The Flawed Concept of "Wealth Redistribution"

[boedicca]

Why should someone who lives off capital gains pay a lower tax rate than someone who does not?

Because they already paid taxes on the income used to create that capital.

The thing about Capitalism is that it requires Capital to finance businesses, grow the economy, and create jobs. Those who invest take calculated risks - why should they have the downside risk of losing all of their capital with the government taking a huge share of the upside (to spend on crap)?

The Faux Populism of justifying seizing someone's wealth on the pretext of "fairness" just causes that capital to be misused by politicians to pay off their cronies. That is worse for our economy, and the poor at the bottom, than letting the capital be used for a productive purpose.

 

[PatekPhilippe]

Not quite. A large portion of my income comes from capital gains - in total, this year I paid about 20% income tax. Seeing as how someone who makes half of my income pays around 35%, you're quite wrong.

You have write-offs....are you saying they have no write-offs because they make less money? I find that hard to believe. 35% Federal tax bracket puts them into the $150k salary range....I KNOW anyone who's in that salary range has write-offs and more than likely has an AGI around $120k. If you are living off of your investments...that's NOT the same tax law as someone who works therefore you are comparing apples to butternut squash. Are you now saying your capital gains rate is unfair because you invested wisely enough to be able to live off of it? Well then...send a check to the government to make up the other 15% you wish you were paying. Obama is going to need help and your check will be appreciated.

Why should someone who lives off capital gains pay a lower tax rate than someone who does not?

Don't ask me...ask Congress. They passed the laws. At any rate....if someone invested enough money to be able to "live comfortably" on their dividends etc. then they would be quite wealthy indeed with the value of their portfolio. If your smart enough to lower your tax burden to 20% then that's a smart move. What's wrong with taking advantage of every opportunity afforded to you in this country instead of whining about how good the other guy has it?

 

[The Rabbi]

So, you must be a billionaire then, right?

No...far from it...but I have taken advantage of every opportunity given to me and I enjoy quite a comfortable living in a recession proof career. You make your own bed and right now I sleep on a 2 foot thick Stearns & Foster.

I as well enjoy a comfortable living in a recession proof career. But I don't believe that I should be paying less of a percentage of my income than someone making half as much as me.

There is nothing--absolutely nothing--in the law that prevents you from calculating what your taxes would be at the higher rate and mailing the gov't the extra money.
In fact, since it bothers you you would be a hypocrite not to do that, right?

 

[Foxfyre]

What's wrong with taking advantage of every opportunity afforded to you in this country instead of whining about how good the other guy has it?

More especially if the same opportunity is available to everybody to engineer their finances so that they can live off the capital gains. Some people simply don't have that kind of ambition and others don't have the stomach to assume the kinds of risk it requires for most to get to that situation.

 

[The Rabbi]

Not quite. A large portion of my income comes from capital gains - in total, this year I paid about 20% income tax. Seeing as how someone who makes half of my income pays around 35%, you're quite wrong.

You have write-offs....are you saying they have no write-offs because they make less money? I find that hard to believe. 35% Federal tax bracket puts them into the $150k salary range....I KNOW anyone who's in that salary range has write-offs and more than likely has an AGI around $120k. If you are living off of your investments...that's NOT the same tax law as someone who works therefore you are comparing apples to butternut squash. Are you now saying your capital gains rate is unfair because you invested wisely enough to be able to live off of it? Well then...send a check to the government to make up the other 15% you wish you were paying. Obama is going to need help and your check will be appreciated.

Why should someone who lives off capital gains pay a lower tax rate than someone who does not?

We don't distinguish people who have cap gains as their primary income and people who don't. All capital gains is taxed at the same rate.
The reason it receives favorable treatment is that it is the source of capital formation, fueling growth in the economy.

 

[Toro]

Why should someone who lives off capital gains pay a lower tax rate than someone who does not?

Because they already paid taxes on the income used to create that capital.

The thing about Capitalism is that it requires Capital to finance businesses, grow the economy, and create jobs. Those who invest take calculated risks - why should they have the downside risk of losing all of their capital with the government taking a huge share of the upside (to spend on crap)?

The Faux Populism of justifying seizing someone's wealth on the pretext of "fairness" just causes that capital to be misused by politicians to pay off their cronies. That is worse for our economy, and the poor at the bottom, than letting the capital be used for a productive purpose.

I invest for a living.

Income and capital gains are different things. Income relates to dividends, capital gains relates to market values.

If I buy stock in the market from somebody, the value of the stock often rises or falls for no reason relating to profitability, i.e. level of interest rates, perceptions of risk, market liquidity, inflation expectations, etc. Why should my rate of tax be determined based on what others think the value of my stock is worth?

 

[The Rabbi]

Why should someone who lives off capital gains pay a lower tax rate than someone who does not?

Because they already paid taxes on the income used to create that capital.

The thing about Capitalism is that it requires Capital to finance businesses, grow the economy, and create jobs. Those who invest take calculated risks - why should they have the downside risk of losing all of their capital with the government taking a huge share of the upside (to spend on crap)?

The Faux Populism of justifying seizing someone's wealth on the pretext of "fairness" just causes that capital to be misused by politicians to pay off their cronies. That is worse for our economy, and the poor at the bottom, than letting the capital be used for a productive purpose.

I invest for a living.

Income and capital gains are different things. Income relates to dividends, capital gains relates to market values.

If I buy stock in the market from somebody, the value of the stock often rises or falls for no reason relating to profitability, i.e. level of interest rates, perceptions of risk, market liquidity, inflation expectations, etc. Why should my rate of tax be determined based on what others think the value of my stock is worth?

Why should your income be based on what others value your services at?

 

[Toro]

Don't ask me...ask Congress. They passed the laws. At any rate....if someone invested enough money to be able to "live comfortably" on their dividends etc. then they would be quite wealthy indeed with the value of their portfolio. If your smart enough to lower your tax burden to 20% then that's a smart move. What's wrong with taking advantage of every opportunity afforded to you in this country instead of whining about how good the other guy has it?

Dividends and capital gains are different things.

This doesn't have anything to do with worrying about what the other guys is making. I just wonder why someone who makes $50,000 from salary should pay a higher marginal tax rate than someone who makes $100,000 from capital gains?

 

[boedicca]

I invest for a living.

Income and capital gains are different things. Income relates to dividends, capital gains relates to market values.

If I buy stock in the market from somebody, the value of the stock often rises or falls for no reason relating to profitability, i.e. level of interest rates, perceptions of risk, market liquidity, inflation expectations, etc. Why should my rate of tax be determined based on what others think the value of my stock is worth?

Uhhhhh. How does one accumulate the capital to have a pool to invest? Unless one inherited it, one first earns it and pays the income taxes.

If you invest in stockz and hold them short term, you will be taxed at the ordinary income rate. Only stocks held over a year are taxed as capital gains (something I would think you would already know as an investor). Taking the risk of the economic cycle justifies the cap gains treatment - at least that is the implied assumption.

Personally, I'd rather see no income taxes on capital gains, and a flat tax on income. Don't ask me to justify our Byzantine and Politically Motivated Tax Code.

 

[Toro]

We don't distinguish people who have cap gains as their primary income and people who don't. All capital gains is taxed at the same rate.
The reason it receives favorable treatment is that it is the source of capital formation, fueling growth in the economy.

That's not true. Short-term capital gains are taxed at 28%, long-term capital gains, i.e. held 366 days or longer, are taxed at 15%.

Why should capital be treated any different than labor? As any econ 101 student knows, both labor and capital are the two critical inputs to economic output. Why should be discriminate against labor relative to capital?

 

[boedicca]

Because the productivity of that labor without capital is very low.

Just compare an economy made up of subsistence farmers to the U.S.

 

[Toro]

I invest for a living.

Income and capital gains are different things. Income relates to dividends, capital gains relates to market values.

If I buy stock in the market from somebody, the value of the stock often rises or falls for no reason relating to profitability, i.e. level of interest rates, perceptions of risk, market liquidity, inflation expectations, etc. Why should my rate of tax be determined based on what others think the value of my stock is worth?

Uhhhhh. How does one accumulate the capital to have a pool to invest? Unless one inherited it, one first earns it and pays the income taxes.

If you invest in stockz and hold them short term, you will be taxed at the ordinary income rate. Only stocks held over a year are taxed as capital gains (something I would think you would already know as an investor). Taking the risk of the economic cycle justifies the cap gains treatment - at least that is the implied assumption.

Personally, I'd rather see no income taxes on capital gains, and a flat tax on income. Don't ask me to justify our Byzantine and Politically Motivated Tax Code.

Right. What you are saying is that one hour of my time as a laborer to build up my savings to invest is worth marginally less than one hour of my time as an investor to speculate in the market with my savings.

I'm a good investor. Over the past 10 years, I've increased my personal account by ~350% while the market has been flat. I make more in capital gains than I do in salary. Part of my strategy is to buy bombed out companies and industries, then sell them when the market stops being so idiotic and realizes value. But these companies don't really change. What changes is the perception of these companies. But because the market acts like a drunken moron, I get taxed less. Why should someone like me pay a lower rate of marginal tax because I've figured this out compared to my neighbor who does an honest day's work?

 

[Toro]

Because the productivity of that labor without capital is very low.

Just compare an economy made up of subsistence farmers to the U.S.

Dude, the marginal value of capital must equal the marginal value of labor in equilibrium. Capital is merely the embodiment of labor in either fixed or financial goods.

 

[boedicca]

Asked and answered. Capital makes labor far more productive than labor is alone.

 

[boedicca]

Because the productivity of that labor without capital is very low.

Just compare an economy made up of subsistence farmers to the U.S.

Dude, the marginal value of capital must equal the marginal value of labor in equilibrium. Capital is merely the embodiment of labor in either fixed or financial goods.

That is complete and utter nonsense. Capital makes labor more productive.

(I'm a gal by the way - chicks can understand finance, in this case even better than a man.)

 

[Foxfyre]

Don't ask me...ask Congress. They passed the laws. At any rate....if someone invested enough money to be able to "live comfortably" on their dividends etc. then they would be quite wealthy indeed with the value of their portfolio. If your smart enough to lower your tax burden to 20% then that's a smart move. What's wrong with taking advantage of every opportunity afforded to you in this country instead of whining about how good the other guy has it?

Dividends and capital gains are different things.

This doesn't have anything to do with worrying about what the other guys is making. I just wonder why someone who makes $50,000 from salary should pay a higher marginal tax rate than someone who makes $100,000 from capital gains?

Because the guy working for a living is taking minimal risk by working and is selling a commodity (his labor) for an agreed price. There is absolutely nothing stopping him from risking some of his wages in investments that would produce capital gains, however, whether that be stocks, bonds, real estate, or whatever.

The guy earning capital gains is putting his entire investment at risk. He can make money and he can just as easily lose money, even lose all his investment. But, unlike working for wages, the risk/investments he makes enhances the value of whatever he invests in and, sooner or later, that likely results in the very wages earned by the other guy.

Two very different dynamics are involved.

The higher the taxes on capital gains, the more restrictive the market becomes and the less opportunity there is for everybody. That is why almost the entire free world has capital gains taxes lower than the USA if they impose capital gains taxes at all.

 

[SFC Ollie]

Glad I live simply on my retirement and don't have to worry about all this.

Makes my head hurt.

 

[The T]

Glad I live simply on my retirement and don't have to worry about all this.

Makes my head hurt.

Good thing Indeed. Obama is EYEING those of us with 401k's and means to confiscate them to pay for his spending...

 

[Toro]

Because the guy working for a living is taking minimal risk by working and is selling a commodity (his labor) for an agreed price. There is absolutely nothing stopping him from risking some of his wages in investments that would produce capital gains, however, whether that be stocks, bonds, real estate, or whatever.

The guy earning capital gains is putting his entire investment at risk. He can make money and he can just as easily lose money, even lose all his investment. But, unlike working for wages, the risk/investments he makes enhances the value of whatever he invests in and, sooner or later, that likely results in the very wages earned by the other guy.

Two very different dynamics are involved.

The higher the taxes on capital gains, the more restrictive the market becomes and the less opportunity there is for everybody. That is why almost the entire free world has capital gains taxes lower than the USA if they impose capital gains taxes at all.

Please show us that the rest of the world has lower capital gains than the US.

By your logic, because a person risks something, they should be taxed at a lower rate. Well, what if I risk my money at the cards tables in Vegas? Or I decide to speculate in art or fine wines? How is that any different than speculating in stocks or bonds or commodities? After all, I'm risking losing my money.

In your "safe" labor analogy, unlike capital, the laborer cannot write-off his losses. In the tax code, if you lose money on your capital, you can write that off against future income, lowering your taxes in the future. That is the compensation for risking capital.

 

[PatekPhilippe]

Don't ask me...ask Congress. They passed the laws. At any rate....if someone invested enough money to be able to "live comfortably" on their dividends etc. then they would be quite wealthy indeed with the value of their portfolio. If your smart enough to lower your tax burden to 20% then that's a smart move. What's wrong with taking advantage of every opportunity afforded to you in this country instead of whining about how good the other guy has it?

Dividends and capital gains are different things.

This doesn't have anything to do with worrying about what the other guys is making. I just wonder why someone who makes $50,000 from salary should pay a higher marginal tax rate than someone who makes $100,000 from capital gains?

It's always been this way even before they were lowered to what they are now. As you know capital gains taxes aren't progressive. They are at a set rate....just like federal income tax should be.