Obama's Capital Gains Tax

[Aeson]

That graph probably is a bit misleading. You would expect the very top adjusted gross incomes (not net worth) would be those where major capital gains were realized. That's because realizing big capital gains are really the only way you get the phenomenal amounts of income all at once. (At least since they changed how CEO's make their money.)

That doesn't mean that those with the highest net worth are consistently paying a lot of CGT.

[Jon Miller]

Originally posted by Ramo

You claimed that taxing capital gains instead of income isn't progressive. It is.

They must really think that our income tax system is regressive, since 180m+ middle class pay income tax, while only ~3m rich pay income tax.

JM

[Ramo]

Sorry 'bout that.

But I don't know how you rearrange their portfolio to turn the majority into salaries or wages. The other categories are basically other forms of capital gains.

Edit: The highest marginal income tax rate is 35%. The CGT is not going to go that high. The rate Obama has floated is <= 28% (probably closer to 20%). So it'd make no sense to try to shuffle the income around that much...

[Ramo]

That doesn't mean that those with the highest net worth are consistently paying a lot of CGT.

As Dauphin pointed out, it's probably dividend income for a lot of these people. And I imagine that dividends and long-term capital gains are generally taxed at the same rate (it is right now).

[Aeson]

As your graph shows though, dividends aren't a disproportionate slice of the non-CG income.

The point is though, raising CGT isn't really going to hit the rich, middle class, or poor that hard. At least not directly. The rich can structure their investments to avoid it (if the rate is greater than other income sources), and the middle class can tax shelter most of their investments already. The poor don't have much to invest and can shelter all/most of it if they do.

It will encourage less investing, and bias investing done to more buy and hold long term investments, thus less economic activity in the markets. Also it may create a "bubble" of sorts, where people who want to sell don't... or it could encourage a sell-off, where people try to get out before the rates are increased again. Hard to say.

[Patroklos]

You're a silly person. Obama is far richer than either of us.

He said it not me. It has nothing to do with increasing government revenue (increasing CGT isn't the best way to do this anyway), it is about being "fair"

You bring up an interesting point though, if a regressive CGT tax is fair to Obama why isn't a regressive income tax?

And how much do you think it is for the rich? Let's say, top 0.1%?

I don't care, nor does it matter. I care about how the CGT effects me, and what I know about Obama's plan is that he wants to tax the rich more to punish them and the consequence of that is taxing me more. The problem is the plan disproportionatly affects thousands of me for every rich person it snags.

You claimed that taxing capital gains instead of income isn't progressive. It is.

No, I didn't. Read it again, I didn't say instead of anything.

No, I believe that there are services government needs to provide, and to do so it needs taxes. And I think that the burden should fall disproportionately on those who can most afford to pay them, and therefore raising capital gains taxes at some point should be part of the plan.

So only a few should pay for them, but everyone gets to use them. Greed and envy

You're obviously okay with that, it is just funny watching watching you dance around it. If you are cool with that just say it.

But they pay much more in capital gains than income...

You say this, but you don't back it up with anything. the top 400 tax payers are a miniscule portion of even the small "rich" of America. Of the rich people you know how many are making more money from their CG intead of their high power law firm or the buisness they own or from selling off one or the other?

The simple fact is that even amougst the "rich" very few of them are living off of dividends and stock trades soley or even as a majority of their income. It really doesn't matter if you succeed in your crusade to punish the trust fund babies, becasue for every one of those you get a million Americans will also have to pay the tax.

[Dauphin]

Originally posted by Ramo
Sorry 'bout that.

But I don't know how you rearrange their portfolio to turn the majority into salaries or wages. The other categories are basically other forms of capital gains.

Edit: The highest marginal income tax rate is 35%. The CGT is not going to go that high. The rate Obama has floated is <= 28% (probably closer to 20%). So it'd make no sense to try to shuffle the income around that much...

It's not worth it, no, but if salary was more tax efficient than dividends or capital gains you'd suddenly see a way.

[Jon Miller]

Right now we hvae (at least one) source of income that is much lower taxed than other sources. This is capital gains. Does it seem odd than that most rich people start getting paid in capital gains rather than in standard income?

It is a method they use to get out of paying tax, and it should be increased so that they pay the proper tax for their total income level.

[Patroklos]

Does it seem odd than that most rich people start getting paid in capital gains rather than in standard income?

Again, why are you assuming this? How many rich people do you know living off of capital gains?

And if you are worried about taxing CGs the same as salary, why is there a flat CGT?

[Jon Miller]

Originally posted by Patroklos


Again, why are you assuming this? How many rich people do you know living off of capital gains?

And if you are worried about taxing CGs the same as salary, why is there a flat CGT?

Look at CEOs?

And I would prefer that the CGT was gradiated like the income tax. It is jsut having a higher one is better than what we currently have (flat is better than regressive, although progressive would be best).

JM

[Ramo]

He said it not me. It has nothing to do with increasing government revenue (increasing CGT isn't the best way to do this anyway), it is about being "fair"

The tax burden should reflect who can most easily shoulder it. Poor and middle class people shouldn't have to struggle to pay taxes they can ill afford to. Yes, it is certainly about being "fair." You can dismiss this as "greed and envy" all you like, but the rich get a far larger boost to their incomes due to functioning civil society - roads, schools, police, etc. than the poor.

But it's ultimately about increasing government revenues. The idea that increasing the CGT wouldn't raise considerable revenues in the long term is a totally marginal one.

You bring up an interesting point though, if a regressive CGT tax is fair to Obama why isn't a regressive income tax?

I think there might be some merit in a graduated capital gains tax. The reason why it doesn't exist is largely because middle class capital gains for retirement, etc. can be sheltered, and because, once more, the middle class gets most of their income from salaries and wages, not investment. So due to the way the economy is structured, the CGT is inherently progressive. More progressive than the income tax.

As an aside, regressive taxes are where the poor pays a greater percentage of their income than the rich. For example, the sales tax is regressive. The word that you're looking for is "flat" (and again, that doesn't strictly apply).

You say this, but you don't back it up with anything. the top 400 tax payers are a miniscule portion of even the small "rich" of America

Aeson was talking about the "super rich." So yes, I backed up what I was referring to.

If we were talking about a less wealthy subset of the rich, I would make a slightly different statement.

No, I didn't. Read it again, I didn't say instead of anything.

Ok, maybe you could explain what this nonsense is supposed to mean then:
"And yeah, he will be taking a lot more money from the average rich person than the average middle class person dollar wise, but those dollars matter a lot more to the middle class. Aren't you a progressive tax proponent? I don't like trust fund babies either, but I am not so spiteful that I am willing screw myself over royal to provide them with a minor inconvenience."

[Ramo]

The rich can structure their investments to avoid it (if the rate is greater than other income sources)

I still don't get how you're going to restructure the investments. Again, the highest marginal income tax rate is 35%. CGTs certainly aren't going that high.

It will encourage less investing

Any taxation is going to have negative side-effects on the economy. But we need to fund government...

[Ramo]

The problem is the plan disproportionatly affects thousands of me for every rich person it snags.

Again, I don't know what this is supposed to mean. It's a bunch of words thrown together to form complete nonsense.

Why aren't you sheltering your investments?

I'm guessing that the proposed income tax cuts are going to have a much larger impact on your tax burden than any CGT increase.

[rmsharpe]

Just wait until Obama goes after the kulaks!

[Zkribbler]

Ramo --
Your chart doesn't appear to reflect the $1,000 tax credit which Obama is proposing for a stimulous package. So, instead of being an average of $160, it should be $1,160.