So when an investor pays 15% "income" tax, it's on money that his company already paid 28% tax on (for a total of 39.8% tax). But as it's capital gains, there's a capital investment - money which again had to be earned, taxed and subjected to a risky investment. It seems to me that if the benchmark tax rate is 40% (AVC says his brothers pay 40-50% on their salaries), and the 15% rate is raised, it would be beneficial…
The 15% Tax Rate
31–40 of 123 posts
Re: The 15% Tax Rate
#32How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…
First, there is already a sales tax, so the guy spending $10m would probably pay $500.000 (5%), or 25 times more than the other guy spend.
Second, low income families spend all their money making ends meet, whereas high income families have a lot more latitude in adjusting their expenditure. Offsetting this with deductions will be a bureaucratic nightmare.
Re: The 15% Tax Rate
#33Fred Wilson chooses non representative numbers to make his point: But there is a bigger issue here and that is whether it is good policy for someone of Mitt Romney's or my wealth to pay a lower tax rate than the average hard working american citizen. Mitt Romney and Fred Wilson are atypical cases. The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation…
This is interesting but the problem that I see with this argument is that you are ignoring transfer pricing agreements. Basically companies like Twitter (and google, facebook, etc.) use a bunch of complex tax structures in different countries to legally avoid paying corporate income tax. Google paid something like a 2.6% effective tax rate. Others like GE paid a negative percentage.
So the issue here is that in the case of google or any major tech company investors + company only pay the 15% + marginal effective rate of 1 or 2% which is only 17%.
Re: The 15% Tax Rate
#34So when an investor pays 15% "income" tax, it's on money that his company already paid 28% tax on (for a total of 39.8% tax). But as it's capital gains, there's a capital investment - money which again had to be earned, taxed and subjected to a risky investment. It seems to me that if the benchmark tax rate is 40% (AVC says his brothers pay 40-50% on their salaries), and the 15% rate is raised, it would be beneficial…
At least in the US, the average actual corporate tax rate is much lower than the statutory (by about half). Corporations get deductions far beyond what individuals do.
Presumably they get deductions for expenses? Money that's spend can't get paid out in dividends.
Re: The 15% Tax Rate
#35How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…
First, there is already a sales tax, so the guy spending $10m would probably pay $500.000 (5%), or 25 times more than the other guy spend. Second, low income families spend all their money making ends meet, whereas high income families have a lot more latitude in adjusting their expenditure. Offsetting this with deductions will be a bureaucratic nightmare.
First, both of those guys earning $10m will have paid a $4m income tax. With the remaining $6m, it'll be difficult to claim existing consumption taxes paid will be anything close to $4m.
Second, you can implement a progressive consumption tax scheme. You can mirror with existing income tax system - first $10,000 spent each year is tax free, next $20,000 at 15% and so on. It could be hard to implement at this moment but with the advance of technology it would certainly become possible. An alternative would be to charge higher taxes for luxury goods like yachts and fast cars and lower taxes for basic goods like food and transportation.
The collected taxes can given back to the populace as social welfare. Most people would want to only limit welfare to low income individuals and families. I do not share the same opinion - there are many convoluted rules it is hard for people to see what the government is really incentivising you to do - in my country if you save more than $2,500 you lose your welfare payments until your bank account balance goes back below $2,500. Which I think is dumb.
Re: The 15% Tax Rate
#36I think the FairTax is a better proposal, much as I dislike the name.
Re: The 15% Tax Rate
#37> And then I often think of my two brothers who probably pay 40-50% of their income each year in federal, state, and local taxes. It just seems so unfair. If the author really thinks his 28% tax rate is very unfair in light of his two brothers paying 40-50% taxes, he could donate the difference between 28% and 40-50% for himself to the Treasury each year, and effectively be paying a 40-50% rate.
It isn't just unfair that he is paying a lower rate. It is unfair that everyone like him is paying a lower rate. Him donating money will have no effect on the unfairness, only on his guilt.
That said, while I benefit personally from the low long term capital gains tax, carried interest is ridiculous.
Re: The 15% Tax Rate
#38Earlier quoted context omitted.
First, there is already a sales tax, so the guy spending $10m would probably pay $500.000 (5%), or 25 times more than the other guy spend. Second, low income families spend all their money making ends meet, whereas high income families have a lot more latitude in adjusting their expenditure. Offsetting this with deductions will be a bureaucratic nightmare.
First, both of those guys earning $10m will have paid a $4m income tax. With the remaining $6m, it'll be difficult to claim existing consumption taxes paid will be anything close to $4m. Second, you can implement a progressive consumption tax scheme. You can mirror with existing income tax system - first $10,000 spent each year is tax free, next $20,000 at 15% and so on. It could be hard to implement at this moment b…
How will you track consumption (required for a non-flat consumption tax) without creating a bureaucratic nightmare? There is a strong incentive to appear to spend less than you do (in order to hit the progression later), so every single can of coke you get needs to get attached to your tax-ID.
Re: The 15% Tax Rate
#39Fred Wilson chooses non representative numbers to make his point: But there is a bigger issue here and that is whether it is good policy for someone of Mitt Romney's or my wealth to pay a lower tax rate than the average hard working american citizen. Mitt Romney and Fred Wilson are atypical cases. The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation…
http://www.gocomics.com/tomthedancingbug/2003/03/08/
The comic, however snarky and cute, manages only to obscure the point further. The (E) [in the comic] is different than other ones, because there's no exchange of goods nor services for the money between the company and its owner, the Shareholder.
Let me put it my way:
When a plumber puts his knowledge and tools to work, his revenue is taxed once, at personal level.
When a shareholder puts his knowledge and money to work (along with other shareholders, in form of a company), his revenue is taxed at both company level and again at private level.
Can you spot the double taxation now?
Re: The 15% Tax Rate
#40How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…
> The second person claims back everything, equal in value to his contribution, resulting in no net gain to society.
While I don't disagree with your larger argument, producer captures only a fraction of the value they created. So earning $10M likely resulted in a huge net gain to society, regardless of their spending habits.