The Case for Progressive Taxation

[I B Hankering]

Originally Posted by ftime

OK. Obviously this conversation is too complicated for this forum. I would just like to state some facts.

I have paid the maximum SS taxes for social security for 25+ years. I realize that I am subsidising people that get much more than I will. I also realize that I have paid more for medicare (as that doesn't end with maxing out SS).

My last year of full time employment, I claimed $638,000+. In that year I paid an overall rate (not marginal) of 24% in FICT. I did nothing out of the ordinary other than defer some income. I was audited, not the first time, and the Federal government gave me back $168. Spent it on a bottle of wine.

I live in the city of Houston. My last year in my house, I paid $1600 a month in property taxes. Given there is no state taxes, I could afford it. Property taxes take a much bigger % bite out of lower income people than me.

Without a doubt that lower taxes create jobs is ridiculous. They create larger profits. I believe it is called trickle down economics.

Having lived most of my adult life as affluent, I have been lucky. While there have been some good points made, the simple fact is that the current tax system is clearly on the side of the wealthy. My deductions have been phased out because of how much I make. I am fully taxed on Social Security which is a very small amount of my income. As I should be.

One final word on Corporate taxes. Specifically profits earned outside the US. In most cases there are tax credits for taxes paid to foreign countries. A company would only pay the incremental difference in taxes. The GOP aka Ryan tax plan wants 0% taxes paid for those profits. Reducing Corporate tax rate to 20% as called for in Ryan's proposal won't bring a single job back to the US. We are no longer a manufacturing economy. Those jobs are gone forever, regardless of tax rates. They are performed by robots or by workers who are paid a wage that a US worker would receive. We are a service economy.

Medicine and the pharmaceutical industry as a for profit entity won't work. Keep in mind that most doctors/hospitals are owned by for profit corporations that inflate prices well beyond what is required to pay doctors and fund research on drugs. I bring this up because this is such a large amount paid for Medicare and Medicaid.

Arguing marginal % doesn't make sense. Except for political reasons.

And what do you do with your profits? Hide them under a mattress? If you put that money into investments or into financial accounts, that money is then available to be loaned out to other individuals or businesses to spend it on consumables, construction, etc. So yes, "profits" do create jobs unless you're hiding your money under a mattress or in a mason jar in a hole in your back yard.

[Chung Tran]

[QUOTE=I B Hankering;1058351691] If you put that money into investments or into financial accounts, that money is then available to be loaned out to other individuals or businesses to spend it on consumables, construction, etc. So yes, "profits" do create jobs unless you're hiding your money under a mattress or in a mason jar in a hole in your back yard. [/COLOR][/SIZE]

the fallacy of a capital gains tax cut, is that economic activity is spurred, jobs are created.. nonsense.

unless you are purchasing IPO stock (which the vast majority of "Investors" are locked out of) or Treasury stock (the shares a Company has of its own stock), you are merely trading pieces of paper to other buyers and sellers.. no increased economic activity is generated. .. it's not even a piece of paper now, just an exchange of electrons in a computer program. yet the Republicans spout a capital gains cut year-after-year, as a cornerstone for economic growth.

a bank account? yes, but the economic growth, the lending, comes from the low reserve requirement, not the money itself in the accounts. but at today's interest rates, why bother putting your money in a bank account? so you can earn a quarter of a percent, then get taxed on half of that?

[nwarounder]

Originally Posted by SassySue

For one thing, not everyone is sitting on the couch all day popping out babies. Many of these single mothers are raising babies alone because the Fathers bailed on them. They didn't ask for it. Thankfully, I only had one child. I took birth control and did the smart thing. I was able to do clerical work and landed a legal secretarial career for awhile until the law firms started to downsize. At one point, when my daughter was younger and I wasn't getting child support in the 80's, the case worker told me I was better off on welfare because at the time I was only making $9 - $10 per hour I believe. It was in Indiana and my daughter was only three years old. By the time I paid the babysitter, rent, and other expenses, we did not have enough to live on. That is the problem for single mothers living without child support. Even living with child support, its hard to get buy. Wages have been stagnant since the mid seventies. Yet, the cost of living has risen astronomically. The economy today is based on two incomes. It's hard to get by on one income. I do think that birth control should be used in a responsible manner by all women who are sexually active. I did go on welfare for awhile, as the social worker suggested, but went to school for computer programming. When I realized I was only going to make $8.00 per hour after graduating, I was horrified! I got a job waitressing making $12 with tips, and only reported $5, so I was able to get some food stamps and free babysitting, since I was in a lower income bracket. That's how I got by for awhile, until she got older. Do you see what I am saying? The systems works against these people because if they try to work, the jobs don't pay enough to cover their expenses and then they don't qualify for low income housing, food stamps, and Medicaid.

I completely understand what you are saying, I don't think any human would mind helping good people that are truly in need. I'm just explaining why the majority of the working class has a problem with the government deciding who gets a check and how much to redistribute. And with the IRS being used as a weapon to target people the unions don't like, to collect them. Of course not every body in question is sitting on the couch all day breeding. But there are tons of them that are signed up and absolutely no checks in place to stop the abuse, and if they have another baby, the government just signs that one up too and gives them more money. Addicts, no problem, come right on in. It starts looking like a scam pretty quickly to anybody paying attention.

There are way too many people that have signed up for life and abused it long past the safety net in return for a vote year after year. Stop all the blatant fraud, and like the politicians, we should put a term limit on it. The problem is not the tax percentage rate or how progressive its design, it's how they spend our money.

[Chung Tran]

Originally Posted by nwarounder

not every body in question is sitting on the couch all day breeding.

I'm trying to, that's why I joined ECCIE

you're right, and we can start the change by electing someone who hasn't been part of this political machine for decades.. we complain about Government, then we send the same people back over and over.

[I B Hankering]

Originally Posted by Chung Tran

the fallacy of a capital gains tax cut, is that economic activity is spurred, jobs are created.. nonsense.

unless you are purchasing IPO stock (which the vast majority of "Investors" are locked out of) or Treasury stock (the shares a Company has of its own stock), you are merely trading pieces of paper to other buyers and sellers.. no increased economic activity is generated. .. it's not even a piece of paper now, just an exchange of electrons in a computer program. yet the Republicans spout a capital gains cut year-after-year, as a cornerstone for economic growth.

a bank account? yes, but the economic growth, the lending, comes from the low reserve requirement, not the money itself in the accounts. but at today's interest rates, why bother putting your money in a bank account? so you can earn a quarter of a percent, then get taxed on half of that?

So, you're arguing that the money in bank accounts that banks, in turn, agree to lend out for the construction of a personal home or business doesn't generate jobs and paychecks? Are you arguing that corporations that float stocks and bonds, to people with excess capital, to finance growth aren't paying wages? Don't pretend that such capital doesn't keep the economy moving and growing ... generating jobs with wages ... even if it is "just on paper" 1929 and 2008 bear witness to how economies are destroyed when those "paper accounts" disappear.

[SassySue]

Originally Posted by nwarounder

I completely understand what you are saying, I don't think any human would mind helping good people that are truly in need. I'm just explaining why the majority of the working class has a problem with the government deciding who gets a check and how much to redistribute. And with the IRS being used as a weapon to target people the unions don't like, to collect them. Of course not every body in question is sitting on the couch all day breeding. But there are tons of them that are signed up and absolutely no checks in place to stop the abuse, and if they have another baby, the government just signs that one up too and gives them more money. Addicts, no problem, come right on in. It starts looking like a scam pretty quickly to anybody paying attention.

There are way too many people that have signed up for life and abused it long past the safety net in return for a vote year after year. Stop all the blatant fraud, and like the politicians, we should put a term limit on it. The problem is not the tax percentage rate or how progressive its design, it's how they spend our money.

I think there is a time limit on welfare now. I know there was when I was living in Indiana. You either had to go to school and get training or find a job after a certain amount of time. It's not an indefinite handout in a lot of states. The reason a lot of families are on food stamps is because they get paid low wages and meet the income eligibility for them. They are still working. If wages were higher, we wouldn't have so many families on food stamps. Also, single, able bodied people cannot get food stamps unless (1) they are in some kind of work training program, or (2) they are at least working part-time. The guidelines are very stringent now and less people actually get food stamps now than in the past.

[Chung Tran]

Originally Posted by I B Hankering

So, you're arguing that the money in bank accounts that banks, in turn, agree to lend out for the construction of a personal home or business doesn't generate jobs and paychecks? Are you arguing that corporations that float stocks and bonds, to people with excess capital, to finance growth aren't paying wages? Don't pretend that such capital doesn't keep the economy moving and growing ... generating jobs with wages ... even if it is "just on paper" 1929 and 2008 bear witness to how economies are destroyed when those "paper accounts" disappear.

no, to both questions. read again, of course lending creates jobs and productivity.. but it's not the cash on hand on deposit, it's the multiplier liquidity generated from those accounts that is the real driver.

read again on the stock float.. yes, IPO's and Treasury sales promote growth, but the vast majority of stock transactions are people and brokers selling long-ago issued shares back and forth.. zero productivity generated there, no jobs (unless you count Brokerage firms), nothing, yet we give lower capital gains rates to those transactions that produce nothing.

[I B Hankering]

Originally Posted by Chung Tran

no, to both questions. read again, of course lending creates jobs and productivity.. but it's not the cash on hand on deposit, it's the multiplier liquidity generated from those accounts that is the real driver. And that was my point.

read again on the stock float.. yes, IPO's and Treasury sales promote growth, And that was my point. but the vast majority of stock transactions are people and brokers selling long-ago issued shares back and forth.. zero productivity generated there, no jobs (unless you count Brokerage firms), nothing, yet we give lower capital gains rates to those transactions that produce nothing. So what? There's a black market on the bottom side of the economy that the vast majority of people do not participate in. Both ends of the spectrum sap the economy of its true potential, but neither of those illicit markets negate the truly positive aspects garnered from IPOs and Treasury sales.

.

[Chung Tran]

not sure why you say so what? just because IPO's and treasury sales are good for the economy, doesn't mean other stock transactions should receive favored capital gains treatment.. just because there's an underground economy avoiding taxation doesn't mean we shouldn't fix some of which is above ground.

[I B Hankering]

Originally Posted by Chung Tran

not sure why you say so what? just because IPO's and treasury sales are good for the economy, doesn't mean other stock transactions should receive favored capital gains treatment.. just because there's an underground economy avoiding taxation doesn't mean we shouldn't fix some of which is above ground.

Go back to my post where you first made comment, and you'll find that that was never my stated position. My point was that short of putting one's money under a mattress, money put into savings accounts and investments create jobs. The fact that some of those transactions do not create jobs for anybody but management firms and lawyers doesn't change the fact that many, if not most, jobs are created and enabled that way. In every enterprise, there are always exceptions to the rule.

[Tiny]

Originally Posted by Chung Tran

not sure why you say so what? just because IPO's and treasury sales are good for the economy, doesn't mean other stock transactions should receive favored capital gains treatment..

There are several arguments for a lower rate on capital gains.

Capital gains aren't indexed for inflation. So if you bought, say, shares of IBM in the 1960's and sold them today you'd pay taxes even though in inflation adjusted terms the shares haven't increased in value.

A second argument is that it represents triple taxation. The company pays corporate income tax on profits. Profits distributed as dividends are taxed again. And capital gains tax on sale of the shares represents a third level of taxation.

Finally, a lower capital gains tax encourages investment. Yes, you're right, if you're buying shares in an IPO the case for the lower rate is more obvious. Still you're going to have a better investment climate if you're not taxing the gains at a high rate. Many countries that historically have been dominated by left of center governments tax capital gains at lower rates because they recognize it's desirable for encouraging investment. I believe Belgium and New Zealand in fact have no tax on capital gains.

The best argument for those who, unlike me, believe big government is good -- you raise the rates and you actually generate less revenues from taxes, because people don't sell the shares. There are those who disagree, for example Obama in a debate with Hillary Clinton years ago said it's justified to tax capital gains at a higher rate, even if it brings in less revenues, because that's more fair. Obama's reasoning IMHO is ridiculous -- it's a good thing if we're all worse off provided we're more equal:

https://www.youtube.com/watch?v=gJimLZRC9N8

I believe you see more efficient allocation of capital with lower or "0" capital gains tax. People aren't inclined to hang onto the shares forever to avoid paying taxes, so, for example, they sell the company that manufactured buggy whips and instead buy General Motors.

[Chung Tran]

Originally Posted by Tiny

Capital gains aren't indexed for inflation. So if you bought, say, shares of IBM in the 1960's and sold them today you'd pay taxes even though in inflation adjusted terms the shares haven't increased in value.

A second argument is that it represents triple taxation. The company pays corporate income tax on profits. Profits distributed as dividends are taxed again. And capital gains tax on sale of the shares represents a third level of taxation.


I believe you see more efficient allocation of capital with lower or "0" capital gains tax. People aren't inclined to hang onto the shares forever to avoid paying taxes, so, for example, they sell the company that manufactured buggy whips and instead buy General Motors.

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]

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..

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.

[SassySue]

Originally Posted by Chung Tran

not sure why you say so what? just because IPO's and treasury sales are good for the economy, doesn't mean other stock transactions should receive favored capital gains treatment.. just because there's an underground economy avoiding taxation doesn't mean we shouldn't fix some of which is above ground.

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!!!

[Chung Tran]

Originally Posted by Tiny

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.

thanks, I did think of it myself.. mainly to stop the ultra-wealthy from deferring taxes.. it can be unfair, though, just like the big taxes on Mutual Funds in 2000.. we all got taxed heavily, while our fund values plummeted.. if you bought in late to the funds, you were screwed big time.

anyway, you got me on the other points, that's what I get for debating someone who knows his shit