Slew Foot]

If I had it my way capital gains would be taxed the same as income something along the following lines

0-50K- 0%
50-100K- 15%
100-250K- 30%
250-500K- 40%
500K+ 50%

The poor shlubs would pay no taxes for the most part and their increased consumption should aid the wealth of the rich folks.

 

[Martin]

How to cut taxes for everyone drastically: 0% tax while you're alive, 100% tax after you die

There would still be some kind of consumption tax / usage fees, but there'd be very little tax during one's lifetime and everyone will end up paying their dues. Of course, this will never fly as it would mean people would have to concentrate on raising their offspring properly... and we just can't have that.

 

[wetech]

I think this would make things unnecessarily complicated. You're saying that investors should have to mark to market(MTM) their portfolios each year, say on Dec 31, effectively resetting their cost basis. You'd have to remove the limit on capital losses for this system to be fair. So now you'll see big swings in income from the same investment.

Think about the following.

Buy a stock for $100 on Dec 1.
Dec 31, it's worth $130. Now you owe tax on $30.
Jan 30, it's worth $80, and you sell.

Now you have to pay tax on $30 from the Dec 31 value. For the following year, your loss is $50. What if the stock goes to $2 (i.e. Bear Stearns). Now you owe tax on $30, and your sale of the stock won't even begin to cover that.

What happens if the capital gain from the MTM puts you in a higher tax bracket, and the capital loss is in a lower bracket. You'll be getting tax credits at lower rates then the tax you paid on your "gain", screwing you even further.

I think you'd see a big drop in the stock market if this were ever enacted. You would have just taken a big bite out of the benefit of compounding interest.

 

[Craig234]

Originally posted by: wetech
I think this would make things unnecessarily complicated. You're saying that investors should have to mark to market(MTM) their portfolios each year, say on Dec 31, effectively resetting their cost basis. You'd have to remove the limit on capital losses for this system to be fair. So now you'll see big swings in income from the same investment.

Think about the following.

Buy a stock for $100 on Dec 1.
Dec 31, it's worth $130. Now you owe tax on $30.
Jan 30, it's worth $80, and you sell.

Now you have to pay tax on $30 from the Dec 31 value. For the following year, your loss is $50. What if the stock goes to $2 (i.e. Bear Stearns). Now you owe tax on $30, and your sale of the stock won't even begin to cover that.

What happens if the capital gain from the MTM puts you in a higher tax bracket, and the capital loss is in a lower bracket. You'll be getting tax credits at lower rates then the tax you paid on your "gain", screwing you even further.

I think you'd see a big drop in the stock market if this were ever enacted. You would have just taken a big bite out of the benefit of compounding interest.

Your points have me thinking of some impracticalities to the system, as I further think through the idea.

I'm not especially concerned about the loss of compounded interest, because wage earned don't get that benefit either on their income, and the benefit of getting the money sooner to the government would allow for the reduction in taxes for wage earners. Even the issue of your scenario could be partly addressed if the person sold enough shares at $130 on dec 31, knowing about the tax event, to cover the taxes.

However, there are other impracticalities I'm seeing, including the massive effect on stock prices and traiding if there were such a Dec 31 event. This may not be workable.

 

[StageLeft]

Originally posted by: Martin
How to cut taxes for everyone drastically: 0% tax while you're alive, 100% tax after you die

There would still be some kind of consumption tax / usage fees, but there'd be very little tax during one's lifetime and everyone will end up paying their dues. Of course, this will never fly as it would mean people would have to concentrate on raising their offspring properly... and we just can't have that.

You'd have people hiding their wealth all over the place.

 

[lupi]

Originally posted by: Slew Foot
If I had it my way capital gains would be taxed the same as income something along the following lines

0-50K- 0%
50-100K- 15%
100-250K- 30%
250-500K- 40%
500K+ 50%

The poor shlubs would pay no taxes for the most part and their increased consumption should aid the wealth of the rich folks.

That is so dumb it doesn't even deserve comment. I would say it's sarcasm, but the effort put into it dismisses that theory.

 

[CADsortaGUY]

So does this include STATE cap gains taxes or just Fed?


Why is it that people forget the state cap gains taxes when they talk about %tax? Some states are like 9%(11% in montana) so it isn't like 15% is all you pay(unless you live in a 0% income tax state)

 

[Rainsford]

Originally posted by: CADsortaGUY
So does this include STATE cap gains taxes or just Fed?


Why is it that people forget the state cap gains taxes when they talk about %tax? Some states are like 9%(11% in montana) so it isn't like 15% is all you pay(unless you live in a 0% income tax state)

Yeah, but most people pay state income tax as well. I'm not sure Craig234's solution is the right one, but the fact is that if you pay any attention at all to what you're doing, you'll pay less taxes overall on investment income vs wage income. This results in a regressive tax that, while it does encourage beneficial investments, perhaps places too much of a burden on wages and not enough on investments.

 

[Slew Foot]

Originally posted by: lupi

Originally posted by: Slew Foot
If I had it my way capital gains would be taxed the same as income something along the following lines

0-50K- 0%
50-100K- 15%
100-250K- 30%
250-500K- 40%
500K+ 50%

The poor shlubs would pay no taxes for the most part and their increased consumption should aid the wealth of the rich folks.

That is so dumb it doesn't even deserve comment. I would say it's sarcasm, but the effort put into it dismisses that theory.

No it's actually perfect. It's a trickle up theory as opposed to trickle down which clearly doesnt work and results in large deficits. As more money is kept by people who are liekly to spend it, it eventually ends up in the hands of people who produce goods (the wealthy). The poor have more goods and are happy, and the wealthy get more money as well. Heck, Im in the 50% tax bracket above, and I'd probably make more $$ with the above system than with what we have now.

 

[RightIsWrong]

My post from another thread on this very topic:

What should be done is a complete abolishment of deductions. Taxes could be lowered across the board.

Rough draft proposal:

-- 5% on first $50k,
-- 7% on next $50k,
-- 10% from $100,001 -300,000,
-- 12.5% $300,001 - 1M,
-- 15% on $1,000,001-10M,
-- 17.5% on everything else

It would lessening everyone's effective tax rate, eliminating the need for the IRS in it's current form (would still need a skeleton crew for general purposes) and a resurgence of funds for the .gov because people wouldn't have any real reason to hide revenue anymore. This system would be applied to ALL monies (investment, earned, inherited, etc).

There are some things that might need tweaked, but overall I think that it is a decent starting point.

With this type of system, you'd hopefully be able to meet the primary needs of both sides:

Left: Progressive tax so that those that are making the most are still paying more, capital gains and inheritances are taxed as realized income and the wealthy no longer have unfair access to tax shelters or the ability to utilize loopholes that the lower 85% of the population can't

Right: Tax cuts across the board for everyone, flat tax, gutting of the IRS and the highest end of the bracket is still less than half of the current rates

Edit: Edited the quote for ease of reading.

 

[bamacre]

How to cut taxes for most Americans...

1. Cut spending
2. Done

 

[Atreus21]

I still like the fairtax idea.

 

[Fern]

Originally posted by: Craig234
-snip-
....there are other impracticalities I'm seeing, including the massive effect on stock prices and traiding if there were such a Dec 31 event. This may not be workable.

Yes, government revenue would fluctuate wildly, and possibly be subject to manipulation - "Hey everybody, lets ALL sell our stocks on December 31". And because investors would have to pay out cash for their tax, many would be forced to actually do that or run the risk of not having enough to pay and then get a penalty.

You also have a slew of investment assets that don't have a readily ascertained value like listed stocks do. Think of real estate and collectables. How to value? That would be problematic and expensive.

Also, although maybe not part of your idea, hard assets held by corporations - buildings, real estate and equipment - can be subject to cap gain treatment.

It would be terribly difficult to implement and audit. The IRS would need a ton of appraisers etc.

Fern

 

[ElFenix]

Originally posted by: RightIsWrong
Left: Progressive tax so that those that are making the most are still paying more

i'll note that you don't need progressive rates to make sure that those making more are paying more.

ooo, maybe we should make it progressive based on SS withdrawals to balance out the fact that SS is regressive!

 

[m1ldslide1]

Originally posted by: Slew Foot
If I had it my way capital gains would be taxed the same as income something along the following lines

0-50K- 0%
50-100K- 15%
100-250K- 30%
250-500K- 40%
500K+ 50%

The poor shlubs would pay no taxes for the most part and their increased consumption should aid the wealth of the rich folks.

LOL Trickle-up economics!! Let's fucking try it already!

 

[Atomic Playboy]

How about we don't tax anyone, but the government dispatches roving death squads who break into randomly selected people's houses and kill them, empty their bank accounts, sell all their posessions and use the resulting money to cover the budget?

 

[IronWing]

Why would we want to cut taxes in an era of huge deficits? Sounds pretty irresponsible to me.

I agree with treating a capital gain like any other income, in the year the gain is realized. Likewise, a capital loss should be treated like any other loss, offsetting income, in the year the loss is realized.

 

[Craig234]

Originally posted by: ironwing
Why would we want to cut taxes in an era of huge deficits? Sounds pretty irresponsible to me.

I agree with treating a capital gain like any other income, in the year the gain is realized. Likewise, a capital loss should be treated like any other loss, offsetting income, in the year the loss is realized.

That's a neat rhetorical trick to make it all sound the same and fair, but the bottom line is that wage earners are paying taxes when they get paid (within a year), not getting the benefit of what was inaccurately above called 'compound interest' though it is the same idea of far greater accumulation by allowing the untaxed gains to remain with the investor and earning more instead of the government/public getting the benefit of the money sooner, while those with a lot of money are able to leave it earning more money without paying taxes.

(I think the analogy of most people having money as a river that flows in and out, while the wealthy have money as a lake, a reservoir, helps with the issue).

Another idea on all this is to have a low percent 'wealth tax' analogous to the property tax.

All of us who simply own homes pay for the privilege by paying a percent of its value every year to our local government. If you have a billion dollars of stock, you don't.

What if there were a 0.25% (or whatever similar %) annual tax on wealth that was a fraction of the benefit of the tax deferment, but provided revenue to lower wage taxation?

It's 'just an idea' as they say, but may be promising.

As I've said many times, I am strongly in favor of a significant Estate Tax for the wealthy.

Of course, all of this discussion rests upon the awareness of the issue of the few most wealthy skyrocketing their ownership of our nation, and that that's an issue.

It's simply a fact that very few are getting almost all the gain from the productivity increases. Bill Moyers' show recently mentioned the current period in which worker productivity in the US is up 76% cumulatively while in the same period wages were up under 2% adjusted for inflation. Nearly all that increase went into very few pockets, especially the top 0.1%.

That wealth is not available for spurring opportunity for Americans, for creating development of people and incentives. It's simply going into the wealthy's lakes.

And THAT, in turn, allows the wealthy to ever further solidify their control over the political system against the public, protecting their own interests at our expense.

For some reason for some people, the issue of 'fairness and balance' only comes up when increases on the rich are discussed, not the other direction, which is simply 'reward'.

 

[IronWing]

Originally posted by: Craig234

As I've said many times, I am strongly in favor of a significant Estate Tax for the wealthy.

Oh, I'd tax the holy hell out of large estates, returning the tax to the 50% rate. Also, when I say capital gains should be taxed like other income I also mean that SS/medicare taxes should also be paid on it. For reasons outlined by wetech above, I think that taxing capital gains in the year earned as opposed to year realized would be very difficult or require some paperwork gymnastics that probably wouldn't be worth the trouble.

 

[yuppiejr]

Originally posted by: Slew Foot
If I had it my way capital gains would be taxed the same as income something along the following lines

0-50K- 0%
50-100K- 15%
100-250K- 30%
250-500K- 40%
500K+ 50%

The poor shlubs would pay no taxes for the most part and their increased consumption should aid the wealth of the rich folks.

So you're proposing that almost 55% of the population (those making less than $50k a year) pay 0 taxes? Where does this philosophy that one portion of the population deserve a free-ride come from?

If you like the idea of "consumption" based taxation, why not eliminate all other forms of federal taxation (I mean ALL federal corporate and personal income taxes, etc..) and simply create a national sales tax payable as goods are purchased? Those that buy more pay more, plus by creating a single method of collecting tax it is much easier for the tax payer to understand how much they are actually paying. No more yearly tax returns, no more worrying about figuring out how to tax different forms of "income," and no more corporate tax costs buried in the price of goods - you simply pay the tax when you buy something and move on with your life.

 

[yuppiejr]

.. of course my post above assumes you are actually interested in true fairness and equality in taxation, not a punitive system that involves arbitrary punishment of one group of income earners to the benefit of another via an involuntary transfer of wealth based on the orientation of one person or group's moral compass.

 

[Craig234]

Originally posted by: yuppiejr

Originally posted by: Slew Foot
If I had it my way capital gains would be taxed the same as income something along the following lines

0-50K- 0%
50-100K- 15%
100-250K- 30%
250-500K- 40%
500K+ 50%

The poor shlubs would pay no taxes for the most part and their increased consumption should aid the wealth of the rich folks.

So you're proposing that almost 55% of the population (those making less than $50k a year) pay 0 taxes? Where does this philosophy that one portion of the population deserve a free-ride come from?

If you like the idea of "consumption" based taxation, why not eliminate all other forms of federal taxation (I mean ALL federal corporate and personal income taxes, etc..) and simply create a national sales tax payable as goods are purchased? Those that buy more pay more, plus by creating a single method of collecting tax it is much easier for the tax payer to understand how much they are actually paying. No more yearly tax returns, no more worrying about figuring out how to tax different forms of "income," and no more corporate tax costs buried in the price of goods - you simply pay the tax when you buy something and move on with your life.

Those figures were not income. They were capital gains. Most people's income is from wages and subject to the income tax on wages. The 'federal sales tax' is a joke, IMO.

 

[Craig234]

Originally posted by: yuppiejr
.. of course my post above assumes you are actually interested in true fairness and equality in taxation, not a punitive system that involves arbitrary punishment of one group of income earners to the benefit of another via an involuntary transfer of wealth based on the orientation of one person or group's moral compass.

Grow up - the rhetoric is absurd. Tax systems inherently make choices about who pays what share, and the overheated rhetoric for only certain balances hardly advances the discussion.

 

[PokerGuy]

Originally posted by: ironwing

Originally posted by: Craig234

As I've said many times, I am strongly in favor of a significant Estate Tax for the wealthy.

Oh, I'd tax the holy hell out of large estates, returning the tax to the 50% rate. Also, when I say capital gains should be taxed like other income I also mean that SS/medicare taxes should also be paid on it.

Ah yes, socialism and irrational class envy rear their ugly heads again. Some people just can't stand the thought of others having something they don't, so instead of going out and trying to earn what they want, they'd rather have the government step in redistribute the wealth. :roll:

Trying to tax something before any benefit is actually realized is absurd. It's conceptually fundamentally flawed, and mechanically very difficult to implement.