Should we abolish the capital gains tax?

[Jon]

No, I don't realize that at all. According to the figures you posted earlier, I'd expect it to add to tax revenue (30% > 27%).

But you're not getting 30% of all income, you're getting less because of the standard deduction. The 27% means that 27% of the total income was collected as tax revenue (I simply divided GNI by total tax revenue, just a quick estimate). You also have to remember that the income had deductions, and even AFTER deductions, 27% of income was still paid in taxes. That means the rate was higher than that.

And no offense, but your second point makes no sense at all. If they paid less in taxes, perhaps they would require less in government handouts.

Maybe, but this is economics. Putting more money in the hands of the public also means that the cost of living will increase because more people will have more money, and businesses will raise prices because they know people can afford it. $25,000 will no longer be sufficient income.

 

[manifold]

see my edit

 

[Jon]

As far as capital gains are concerned, one provision of a good tax is that it does not affect the behavior of the public, unless that change is good (taxing alcohol and cigarettes at a higher rate persuades people not to use them, which is considered a "good" change). If we tax capital gains at the same rate as income, people will be less likely to invest. If we don't tax capital gains at all, people will invest all their money and work less.

 

[manifold]

If we tax capital gains at the same rate as income, people will be less likely to invest.

So they'd rather earn nothing than pay a higher tax on what they earn?

Sorry, not buying it.

 

[Jon]

If we tax capital gains at the same rate as income, people will be less likely to invest.

So they'd rather earn nothing than pay a higher tax on what they earn?

Sorry, not buying it.

Some would, yes. Keep in mind that it's not just the filthy rich that invest. Some middle class workers invest, and they are less likely to do so if the tax on the earnings is higher than the earnings itself.

But let's not get caught up haggling over the numbers. Maybe it's $20,000 and 35%. I want you to explain why you don't like the concept itself and say that "simplifying it to the point of one tax rate and one standard deduction will not create a fair or efficient tax."

The numbers are the reason. There is no flat tax rate that will balance the system. 30%, 35%, 5%, 95%...no one rate is more fair or efficient than the other. Someone will get screwed, and someone else will be rewarded for more than they should. A progressive system allows the average tax rate for individuals to be as close to par as possible.

 

[manifold]

they are less likely to do so if the tax on the earnings is higher than the earnings itself.

I don't recall advocating a tax rate greater than 100%.

 

[manifold]

The numbers are the reason. There is no flat tax rate that will balance the system. 30%, 35%, 5%, 95%...no one rate is more fair or efficient than the other. Someone will get screwed, and someone else will be rewarded for more than they should. A progressive system allows the average tax rate for individuals to be as close to par as possible.

I guess our understanding of what is fair and efficient must be miles apart. Your complaints suggest that you think nobody gets screwed or over-rewarded in the current system. A high standard deduction makes it progressive. Layer in some regressive consumption taxes and I think you'd find a good balance. But let's not pretend we don't know why it would never happen. Very wealthy people would pay more, and they'd rather use their wealth to maintain our current, extremely regressive tax structure (when you factor in all forms of taxation) than to pay more in taxes themselves.

 

[Ravi]

A true flat tax would more than likely mean that very wealthy people pay less and the middle class would pay more. It's mostly rich people that push for a flat tax at a rate of 20%.

 

[editec]

... But simplifying it to the point of one tax rate and one standard deduction will not create a fair or efficient tax.

What makes you say that?

Note: I agree with most of what Editec has to say most of the time, but I think he's completely wrong to throw in the towel so to speak and suggest that complexity of the tax code is somehow a necessity. In fact, I'd say it stands in direct contradiction to how he normally views things.

Oh, it could be and should be simplified...

..but bearing in mind that the tax code addresses a whole lot of things about what is and what is not a legitimate expense, and it does so for a wide sprectrum of industries, I do not think that Congress can devise a VERY SIMPLE system for those industries that actually is simple.

What I can tell you though, is that the system of taxation that even an average middle class family faces is way too complex.

When families which have virtually nothing exceptional to compute, and they find that they cannot figure out what they owe?

Well then you KNOW that this system is far too complex.

But if you're running a steel mill, or an oil company, or some highly complex large service or industrial corporation, then there probably IS a need for a much complex system of taxation.

Business isn't simple, so expecting the system that taxes businesses to be simple is probably asking for something that won't work very well.

 

[manifold]

A true flat tax would more than likely mean that very wealthy people pay less and the middle class would pay more.

I seriously doubt that. But of course it all depends on the rate and the standard deduction.

 

[Ravi]

A true flat tax would more than likely mean that very wealthy people pay less and the middle class would pay more.

I seriously doubt that. But of course it all depends on the rate and the standard deduction.

A standard deduction wouldn't be a true flat tax. But it would depend on the rate...and I doubt anyone is going to agree to your 30%.

 

[manifold]

... But simplifying it to the point of one tax rate and one standard deduction will not create a fair or efficient tax.

What makes you say that?

Note: I agree with most of what Editec has to say most of the time, but I think he's completely wrong to throw in the towel so to speak and suggest that complexity of the tax code is somehow a necessity. In fact, I'd say it stands in direct contradiction to how he normally views things.

Oh, it could be and should be simplified...

..but bearing in mind that the tax code addresses a whole lot of things about what is and what is not a legitimate expense, and it does so for a wide sprectrum of industries, I do not think that Congress can devise a VERY SIMPLE system for those industries that actually is simple.

What I can tell you though, is that the system of taxation that even an average middle class family faces is way too complex.

When families which have virtually nothing exceptional to compute, and they find that they cannot figure out what they owe?

Well then you KNOW that this system is far too complex.

But if you're running a steel mill, or an oil company, or some highly complex large service or industrial corporation, then there probably IS a need for a much complex system of taxation.

Business isn't simple, so expecting the system that taxes businesses to be simple is probably asking for something that won't work very well.

All good points.

But I still say a simple flat tax and high standard deduction would work fine for personal income taxation. As for businesses, I'm not convinced a flat tax couldn't work, but it would likely still demand other complexities.

 

[manifold]

A true flat tax would more than likely mean that very wealthy people pay less and the middle class would pay more.

I seriously doubt that. But of course it all depends on the rate and the standard deduction.

A standard deduction wouldn't be a true flat tax. But it would depend on the rate...and I doubt anyone is going to agree to your 30%.

So maybe the right number is 24.789%.

The numbers would obviously need to be crunched and I don't have access to the applicable data. But I have a very strong suspicion that there are a lot of very wealthy people that already end up paying rates similar to your average middle class taxpayer, after they exploit all the loopholes in the system. Under a simplified structure, they'd only get the standard deduction too and still pay the same rate as the middle class taxpayer, but on a higher income base.

 

[Paulie]

I think a lot of you would be very surprised at how many middle class people actually do invest. It's not just for rich people.

 

[Ravi]

I seriously doubt that. But of course it all depends on the rate and the standard deduction.

A standard deduction wouldn't be a true flat tax. But it would depend on the rate...and I doubt anyone is going to agree to your 30%.

So maybe the right number is 24.789%.

The numbers would obviously need to be crunched and I don't have access to the applicable data. But I have a very strong suspicion that there are a lot of very wealthy people that already end up paying rates similar to your average middle class taxpayer, after they exploit all the loopholes in the system. Under a simplified structure, they'd only get the standard deduction too and still pay the same rate as the middle class taxpayer, but on a higher income base.

Yes, the numbers would have to be crunched...but no one ever crunches them so no one actually knows.

Anyway, as long as you include a standard deduction you are actually proposing lowering the tax brackets on the current progressive system and eliminating all deductions. Not going to make people that also pay state income tax very happy. And if business couldn't write off their expenses most businesses would cease to operate.

 

[Ravi]

I think a lot of you would be very surprised at how many middle class people actually do invest. It's not just for rich people.

Do you have a point?

 

[editec]

I think a lot of you would be very surprised at how many middle class people actually do invest. It's not just for rich people.

I think I read recently that about 20% of the population has 401Ks or some investment in the stock market

But of course those people with 401ks aren't currently paying capital gains taxes on their meger investments, are they?

None of us (I suspect) think that investing is only for very rich people.

But if you take the total assets of the working class in stocks and bonds, and compare it to the total assets of the investment class, what you'd find is that te investment classes (basicallyt etop 20% of income earners) probably own 95% of all stock equity.

 

[Paulie]

I think a lot of you would be very surprised at how many middle class people actually do invest. It's not just for rich people.

Do you have a point?

Yeah. Some of you seem to think raising the capital gains tax is like a nice little spanking for rich people, to fill the budget. You can't spank rich people without spanking the middle class. The sooner you realize that the better off you'll be.

 

[Ravi]

I think a lot of you would be very surprised at how many middle class people actually do invest. It's not just for rich people.

Do you have a point?

Yeah. Some of you seem to think raising the capital gains tax is like a nice little spanking for rich people, to fill the budget. You can't spank rich people without spanking the middle class. The sooner you realize that the better off you'll be.

Wow, is that what some of us think? How funny and confused I must be.

 

[Paulie]

Yeah, pretend a lot of liberals don't want to raise capital gains tax to spank the rich.

Isn't raising taxes to spank the rich why you guys voted for Obama in the first place? That was one of his biggest platforms!

Mani was wrong, you aren't very good at playing dumb.