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

[WakeandBake]

He's waiting on his magic sabre to come back from the shop and then he'll wave it and all things he desires, will be

 

[Caturday]

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.

Speculators aren't these inherently evil, shadowy creatures. They provide market liquidity and take on risk. For every trade there's a winner and loser. They also pay fees on their trades and taxes on their profits.

Increasing the capital gains tax will create a more risk averse environment, exactly what we don't need now. The financial disaster we're in started in Washington years ago, why are citizens and corporations who had nothing to do with the triple crash paying for Washington's sins?

 

[WFFaithful]

Investments into inventing stuff is very rewarding.

 

[DeacMan]

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).

I don't think you should view these two the same.

Capital gains (losses) - You invest "after tax" $$$. If you make money on that investment you are taxed on the gain - which was never income previously. If you lose money on the investment it reduces your taxable income.

Sales tax - Yes, you are paying additional tax on money that has already been taxed.

 

[DeacMan]

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?

Raises an interesting question. What is the history of capital gains rates vs. ordinary income rates - taking into account exclusions from taxable income, etc. I'd hazard we've had policies favoring capital gains and investment for many decades in some form or another.

 

[2&2 Slider To Leyritz]

Raises an interesting question. What is the history of capital gains rates vs. ordinary income rates - taking into account exclusions from taxable income, etc. I'd hazard we've had policies favoring capital gains and investment for many decades in some form or another.

Here is a brief history from Wikipedia, so take it with a grain of salt as to the calculation explanations, but I think the timeline is generally correct:

From 1913 to 1921, capital gains were taxed at ordinary rates, initially up to a maximum rate of 7 percent.[2] In 1921 the Revenue Act of 1921 was introduced, allowing a tax rate of 12.5 percent gain for assets held at least two years.[2] From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively.[2] Beginning in 1942, taxpayers could exclude 50 percent of capital gains on assets held at least six months or elect a 25 percent alternative tax rate if their ordinary tax rate exceeded 50 percent.[2] Capital gains tax rates were significantly increased in the 1969 and 1976 Tax Reform Acts.[2] In 1978, Congress reduced capital gains tax rates by eliminating the minimum tax on excluded gains and increasing the exclusion to 60 percent, thereby reducing the maximum rate to 28 percent.[2] The 1981 tax rate reductions further reduced capital gains rates to a maximum of 20 percent.

The Tax Reform Act of 1986 repealed the exclusion of long-term gains, raising the maximum rate to 28 percent (33 percent for taxpayers subject to phaseouts).[2] When the top ordinary tax rates were increased by the 1990 and 1993 budget acts, an alternative tax rate of 28 percent was provided.[2] Effective tax rates exceeded 28 percent for many high-income taxpayers, however, because of interactions with other tax provisions.[2] The new lower rates for 18-month and five-year assets were adopted in 1997 with the Taxpayer Relief Act of 1997.[2] In 2001, President George W. Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001, into law as part of a $1.35 trillion tax cut program.

According to USA today (“New rule puts a wrinkle in figuring taxes on stock sales” by Mark Krantz published February 13, 2012 page 6B) the Emergency Economic Stabilization Act of 2008 caused the IRS to introduce form 8949 – Sales and Other Dispositions of Capital Assets and introduced radical changes to form 1099-B.

 

[DeacMan]

Here is a brief history from Wikipedia, so take it with a grain of salt as to the calculation explanations, but I think the timeline is generally correct:

From 1913 to 1921, capital gains were taxed at ordinary rates, initially up to a maximum rate of 7 percent.[2] In 1921 the Revenue Act of 1921 was introduced, allowing a tax rate of 12.5 percent gain for assets held at least two years.[2] From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively.[2] Beginning in 1942, taxpayers could exclude 50 percent of capital gains on assets held at least six months or elect a 25 percent alternative tax rate if their ordinary tax rate exceeded 50 percent.[2] Capital gains tax rates were significantly increased in the 1969 and 1976 Tax Reform Acts.[2] In 1978, Congress reduced capital gains tax rates by eliminating the minimum tax on excluded gains and increasing the exclusion to 60 percent, thereby reducing the maximum rate to 28 percent.[2] The 1981 tax rate reductions further reduced capital gains rates to a maximum of 20 percent.

The Tax Reform Act of 1986 repealed the exclusion of long-term gains, raising the maximum rate to 28 percent (33 percent for taxpayers subject to phaseouts).[2] When the top ordinary tax rates were increased by the 1990 and 1993 budget acts, an alternative tax rate of 28 percent was provided.[2] Effective tax rates exceeded 28 percent for many high-income taxpayers, however, because of interactions with other tax provisions.[2] The new lower rates for 18-month and five-year assets were adopted in 1997 with the Taxpayer Relief Act of 1997.[2] In 2001, President George W. Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001, into law as part of a $1.35 trillion tax cut program.

According to USA today (“New rule puts a wrinkle in figuring taxes on stock sales” by Mark Krantz published February 13, 2012 page 6B) the Emergency Economic Stabilization Act of 2008 caused the IRS to introduce form 8949 – Sales and Other Dispositions of Capital Assets and introduced radical changes to form 1099-B.

Thanks. Looks like it has been a point of debate and discussion for a long time.

 

[Milhouse]

Speculators aren't these inherently evil, shadowy creatures. They provide market liquidity and take on risk. For every trade there's a winner and loser. They also pay fees on their trades and taxes on their profits.

Increasing the capital gains tax will create a more risk averse environment, exactly what we don't need now. The financial disaster we're in started in Washington years ago, why are citizens and corporations who had nothing to do with the triple crash paying for Washington's sins?

rj disagrees with you

 

[Caturday]

rj disagrees with you

O I know, I'm sure he has a much stronger understanding of speculation, markets and the economy than I do.

 

[sailordeac]

Speculators aren't these inherently evil, shadowy creatures. They provide market liquidity and take on risk. For every trade there's a winner and loser. They also pay fees on their trades and taxes on their profits.

Increasing the capital gains tax will create a more risk averse environment, exactly what we don't need now. The financial disaster we're in started in Washington years ago, why are citizens and corporations who had nothing to do with the triple crash paying for Washington's sins?

I don't think speculators are evil, and they do have a role to play. However, speculation shouldn't be drawing more money than investment in production. This financial disaster was created not just by Washington, or even governments in general, but by government and speculators: the speculators taking unwarranted risks in poorly regulated areas and government looking the other way. The speculators and the government working hand in hand in this case proved to be very costly for many who had no role in it. Lots of people have been hurt. When are the government officials and the financial speculators who caused the problem going to pay for their part? Don't hold your breath.

 

[gusmcrae]

Saw the stat the other day that in a nation of 300+ million people, less than 85 million paid any income tax at all. Factor in 70 million children and you still have half of the population that does not pay a dime in federal income tax.

 

[WFFaithful]

Saw the stat the other day that in a nation of 300+ million people, less than 85 million paid any income tax at all. Factor in 70 million children and you still have half of the population that does not pay a dime in federal income tax.

they the poor folk who pay taxes in other ways

 

[dot com]

Saw the stat the other day that in a nation of 300+ million people, less than 85 million paid any income tax at all. Factor in 70 million children and you still have half of the population that does not pay a dime in federal income tax.

According to the U.S. Census Bureau data released Tuesday September 13, 2011, the nation's poverty rate rose to 15.1% (46.2 million) in 2010.

The poverty level for 2011 was set at $22,350 (total yearly income) for a family of four. Most Americans (58.5%) will spend at least one year below the poverty line at some point between ages 25 and 75.

There's a big chunk of them.

 

[RJKarl]

Speculators aren't these inherently evil, shadowy creatures. They provide market liquidity and take on risk. For every trade there's a winner and loser. They also pay fees on their trades and taxes on their profits.

Increasing the capital gains tax will create a more risk averse environment, exactly what we don't need now. The financial disaster we're in started in Washington years ago, why are citizens and corporations who had nothing to do with the triple crash paying for Washington's sins?

Specualtors' value is minimal at best. They should have far less margin and be more regulated.

I've never known anyone who would walk away from profits fro making 62-67% due to taxes. It's counter-intuitive that people whose entire lives is making money wouldn't all of sudden become non-materialistic monks over making less.

Of course Caturday will defend his profession.

 

[dot com]

CNN article on the increase in people with 0 tax liability