Replace Capital Gains Tax. What do you think?

[Jersy]

I am brand new to the board and have enjoyed what I have read so far. I thought I would use my first post to open a discussion on a subject I am passionate about.
With the Bush tax cuts expiring soon and the administration’s interest in preserving some for lower income taxpayers, congress will almost certainly be addressing taxes in the near future.
I am interested in opening a discussion which could lead to a proposal to individual members of congress to replace the current capital gains tax with a more efficient and perhaps better way to tax investments.
The current capital gains tax has many negative factors for both the government and the investor. In the case of the government, payment of taxes on investment profits can be delayed for years or even decades, while investment losses can be deducted from investment profits that are claimed. In addition, non resident aliens investing in US markets are generally not subject to US capital gains tax at all. For investors, tax rates are subject to the political climate, causing investors to be uncertain where they stand with their investments.
I am proposing that congress repeals the capital gains tax and replaces it with a smaller flat tax at the time the investment is initiated. All investments would be taxed, profits would not be taxed. Investments made prior to enacting this law would still be subject to capital gains. Only new investment made after passage would be subject to the new tax. A small tax of 3-5% would yield an increase to the treasury as taxes could no longer be deferred and non resident aliens would have to pay their share for the privilege of investing in US markets.
Some unhealthy practices would disappear, such as computer trading stocks for fluctuations of pennies.
Concerning investments such as real estate or stocks purchased with margin, borrowed money (i.e. mortgages or margin) would be taxes within the payment schedule. For example, a home buyer would pay the tax on the down payment and be taxed on the principal portion of all succeeding payments.
Right now, the political environment is positive for grass roots initiatives. Please share your opinions and ideas. Perhaps an improved version of this proposal may make it into the main stream.

 

[Madeline]

I am brand new to the board and have enjoyed what I have read so far. I thought I would use my first post to open a discussion on a subject I am passionate about.
With the Bush tax cuts expiring soon and the administration’s interest in preserving some for lower income taxpayers, congress will almost certainly be addressing taxes in the near future.
I am interested in opening a discussion which could lead to a proposal to individual members of congress to replace the current capital gains tax with a more efficient and perhaps better way to tax investments.
The current capital gains tax has many negative factors for both the government and the investor. In the case of the government, payment of taxes on investment profits can be delayed for years or even decades, while investment losses can be deducted from investment profits that are claimed. In addition, non resident aliens investing in US markets are generally not subject to US capital gains tax at all. For investors, tax rates are subject to the political climate, causing investors to be uncertain where they stand with their investments.
I am proposing that congress repeals the capital gains tax and replaces it with a smaller flat tax at the time the investment is initiated. All investments would be taxed, profits would not be taxed. Investments made prior to enacting this law would still be subject to capital gains. Only new investment made after passage would be subject to the new tax. A small tax of 3-5% would yield an increase to the treasury as taxes could no longer be deferred and non resident aliens would have to pay their share for the privilege of investing in US markets.
Some unhealthy practices would disappear, such as computer trading stocks for fluctuations of pennies.
Concerning investments such as real estate or stocks purchased with margin, borrowed money (i.e. mortgages or margin) would be taxes within the payment schedule. For example, a home buyer would pay the tax on the down payment and be taxed on the principal portion of all succeeding payments.
Right now, the political environment is positive for grass roots initiatives. Please share your opinions and ideas. Perhaps an improved version of this proposal may make it into the main stream.

First, let's examine what a capital gains tax is. Under our system, all income is taxable...and that includes income from appreciation in the value of investments. We only have a capital gains tax in the sense that we tax such income at a rate lower than the one applicable to ordinary income (such as wages). One way to eliminate a capital gains tax would be to even up the rate and tax all income, regardless, at the same rate. Many feel such a move would depress savings and investments, and thus, is bad for the economy.

The reason "income from investments can be delayed" is because of the realization requirement. If you own XYZ stock which you acquired at $1.00 a share and it climbs in value to $2.00, you still have no "income" unless you sell or otherwise dispose of this stock...because your gain has not yet been realized. Any other rule of law would result in a war of the appraisers.

Of course investment losses can be deducted from investment gains in measuring investment income. Again, this is no more than fundamental fairness.

Foreign investors pay US income tax on US investments unless there is a tax treaty which dictates a different result. There are many such treaties, and so, many such applicable rates...but unwinding them would likely disrupt the US economy as well as add unwanted vagueness to many taxpayers' financial future.

I do not know what you mean when you say "tax rates are subject to the political climate".

A flat tax is a tax at exactly the same rate on all income. Income from investments would be taxed at the same rate as ordinary income...there could be no "capital gains tax". You cannot tax the investment in an investment....there is no income to subject to tax. If you tax the conversion of cash to stocks and bonds, etc., you'd tank the economy...and it would be illegal/unconstitutional to even try. You also cannot tax loan proceeds...they are not income.

Taxing unrealized profits on investments would only create uncertainty as to value and thus, tax owed. Beyond that, the realization requirement is a function of the definition of income and thus, attempts to tax unrealized income might not be constitutional.

No alteration to the US tax laws will unwind a tax treaty between the US and any foreign nation. These treaties would have to be modified in the same manner as any other treaty.

Flat tax proponents place the necessary rate at 14% or so; 3 to 5 percent is so low it could not work...and separate rates for ordinary income vs. capital gains is anathema to a flat tax proposal.

Trading a stock is a realization event. Assuming no other facts, trading for a gain of 5 cents results in income of 5 cents. I cannot even imagine why you believe this is an undesirable practice, but your proposal does not create any disincentive to do this.

Taxing the down payment and principal payments made by home buyers is a no-go for the same reasons I outlined above. After-tax investment in property is not an event for tax purposes; there is no "income" to tax.

 

[The Rabbi]

When you tax something, you get less of it. Tax investment and you will get less of it.

Index capital gains to inflation. Keep the Bush tax cut for cap gains and dividends.
Obama was shown that reducing the rate INCREASED tax revenues from that tax to the gov't. So why does he want to raise it again?

 

[uscitizen]

A flat tax on ALL peronal income no exceptions no deductions.

 

[Avatar4321]

A flat tax on ALL peronal income no exceptions no deductions.

I would completely agree with that. no one should be paying more than 10% of their income to the Government. God doesn't ask for more, why should Ceasar?

The problem with that it is prevents politicians from controlling things. They dont like that.

 

[uscitizen]

A flat tax on ALL peronal income no exceptions no deductions.

I would completely agree with that. no one should be paying more than 10% of their income to the Government. God doesn't ask for more, why should Ceasar?

The problem with that it is prevents politicians from controlling things. They dont like that.

Agreed it would reduce their brib...err campaign contributions.
and gravy jobs after leaving office.

 

[loosecannon]

The only problem with the capital gains tax is that it is only 15%.

Since we already have 401K and other retirement account tax shelters capital gains, even those realized via exercising stock options, should be more in line with the levels of the graduated income tax.

People who buy recycled stock aren't actually priming the pumps of investment in innovative start ups, so why grant them an eternal grace period?

That said a graduated annual capital gains tax is not a bad idea. Perhaps a 15%- 75% range is more appropriate for investors who don't participate in a retirement income tax shelter.

Goldman Sachs profited $100 million/day on their day trading ventures 81 out of 90 days in 2009. During an economic contraction.

Perhaps they should have been taxed 90% on that income. For the good of the nation and the economy. Some profiteering deserves to be discouraged.

What about Madoff, should he be taxed disproportionately, after the fact?

Your's truly,

Doctor Clawback.

 

[loosecannon]

God doesn't ask for more, why should Ceasar?

Jesus answered that very question. Saying that since the coin is Caesar's, Ceaesar has a right to all of it, or 100% on demand.

The same is true today. You have very little actual sovereignty. All of your rights are granted by government and can be withdrawn on a whim. Including your rights to ownership of anything.

Legally speaking of course, and literally as well. But in theory you may see it otherwise.

 

[Bern80]

The only problem with the capital gains tax is that it is only 15%.

Since we already have 401K and other retirement account tax shelters capital gains, even those realized via exercising stock options, should be more in line with the levels of the graduated income tax.

People who buy recycled stock aren't actually priming the pumps of investment in innovative start ups, so why grant them an eternal grace period?

That said a graduated annual capital gains tax is not a bad idea. Perhaps a 15%- 75% range is more appropriate for investors who don't participate in a retirement income tax shelter.

Goldman Sachs profited $100 million/day on their day trading ventures 81 out of 90 days in 2009. During an economic contraction.

Perhaps they should have been taxed 90% on that income. For the good of the nation and the economy. Some profiteering deserves to be discouraged.

What about Madoff, should he be taxed disproportionately, after the fact?

Your's truly,

Doctor Clawback.

WOW. Do you know that politicians in washington look at people like you and laugh their asses off? "Look at this dumbass, here. Not only are we taking 30-40% of people's income, spending it incredibly innefficiently, but have constituents that are actually arguing that we take more of it."

You're playing their game cannon. Shouldn't the idea be to figure how we can get government what it needs and have people keep as much of their own money as possible?

 

[Soggy in NOLA]

People who argue for higher income taxes fall into two categories:

1. Those paying no income taxes,
2. Those who are so wealthy, that income taxes aren't that big of an issue.

 

[Soggy in NOLA]

The only problem with the capital gains tax is that it is only 15%.

Since we already have 401K and other retirement account tax shelters capital gains, even those realized via exercising stock options, should be more in line with the levels of the graduated income tax.

People who buy recycled stock aren't actually priming the pumps of investment in innovative start ups, so why grant them an eternal grace period?

That said a graduated annual capital gains tax is not a bad idea. Perhaps a 15%- 75% range is more appropriate for investors who don't participate in a retirement income tax shelter.

Goldman Sachs profited $100 million/day on their day trading ventures 81 out of 90 days in 2009. During an economic contraction.

Perhaps they should have been taxed 90% on that income. For the good of the nation and the economy. Some profiteering deserves to be discouraged.

What about Madoff, should he be taxed disproportionately, after the fact?

Your's truly,

Doctor Clawback.

Uhhh.. WHAT?

 

[johnrocks]

Welcome to the boards, personally;and I know this is radical; I support ending ALL Federal taxes and then each State pays it's share;based on population; and they tax how they want;be it income,sales,property,capital gains, etc.

 

[Madeline]

Interesting, John. So how to we impose import duties? Or maintain a military?

You seem to think we don't need a federal government, that a collection of states would be adequate. Is that what you are driving at?

 

[CrusaderFrank]

Eliminate all capital gains tax

Eliminate the personal income tax and replace it with a VAT

 

[johnrocks]

Interesting, John. So how to we impose import duties? Or maintain a military?

You seem to think we don't need a federal government, that a collection of states would be adequate. Is that what you are driving at?

Not at all, we could have the government we want, we'd just have to pay for it and with each State having to pay their share, it would be in their interest to keep the Federal government in check and as small as possible.

If we want this size government, all I ask is that we pay for it, if that means $6 gas and tax rates of 75% then so be it, I doubt many would want the size government we have now then though but as long as we pay for it with fiat money and devalue our buying power with the invisable tax of inflation, few seem to care.

 

[The Rabbi]

Eliminate all capital gains tax

Eliminate the personal income tax and replace it with a VAT

We've had this discussion. The problem with a VAT is that it creates a big bureaucracy to enforce it and massive incentives to cheat. In Britain the whole thing is a joke, with unaccountable officials making decisions that affect industries, which spend their time figuring out how to game the system vs making good products.
I'd be more inclined to see a flat tax that is simple.

 

[Dont Taz Me Bro]

A flat tax on ALL peronal income no exceptions no deductions.

Never happen. The current tax code gives the politicians too much power. They will never give that up willingly.

 

[loosecannon]

The only problem with the capital gains tax is that it is only 15%.

Since we already have 401K and other retirement account tax shelters capital gains, even those realized via exercising stock options, should be more in line with the levels of the graduated income tax.

People who buy recycled stock aren't actually priming the pumps of investment in innovative start ups, so why grant them an eternal grace period?

That said a graduated annual capital gains tax is not a bad idea. Perhaps a 15%- 75% range is more appropriate for investors who don't participate in a retirement income tax shelter.

Goldman Sachs profited $100 million/day on their day trading ventures 81 out of 90 days in 2009. During an economic contraction.

Perhaps they should have been taxed 90% on that income. For the good of the nation and the economy. Some profiteering deserves to be discouraged.

What about Madoff, should he be taxed disproportionately, after the fact?

Your's truly,

Doctor Clawback.

WOW. Do you know that politicians in washington look at people like you and laugh their asses off? "Look at this dumbass, here. Not only are we taking 30-40% of people's income, spending it incredibly innefficiently, but have constituents that are actually arguing that we take more of it."

You're playing their game cannon. Shouldn't the idea be to figure how we can get government what it needs and have people keep as much of their own money as possible?

Not.

If you redistribute the tax burden you aren't increasing taxes.

In my foolish fantasy world all taxes would be eliminated and replaced with user fees, ambitious nationalization of essential industry and a one time 100% death tax. Freeing the living and working from all other taxes.

The % of tax we pay as a whole is a function of services we receive, and any agreed amount is fine with me; 1% tax for miniscule service or 75% tax for nearly complete services. it makes no diff to me. Whatever we agree to is fine.

What bothers me is disproportionate taxation of surplus income.

 

[loosecannon]

Eliminate all capital gains tax

Eliminate the personal income tax and replace it with a VAT

not a bad idea, not a perfect idea, but much better than what we do now.

 

[uscitizen]

Interesting, John. So how to we impose import duties? Or maintain a military?

You seem to think we don't need a federal government, that a collection of states would be adequate. Is that what you are driving at?

Not at all, we could have the government we want, we'd just have to pay for it and with each State having to pay their share, it would be in their interest to keep the Federal government in check and as small as possible.

If we want this size government, all I ask is that we pay for it, if that means $6 gas and tax rates of 75% then so be it, I doubt many would want the size government we have now then though but as long as we pay for it with fiat money and devalue our buying power with the invisable tax of inflation, few seem to care.

Umm didn't we have $5 gas and still could not pay for this government?