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On April 15th, Can We Talk About Taxes For A Second?

DeacinBama

DeacinBama

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So, this is partially inspired by an NPR story I heard today about how anyone making over $110K is considered "rich" vis-a-vis federal income tax.

What I'm wondering is how the hell we got to the point that "unearned" income (i.e. capital gains and dividends) got to be taxed at a significantly lower rate than "earned" income? This seems completely ass-backward to me. Since when did this country, as a rule, prefer to reward "sitting on your ass" money as opposed to "get your ass to work" money?

I recognize that the short answer is "Bush sucks", but I'm wondering if there are legitimate economic principles behind this approach. I'm skeptical that there's a legitimate explanation, but I honestly don't know.

What, exactly, is stopping us from establishing a progressive tax for "unearned" income?
 
The economic principle is that it encourages re-investment. People don't leave capital sitting in banks they put it to work through investments which helps grow the economy.

ETA: The same economic principle is what's driving the move towards lowering the US tax rate. As of the last month, the US has the highest corporate tax rate in the world. It discourages foreign investment.
 
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DeaconCav06 said:
The economic principle is that it encourages re-investment. People don't leave capital sitting in banks they put it to work through investments which helps grow the economy.

ETA: The same economic principle is what's driving the move towards lowering the US tax rate. As of the last month, the US has the highest corporate tax rate in the world. It discourages foreign investment.
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Which makes total sense until the economy tanks and everybody sits on their cash reserves, creating an investment log jam and effectively slowing everything down, including this recovery. It's not necessarily anyone's "fault"...it's just how it goes.
 
That happens regardless of what the capital gains rate is. People are sitting on that money because you're throwing it away in the market that is tanking.
 
The money gets recycled into the economy no matter what: either through private investment, or through lending by banks, or by government spending. One question is, which type of recycling into the economy generates the most further economic growth and wealth? The other question is fairness. Unfortunately the answers to the two questions often don't coincide, especially in the short run.
 
The current system not only favors "sitting on your ass" money as opposed to "get your ass to work" money. It also favors investment over creating jobs.
 
PhDeac said:
The current system not only favors "sitting on your ass" money as opposed to "get your ass to work" money. It also favors investment over creating jobs.
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Investments into actually making stuff is often considerably less rewarding than financial speculations. That's a huge problem. Unfortunately, it also defies a national solution.
 
So, is there any notion that this incentive to reinvest in the market has worked? I mean, is it a sound economic tactic?
 
DeacinBama said:
So, is there any notion that this incentive to reinvest in the market has worked? I mean, is it a sound economic tactic?
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Depends who you ask and what stats they are looking at. If you ask the corporation that has owned and expanded the manufacturing plant (and the people analyzing the mutual funds and the retirement plans that have invested in that corporation), the answer would be yes. If you are asking the line worker looking at the withholdings on his paycheck or the middle manager who thinks his 401(k) increased just because it is supposed to as a matter of right, then the answer is probably no.
 
Taxing capital gains just seems like double-dipping to me. I got taxed on the cash when I made it, now I try to invest it and I get taxed on the benefits I get from that. Sales tax seems the same way to me. But I understand the reasons behind both. It just seems to discourage desirable behavior (investing and spending).

We need taxes that discourage behavior that's bad for the country. Like a jerk tax. $10 every time you get negrepped.
 
You're getting taxed on the gain from the investments not on the cash itself. The bigger area of double dipping is when the corporation pays tax (again the highest rate in the country) and then you get taxed on that gain again at the shareholder level.
 
DeaconCav06 said:
You're getting taxed on the gain from the investments not on the cash itself. The bigger area of double dipping is when the corporation pays tax (again the highest rate in the country) and then you get taxed on that gain again at the shareholder level.
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^ That's why. When a company earns a dollar of profit, it pays the highest corporate tax in the world on that dollar, leaving (for the sake of simple math) 65 cents left, which is then taxed a second time at the shareholder level when it is paid out as a dividend, leaving 55 cents to the owner. Dems wish to raise that second layer of tax to 30%, which would skim off another ten cents, leaving a net-net of 45 cents on the dollar.

If Dems get their way, the government would make more money from that dollar of profit than the owner of the company who bore the risk, made the investments, put up with the regulators, etc., etc., etc.

Which government? This one.

We don't have a revenue problem. We have a spending and entitlement problem.
 
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HR Block screwed up my 2008, 2010, and 2011 returns. I'm currently dealing with administrative proceedings with both VA and the IRS correcting those errors.
 
I am all for lowering corporate tax rates and increasing capital gains taxes. That would equalize more forms of income.
 
jhmd2000 said:
^ That's why. When a company earns a dollar of profit, it pays the highest corporate tax in the world on that dollar, leaving (for the sake of simple math) 65 cents left, which is then taxed a second time at the shareholder level when it is paid out as a dividend, leaving 55 cents to the owner. Dems wish to raise that second layer of tax to 30%, which would skim off another ten cents, leaving a net-net of 45 cents on the dollar.

If Dems get their way, the government would make more money from that dollar of profit than the owner of the company who bore the risk, made the investments, put up with the regulators, etc., etc., etc.

Which government? This one.

We don't have a revenue problem. We have a spending and entitlement problem.
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you forgot to mention that Obama is also in favor of lowering corporate tax rates, which would offset the increase in capital gains rates.
 
ChrisL68 said:
you forgot to mention that Obama is also in favor of lowering corporate tax rates, which would offset the increase in capital gains rates.
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So am I, but I'm not the President. He is. What's he waiting on?
 
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