Income and wealth inequality

RobB said:

The super wealthy are already super wealthy. Any "income" they receive is nominal. I earn a higher salary than Bezos, Zuckerberg, and Ellison. Combined.

And yet you still refuse to invite us all over for dinner.

sac said:

Tom_Reingold said:

RobB said:

Every super-wealthy person in the country agrees with you Tom, so there's actually a fair chance of making that happen.

Really? I'm under the opposite impression. If we shifted taxation to be more income based, I expect the super wealthy would pay more, so why would they favor that?

Many super wealthy ARE socially conscious and have expressed support for higher tax rates.  But not "every" super-wealthy person I'm sure.  

Quite true, but they seem to have no legislative influence.

Tom, you've forgotten about capital gains taxes. Many of the super wealthy have little income but tremendous capital gains. Reducing these taxes over the years has been one of the biggest, if not *the* biggest, drivers of inequality.

Capital gains are income, it' just rich person income so it is taxed at a lower rate.  I would love to see it taxed like regular income until it crosses the 5 year threshold and then let it get a discount for being long-term investment.

I forgot to mention capital gains taxes, but that was a major omission. Yes, it's a huge factor in inequality. The rationale for low capital gains taxes (double taxation) is bogus to me. Money is taxed when it moves. There's no such thing as a taxed dollar or an untaxed dollar. We tax the motion of money.

Tom_Reingold said:

I forgot to mention capital gains taxes, but that was a major omission. Yes, it's a huge factor in inequality. The rationale for low capital gains taxes (double taxation) is bogus to me. Money is taxed when it moves. There's no such thing as a taxed dollar or an untaxed dollar. We tax the motion of money.

If so, then why not tax each and every debit of each and every bank account in the US.  Brazil has had such a tax for years and it is known as the CPMF (or Contribution Provisional Movement Financial).  The CPMF has fluctuated from 0.20% to 0.38% since it was enacted in 1997.

PS Notice the "P" in CPMF is for provisional (or temporary tax).  Yet 18 years later and the CPMF still exists.  This fact says something about all sovereigns and their ability to abolish putative temporary taxes.

That idea has merit. It's scary to me, but hey, it might make sense.

Tom_Reingold said:

I forgot to mention capital gains taxes, but that was a major omission. Yes, it's a huge factor in inequality. The rationale for low capital gains taxes (double taxation) is bogus to me. Money is taxed when it moves. There's no such thing as a taxed dollar or an untaxed dollar. We tax the motion of money.

But when things go wrong, we can be sure that you will blame the free market!

There is zero justification why selling one investment just to but another should be a taxable event. Only if the money is not reinvested should it be taxable. Though on that basis it would be fine to tax it at the normal rate.

terp said:

Tom_Reingold said:

I forgot to mention capital gains taxes, but that was a major omission. Yes, it's a huge factor in inequality. The rationale for low capital gains taxes (double taxation) is bogus to me. Money is taxed when it moves. There's no such thing as a taxed dollar or an untaxed dollar. We tax the motion of money.

But when things go wrong, we can be sure that you will blame the free market!

No, you can't, and you're putting words in my mouth. Do I really appear that stupid to you?

Tom_Reingold said:

terp said:

Tom_Reingold said:

I forgot to mention capital gains taxes, but that was a major omission. Yes, it's a huge factor in inequality. The rationale for low capital gains taxes (double taxation) is bogus to me. Money is taxed when it moves. There's no such thing as a taxed dollar or an untaxed dollar. We tax the motion of money.

But when things go wrong, we can be sure that you will blame the free market!

No, you can't, and you're putting words in my mouth. Do I really appear that stupid to you?

We'll see.   But for the most part, this is what I see.  We have price fixing on the price of money(increasingly radical over the last 15 years), we have incredible amounts of complex regulation, complicated income tax codes, government mandates in healthcare, obscene amounts of bank regulations and regulators, expansive bureaucracies, controls on imports, etc.  

Given all that, history has shown when we hit a recession, most progressives(and 95+% of people here) will say "The Free Market doesn't work!   The Government must do something to control these markets!"

Just sayin

bramzzoinks said:

There is zero justification why selling one investment just to but another should be a taxable event. Only if the money is not reinvested should it be taxable. Though on that basis it would be fine to tax it at the normal rate.

Do you understand Capital Gains Tax?   

I do. But if you hold Microsoft stock - no tax. But if you sell Microsoft stock and by an equal amount of Apple - tax. It makes no logical sense.

bramzzoinks said:

I do. But if you hold Microsoft stock - no tax. But if you sell Microsoft stock and by an equal amount of Apple - tax. It makes no logical sense.

You might have a point there. You're saying there isn't really a realized capital gain unless you pull the money out of the market to use for something that isn't a capital investment. 

You know what would be an amazing windfall for the middle class? Rather than eliminate the capital gains tax or the estate tax, eliminate the tax on qualified withdrawals from IRAs and 401(k)s.

bramzzoinks said:

There is zero justification why selling one investment just to but another should be a taxable event. Only if the money is not reinvested should it be taxable. Though on that basis it would be fine to tax it at the normal rate.

Our system taxes when "things" are sold or exchanged.  If you have a better system (for example, taxation on annual increases in value of investments) then please propose it.

on the other hand, there's quite enough speculation going on in the markets right now as it is.

bramzzoinks said:

I do. But if you hold Microsoft stock - no tax. But if you sell Microsoft stock and by an equal amount of Apple - tax. It makes no logical sense.

But by the magic of the markets, you can borrow against the value of all of that unrealized wealth and never be taxed...

jimmurphy said:

bramzzoinks said:

I do. But if you hold Microsoft stock - no tax. But if you sell Microsoft stock and by an equal amount of Apple - tax. It makes no logical sense.

But by the magic of the markets, you can borrow against the value of all of that unrealized wealth and never be taxed...

No comment...for once.

Tom_Reingold said:

I forgot to mention capital gains taxes, but that was a major omission. Yes, it's a huge factor in inequality. The rationale for low capital gains taxes (double taxation) is bogus to me. Money is taxed when it moves. There's no such thing as a taxed dollar or an untaxed dollar. We tax the motion of money.

I've never read that double taxation was the rationale for capital gains being taxed at a lower rate than earned income. Please elaborate.

TomR

RealityForAll said:

bramzzoinks said:

There is zero justification why selling one investment just to but another should be a taxable event. Only if the money is not reinvested should it be taxable. Though on that basis it would be fine to tax it at the normal rate.

Our system taxes when "things" are sold or exchanged.  If you have a better system (for example, taxation on annual increases in value of investments) then please propose it.

Exactly.   It makes sense relative to all alternatives. 

Markets work to an extent. We need rules, though. You don't hold a soccer game without boundaries on the field.

Tom_R said:
I've never read that double taxation was the rationale for capital gains being taxed at a lower rate than earned income. Please elaborate.

TomR

It was a topic of frequent discussion that you apparently missed.

http://www.forbes.com/sites/warrenmeyer/2014/02/20/it-is-time-to-end-favored-tax-treatment-of-capital-gains/

Tom_Reingold said:

Tom_R said:
I've never read that double taxation was the rationale for capital gains being taxed at a lower rate than earned income. Please elaborate.

TomR

It was a topic of frequent discussion that you apparently missed.

http://www.forbes.com/sites/warrenmeyer/2014/02/20/it-is-time-to-end-favored-tax-treatment-of-capital-gains/

I missed where Mr. Meyer proffers an explanation of why double taxation was, or is, the rationale behind taxing capital gains at a lower rate than ordinary income.

If a corporation has an annual taxable income of $1,000,000.00, and it pays Sam $250,000.00, it will only have $750,000.00, to retain or reinvest. I readily admit that that 750 million will accrue to the benefit of the corporation's stake holders; but am not seeing the double taxation thing.

I agree with you that double taxation, as a rationale for lower capital gain rates, is bogus.

However, as long as we're discussing capital gains and taxes thereon:

Why is a person who actually invests money in a company taxed at the same rate as the person who buys shares in the open market?

The first person is actually providing capital to the company. The other person is looking to make some $$$ on the vicissitudes of the market; in which transactions, the company gets nothing tangible.

Maybe, just maybe, if we gave the actual investor in the company a skate on taxes, we'd maintain, or increase genuine investment activity.

The person who buys in the marketplace; they do provide market liquidity so maybe we give them some break on taxes for long term investments (however defined).

The short-term investor; tax them at ordinary income rates.

Just some food for thought.

What say you?

TomR

As long as double taxation is on my mind:

I pay taxes to the Township; the School District and the County.

Yet I have to pay State Income Tax on the same money that I used to pay the above taxes.

Is that double taxation?

TomR

Tom_Reingold said:

Markets work to an extent. We need rules, though. You don't hold a soccer game without boundaries on the field.

There are rules, but you can also have too many rules.  I mean we don't have rules in soccer where players need to receive an equitable amount of shots & passes.  If you want to take a certain shot against the goalie, this requires approval from a regulatory body, etc.  

I mean, if only we could keep our regulation of markets to the level of a soccer game.  If the rules of a soccer game were a firecracker, our economic rules would be the H bomb.  It's absurd. 

I think I'm with HL Mencken on this one. 

I think that regulation is both too cumbersome, too restrictive, and at the same time, not agile or restrictive enough. The thing about free markets is, that they have a tendency toward monopoly by definition. Monopoly  being the antithesis of a free market, a key objective of regulatory policy in my mind, should be to restrict monopoly from developing. The key objective of our regulatory system one would argue by observation, is to create wasteful and at best meaningless bureaucracy. 

Also, I think the traditional argument for lower tax rates on certain investments is to encourage capital to move into those investments. Of course, like almost all regulations there are many unintended consequences of the regulations once written. There is also a lot of incentive for clever citizens to find legal ways to avoid, or take advantage of tax rules. 

Double taxation in my mind usually refers to dividends. The idea being that the company paid taxes on the profits it distributes to its shareholders in the form of dividends when it paid its corporate taxes. The investors who bought the stock did so with after tax dollars. So, taxing the dividend income once in the hands of stockholders, is double taxation. 

bramzzoinks said:

I do. But if you hold Microsoft stock - no tax. But if you sell Microsoft stock and by an equal amount of Apple - tax. It makes no logical sense.

If you donate that appreciated Microsoft stock to charity you don't pay tax and neither does the charity.  

Just sayin' ...

Tom_R said:

Tom_Reingold said:

Tom_R said:
I've never read that double taxation was the rationale for capital gains being taxed at a lower rate than earned income. Please elaborate.

TomR

It was a topic of frequent discussion that you apparently missed.

http://www.forbes.com/sites/warrenmeyer/2014/02/20/it-is-time-to-end-favored-tax-treatment-of-capital-gains/

I missed where Mr. Meyer proffers an explanation of why double taxation was, or is, the rationale behind taxing capital gains at a lower rate than ordinary income.

If a corporation has an annual taxable income of $1,000,000.00, and it pays Sam $250,000.00, it will only have $750,000.00, to retain or reinvest. I readily admit that that 750 million will accrue to the benefit of the corporation's stake holders; but am not seeing the double taxation thing.


I agree with you that double taxation, as a rationale for lower capital gain rates, is bogus.

However, as long as we're discussing capital gains and taxes thereon:

Why is a person who actually invests money in a company taxed at the same rate as the person who buys shares in the open market?

The first person is actually providing capital to the company. The other person is looking to make some $$$ on the vicissitudes of the market; in which transactions, the company gets nothing tangible.

Maybe, just maybe, if we gave the actual investor in the company a skate on taxes, we'd maintain, or increase genuine investment activity.

The person who buys in the marketplace; they do provide market liquidity so maybe we give them some break on taxes for long term investments (however defined).

The short-term investor; tax them at ordinary income rates.

Just some food for thought.

What say you?

TomR

The problem with your proposal is that if only the first investor were taxed at a lower rate, then the resale value of the shares would be lower, and thus the original value of the shares would fall because resale was less valuable, and that would make it more expensive for companies to raise capital. I think we could close the loophole on "carried interest" and still incentivize investment in companies. 

To be provocative - the view that income inequality is growing is an ethnocentric view. Certainly in the U.S. the combination of globalization and technological displacement has reduced growth in the average wage, while the same forces have accelerated the amazing wealth that accrues to "winners" such as Gates, etc. So in our country the inequality grows rapidly.  But for the world as a whole, these have been very positive changes. Average income across the globe has increased as jobs have moved to those poor countries. Those low wages in China, Indonesia, India, etc. are actually significant wage growth by those countries' standards. The world is gaining at the expense of U.S. citizens.