The Case for Progressive Taxation

[CuteOldGuy]

Originally Posted by SassySue

Talk about an underground economy avoiding taxation, here's an example:

http://www.huffingtonpost.com/2013/0...n_3672029.html

http://www.huffingtonpost.com/2012/1...n_2280130.html

Yikes!!!

Yes. Those are loopholes that the Democrats and Republicans gave to them in exchange for campaign donations and other valuable goods and services. It will always be that way as long as we keep electing Republicans and Democrats to Congress.

[SassySue]

Originally Posted by CuteOldGuy

Yes. Those are loopholes that the Democrats and Republicans gave to them in exchange for campaign donations and other valuable goods and services. It will always be that way as long as we keep electing Republicans and Democrats to Congress.

Actually, Obama is against these corporate loopholes. See this article:

http://www.foxnews.com/politics/2016...-us-firms.html

[CuteOldGuy]

He says that, but his actions differ. Please understand. Obama is a liar. If he had truly wanted change, he would have worked harder for it. Sorry, Sue. I love you, but Obama lies.

[Texas Contrarian]

Originally Posted by Tiny

The USA already has the most progressive tax system of any developed country in the world. Yes, indeed! (See below.) Google something like OECD and progressive tax and you'll see I'm right. You don't know as much as you think you do about taxes on multinational corporations. Some corporations do pay at low tax rates. The marginal corporate rate in the USA however is the highest in the developed world, and some U.S. corporations are greatly handicapped versus foreign competitors because of high taxes and very burdensome and illogical tax regulations. The system encourages U.S. corporations to keep cash overseas because if they bring overseas profits back to the USA to invest here, in ways that would create jobs, they pay high taxes on the repatriated funds...Absolutely correct. Additionally, I have sometimes described the corporate tax code as a "crony capitalist shuffle," and consider it something of a national disgrace that our "leaders" do not meaningfully address the issue. (See note at the end of this post.)

Many uninformed observers seem to be suffering under the delusion that our fiscal challenges arise primarily from insufficient taxation of the "rich" (however one may wish to define the term).

Untrue. In a thread I started about 16 months ago, I pointed out that Europe's social democracies pay for big government principally by taxing the non-affluent much more heavily.

Who Pays for Big Government?

(The graph in the opening post is quite an eye-opener for many liberals!)


A Few Notes on Capital Gains Taxes

Originally Posted by Chung Tran

I got a response for all of them:

not indexed for inflation.. yes, but I can easily counter that you are paying in lower valued dollars, given the time value of money, when you finally pay up.

triple taxation? a stretch, in my view.. I can say wages should not be taxable, since they are generated by the profits of the companies.. or Government wages should be untaxed, because government doesn't produce anything to generate wages, thus taxes.

hanging onto shares forever? Hell, buy-and-hold has almost disappeared, it's mostly churn and turn these days.. but I have an answer for those inclined to hold and avoid taxes.. tax shares like straddles and some options.. on their year-end values.. say, after the shares are held longer than 3 years..

Tiny's reply:

Originally Posted by Tiny

OK, for my example, IBM, say the price goes from $15 in 1968 to $150 today. You live in California, you make a lot of money and you're in the maximum tax bracket, and the government changes the rules so that long term capital gains are taxed the same as other income, which would be about 55% including California state inccome tax and the Obama surtax. Then you'll pay 0.55 x (150-15) = $74 tax. For sake of argument, say inflation over the same period has been 10X, that is, a dollar in 2016 only buys what $0.10 would have bought in 1968. (This is not strictly true, inflation has been somewhat less, but the math is easier.) In this example, adjusted for inflation, the IBM stock is worth exactly what it was in 1968, adjusted for inflation. But when you sell the stock, the government takes half the $150 and you get the other half. After taking into account inflation, you end up having traded a dollar for $0.50, because the government took the other $0.50.

I don't agree with your analogy to taxes on wages, at all. The corporation gets a deduction for what it pays out in wages, so there is no double taxation. On the other hand if you have a corporate tax on earnings, then a tax on the portion of the earnings distributed as dividends, and then a tax on the inflation component of the capital gain, then yes, you do have double or triple taxation.

Ideologically I'm very, very opposed to your idea of taxing unrealized gains based on values at the end of the year. However, if you thought of it yourself and didn't read it somewhere, kudos. This is how you'd extract money from someone like Warren Buffet, whose taxes have been very, very small compared to the wealth he's managed to amass. It's an idea out of Thomas Picketty's playbook. You might listen to the link to the Youtube video in my post above, from the 2008 Obama/Clinton debate, where Charles Gibson describes examples of how taxes collected went down when the tax rate on capital gains went up. It's probably not going to change your mind, but it might cause you to appreciate the reasoning.

I strongly agree with Tiny.

For starters, taxing unrealized gains would make our current tax code even more of a nightmarish clusterfuck than it already is. Besides, what if you had to pay a big tax bill for an unrealized gain one year, only to see the market value of the taxed asset tank precipitously during the next one? Think you could successfully score a clawback from the U.S. Treasury? (Good luck with that!)

Additionally, history shows a powerful inverse correlation between capital gains tax rates and taxable realizations. Note the graph posted last year by Lustylad:

http://www.eccie.net/showpost.php?p=...0&postcount=39

Another argument against taxing capital gains at high rates involves what's called the "lock-in effect." Perverse incentives that discourage investors from redeploying capital to its highest and best uses hamper prospects for capital formation and may thereby impede economic growth. Libertarian economist Dan Mitchell provides a brief explanation:

http://www.forbes.com/sites/danielmi.../#233ea62f6074

Originally Posted by SassySue

Actually, Obama is against these corporate loopholes. See this article:

http://www.foxnews.com/politics/2016...-us-firms.html

Obama never so much as lifted a finger in an attempt to effect any such policy change. Although he may not have any understanding of the issue, his CEA chair certainly does, as he wrote the following article way back in 2007:

http://www.washingtonpost.com/wp-dyn...102601860.html

(Note, however, that the 2007 proposal wouldn't have cut the statutory rate nearly enough. 20% would be better, and 15% -- as George Osborne proposes for the U.K. -- would be better still.)

But why try to fix anything when it's so much more fun to keep the issue alive, so you can demagogue it and blame everything on what you claim to be obstinacy on the part of your political opponents? There are voters to be wooed and elections to be won!
.

[Chung Tran]

Originally Posted by CaptainMidnight

taxing unrealized gains would make our current tax code even more of a nightmarish clusterfuck than it already is. Besides, what if you had to pay a big tax bill for an unrealized gain one year, only to see the market value of the taxed asset tank precipitously during the next one? Think you could successfully score a clawback from the U.S. Treasury? (Good luck with that!)

in fairness, I only propose the unrealized gains tax on the very wealthy, and only for shares held 3 years or longer.. many people hold mutual funds that force a capital gain on holders, and tank the next year.. nobody gets the taxes back. my proposal is not unlike the generation-skipping tax, and my proposal puts money to work, in the form of taxes to spend, than some wealthy "Investor" who sits on his paper gains year after year.

[SassySue]

Originally Posted by Chung Tran

in fairness, I only propose the unrealized gains tax on the very wealthy, and only for shares held 3 years or longer.. many people hold mutual funds that force a capital gain on holders, and tank the next year.. nobody gets the taxes back. my proposal is not unlike the generation-skipping tax, and my proposal puts money to work, in the form of taxes to spend, than some wealthy "Investor" who sits on his paper gains year after year.

Yes, money flows, and when it's not put back into the economy it does no good to anyone. That makes total sense.

As to your comment, COG, Obama wanted to make a lot more changes, but the GOP has held him back. Remember, they have control of the House and Senate. Obama had to compromise just to get things moving. Not his fault.

[Rey Lengua]

Originally Posted by SassySue

Yes, money flows, and when it's not put back into the economy it does no good to anyone. That makes total sense.

As to your comment, COG, Obama wanted to make a lot more changes, but the GOP has held him back. Remember, they have control of the House and Senate. Obama had to compromise just to get things moving. Not his fault.

The words " Odummer " and " compromise " are only used by YOU lying liberals. What about all of those Executive Orders that he's FORCED onto businesses and the rest of us through the EPA, and other regulatory agencies only to have the Supreme Court rule them as unconstitutional ! Where was HIS compromise on IMMIGRATION ? What about THAT ,lib ? After he had been telling Hispanic audiences, prior to the 2012 elections , that he was LEGALLY PROHIBITED from doing what he did later. The only " compromise " YOUR "Dear LEader " did TO America is compromise our standing in the world and " compromised a lot of peoples jobs and their health care, with HIS oduumer care program. " If you like your Doctor / health care plan, you can keep it " . ANOTHER LIBERAL LIE !

[CuteOldGuy]

Originally Posted by SassySue

Yes, money flows, and when it's not put back into the economy it does no good to anyone. That makes total sense.

As to your comment, COG, Obama wanted to make a lot more changes, but the GOP has held him back. Remember, they have control of the House and Senate. Obama had to compromise just to get things moving. Not his fault.

Obama has used EOs to get almost everything he wanted. If he wanted banking regulation, he'd have it. Sorry, Sue. Obama lies. He is owned by Wall Street and the defense industry. He cares nothing for the people.

[Jackie S]

Originally Posted by SassySue

As to your comment, COG, Obama wanted to make a lot more changes, but the GOP has held him back..

Thank God for that.

[SassySue]

Thank God democrats are winning this election.

[dilbert firestorm]

Originally Posted by SassySue

Thank God democrats are winning this election.

based on what???

btw, Democrats are godless.

[Tiny]

Originally Posted by CaptainMidnight

But why try to fix anything when it's so much more fun to keep the issue alive, so you can demagogue it and blame everything on what you claim to be obstinacy on the part of your political opponents? There are voters to be wooed and elections to be won!
.

Great links CaptainMidnight. I would add that a complicated and inefficient tax system with high statutory tax rates works to the benefit of certain special interests. These special interests pay lobbyists and contribute to political campaigns to prevent changes. While both political parties are to blame for the system being the way it is, the attempts at reform during recent decades have predominately come from Republicans. You don't see many Democrats like John F. Kennedy and Bill Bradley any more, who wanted to change the tax system to contribute to economic growth and prosperity instead of demagoguing.

[Texas Contrarian]

Originally Posted by Tiny

Great links CaptainMidnight. I would add that a complicated and inefficient tax system with high statutory tax rates works to the benefit of certain special interests. These special interests pay lobbyists and contribute to political campaigns to prevent changes. While both political parties are to blame for the system being the way it is, the attempts at reform during recent decades have predominately come from Republicans. You don't see many Democrats like John F. Kennedy and Bill Bradley any more, who wanted to change the tax system to contribute to economic growth and prosperity instead of demagoguing.

I agree, and would only note further that I and a few colleagues have in recent years referred to the U.S. corporate income tax as a sort of "crony capitalist shuffle." By that I mean that it's not as opposed by the largest corporate players as one might imagine, since relative to their smaller competitors, they have an easier time gaming the system. (For another quintessential "crony capitalist shuffle," see Dodd-Frank.)

Originally Posted by Chung Tran

in fairness, I only propose the unrealized gains tax on the very wealthy, and only for shares held 3 years or longer.. many people hold mutual funds that force a capital gain on holders, and tank the next year.. nobody gets the taxes back. my proposal is not unlike the generation-skipping tax, and my proposal puts money to work, in the form of taxes to spend, than some wealthy "Investor" who sits on his paper gains year after year.

I couldn't disagree more.

First, the comparison with treatment of mutual fund distributed gains is completely inapt, since unrealized gains are not taxed; only realized gains arising from the sale of assets held by the fund. To be sure, you probably wouldn't like it if capital gains liability (whether short- or long-term) were distributed to you. (I certainly wouldn't, either, which is one reason I would never invest in a mutual fund.)

Second, I believe strongly that policymakers should encourage, not discourage, medium- to long-term investing. The specter of the U.S. treasury hitting me up for 23.8% of any unrealized gains after holding an asset for, say, three years wouldn't exactly do much for my incentive to invest. Further, the looming tax liability would divert funds I could utilize for other investments, thereby exerting downward pressure on the market. Capital has a rather pernicious habit of declining to flow where it isn't treated with relative fairness. History demonstrates very clearly that when policymakers open fire on those they deem to be the "undeserving rich," a lot of not-so-affluent individuals get caught in the crossfire. Confiscatory capital gains tax policy imposes heavy costs on the larger economy.

Third, how would further soaking the private sector "put money to work." Investors and entrepreneurs put money to work far better than the federal government, which doesn't exactly have a stellar record with respect to picking winners and losers. For a good example of how trainloads of money can be squandered and wasted by the federal government, see the American Recovery and Reinvestment Act (a misnomer if there ever was one).

Imposing a heavy penalty on unrealized capital gains isn't taxation. It's outright federal government asset seizure.

Originally Posted by SassySue

Yes, money flows, and when it's not put back into the economy it does no good to anyone. That makes total sense. No it doesn't. (See below.)

As to your comment, COG, Obama wanted to make a lot more changes, but the GOP has held him back. Remember, they have control of the House and Senate. Obama had to compromise just to get things moving. Not his fault. Really? Note that Obama had large Democratic majorities in both the House and Senate (approximately 60%-40%) in 2009 and 2010. At no time did he make the slightest effort to fix the corporate tax code (or much of anything else, for that matter).

You seem to be laboring under the delusion that seizing private sector assets for diversion to the public purse would do wonderful things for the economy.

But then, you're an unabashed supporter of Bernie Sanders and Elizabeth Warren, aren't you?

In other words, you view a prosperous business or individual the way the Huns viewed a city around seventeen centuries ago; that is, something to be sacked and plundered.
.

[Texas Contrarian]

Edit: some glitch occurred and my post appeared twice!

(Seems to occasionally happen on this site.)
.

[SassySue]

Imposing a heavy penalty on unrealized capital gains isn't taxation. It's outright federal government asset seizure.


No one is imposing a heavy penalty on unrealized capital gains, at least not if Clinton gets elected. The wealthiest top 1 percent will see the most change. Trump's plan will help the wealthiest out much more than ever before; however, Trump's plan will do nothing for the deficit but allow it to increase to unmanageable amounts over the decades, whereas Clinton's plan will decrease it. Here they are for comparison:

The Trump plan offers tax savings at all income levels, with huge savings at the highest income levels resulting from the reduction in the top rate from 39.6% to 25%. And while all those negative numbers in the Trump column sure look appealing, try to keep in mind that in order for them to become a reality, we’re either going to have to cut spending (Fun Fact: We wont!), put another $12 trillion on the country credit card, or go deeper in debt to China.


http://www.forbes.com/sites/anthonyn.../#1035b4bb1c23

I don't think capital gains should be penalized, just taxed when they are sold and/or realized. Then, I think they should be taxed as regular income, the same as wages. I guess what I am trying to say is that any type of disposable income should be taxed, including interest from savings and investment accounts, dividends received from stock, and things like that.

Mostly, what really bothers me is how the multinational corporations are not paying taxes on their profits by using corporate inversions. Hillary has a plan for cracking down on those. The US loses enormous amounts of tax revenue because of this. It's really unjust and unfair in my opinion. See this article:

The Biggest Tax Scam Ever


These tax turncoats have drawn the ire of President Obama. "I don't care if it's legal," he declared this summer. "It's wrong." These inverted companies, he said, "don't want to give up . . . all the advantages of operating in the United States. They just don't want to pay for it."

http://www.rollingstone.com/politics...-ever-20140827

This is one thing Sanders is very emphatic about also.