Question.. Why should wages be taxed at a higher rate that money derived from investments...

[WCGreen]

Isn't the reward from taking the risk incentive enough?

And if that is the way you look at the up side, isn't there little to no incentive to ad anything to the company if all you are getting is wages that are taxed higher while the owners are making capital gains and taxed at much much lower rate?

A two tiered society, I don't care what the rationale is, will eventually implode as those who are doing all the work see that there is no point.

[w4rma]

1. Agreed. (nt)

[Mojorabbit]

2. It depends

If you are talking about seniors living of interest on their investments and their social security then they should not be taxed higher as their ability to make a living working is past. If they are bazillionaires living of interest that is another thing all together.

[WCGreen]

5. Interest is different...

I am talking about capital gains. The first justification for having a special lower rate for capital gains was to protect those gains from bracket creep. Prior to 1986, the income brackets for tax purposes remained statice so that inflation would carry you into higher tax brackets. Now that the tables are indexed for inflation, that argument goes right out the door.

As far as seniors are concerned, they should never be taxed on more than half of their social security because their contribution, half of th amount in their SS account, was paid with after tax money. The other half, the half contributed from the employer, was a tax deductable expense for the employer so that money should be taxed.

[BrklynLiberal]

7. If someone is living off the interest of their investments they will not pay capital gains taxes.

Capital gains taxes are paid on realized profits. They would have to sell their investments at a higher price than they were bought for, and the taxes would be on that profit. They are not paid on interest.

They are paid only if the time between the purchase and sale is more than one year, otherwise it is taxed at your usual tax rate,

[BrklynLiberal]

3. You are right...

[Recursion]

4. The argument is...

...that money invested was initially received as either a gift, an inheritance, or a wage, all of which are taxed, so the money was "already taxed".

Not saying I agree, just that that is the argument.

[WCGreen]

9. The initial basis of your investment, what you are describing, is not

taxed. Only the gain, the income, from the investment is taxed.

[Recursion]

12. Right, but to them it's "the same money", just grown

I know that, and you know that, but the mindset you're talking about looks at it this way:

I buy a share of WidgetCo for $100. A year later I sell it for $150. The money itself "grew", and shouldn't be taxed again.

[question everything]

6. Not all investments are taxed at a lower rate

assuming you are talking about capital gain - only from investments held at least a year. This is to promote some stability and discourage quick buy and sell. The short term capital gains are taxed like regular income.

Some 30 years ago, the first $200 (I think) of interest and dividends were not taxed. I think that this is a good idea, to encourage people to save.

[WCGreen]

10. I know that, I do taxes,...

I was talking about special treatment for long term capital gains. The tax rates are now indexed for inflation so there really is no justification for treating capital gains different than income earned from interest or wages or from rents.

[CaliforniaPeggy]

8. Sounds to me like the roots of revolution...

K&R

[Oregone]

11. Well, what happens if you tax dividends at normal rates?

First the corporation that passes the profit gets hit with 39% (maybe if Obama pulls through :) ), and then those profits distributed as dividends to can get hit at another 39% on the private shareholders account. Isn't that how it works (leaving 37% on the dollar of company profit)?

Currently, don't the profits get hit at 35%, and then the dividends get taxed at 15% for the private shareholders (leaving 55% on the dollar of company profit)?

But doesn't having a low capital gains rate allow shareholders who hold and sell the stock to only get hit at 15%, thus by rewarding shareholders of companies that do not create profits for dividends/share reacquisition? That being, aren't shareholders that invest in companies that re-invest back into the company (workers, advertising, re-tooling, health care, acquisitions) rewarded with a low tax rate?

In many ways, companies that insist upon reinvesting (minimizing profits by utilizing earnings and forgoing on dividends) to create a stronger company/stock value benefit the economy and citizens in numerous ways. Rewarding investors of these companies may encourage this type of activity, which is good for everyone.

[bemildred]

15. Well done.

Companies that do not reinvest operating profit should be taxed on the excess-not-distributed at normal rates, and the excess-that-is-distributed should not be taxable to the company, but should be taxable to the recipient at normal rates. And of course all rates should be progressive, those who make more in excess of need should pay more. There is nothing wrong with higher taxes for those who benefit most. And of course games will still be played.

[Oregone]

17. Its a good distinction you draw between the different forms of excess

S-Corps essentially eliminate the first kind of excess by forcing all profits to be directly distributed and taxed at normal rates (I use to operate as one, which really helped).

Id love to see the entire tax code in this area reworked by people who understand a lot of these fundamentals. Personally, facing a depression, Id prefer to see any "profit" (or excess if you will) taxed punitively for large businesses. This isn't the time to allow any private people to be taking the money and running. The government needs to provide incentive for reinvestment (and yes, Im talking 90% incentive). If shareholders want to grow their wealth, they need to ensure the company grows (as well as their stock value).

[bemildred]

28. I like the way you think too. nt

[WCGreen]

16. I firmly believe you either tax the dividend at the company or at

the recipient. Double taxation is not kosher no matter where it occurs...

This would erase your concerns.

[Oregone]

18. But it is Kosher and needed to some point......

Lets say you eliminate double taxation. That means that a shareholder can get the companies excess earnings (profits) shuttled to their private coffers via dividends and get taxed at the same rate as if they sold that stock AFTER that company instead reinvested those earnings into the company to grow their wealth. The later is preferred and should be encouraged by the tax code. If companies/shareholders are not "punished" for dividend distribution of earnings over re-investment, you would see a mass exodus of wealth headed to the upper classes.

[WCGreen]

22. Then the companies that would do that, not reinvest profits, would

not be able to compete in the long run with those companies that do reinvest profits. That would let the overall market reward the prudent business over the short term oriented business.

The tax code is so full of incentives that is skews the market all over the place. The appeal of a flat tax is that people think everyone would be treated the same. I believe the tax code should be simplified and that most of the incentives should be removed from the code.

Doing this would allow the government to use short term tax stimulus and result in a greter flexability in economic policy.

[Oregone]

25. Greed causes many people to only consider the short term gain

Long term business plan? Hows that working out lately for the banking industry? Sometimes you can't leave things entirely to common sense.

=========

Flat tax sucks if you are talking about it in its traditional sense (one rate, everyone, everything). Unbelievably. Imagine this scenario....a "Flat Tax" of 30%. Lets say one guy makes $50 K and another makes $5 million. Well, the guy making $50 K spends $15 K on housing, $5 K on a car payment, $10 K on food/living, and $5 K on health related expenses. In the end, he has $15K left, and he has use it all to pay the "Flat tax". Essentially, after spending what he needs to sustain his existence, he is paying 100% of his "disposable income" to the government. If he were a corporation, we would call this (excess capital after expenditure) his "profit". A 100% tax rate on profits is beyond punitive for a middle income wage earner.

But for the guy making $5 million, lets say they spend $150K on housing, buy a new car at $50K, eat loftily with $100K, and get super-duper medical care with $50 K. Not only are they sustaining their living, but they are quite posh and comfortable, and yet they still have $4.65 million left. They would only be paying (1.5/4.65) = 32% of their "profits" in taxes. Does that seem like a "fair tax"?

The point is, the more wealth one has is the easier it is for them to sustain their existence with a smaller percentage of their earnings spent doing so (and the easier they can thrive). It works out to be incredibly favorable to the rich, who will always have a larger percentage of their overall earnings as "disposable income". Therefore, the tax rate on this metric, which one could refer to as "personal profit", is always incredibly less for the rich. This is the last approach I would be advocating for anyone.

[WCGreen]

29. I said that was the appeal of a flat tax, not that I was in favor of one...

My philosophy regarding tax is that the wealthy have more at stake in keeping the country stable, the government working, so they should pay more for the privilege of living in America...

[GoesTo11]

37. Current corporoate real tax rates are much lower than 35%

17% according to this website http://reclaimdemocracy.org/corporate_welfare/real_tax_rates_plummet.php

[dysfunctional press]

13. it's because of the "golden rule"...

i.e.- the people with the gold make the rules.

[ProfessorGAC]

14. It Makes No Sense To Me Either

I can understand somewhat (although not when the gov't is running deficits) about cap gains being taxed at a lower rate. But, the differential is far too great.

As to dividends being taxed differently, that makes no sense to me at all.

The Professor

[1]

19. i agree. income is income, right? tax them the same. n/t

[whoneedstickets]

20. You sell your labor (for wages) or the goods you make....

as a craftsperson and you pay income tax. Sell your capital (property, stocks) and you get a big break. It's nonsense. What's even worse is dividends! You take your share of corporate profits and you get taxed at 19%? Income is income from whatever source and should be treated the same.

[Greyhound]

21. They should not. That they are is relatively recent and brought about as a result of

our entire tax system being turned upside-down and inside-out by the parasites after WWII.

As this thread shows, there are many different solutions to this problem when viewed from a position of deriving communal income justly, however that was never the purpose. Just as we've seen happen over the last 50 - 60 years, the idea is for the sheeple to pay the bills and cover the losses while the parasites continue to acquire with no liability until there is nothing left.

[prayin4rain]

23. Hasn't the money for most investments already been taxed once? n/t

[prayin4rain]

24. Hasn't the money for most investments already been taxed once? n/t

[WCGreen]

30. The money earned from investments has not been taxed...

Capital Gains are determined as the difference between what you purchased your tax for, in tax law lingo that would be the basis of your investment, and what you sell that asset for...

[gravity]

26. Capital gains are lower to encourage investment

Long term rates are lower because there are incentives to encourage long term investment.

Most countries have lower capital gains taxes than their income taxes. Some countries in the EU have 0 capital gains taxes but higher income taxes than the United States.

[WCGreen]

32. But if your income is derived solely from investments then you are

enjoying the fruits of the country while paying a lot less in tax than the person who works and earns a wage. Your investment is protected by the laws of this country. In fact, most of the litigation in this country is done in order to preserve the owners right to assets.

Now I am all for long term investments, but if the person who is forced to earn wages instead of being able to invest for a living is required to pay more of the tax burden to protect those who own property, that poor schlub will never be able to get ahead...

[Telly Savalas]

33. The flip side of this is that higher income taxes discourage work.

[Captain Hilts]

27. EXACTLY! Money you "sweat for" should be worth more. nt

[leftofthedial]

31. because capitalism is anti-human.

and designed to serve the wealthy.

[asteroid2003QQ47]

34. Wage earners make the best victims because...

they are already getting screwed thus rendered helpless in the eyes of the taxman.
----------------------------

"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."
--Abraham Lincoln,
in his first Annual Message to Congress,
December 3, 1861

[TexasObserver]

35. The basis for the distinction is completely contrived.

And it creates a constant attempt to characterize as a capital investment risks taken, as opposed to characterizing it as a way of making a living.

Why should money made on money be given more favorable treatment that money made on sweat?

It's a bullshit distinction invented to allow rich people to place their bets with more favorable odds, pure and simple.

[asteroid2003QQ47]

36. Wouldn't the sale of labor/life for wages result in loss..

rather than income and result in negative tax liability in a just system?

[WCGreen]

38. Very good point...

The laborer deteriorates over time so he(she) should be able to depreciate her decline in health.