Biden eyeing tax rate as high as 43.4% in next economic package

https://www.bloomberg.com/news/articles/2021-04-22/biden-to-propose-capital-gains-tax-as-high-as-43-4-for-wealthy

by marc__1 • 5 years ago

101 194 5 years ago

...For those making 1M / yr or more.

Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. Income is income. Plenty of other countries tax it the same and we should too.

Edit: To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?

chrisp_dc• 5 years ago

The argument I have heard is corporate profits are already taxed. The capital gains tax + corporate profit tax roughly equals normal income tax.

Personally, I'd prefer higher capital gains tax and lower corporate tax. I think it would be more transparent and easier to collect.

walshemj5• 5 years ago

shifting even more the tax burden to the citizen why?

jjoonathan3• 5 years ago

Ah, yes, double taxed: once at 0%, due to Ireland, and once at 15%, due to the special capital gains rate. I wish my income was double taxed like that! Where do I sign up?

anonAndOn• 5 years ago

capital gains tax + corporate profit tax roughly equals normal income tax

Doesn't this apply exclusively to the corporate profits not shielded in a Double Irish (or it's latest incarnation) arrangement [0]?

[0]https://en.wikipedia.org/wiki/Double_Irish_arrangement

fighterpilot• 5 years ago

Personally, I'd prefer higher capital gains tax and lower corporate tax.

Same, but it'd mean more tax money for foreign governments, too, since those untaxed profits would be contributing to cap gains tax in another country (in the case of foreign investors) instead of domestic corporate tax.

trhway• 5 years ago

That doesn't make sense. Those are taxes with different bases. It would make sense to talk that way about corporate profit tax and corporate dividend tax for example.

klyrs3• 5 years ago

The argument I have heard is corporate profits are already taxed

I've heard time and time again that it's a moral imperative for corporations to reduce their tax burden to zero using every loophole available. Are big corporations actually paying tax?

XorNot• 5 years ago

And that argument is complete junk: https://i.imgur.com/QpvGlnV.gif

The money I spend of my income buying goods from other businesses is "already taxed" and then when those businesses collect it from me its "taxed again".

Mysteriously, the one form of taxation the already wealthy benefit from is very concerned about this happening.

triceratops5• 5 years ago

True. Although a dollar from investing money is potentially worth less, risk-adjusted, than a dollar from working a job. So it makes sense that the proposed tax brackets are at higher incomes than earned income. But definitely the top rate should be increased; why the heck should a middle-class retiree pay the same rate on their cap gains as someone with way higher income?

surge• 5 years ago

You're also not factoring in risk that comes from investing, the argument is lower taxes on investments encourages people to invest their money. If there is risk of loss, plus high taxes when there are actual gains, there is lower return on investment and therefore, less incentive to risk your money in investments.

It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends.

I imagine large investors will just break up their investments into so many shell companies/trusts that each entity will never carry more than 1M in investments. There's always a loophole.

JamesBarney• 5 years ago

Given current interest rates it seems like the world has too much money to invest and not enough people spending.

triceratops5• 5 years ago

Investment risk is already addressed with this proposal. The top tax bracket for earned income is way lower - something like $450k.

jbay8082• 5 years ago

If you can still credit past losses against your gains, that should account for the risk shouldn't it?

drewrv• 5 years ago

It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends.

I never understood "double taxation" arguments. Currency circulates, of course a given dollar will get taxed more than once as it moves around the economy.

infogulch2• 5 years ago

Shares are a kind of property. Perhaps it would be reasonable to charge a property tax on their value. The market would fix inflated valuations right quick.

potiuper• 5 years ago

Cash is also a kind of property or more technically a "security", and a tax on it would be a "wealth" tax. The progressive vs regressive tax question can be reworded into asking how much freedom or our own wealth should we give up to the government to provide "security"?

walshemj5• 5 years ago

It to incentivise investment to make up for the possible loss.

you might want to think about what happens when companies run out of capital.

wing-_-nuts6• 5 years ago

Isn't incentivizing for risk the market's job? Why should the government be in the business of rewarding risk taking, and secondly, where else would they put their money? It's not like there's a secret, riskless investment out there that has a high return and doesn't generate capital gains. Your options are to invest, or lose money to inflation in a certificate of deposit.

kec• 5 years ago

The median home price in California is rapidly approaching $1M, Wouldn't this just lock up the real estate market even more?

wing-_-nuts6• 5 years ago

You can exclude 250k / 500k for single / married folks. It's quite generous.

dv_dt5• 5 years ago

Selling a $1M home doesn't mean you have $1M in income, so I think in general it wouldn't impact the real estate market except perhaps at the much higher end - maybe $5M or higher.

Our housing market would probably be more sane if developers had more pressure to focus on building units in the middle to low end of the market anyway in California.

gher-shyu3i3• 5 years ago

...For those making 1M / yr or more.

Does that mean if someone makes $1M of capital gains and has no other job, he'll get taxed at the high rate?

ac292• 5 years ago

The new rules have not been written, voted on, or enacted, so who knows. But under the current law, yes, capital gains count towards your total income.

thelean122• 5 years ago

Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor.

It's pretty simple in my mind: Retiring is hard enough, and at some point I won't be able to do any labor. Market investments are the current way that most people are able to retire, whether we like it or not.

Raising it for anything above 1M / year? No problem. They've got enough money to retire comfortably.

For everyone though? My god.

elil173• 5 years ago

Except most people in America don't pay capital gains taxes on their retirement savings anyway.

401ks and IRAs are free from capital gains taxes. Anyone can save enough money in those vehicles for retirement unless they start saving really late in life. For those who start saving late, most of their wealth will be in basis anyway.

ojbyrne• 5 years ago

Pretty simple to me, investing is mostly discretionary. If it's encouraged, there will be more of it. If it's not, there will be less.

wing-_-nuts6• 5 years ago

IMHO, mr market is more than capable enough of pricing his assets to attract investments. I fail to see why this is a government concern.

jrs235• 5 years ago

investing is mostly discretionary

*investing is basically a luxury for many, if not most

colinmhayes4• 5 years ago

The government wants to incentivize investment because it causes the economy to grow. More investment = faster growth = everyone better off in the long run.

DiNovi4• 5 years ago

capital gains tax doesnt effect investment levels. here's a chart: https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...

gotoeleven2• 5 years ago

I don't really see how it's fair to tax investment returns at all. When you invest money in something you are taking a risk that you will lose that investment. It's not like the government steps in to make you whole when you lose money, so how is it fair that they get to go through your pockets if you make money?

Granted probably much income that counts as 'capital gains' right now should be classified as regular income and taxed as such.

wing-_-nuts6• 5 years ago

It's not like the government steps in to make you whole when you lose money

They let you deduct losses from gains and income for tax purposes. This saved me thousands after '08.

IMHO it's the market's job to price assets and reward risk taking, not the government

gotoeleven2• 5 years ago

Why is everyone so downvote happy on this site now? Its kind of nuts. Are there really a bunch of sad people just reading through the comments for things that they disagree with to downvote? Maybe you're a communist you thinks taxes should be 100%, fine, but why downvote this? Do you think your socialist utopia is just a few HN downvotes away?

moduspol2• 5 years ago

I think it's because investment money can be moved away easier and faster than labor. As a result, taxes have to be more competitive relative to other areas.

I also don't think it's about incentivizing investing relative to labor. The incentives are for investing relative to other things you could do with money, like spend it, save it, move it elsewhere, etc.

wing-_-nuts6• 5 years ago

Money belongs to people, and those people don't tend to move. Heck, the US is especially good at taxing people abroad. How many would really renounce citizenship just to save on taxes, and where would they go that taxes less?

There's always a pull between spending and saving, but if you save, you're either investing, or losing money to inflation.

cperciva2• 5 years ago

...For those making 1M / yr or more.

Note however that capital gains tend to be "bursty", so having $1M of capital gains in one year doesn't imply having $1M of income in a normal year. (To take a personal example: I had a very large amount of capital gains in 2020 because I sold my entire portfolio of ETFs and bought a house.)

antisthenes• 5 years ago

Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor

The reason is caring about the seniors/elderly and a pro-home ownership policy.

As you age, your ability to earn a living from labor goes down, for a number of reasons (ageism, family obligations, less energy), but your costs go up (healthcare, family obligations).

Having investments and being able to sell off capital, taxed at a lower rate than income is an insurance policy against reduced earning potential in senior years.

Is that in and of itself enough to say the tax rate should be half? Maybe not. But the argument is solid. It just doesn't determine the exact percentages.

RhysU2• 5 years ago

Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor.

A laborer gets paid $1 for working hard.

An investor gets paid for $1 for doing something smarter.

Work smarter, not harder, as a civilization. Deliver the most value to the greatest number with the lowest labor input. That's how we get scale, grow an economy, and prosper.

jay_kyburz• 5 years ago

An investor get paid $1 because...they had money to invest.

Labor need not be taxed at all if you ask me.

sundaeofshock• 5 years ago

The hard work of the laborer is what allows the investor to sit on their lazy ass all day long. The infrastructure the “smart” investor exploits day-to-day doesn’t just magic out of the ground…

Balgair• 5 years ago

...For those making 1M / yr or more.

This is on a graduated tax schedule, correct?

If so, then only the 1,000,001st dollar gets the higher tax (and every dollar thereafter).

chrismcb• 5 years ago

My understanding is, to encourage people to invest their money, rather than sick it in a mattress. "The asset price should reflect the inherit risk..." How? The risk of investing is losing everything. How do you add that to the price?

Perhaps income should be income. It would definitely simplify the tax code. But money needs to circulate, that is how you have a booming economy. You asked how is a dollar earned from an investment with more than a dollar from labor. Well that dollar from labor might only exist because of the dollar from investment.

Jackson124• 5 years ago

Capital gains default to being taxed at the same rate as income in this country (as they should be). There are exceptions for certain long term capital gains, and for qualified dividends.

The rationale for this is that corporate profits are already taxed. The effective tax rate is about 25% for US corporations. For income from corporate profits to be taxed at the same rate as normal income, it should be taxed at a lesser rate once it's been distributed via dividends or buybacks (which is how the system is set up).

Changing the system would have several negative effects. It would encourage companies to take on leverage. Interest expenses are deductible for the purposes of corporate taxes. While interest earnings are and have always been taxed as ordinary income. So companies would likely shift their balance sheets to compensate. It would also make short term speculative trading more attractive for US citizens (and lord knows we have enough of that). And lead to greater foreign ownership of US equities, which is not necessarily desirable.

There are certainly fairly indefensible aspects of the US tax code. This just isn't one of them.

There's also an interesting argument that it's less distortionary to tax wage income than investment income. Because wages (and especially the variation thereof) are substantially driven by unearned human capital endowments.

bjtitus2• 5 years ago

Capital gains generally are taxed at the same rate as income in this country

Maybe I'm missing something but the "Sales of Capital Assets Reported on Individual Tax" from 2012 shows 7.5x as many long term Capital Gains as short term. https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita...

Doesn't this mean the majority of individual investment gains are not taxed as income?

bitshiftfaced• 5 years ago

To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?

That's exactly right, but you're only looking at it from the point of view of someone clicking "buy" on their phone. Instead, look at it through the eyes of someone who has twenty years of working the daily grind saved up and is thinking about building something new out of nothing. Maybe it's worth the risk of losing that savings. If you tax that even more, then the balance tips even more into riskier territory and makes it less likely that you take on that new business venture.

You're saying that the market corrects for that, and it does... by disincentiving the investment by making the potential payoff less.

rvz• 5 years ago

Sounds like the news of this spooked a lot of investors to cause a surprise sell off. Most notable drops in Deliveroo, Coinbase and GameStop stock.

At the time when everyone was scrambling to buy into the Coinbase direct listing, I was downvoted to warn them that the early investors will dump it immediately. [0] [1]

In fact, I shorted it on direct listing day and here we are the news are now reporting it trading down last week [2] the hype squad are no where to be seen leaving the retail investor bag holding at >$375. And now the news of US tax increases dealt another blow to the markets and boosted my short position in Coinbase.

Well done me, I guess.

[0] https://news.ycombinator.com/item?id=26673100

[1] https://news.ycombinator.com/item?id=26790725

[2] https://www.cnbc.com/2021/04/15/coinbase-coin-climbs-11perce...

seattle_spring4• 5 years ago

Can you share some screenshots of your short position and which brokerage allowed you to trade options? Because this would be a historic first that a brokerage allowed options trading of a stock on the first week, let alone the first day, of hitting the market.

triceratops5• 5 years ago

This is a good move. It'll raise tax revenues, hopefully reduce inequality, and potentially bring equities' valuations down to something more reasonable (and I say this as someone with a healthy stock portfolio).

How will it address people financing their spending with pledged asset line loans against their portfolios? Interest on that is tax deductible if the loan is used for an investment; which doesn't seem like a high barrier.

encoderer3• 5 years ago

I disagree.

Raise taxes if you need money. I guess the government does?

But doing it to solve inequality and bring down equity valuations? That seems like irresponsible tinkering with the economic chemistry set, and not the right way to set govt policy.

triceratops5• 5 years ago

I don't believe I said anything about the administration's motivations behind this proposal. I only described some potential positive (to me) side-effects .

elil173• 5 years ago

hopefully reduce inequality

Depends how the money is used. If we spend it on social programs, reducing taxes on lower-income earners, infrastructure, then it will.

But if it just gets spent on more weapons? I don't know that that does anyone any good.

gher-shyu3i3• 5 years ago

People will find loopholes, that's how the game is played. Nothing will get solved because the system is broken at a fundamental level, and no amount of patching will fix it.

Do you want actual, proper change that will benefit society? Ban interest and all the shenanigans that come out of it (shorting, puts and calls, etc.). I guarantee things will dramatically improve - it's been done before.

imtringued5• 5 years ago

The economy already banned interest, sort of and we have less growth because of it. Low interest rates are a boon to unproductive companies and if those unproductive companies go under they may cause a recession. The reason why we have interest in the first place is to encourage savings and stave off inflation.

temp6672• 5 years ago

I can speak to this - a long time coming.

A HUGE amount of complexity in tax code, tax preparation, and tax audit is the characterization of earnings.

Pop quiz, if you are going to be bringing in $100M, do you want to pay 40% tax or 15% tax? Long term capital gains = 15%. So a lot of hoop jumping to turn things into capital gains, then long term capital gains. What a pain.

Just for simplicyt I wish they would say, for everyone making more than $150K/year (300K married) investment income is taxed as any other type of income.

Cut overall rates if needed if you want it revenue neutral.

The next step is to tax unrealized gains. I know, lots of hand wringing, but if you can defer gains until death (not too hard) you can come out golden in terms of family wealth (lots of like kind property exchanges etc).

ska• 5 years ago

Wouldn't that latter be better fixed by adjusting estate & inheritance rules? You could even make it simple, e.g. all unrealized gains upon death.

novok2• 5 years ago

$150k may sound large for you, but $150k in california is around $90k after tax, and with $2800-$5000/month rents that is not a lot of money left over.

toomuchtodo3• 5 years ago

Federal tax rates should not be optimized for localized dysfunctional housing markets.

colinmhayes4• 5 years ago

California needs to fix their housing market by repealing prop 13 and opening up zoning. That's not the federal governments problem.

em500• 5 years ago

Even in California $150k places you at around the 85% household (let alone personal) income percentile, median household income is only 75k. I.e., the bulk of Californians have to make do with far less.

poundofshrimp2• 5 years ago

Taxing unrealized gains doesn’t make any sense. Many people would end up forced to sell part of their equity to afford paying tax on the gains.

temp6672• 5 years ago

Many people have to pay tax on their income before they use it too. Why should the person sitting on a fat investment portfolio not have to?

Can I borrow against these unrealized gains you say make no sense to tax and still spend the money, but perhaps never pay taxes on the gains ever??

If instead of taking income I take a carried interest in my portfolio can I defer taxes - maybe forever?

By the way, all these are the loopholes that are CURRENTLY being used by the well off to avoid paying taxes.

Seriously - why do you think portfolio lines of credit are so popular?

prirun• 5 years ago

Not only that, but if they are going to tax unrealized gains annually, it seems they also would have to issue annual tax credits for unrealized losses. You can't just tax the unrealized gains. What if the stock goes to a penny and you sell it?

The end result is the same as now, you tax the capital gain from the time you bought the stock to the time you sold it.

I have heard rumblings of removing the stepped-up basis that occurs when assets pass to heirs. But I think the problem with this is keeping track of the basis over generations. What if stock has been in the family for 3 generations? Who knows and tracks what great-great grandma paid for a stock?

dv_dt5• 5 years ago

Maybe it would make companies go back to dividends instead of favoring stock buybacks - which imho would be a nice reduction of financialization behavior

walshemj5• 5 years ago

And add a small say $5k allowance for small stockholders like the UK does.

toast02• 5 years ago

I don't see how. Qualified dividends are taxed at long term capital gains rates; if those rates go up (for high income) stockholders, those stockholders will be generally less pleased about recognizing the income rather than defering it with a buyback.

As a stockholder, I can always make my own dividend by selling shares; but I can't make my own stock buyback, because I only get a portion of the dividend.

pembrook2• 5 years ago

This would have literally no effect on buybacks vs dividends as both are taxed as capital gains. In fact, it might favor buybacks even more since you aren’t forced to pay taxes on share price increases until you sell. Dividends give you a tax bill every year, even if reinvested.

Also, there’s nothing nefarious about buybacks. It’s just a more tax efficient way to return money to shareholders. There’s no boogie man there.

Taniwha2• 5 years ago

A reminder - in the US by default capital gains are levied at the same rate as any other income - the "capital gains tax" is a LOWER tax on some forms of capital gain intended to encourage some forms of investment (long term rather than stock/house flipping for example)

lotsofpulp4• 5 years ago

You can flip houses all day long and not pay any tax as long as you buy another piece of real estate within 6 months.

https://www.investopedia.com/financial-edge/0110/10-things-t...

throwaway3699• 5 years ago

This is A Good Thing and by design. Isn't encouraging investment the whole point?

jppope5• 5 years ago

Yes, BUT... that money is reinvested... you are allowed a 1 time deduction for your primary residence to downsize... otherwise you are always going to pay the tax when you eventually try to realize gains.

colinmhayes4• 5 years ago

I'd say you've got it opposite. By default capital gains are taxed at the capital gains rate, but if you don't hold the assets long enough you get the short term capital gains rate which is normal income tax.

Taniwha2• 5 years ago

Mostly I was trying to explain US tax law to non-USAians ... but in general you need to lock in your investment in a way that the IRS can tell that you meet the long term holding requirements (often your broker will do that for you in your 1099 these days if you're dealing in shares)

bjtitus2• 5 years ago

Exactly, this is backed up by individual income stats on short term and long term capital gains: https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita...

It routinely shows >7x long term vs. short term capital gains.

jandrewrogers3• 5 years ago

And that's just the base Federal rate. If you add NIIT at 3.8%, I believe that is the highest long-term capital gains rate in the developed world. And that is before you add State taxes, like the 13.3% in California.

Unlike some other countries, there is no cost-basis adjustment for inflation and there is a limited ability to deduct capital losses, both of which can be substantial for long-term investments and risk capital.

All in, this makes it very difficult to get a competitive return on long-term high-risk investments, like tech startups, biotech, etc compared to almost any other asset class. Instead, it strongly incentives cashflow and rent-seeking investments, which have better risk and tax profiles in almost every regard if this goes through.

As a second-order effect, this would cause an extraordinary amount of capital to be moved into real estate which is already experiencing very high price inflation.

bpodgursky4• 5 years ago

Not to mention that the fed is now aiming for 2+% inflation (and let's be real, it's going to be higher), so cashing out even after a 10-year breakeven investment that earned nothing is going to cost you over 10% on withdrawl.

da_big_ghey4• 5 years ago

i am not understand why you have downvote, constant hedonic adjustmint from fed is making inflation disapear. cpi is failing to include many important things and we are therefore have missing much inflation over past years. you must see m1 graph over past year, then tell me there have been less than 2% inflation? https://fred.stlouisfed.org/series/M1SL

da_big_ghey4• 5 years ago

yes you are make very good points. we are doing better if we make consumption and land value taxes our majority for federal. then try maybe different models at state level, make states fund their own things once more. we try fifty different models, we find the best and use it, then we try new ones on that basis and find better again. one federal model is create the unintended consecuence for each state in nation, state model is damage only one. let us play once more to strengths of federal models.

imtringued5• 5 years ago

I don't think land value taxes will ever be implemented in a way that actually lives up to the ideals. Switching from land ownership to ground leases is less disruptive to the current tax system and has similar benefits.

dv_dt5• 5 years ago

There is also legislation kicking around to reinstate the SALT exemption, so if that happened the state taxes would offset the federal.

DiNovi4• 5 years ago

most countries in the developed world dont have special carve outs for capital gains and tax them as ordinary income

jandrewrogers3• 5 years ago

This is false, as any who knows how to use Google can attest to.

arisAlexis2• 5 years ago

Are capital gains taxes lower in real estate investing? (I'm not an American)

nyxtom2• 5 years ago

If you're investing in real estate you can do what's called a 1031 exchange to ultimately defer capital gains from the sale of one property - as you are merely exchanging one investment property for another. Unless you are actually selling the property for cash then you don't necessarily have to pay capital gains since you're acquiring a new loan at the time of sale.

nceqs3• 5 years ago

It should be made retroactive to 2020.

bpodgursky4• 5 years ago

Looming high (fed-directed) inflation + a high capital gains tax unindexed to inflation... seems like a shadow wealth tax. Dunno if I feel great about this in combination.

imtringued5• 5 years ago

It's not perfectly equivalent to a wealth tax because the effective tax rate would merely approach the current capital gains tax. Assuming 1000% inflation the worst that could happen is that you pay capital gains on your entire investment rather than the gains.

hourislate• 5 years ago

Theater for the masses...

Why? Because do you think for a moment someone making $1 million in "Capital Gains" doesn't have access to a financial professional to avoid paying any tax?

If you want to tax the wealthy, you'll have to find a different way.

jtr1• 5 years ago

What would you propose?

poundofshrimp2• 5 years ago

Mind to elaborate what kind of loopholes you’re talking about?

bejt• 5 years ago

Aren't things like this the way you would tax the wealthy?

Think of this as a patch which fixes a bug that said financial professional would exploit.

Daishiman• 5 years ago

This argument doesn't make sense at all. Rich people always have access to financial professionals. Shifting tax burdens isn't free and nobody's expecting that people won't change their portfolios/tax declarations/whatever to reflect this.

What it does do is alter the effective tax rate, and even a partial effect is desirable.

TomVDB• 5 years ago

Someone making $1M is often part of the working wealthy. No amount of advise from financial professionals will help them avoid paying tax on things like salaries, RSUs etc.

kelp• 5 years ago

As someone who has access to and regularly works with (pays) tax professionals and financial advisors, I've yet to be able to take advantage of much, if any, way to avoid paying any tax.

Most of the things I'm aware of, and have been advised of, are things like QSBS (Qualified Small Business Stock) which I've been able to claim once. In that case it was a 5 figure gain. So the tax benefit was not particularly amazing. Yeah, others have been able to benefit much more from this. But it's a pretty narrow situation where you can.

I've recently early exercised some ISOs, so if this proposed tax change didn't pass, I'd have the long term cap gains rate.

I think there are some interesting things you can do with charitable trusts, but I think you're mostly deferring taxes, and I haven't had a situation where it made sense.

But all in all, in the years that I've paid, what I think, are a pretty competent set of financial professionals, I've yet to come across any magical way to avoid paying any taxes. I've actually paid a large amount of taxes and have to ensure my investments and finances are planned so I can pay the tax bill when it comes due.

I think most stories we hear about the wealthy not paying any taxes are either tax fraud, or substantial capital losses that offset all gains.

In the capital loss situation, that's probably a temporary thing for that person, otherwise they won't be wealthy for long.

vaidhy• 5 years ago

The key difference is that as a multinational company, you have more options than as an individual. It would be even better if you have your company provide you services which are then written off as business expenses. Not having a US citizenship might be even better as you can earn your money by being a resident in a tax friendly country (say Dubai) and traveling in and out carefully.

seattle_spring4• 5 years ago

Where is this fantasyland where making a high amount of money means you don't pay any taxes?

encoderer3• 5 years ago

It will be a great time to build a small SaaS business. Get QSBS tax treatment, pay no federal taxes when you sell the business after 5 years.

ericbarrett2• 5 years ago

Everybody commenting on this should be familiar with the historic income and capital gains tax rates in the U.S. Here's a chart from 1954-2020: https://www.taxpolicycenter.org/sites/default/files/styles/o...

da_big_ghey4• 5 years ago

what nice of a cherry-picking graph. it have picked start point of highest rates in history for to make the appearing that there have been some extraordinary cut. but in real seeing it is the high rate that was the extraordinary. here we have longer-view graph for to illustrate: https://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c85dc53...

in similarity, we are see that capital gains tax today still exist above historical past, the graph you link again cherry-pick. longer-term view is showing of a different picture: https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com...

under here we are see a recover to normal over time not the "cuts for rich" things you are saying.

singhrac• 5 years ago

I doubt you can compare the American economy of 1850 to that of today... the reason we needed lower taxes before 1920 is because we had a fairly underdeveloped economy. You’re right that it’s best to present the full history, but then you also have to provide context. The period before 1920s was the Gilded Age (then Progressive Era) which was when America was industrializing. I think by “recover to normal over time” you’re making a claim that you’d prefer the economics of 1910 America over 1970 America, which is where we disagree.

Sure, if you’re making a founding fathers style argument, it makes sense, but I doubt anyone really wants to go back to a world where America doesn’t have an interstate highway system or Medicare.

ploxiln2• 5 years ago

That's a rather misleading graph though.

https://checkyourfact.com/2019/01/09/fact-check-90-percent-t...

The top 1 percent of income earners paid an average effective income tax rate of 16.9 percent in the 1950s, according to data compiled by the Tax Foundation from a 2017 paper by economics professors. That figure includes all federal, state and local income taxes.
Congressional Research Service calculations of data from the Internal Revenue Service similarly found in a 2012 report that the very top income earners – the top 0.1 percent and 0.01 percent – also paid effective tax rates lower than the 91 percent top marginal tax rate in the 1950s. The average rate for the top 0.1 percent fell from the low 40 percent range to the high 30 percent range during the 1950s. For the top 0.01 percent, it fell from the 50 percent range to the mid-40 percent range.

kazoomonger• 5 years ago

That article is... not informative. It says (paraphrasing) "people didn't pay 91% of their income!" and then just defends that by explaining what a marginal tax system is. Explaining what a marginal tax system is doesn't change the fact that the highest bracket was taxed at 91%.

Unless someone is seriously proposing taxing all brackets at 91%, that article is being very misleading, and arguing against a strawman.

makomk• 5 years ago

So basically, if passed as proposed this would be a higher rate of capital gains tax than at any point in US history?

jppope5• 5 years ago

My biggest issue with all the "Tax the Wealthy" stuff... we have 5 Trillion to work with... how much more do they need? What will they possibly spend it on given we already spend more than other countries on pretty much everything.

Giving our current leaders more money to spend is just wasteful.

nnm2• 5 years ago

Big money spent by bureaucracy does not have a reputation of not being wasteful.

akvadrako3• 5 years ago

Most of the money goes towards social security and medical expenses, and the percentage is going up. So it's not so much about giving politicians more to play with, but being able to honor the debts that have been incured to the citizens.

jppope5• 5 years ago

100% but those debts are unsustainable as a society.

lend0002• 5 years ago

Finally, a common sense tax proposal. Fix the brackets before any of this wealth tax nonsense. We already have a thorough and effective system of measuring income in this country.

I would add another bracket for 100mm+, as well as stretch the brackets out for regular income. It's ridiculously broken when people make 10,000 times as much as the highest bracket. If someone makes more than an order of magnitude above the highest level, it's time for an update, imo.

closeparen3• 5 years ago

Who is realizing $100mm in taxable ordinary income? That is one hell of a wage. Much more likely you "make" $100mm by owning a company that increases in value by $100mm. That is not subject to any tax rate or bracket at all. Only the portion that you sell for diversification / consumption is.

lend0002• 5 years ago

Founders and early investors cash out billions in capital gains at a time every year. The brackets should reflect that.

nnm2• 5 years ago

A sensible capital gains tax should remove the inflation part.

Say you buy a stock for $1000 in year 1. Suppose monthly cost for living in that year is $1000.

In year 10, you sell the stock for $2500. Suppose monthly cost for living in year 10 is $2000. Your investment essentially just beat the inflation by $500 at year 10. In other words, real capital gain is not $1500.

DiNovi4• 5 years ago

the proposal is to remove capital gains and tax it as ordinary income above 1 million, clickbait headline

pembrook2• 5 years ago

It’s important to remember that this is just a proposal, and even if passed, it will likely be negotiated to be a less dramatic change (as with all legislation in the US).

The problem with this particular proposal is it would hit most members of congress (on both sides of the aisle) and their friends right in the pocketbook. Being flawed humans, the people in congress rarely vote against their personal self interest.

I expect to see at most 30% cap gains rates and likely for people making $5M or more, with carve outs for about 15 special interest groups to the point where it’s basically ineffectual.

DiNovi4• 5 years ago

here's a chart of market returns vs cap gains tax rate, you will notice there is no correlation. So dont argue that there is!

https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...

Jackson124• 5 years ago

The problem (other than double taxation)is that people whose wealth is predominantly held in a diversified portfolio will be able to avoid this sort of tax much more easily than people who have more concentrated holdings.

Someone who sells a $2 million business is rich, but they aren't that rich. The rules for houses and incentive equity compensation are complex. But this would generally be bad for people who get equity compensation in companies whose value is very volatile (read early stage startup workers). This is very problematic for Silicon Valley's current economic model.

Dah00n3• 5 years ago

This is very problematic for Silicon Valley's current economic model.

Is that a bad thing?

Jackson124• 5 years ago

You never know. But this would make building or joining early stage companies in the US dramatically less attractive. Especially for people who have the option of living abroad. I think that would be incredibly bad.

nyxtom2• 5 years ago

2024 or even 2022 is going to be a very interesting election if this ever gets passed.

tonfreed• 5 years ago

Are people actually stupid enough to think anyone earning over $1M a year aren't just going to hire an accountant that can play the stupid tax games?

This is going to do shit all and just cascade to the middle class, just like all tax hikes do

seattle_spring4• 5 years ago

What stupid tax games are there to play?

There seems to be some myth going around that high income folks can just pay a CPA to absolve themselves of tax obligations. That's really not how this works.

Biden eyeing tax rate as high as 43.4% in next economic package

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