Capital vs. labor: who risks more? • Hacker News Board

Re: Capital vs. labor: who risks more?

#21

Post by walshemj » Sat, Oct 25, 2014, 5:26 PM UTC

unchocked wrote: post #6

yummyfajitas wrote: post #2

This article is quite odd: income appears to be taxed "more progressively"...One justification for this is that investors risk losing much or all of their capital. Workers, on the other hand, are guaranteed their wages This is not the primary justification at all, and I'd be rather surprised to see many economists arguing it. The actual reason capital should be taxed less than income (specifically, at 0%) is because…

Your argument is circular. Essentially, you say that capital should be untaxed because it was already taxed as income. But that's a value judgement that assumes your conclusion. There is a good case for taxing capital (savings). See Picketty.

so why invest in risky shares then? - that's the point of having lower taxes on capital gains than income so that companies with workers can get access to capital.

Re: Capital vs. labor: who risks more?

#22

Post by gamblor956 » Sat, Oct 25, 2014, 5:30 PM UTC

runeks wrote: post #16

jdreaver wrote: post #4

Earlier quoted context omitted.

Exactly. The way I see it, if someone has a large pool of wealth, then they have already been taxed when they earned it. Taxing capital gains is double-dipping. Furthermore, I don't see how we can justify having a very low interest rate set by the federal reserve in the interest of encouraging investment, but then decide to tax capital gains more which would discourage investment. However, trying to make any sense of…

As I see it, the real problem is differentiating "income" and "capital gains". We all have a general sense of what each category refers to, but there are a lot of edge cases where it's difficult to say whether it's one or the other. If I'm a day-trader, buying and selling stocks, and making a living on this, is the profit income or capital gains? If we go by the logic that one shouldn't pay the same tax twice, then i…

If I'm a day-trader, buying and selling stocks, and making a living on this, is the profit income or capital gains?

This is not an edge case; it's a well-settled point of law.

Capital gains are related to the disposition of assets intended to be held for investment. Stocks are generally such assets and the disposition of stocks results in capital gain income (or capital losses). Apples are not intended for investment; they are intended for consumption. Ergo, the sales of apples results in normal income. (Note that for stockbrokers, stocks are also treated as inventory because by definition they are not in the business of holding stocks for investment.)

Buying and selling stocks as a day trader is not the type of capital trading that governments want to incentivize, so they treat income arising from this type of activity as "short term capital gains." In most countries, including the US, short term capital gains are taxed at the same rates as normal income, which is the scenario that would apply to your day traders. Consequently, the day traders and apple sellers are taxed in essentially the same manner.

It is only if capital assets are held for a sufficiently long period of time (in most countries 1 year, though in some countries as little as 6 months) that the true capital gains rates apply. This is where the day traders may come out ahead--if they hold on to some of the stocks traded for at least 1 year.

Re: Capital vs. labor: who risks more?

#23

Post by akgerber » Sat, Oct 25, 2014, 5:30 PM UTC

yummyfajitas wrote: post #2

This article is quite odd: income appears to be taxed "more progressively"...One justification for this is that investors risk losing much or all of their capital. Workers, on the other hand, are guaranteed their wages This is not the primary justification at all, and I'd be rather surprised to see many economists arguing it. The actual reason capital should be taxed less than income (specifically, at 0%) is because…

Why is it the case that there 'no reason to tax savings'? Tools rust, food rots, houses fall down. One can't save useful things indefinitely without cost.

Why, then, is it inherently true that a government (or other entity) should provide citizens a mechanism to store the means to buy those things indefinitely for free?

Re: Capital vs. labor: who risks more?

#24

Post by autokad » Sat, Oct 25, 2014, 5:30 PM UTC

polynomial wrote: post #19

Why is it "vs."? Is it necessary for Capital and Labor to be so opposed? It doesn't seem like the optimal arrangement. Wouldn't increased cooperation between these 2 sides reduce risk for both?

to me, i work for capital and put as much as i can into investment to make money on capital gains/dividends. to try and make whats left over from my work to grow even more.

but lately there's been a chorus such as this one in attempt to change social opinion to tax capital gains more. to do so, you must start drawing lines, using this vs that.

Re: Capital vs. labor: who risks more?

#25

Post by pastProlog » Sat, Oct 25, 2014, 5:34 PM UTC

vdaniuk wrote: post #17

pastProlog wrote: post #10

investors risk losing much or all of their capital This of course implicitly assumes that the economy is an unplanned one. Yet the investor class is who fights tooth and nail with political donations and so forth to keep the economy unplanned. They fight tooth and nail to keep an unplanned economy, and then say they are deserving because they have to suffer the vicissitudes of an unplanned economy.

There is no such thing as "investor class". Also there is no collective "they" who comment on the economy, planned or not. It is not possible to generalize all or majority of investors into one box.

It is not possible to generalize all or majority of investors into one box

This entire discussion is about that class of people that fill out their tax form in the income tax box, not the capital gains one. You seem oblivious to that particular discrete distinction which is the whole point of this article.

Re: Capital vs. labor: who risks more?

#26

Post by ISL » Sat, Oct 25, 2014, 5:38 PM UTC

runeks wrote: post #16

jdreaver wrote: post #4

Earlier quoted context omitted.

Exactly. The way I see it, if someone has a large pool of wealth, then they have already been taxed when they earned it. Taxing capital gains is double-dipping. Furthermore, I don't see how we can justify having a very low interest rate set by the federal reserve in the interest of encouraging investment, but then decide to tax capital gains more which would discourage investment. However, trying to make any sense of…

As I see it, the real problem is differentiating "income" and "capital gains". We all have a general sense of what each category refers to, but there are a lot of edge cases where it's difficult to say whether it's one or the other. If I'm a day-trader, buying and selling stocks, and making a living on this, is the profit income or capital gains? If we go by the logic that one shouldn't pay the same tax twice, then i…

A day trader pays short-term capital gains, which are taxed at income rates. Long-term capital gains kick in after the asset has been held more than a year.

I'm not certain, but I think that the long-term rates could apply if you held your apples for more than a year.

Re: Capital vs. labor: who risks more?

#27

Post by gamblor956 » Sat, Oct 25, 2014, 5:39 PM UTC

yummyfajitas wrote: post #13

unchocked wrote: post #6

Earlier quoted context omitted.

Your argument is circular. Essentially, you say that capital should be untaxed because it was already taxed as income. But that's a value judgement that assumes your conclusion. There is a good case for taxing capital (savings). See Picketty.

The actual detailed argument is that only two things can be taxed - consumption and investment. Consumption is the right thing to tax, since it measures the benefits a person receives from society. My argument isn't circular, however - it merely shows that once you have an income tax you don't need a savings tax. Piketty's argument, near as I can tell, is merely that we might live in a world where the best way to cre…

No, the correct argument is that many things can be taxed: creation, value enhancement, consumption, disposition, investment, wealth, transfers, transfers across borders, etc. (You're also still confusing savings taxes with investment taxes, which are not even remotely the same thing.)Which of these is taxed is a function of political ideology.

If you tax consumption, you might also tax wealth, if a large portion of the income of the economy is concentrated in the hands of those who consume very little. Indeed, that is the entire point of having a wealth tax--to force consumption which can then be taxed.

You have misstated Piketty's argument, as has Chris Stucchio. Piketty's argument is that allowing wealth to concentrate in the hands of a few is the biggest threat to the stability of modern economic systems because it ultimately means that less money is available to everyone else, which restricts growth. He is very much in favor of wealth taxes to force the distribution of this wealth to a wider range of the economy precisely to keep the cash flowing. He's not arguing for capital gains taxes--indeed, he opposes them, and has argued that capital gains should be taxed no differently from ordinary income.

Re: Capital vs. labor: who risks more?

#28

Post by gamblor956 » Sat, Oct 25, 2014, 5:42 PM UTC

legacyfruit wrote: post #14

yummyfajitas wrote: post #2

This article is quite odd: income appears to be taxed "more progressively"...One justification for this is that investors risk losing much or all of their capital. Workers, on the other hand, are guaranteed their wages This is not the primary justification at all, and I'd be rather surprised to see many economists arguing it. The actual reason capital should be taxed less than income (specifically, at 0%) is because…

Agreed. The primary reason economists argue for taxing capital gains, is that income can be disguised as capital gains. Startups are probably the best example of this. Even this reason, however, is probably exaggerated. Suppose for example that the CEO owns 10% of a company's stock. While they have a greater incentive to work hard, there is also no reason to think the stock price will rise faster than any other stock…

Shares paid as compensation are taxed as ordinary income pretty much everywhere that they have an income tax. Capital gains are only imposed on the later sale of those shares, and only if the CEO sells those shares for more money than they were worth when they were given to him.

Re: Capital vs. labor: who risks more?

#29

Post by gamblor956 » Sat, Oct 25, 2014, 5:46 PM UTC

merrillii wrote: post #7

One thing to keep in mind is that capital has already been taxed once when it was first generated. Sure, you can bring up tax loopholes and inequality but generally it's true that the remaining capital is after taxes. So an investor risks losing 100% of their after-tax money. Labor risks their pre-tax money only and it is very likely they ca "re-invest" by moving to another job. Once capital is gone it is gone foreve…

No, both labor and investors spend their after-tax money. Labor spends it on living expenses and their after-tax money is gone forever, while the investors spend their after-tax money on capital assets. The difference is that only the investor has a chance to make even more money from his spending. This is viewed as desirable behavior, and so the additional income he could earn from his original pile of money is taxed at a lower rate.

Re: Capital vs. labor: who risks more?

#30

Post by briantakita » Sat, Oct 25, 2014, 5:52 PM UTC

Capital Gains simply affects the monetary value of a the capital. It has no real value increase. No physical good or novelty is created from capital gains. Thus, it's rent.

Labor & Capital tends to create physical goods and/or novelty. Thus labor, when applied toward sustainable pursuits, makes our lives, as a civilization, better.

Capital gains, providing "incentive" to invest, may or may not improve sustainability & global health. Global warming, resource depletion, poverty, hunger despite enough food being produced, & innefficient allocation of resources due to profit motive, corruption, rampant war, etc. indicate that the "incentive" is detrimental to sustainability & global health.