Ordinary Income vs Capital Gains
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Re: Ordinary Income vs Capital Gains
#2The major problem with the much cheaper taxing of capital gains remains the growing inequality: Of every you dollar you earn through your own labor, you get less (until you pass the max threshold). And this while your capacity of personal labor is clearly somehow limited. On the other hand, people earning one million dollars from capital gains are taxed equally with people who earn one billion.
Re: Ordinary Income vs Capital Gains
#3The major problem with the much cheaper taxing of capital gains remains the growing inequality: Of every you dollar you earn through your own labor, you get less (until you pass the max threshold). And this while your capacity of personal labor is clearly somehow limited. On the other hand, people earning one million dollars from capital gains are taxed equally with people who earn one billion.
not saying if this is right or wrong, but with dividends at least, they are taxed first at the corporate rate and then again when they are distributed as dividends.
Increases in equity on average, but not in the short term, coincide with accumulation of shareholders equity via retained earnings.
Re: Ordinary Income vs Capital Gains
#4The major problem with the much cheaper taxing of capital gains remains the growing inequality: Of every you dollar you earn through your own labor, you get less (until you pass the max threshold). And this while your capacity of personal labor is clearly somehow limited. On the other hand, people earning one million dollars from capital gains are taxed equally with people who earn one billion.
not saying if this is right or wrong, but with dividends at least, they are taxed first at the corporate rate and then again when they are distributed as dividends. Increases in equity on average, but not in the short term, coincide with accumulation of shareholders equity via retained earnings.
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they are taxed first at the corporate rate and then again when they are distributed as dividends.
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Really? Well that sucks. What logically should happen is if you receive dividends and the company already paid 30% tax on it, and your personal tax rate is 45%, you should pay only the extra 15% tax. (And it does happen over here in Australia).
Otherwise what you get is that companies, in shareholder's interest, try not to give out so much dividends because they will be taxed twice. Instead they keep the cash to boost the share price so shareholders make capital gains.
You'd ask, what is really the point of buying stock in a company that will never pay dividend in its lifetime?
Re: Ordinary Income vs Capital Gains
#5[deleted]
Re: Ordinary Income vs Capital Gains
#6The major problem with the much cheaper taxing of capital gains remains the growing inequality: Of every you dollar you earn through your own labor, you get less (until you pass the max threshold). And this while your capacity of personal labor is clearly somehow limited. On the other hand, people earning one million dollars from capital gains are taxed equally with people who earn one billion.
There are two counterpoints to this. The first is that capital gains taxes tend to be on investments made with income you've earned, so there's already been an income tax. The second is almost all of the uber-rich made their fortunes by growing a small company into a big one, so it's not as though they're already being taxed (through progressive corporate taxes).
There are obvious flaws to this scheme, but it's pretty hard to tax income in a fair way. Some places (notably the EU) favor using a consumption tax instead.
Re: Ordinary Income vs Capital Gains
#7Earlier quoted context omitted.
not saying if this is right or wrong, but with dividends at least, they are taxed first at the corporate rate and then again when they are distributed as dividends. Increases in equity on average, but not in the short term, coincide with accumulation of shareholders equity via retained earnings.
>> they are taxed first at the corporate rate and then again when they are distributed as dividends. >> Really? Well that sucks. What logically should happen is if you receive dividends and the company already paid 30% tax on it, and your personal tax rate is 45%, you should pay only the extra 15% tax. (And it does happen over here in Australia). Otherwise what you get is that companies, in shareholder's interest, tr…
You'd ask, what is really the point of buying stock in a company that will never pay dividend in its lifetime?
They can distribute profits via share buybacks. Instead of distributing 1% of the companies value as dividends, they can buy back 1% of shares. You then have the option of selling 1% of your shares back (equivalent to taking dividends) or keeping your shares (equivalent to reinvesting dividends).
This only works if you are a big shareholder - if you are a small time player on ETrade, transaction costs will kill this idea.
Re: Ordinary Income vs Capital Gains
#8The major problem with the much cheaper taxing of capital gains remains the growing inequality: Of every you dollar you earn through your own labor, you get less (until you pass the max threshold). And this while your capacity of personal labor is clearly somehow limited. On the other hand, people earning one million dollars from capital gains are taxed equally with people who earn one billion.
There are two counterpoints to this. The first is that capital gains taxes tend to be on investments made with income you've earned, so there's already been an income tax. The second is almost all of the uber-rich made their fortunes by growing a small company into a big one, so it's not as though they're already being taxed (through progressive corporate taxes). There are obvious flaws to this scheme, but it's prett…
> The first is that capital gains taxes tend to be on investments made with income you've earned, so there's already been an income tax.
I don't really get this counterpoint; isn't everything in the economy a flow of money that has been taxed at a previous point in the flow? If I have $100,000 that I've already paid taxes on, I could invest it in external assets and hope to make capital gains on them; or I could plow it back into my own occupation and use it to generate income (say, by setting up an art studio). Why should I pay more taxes in the second case?
Consider two eBay-painting-seller scenarios. In the first, I buy painting materials, paint paintings, and then sell them on eBay. In the second, I buy existing paintings on eBay that I think are underpriced, and then resell them later for a profit. Why should I pay more taxes in the first case, just because I painted the paintings? In both cases my occupation is basically "selling paintings on eBay", but in one I'm creating new ones and selling them for an income, and in the other I'm flipping existing paintings, making a capital gain. In both cases the starting capital is money I've already paid taxes on. If anything, the first occupation seems like the one policy should encourage, rather than the second, but at the very least I don't see any reason to actively encourage the second version over the first.
Re: Ordinary Income vs Capital Gains
#9The thrust of this post is wrong; while I'm looking for a good breakdown of tax burden by quintile I'll just observe:
"We live in NYC and according to our accountants, we pay a marginal fully loaded tax rate of 47.62%. That means we keep about half of the ordinary income the Gotham Gal and I generate." The second sentence glides over the key word in the first sentence, "marginal". AVC and GG pay much lower rates on the first income they earn during the year -- it is only the income that exceeds what most people will ever earn during a year that is taxed at the higher income rate. Conversely, the first income -- the income they have in common with ordinary people -- is subject to social security and unemployment tax -- but the extraordinary income that makes them very wealthy is not. They also probably pay much less of their income in sales tax and small fees that most Americans.
Finally, according to the IRS in several recent years 10% of the capital gains income in the entire country has gone to the richest 400 tax payers, whose average tax rate is not the 47% rate AVC cites, but 17%: http://krugman.blogs.nytimes.com/2011/04/30/who-benefits-fro...
Edit: here's total tax distribution by quintile: http://curiouscapitalist.blogs.time.com/2009/01/07/moving-fr... . Note that the 34.5% paid by the richest 20% drops sharply for the very richest.
Re: Ordinary Income vs Capital Gains
#10Earlier quoted context omitted.
There are two counterpoints to this. The first is that capital gains taxes tend to be on investments made with income you've earned, so there's already been an income tax. The second is almost all of the uber-rich made their fortunes by growing a small company into a big one, so it's not as though they're already being taxed (through progressive corporate taxes). There are obvious flaws to this scheme, but it's prett…
> The first is that capital gains taxes tend to be on investments made with income you've earned, so there's already been an income tax. I don't really get this counterpoint; isn't everything in the economy a flow of money that has been taxed at a previous point in the flow? If I have $100,000 that I've already paid taxes on, I could invest it in external assets and hope to make capital gains on them; or I could plow…
I am not a tax lawyer, but my understanding is that capital gains only count as such if you've held the asset for at least a few years.
By the way, in the first case, your outlays are tax-deductible.
(edit: I'm not an expert, so downvoters, please explain your disagreement.)