How about we make investment income subject to Social Security and Medicare taxes and using the

[Tony_FLADEM]

revenue to lower the overall rate.

This would make these programs more stable because in times of high unemployment you would still have revenue going to these programs if the stock market were doing well. This is the situation we have today.

Also, there is a correlation between investing and Social Security because when people do poorly in the stock market they are more likely to rely on federal retirement programs.

[Vincardog]

1. How about we lift the cap and make ALL income bonuses and stock options subject to Social Security

[proud2BlibKansan]

4. +1

[Alias Dictus Tyrant]

6. Income is fine, but stock options?

Stock options are often long-term (usually several year) investments with limited liquidity. Among the many reasons they are taxed at a lower rate is that the real gains are far less than the paper gains due to inflation loss, lack of liquidity, and risk premium. All-in, the returns aren't nearly as high as they seem if you do the math.

If you slapped a 15% tax *on top* of the existing taxes, investing in companies would not be worth it in most cases. This would be very bad for tech startups, which are intentionally tax advantaged to drive investment and job growth there.

While most people are unfamiliar with the tax code related to this, you can defer capital taxes indefinitely as long as you immediately reinvest capital gains in a small business. This pays for a lot of jobs at tech startups, and almost half of that deferral is immediately recovered as income taxes. If you slap a 15% tax on that gain, you've basically killed the virtuous cycle -- the financial math doesn't work out in most cases.

[Vincardog]

19. Yep you can't get our profits from not working and expect to be taxed less that those that work

[Alias Dictus Tyrant]

21. Um... It is deferred compensation for *working*

I've passed over well-paid jobs to work at minimum wage jobs (plus stock options) for years. Seeing as how I could get a comfortable six-figure job any time I wanted to, the stock options are compensation for having to eat ramen and live super-cheap for years at a time. And those options may never even be above water, so there is a very high risk premium as well.

Seriously, you have no clue about business do you? Generally the only people that get stock options are workers who take them in lieu of wages. Because they have to be discounted for risk -- per basic financial math -- the average payout over a lifetime is not that much better than if you had just taken a useless desk job somewhere.

If you do this once, it is a bit of a lottery ticket. If you make career out of it, it is a long-term, high-stress investment that involves a lot of sacrifice; a cornerstone of the American economy that you are awfully dismissive of.

[Vincardog]

22. Seeing as how YOU could get a comfortable six-figure job any time YOU wanted to

IT is clear you do not live in the same world I do. Do you have a problem paying SSI and FICA taxes on your well earned stock options?

[Alias Dictus Tyrant]

23. Abolish a special SS tax, make it integral to income taxes

As I pointed out previously, long-term capital investments have a very different cost structure than you are assuming. It is not hard to have a paper gain and a real loss, and we already tax it. Because stock options are frequently semi-liquid at best, there are many cases where tax liability can already exceed total liquidity of the owner -- a real problem with the current tax structure. I know a few ramen-eaters that ended up in serious tax troubles because their tax bill exceeded their entire net worth even though they'd never seen a dime of payout.

Tax income as income, treat capital gains as capital gains. We already make people pay taxes on a capital loss, I don't see how massively increasing that tax rate is an improvement. The lower tax rates for capital is an acknowledgement of the embedded losses that are treated as "gains".

If you added another 15% -- the SSI and FICA -- on top of the existing tax rates, no one would bother to invest in startups. The average return on a successful investment would have to be ridiculously high to offset the long-term losses. Basic mathematics.


I do what I do because I like creating things of value. I work 80+ hours every week for next to no money and often have to survive on meager capital payouts from less than successful ventures for years. All of my money goes to paying people who are unwilling to take the risks I take or leave as cheaply as I live. Someday, I hope to have a capital base that allows me to actually live a reasonably comfortable life after many, many years of sacrifice. Apparently you object to that.

If there was no upside, I'd take one of those crappy corporate desk jobs. I don't like it, but they pay well for not doing much.

[glitch]

15. +92,000 including bonuses and any other form of "income". nt

[Junkdrawer]

2. How about we raise the maximum tax rates back....

to where they were before Reagan and Bush used the excess FICA taxes to lower them.

I'd be happy if the Trust Fund was paid back.

[Alias Dictus Tyrant]

3. Bad idea

Adding a 15% tax on top of capital taxes would be very damaging to the economy. The deadweight loss on capital taxes is something like 3x the loss on income taxes. Remember, something like 5-10 million jobs in the US are directly paid for by capital investment, so discouraging that investment by massively increasing taxes is not helpful.

This is why even strongly socialist countries tend to have low capital taxes even if the income taxes are very high. You generate the most tax revenue from an economy by selecting taxes that damage it the least. Income and sales/VAT models are preferred for this reason.

[Vincardog]

5. Income and sales/VAT models are preferred because they're the most regressive and don' hurt the rich

[BeFree]

7. Exactly

Gotta protect the rich.
They are a minority, y'know?

Better we take 15% out of the pockets of the majority of poor workers than burden the minority?

[Alias Dictus Tyrant]

8. It has little to do with regressiveness or the wealthy

Quite simply, the math doesn't work out very well. Governments that require high levels of tax revenue know this and plan accordingly.

This has regressive implications for tax policy, but we don't get to choose our own reality. Most of the capital taxes not collected directly get collected shortly thereafter by indirect means, and with much less deadweight loss. In other words, by not taxing capital directly, they can collect even more taxes on that capital indirectly, all in.

[Hello_Kitty]

11. Yeah, that theory has worked out really well.

For the rich, that is. There's nothing forcing rich people with a lot of capital gains to invest them in their home country. If they decide to open factories in China and India to take advantage of dirt cheap wages we don't get the benefit of wages being paid here.

[Alias Dictus Tyrant]

14. Actually, there are incentives.

One of the reasons so much foreign investment capital comes to the US is *because* of things like capital tax deferrals (i.e. 0% tax rates for as long as the capital continues to work for small businesses). That wealth has to stay in the US or it won't have that tax advantaged status.

Why do you think the US is the global capital for technology startups? It is because, among other things, the Federal government does not tax any of that investment money unless the investor takes the money off the table. That pays a lot of wages in the US, several million jobs. It is worth pointing out that even California has the same tax policy as the Federal government, allowing indefinite deferral of their relatively high taxes. California needs the revenue, but they need the Silicon Valley economy even more. Much better to have high-paying jobs in your state (or country) that you can tax than to have investment dollar go to companies elsewhere. Without investment, there are no jobs and no tax base.

[Vincardog]

18. Right that is why the Silicon Valley economy is in such great shape right sharpie?

[Alias Dictus Tyrant]

20. Silicon Valley has other problems

Not the least of which is that companies are fleeing California and moving to other more inviting parts of the country. Seattle, NYC, Boulder, et al having rapidly growing tech startup scenes that are starting to attract serious capital and capture ventures that would traditionally have been done in Silicon Valley. I think it is a good thing, it diversifies the ecosystem.

The tech startup jobs are still in the US, they've just been leaving Silicon Valley for (figuratively) sunnier climes. My own company, which would fall under the rubric of "tech startup", is in the process of moving from San Francisco to Seattle.

Another related issue is the idiotic Sarbanes-Oxley legislation, which has reduced the liquidity of tech startup investments (read: making investment riskier and more expensive). However, the industry has started to figure out how to work around the regulations, so most people are expecting things to slowly bounce back over the next couple years.

[Hello_Kitty]

10. So how about just taxing capital gains that are not invested back in business.

My understanding was that anything you spent on equipment or wages was automatically tax deductible so I don't see why a small increase on the taxes on the dividend checks of trust fund babies will stifle business growth.

[Alias Dictus Tyrant]

12. Your understanding is incorrect

This is a steep tax on capital *before* it is spent on wages and equipment. There are no dividend checks involved here at all.

That is the problem. The investment never happens because the rate of return really sucks compared to, say, useless real estate. And it is silliness anyway, because most of that capital *is* taxed the minute it gets spent on wages and equipment. But at least when it gets spent on wages and equipment it is doing something productive in the economy.


And this is why the government currently allows you to defer taxes on capital as long as you keep shoveling it into small business investments. That capital gets paid out in wages of (hopefully) productive individuals and globally competitive companies. You don't want to tax capital essential to business development before people have a chance to do something useful with it.

[Hello_Kitty]

13. Sigh. So what is wrong with raising taxes on capital gains that are NOT put back in business?

Why do we give the rich a blanket tax break on ALL of their capital gains in the hopes that they'll create jobs with them? It's trickle down hocus pocus.

[Alias Dictus Tyrant]

16. They *do* tax capital gains

They tax capital gains that are invested in "big" business or shoved under a mattress. Depending on the details, it can approach 50% all in. The capital tax code is optimized to strongly encourage investment in small businesses.

The reason capital gains taxes are lower is that, unlike interest income etc, there are many losses that you can't write off or deduct. If the taxes were identical to income, it would no longer make any sense at all to invest in new businesses because the *effective* tax rate would be much higher than other types of investments. It is very easy to have a capital gain on paper that is "positive" for tax purpose but "negative" in strict financial terms. In other words, you already are required to pay taxes for *losing* money in many cases.

It seems kind of arbitrary on the surface, but there is a sound rhyme and reason to it. The current situation is far from ideal, but the capital tax structure is not as bad as it appears.

[FBaggins]

9. You would have to lift the income cap first

Certainly more people are invested in the markets these days, but the bulk of capital gains are still earned by people who are already capped out on their SS taxes. So lowering the rate and including capital gains would actually reduce their taxes.

On the other hand... since hardly anyone is GETTING any capital GAINS lately... :(

[Alias Dictus Tyrant]

17. They should just merge SS into the income tax structure

It would make things simpler and would eliminate cut-offs.

The only reason it is separated out at all is to facilitate political shell games.