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Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

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Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#211

Post by SilasX »

JamesBarney wrote: post #192
SilasX wrote: post #113

Earlier quoted context omitted.

>I've written a few times about how the different tax rates on income, vs dividends vs interest income vs capital gains, and even business vs personal tax rates all work together to ensure the 1% come out ahead of the average income earning individual. I don't think that's right. If you look at the dividends in isolation, it looks like a low tax rate. But if you ask "what's the tax rate on capital income?", then you…

That's the nominal corporate tax rate not the effective tax rate which is closer to 18.6%. Also you're dividing by 200 when you made 250. My calculation with those two corrections give 27.6% which is lower 13% 200 18.6% + 200 (1-18.6%) 15% + 50 15% 37.2 + 24.42 + 7.5 = 69.12 / 250 = 27.6% Marginal Tax rate for 38k-90k = 40.8% 90k-110k = 43.8% 110k - 190k - 28% 190k- 420k - 33%

>That's the nominal corporate tax rate not the effective tax rate which is closer to 18.6%.

That's with journalist accounting where they reject valid expenses to "prove" that the tax rate is lower.

>Also you're dividing by 200 when you made 250.

No -- the investment paid for itself (the 100) then earned 200 (the amount above what I invested), then paid 50 out of that as a dividend.

It looks strange because it doesn't make sense to tax for distributing the already-taxed profits, and yet people still think the 15% tax on the distributed part of the taxed profit is too low(!), specifically because they ignore the taxes it already had to pay -- that was the point.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#212

Post by baursak »

31reasons wrote: post #177

Can't we just have Sales tax only. People who buy more will pay more taxes. You can exempt certain items like food, education, healthcare. Why do we need complicated income tax model? In the Sales Tax Only model, wealthy investors can invest as much money as they like but they will only be taxed if they liquidate their stocks and buy a fancy car or a yacht. I am trying to understand why we need Income tax at all?

Sales tax is overwhelmingly regressive. Instead, having "wealth tax only" would do a lot of good.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#213

Post by carradjm »

31reasons wrote: post #177

Can't we just have Sales tax only. People who buy more will pay more taxes. You can exempt certain items like food, education, healthcare. Why do we need complicated income tax model? In the Sales Tax Only model, wealthy investors can invest as much money as they like but they will only be taxed if they liquidate their stocks and buy a fancy car or a yacht. I am trying to understand why we need Income tax at all?

https://en.wikipedia.org/wiki/Georgism

This is where we need to eventually transition.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#214

Post by baursak »

dogruck wrote: post #32
URSpider94 wrote: post #9

Earlier quoted context omitted.

It's not the progressive tax structure that's the problem, it's the fact that cap gains are taxed at a much lower rate than other forms of income.

We should tax consumption, not income.

Consumption tax is very regressive. We should tax wealth, not income. Eliminate income tax and extend property tax system to all assets, not just real estate.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#215

Post by mgkimsal »

gnicholas wrote: post #94

> You owe the IRS about $38,500 more, assuming each of us pays the maximum with no special deductions. This also assumes the investor has no interest income, which would be unlikely. For a younger person with a big nest egg, this wouldn't be a huge chunk of their assets. But as you age you'd want to shift into less-risky assets, like interest-bearing ones. Also, investors would probably be diversified into real estat…

> "Payroll taxes" includes social security, which the worker will collect until he/she dies

The example is citing someone who's pulling in $300k from dividends and capital gains each year from investments.

If there's enough of a downturn which would long-term imperil someone pulling in $300k off dividends, it may be big enough to impact social security itself, no?

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#216

Post by millstone »

SilasX wrote: post #113
chollida1 wrote: post #8

> Americans in the top 1 percent, and especially the top 0.1 percent, have seen their wealth and income multiply in recent decades as the rest of the country’s share of the economic pie shrank. Since 2000, a recent study found, the top 1 percent have made those gains almost entirely on income from capital, especially corporate stock—not on labor income. One reason may be the financial options of the wealthy: Business…

>I've written a few times about how the different tax rates on income, vs dividends vs interest income vs capital gains, and even business vs personal tax rates all work together to ensure the 1% come out ahead of the average income earning individual. I don't think that's right. If you look at the dividends in isolation, it looks like a low tax rate. But if you ask "what's the tax rate on capital income?", then you…

Wealthy investors do not pay anything close to 47.3% on their capital gains. Looking at the statutory rates is ridiculous.

It's not at all true that "before the capital can pay out anything, the investment must pay taxes on profits." Familiar examples are commodities, Bitcoin, REITs, Amazon in the 90s, carried interest. Hell, I have a friend who makes a living buying stuff at flea markets and reselling stuff on eBay - that's capital gains.

But below that there's a whole industry devoted to transforming ordinary income into capital gains, like the Ernst & Young Contingent Deferred Swap (which they landed in hot water for). This is the sort of malinvestment that differential taxation encourages.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#217

Post by carradjm »

cylinder wrote: post #6

The biggest lie is this nonsense about "double taxation," ie taxing money that's already been taxed is somehow unfair. So stupid. Capital gains tax shouldn't exist. It should all be one income tax. You can carve out discounts or exemptions for things like sale of PPOR, sale of family business up to a certain point, if you want.

Why should we want to tax income? If you tax something, you inherently affect the supply of it. I.e. taxing labor (income tax) will make people want to work less.

https://en.wikipedia.org/wiki/Land_value_tax

We need to implement a land-value tax, if simply because taxing land does nothing to change the supply of land. Unless America decides to invade Mexico anytime soon, the value of land will not change.

I responded to another post in this thread with a link on Georgism as well (https://en.wikipedia.org/wiki/Land_value_tax).

I see Georgism occasionally advocated for on Hacker News but I really wish I would see more discussion on it. IMHO, it is the only sensible tax and the most fair tax that economists have thought up.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#218

Post by hippich »

bduerst wrote: post #197
hippich wrote: post #186

Earlier quoted context omitted.

assets are not expenses. (that's why it called assets) some assets can be depreciated over years. some small assets (like printer, laptop) - can be written off in one year... but amount you would save on it is negligible.

Asset purchases are expense. It's a way to get cash out of a company to avoid paying taxes. Money launderers will sell themselves electronics at a 5-10x markup on Amazon, for example, to get the cash out.

This is Cost of Goods Sold (this is an expense)

To get there you need to acquire Goods to Sell first.

Either way, it is not applicable to what parent was saying. What typically people mean in these situations is that "I can buy a car in the name of my corporation tax free, I can replace home AC unit in the name of corporation tax free" etc. And that is very wrong.

(I am here talking about accounting meaning of word "expense")

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#219

Post by mi100hael »

chrismealy wrote: post #47

If your only income is qualified dividends you can make about $90,000/year and pay zero taxes.

If you're making $90k a year in qualified dividends, you're almost guaranteed to be pulling a good chunk of change in other forms of income as well.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#220

Post by andrewjl »

The intention behind this tax regime was that long-term investing has positive external effects on the overall economy so should can be incentivized (which like all other social incentives in the US is done via tax incentives). In 2017 with a global glut of capital desperately looking for any kind of return, it's not clear if this incentive is necessary anymore.
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