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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

#301

Post by mac01021 »

brianwawok wrote: post #262
mac01021 wrote: post #117

Earlier quoted context omitted.

What are the biggest downsides, as you see it?

The tiny minority has tons of power. Think of a three party system with 45 / 45 / 10 of the votes. The 10% party gets to see which of the big party will support their measures. The party that gives in can now have a combined 55% of the vote, and can then railroad through all the laws of both the 45% and the 10% party, totally ignoring the wishes of the other 45% party. So effectively, a tiny 10% party now has more po…

But the 45% party and the 10% party form a coalition because their platforms are more closely aligned to one another than either is with that of the second 45% party, right?

Isn't that exactly what we have in our current 2-party system, with factions forming coalitions against the other groups that they most disagree with?

Might the only difference be that, on one side of the Atlantic, the individual factions have explicit names while the coalitions go unlabeled, and on the other side of the Atlantic we explicitly name the coalitions while the factions they comprise go (mostly) unlabeled?

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

#302

Post by jermaustin1 »

dogruck wrote: post #289
jermaustin1 wrote: post #265

Earlier quoted context omitted.

Take this example of poor people: A person earning 10k/year and a person earning 40k/year both need basically the same things: Water, shelter, food. A person earning 40k per year isn't MUCH better off than the other. They are both broke, and only have money for the necessities. But if we only tax consumption. The person earning 10k will end up spending a larger percentage of their income in taxes than their counter p…

Why would you choose a job that paid far in excess of your needs and lifestyle choices. Do you know many people with high incomes but super frugal lifestyles? If so, are they a rare counterexample, and not the norm? Most every person I knows spends in line with income.

For many reasons:

1. Rainy day fund, because you know one day the high pay may stop.

2. Retirement, because you know one day your ability to work may stop.

3. Estate planning, so that your family will be set up for a life that was better than the one you were given.

4. Investment capital, so you can turn your 100s of thousands into 10s of millions or more.

5. Startup capital for a future venture.

The difference between the middle class and the high-earners are that the high earners save their excess income.

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

#303

Post by candiodari »

millstone wrote: post #216
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…

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…

Yes, but let's take the path of income, if you're an investor in a company. So company does work, makes gizmo, whatever, and gets out of this x, and makes costs of y. So the basis of the income of the investor is x-y, let's call that z.

Ok. Most, but not all, companies would pay VAT on z. 10% in the US, 20% in Europe. That reduces the income from z to, let's call it 85% z.

Then there's corporate tax. 35%. That makes it 55.25% z. The result of this is then used for dividends, which are then taxed at 15%. That makes it 46.9% z. So there's a tax rate for these investments of somewhere near 53% or so, and I bet it'll be more in practice.

Also, the odds of getting an IRS audit if you have a company go up 10-fold.

So the base taxes on corporate profits are higher than income taxes, no ? What am I doing wrong.

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

#304

Post by ryanmarsh »

gnicholas wrote: post #143
ryanmarsh wrote: post #137

Earlier quoted context omitted.

That's why you pay yourself a small, but not alarmingly small, salary W2 and take the rest on your K1 or such.

The IRS routinely audits people for not paying themselves a market salary in order to shift income to another category. So in playing this game, you have to factor in the likelihood of audit, cost of defense, and cost of penalties and interest that could be assessed.

If there are job listings in your area for that salary it's market. I pay myself $80k. When I get audited it won't be for that.

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

#305

Post by JamesBarney »

AnthonyMouse wrote: post #299
JamesBarney wrote: post #296

Earlier quoted context omitted.

Most small to medium corporations are organized as pass through entities so they don't have to pay the corporate tax rate. Also parking profits in different companies doesn't affect the average or marginal effective tax rates because effective and average tax rates are only computed using the profit. And parking cash in offshore subsidiaries doesn't get recorded as profit for the U.S. corporation. You've argued that…

> Most small to medium corporations are organized as pass through entities so they don't have to pay the corporate tax rate. In which case they can't defer paying personal income tax to much the same effect. > Also parking profits in different companies doesn't affect the average or marginal effective tax rates because effective and average tax rates are only computed using the profit. They reduce their profits in th…

Do you think their tax rate will be closer to the average tax rate or the statutory tax rate?

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

#306

Post by reboog711 »

SilasX wrote: post #205
reboog711 wrote: post #109

Earlier quoted context omitted.

No link, but the gist in the US is this: 1) Start Business 2) Get Real Clients to buy your stuff 3) Deduct Expenses 4) Pay 40%* of whatever is left over to the Government * The 40% number can go up and down depending on your income amount [and local tax commitments].

That doesn't reduce your taxes, that just has you personally take on the accounting for an enterprise. It would only work if you could relabel personal expenses as a business expense, which is what I think the parent was looking for (and which is a time-honored practice with its own dangers, of course, but is hard for the IRS to stamp out entirely -- you "lose" a "business" pen and keep using it for personal stuff; h…

As always talk to an accountant.

But, the 'deduct expenses' will help reduce taxes.

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

#307

Post by aknosis »

euroclydon wrote: post #149
dogruck wrote: post #32

Earlier quoted context omitted.

We should tax consumption, not income.

I don't agree with that at all. Consumption taxes can be quite regressive. I guess you picture the rich guy getting a huge tax bill when he buy's his yacht, but what if he just keeps saving, investing, and then, I don't know, buys a senator? We should be trying to discourage the accumulation of power as well.

What's the average Senator cost? He'll have to pay taxes on it. /s

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

#308

Post by [deleted] »

cylinder wrote: post #280
rhino369 wrote: post #134

Earlier quoted context omitted.

You would have to start adjusting for inflation. If I bought an asset in 1980 and it just tracked inflation, you'd show a nominal 200% profit. But really, it's worth the same as before.

yes, but that's not really an issue. If it's not a real gain (inflation adjusted), then it's not income, and doesn't need to be taxed.

[deleted]

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

#309

Post by erentz »

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…

> So you can have someone who earns a $100,000 salary and gets a $500,000 bonus on December 31st. The bonus goes into the corporation and has a full year until November 30th before the tax is due.

How do you put "the bonus into the corporation"?

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

#310

Post by icebraining »

brianwawok wrote: post #107
jrs95 wrote: post #62

Earlier quoted context omitted.

At this point, the fringes are the only groups that have any interest in changing this aspect of the tax system

So great, let's make a system of government where fringe groups can get more things done. Your fringe group wants to reform the tax code. Awesome. Another wants to build a wall with Mexico. Another wants to ban immigration by non-whites. Another wants to take away voting for women. Another wants to legalize the right to carry AK-47s in public. How do you get your "fringe" change through, but not other crazy changes t…

In Parliament, the fringe groups are usually still in the minority, so they can only pass whatever the non-fringe groups vote for. That may lead to some concessions, but not "take away voting for women" level of crazy.

These fringe groups know their growth comes from mainstream voters trying to push some change, so if they push for crazy ideas, they'll lose those voters and the non-fringe groups can force new elections to "steal" them back.

My Western European country is currently being governed by a centrist party with support by two "far left" parties, including our national Communist party, and the demands they make are for a somewhat higher minimum wage, not an imposition of Marxism-Leninism.

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