Top marginal tax rate in US now ~65%

[MichaeltheGreat]

Like Ben Kenobi he's probably living in a fantasy land where raising tax rates doesn't raise revenue.

Raising tax rates minimally raises revenue. There's a point tax rates become increasingly counterproductive and ultimately cause revenue to decline.

[MikeH]

That is only true above a certain level though.

[Kidlicious]

The theory is that deficit reduction causes revenue to decline, not only raising tax rates. But revenue will not decline if the economy grows.

[MichaeltheGreat]

True, but it's something the left in the US really doesn't grasp. The other thing is that too many left-leaning folks in the US aren't really policy wonks, or technical experts. All that stuff is icky and corporate and let's go commune with the universe or whatever the **** has replaced the "free love" component of leftist psyche in the US. So they get hosed on policy issues time and again. Case in point, all this fetish (and the false wailing and gnashing of teeth from the right) about the Bush-era Federal Income Tax rates, when the real issues in the tax code are things like capital gains rates, re-use of accellerated depreciation on existing assets, special purpose breaks and credits.

The best revenue approach on taxes is to slightly lower all personal rates, significantly lower the bottom 3 rates on corporate taxes with a phase out/recapture, and split capital gains rates so that venture/risk capital to fund real startups and expansions (as opposed to creating proxy entities to shelter income) are tax exempt, while ordinary capital gains from resale of assets are taxed at something closer to, but still less than, the applicable tax rate on ordinary income. Then go after the sorts of special purpose deductions and subsidies that are the bulk of the internal revenue code.

[Kidlicious]

Case in point, all this fetish (and the false wailing and gnashing of teeth from the right) about the Bush-era Federal Income Tax rates, when the real issues in the tax code are things like capital gains rates, re-use of accellerated depreciation on existing assets, special purpose breaks and credits.

A lot of those have good purposes, but from my experience they don't really do as much good, as they simply lower tax revenue.

[MichaeltheGreat]

A lot of those have good purposes, but from my experience they don't really do as much good, as they simply lower tax revenue.

Accelerated depreciation on new investment is great - it shouldn't be re-usable, as all it does is give asset flippers a preference than an actual operating business does not get. The problem is that most of the tax code either has means to exploit it beyond its purpose, or is full of industry-specific preferences that make no real sense outside a corporate pork standpoint.

[Kidlicious]

Accelerated depreciation on new investment is great - it shouldn't be re-usable, as all it does is give asset flippers a preference than an actual operating business does not get. The problem is that most of the tax code either has means to exploit it beyond its purpose, or is full of industry-specific preferences that make no real sense outside a corporate pork standpoint.

True. That's why the big multinationals have such a low effective tax rate and the little guys have a much higher effective tax rate. I don't see what the point of incentive is if not everyone can take advantage of it.

[Kuciwalker]

A majority of capital gains are essentially non-job creating transactions between asset owners. The only jobs created are for the brokers, the caddies for the CPA firm partners, and the guy in India who does the actual accounting work for the CPA firm. Capital gains are also used in conjunction with repeated use of accelerated depreciation to manipulate ordinary income into deferred capital gains.

Case in point, I'm working on a transaction involving a couple of existing powerplants with a lot of time remaining on their power purchase agreements. After purchase, they'll have minimal capital improvements to convert them to combined heat & power, which will change the core plant from 20 year depreciation to 5 year. On the whole plant, not just the capital improvements, all with a new placed in service date as of the re-start. Tax depreciation will offset all operating income, with a little pass through on top, then the buyer will flip the assets and take a capital gains hit at the end, after paying nothing in income taxes for five years. The next buyer will do the same. Then the next. The first set of buyers will create about zero net jobs (most of operating crews will be laid off during capital improvement program, so this will offset creation of construction jobs.) Subsequent buyers will create zero jobs as well, as the same crews will operate. At the end of the process, 15 years of profitable operating income will be taxed at lower capital gains rates after one to five year deferrals when the asset is resold. Who exactly benefits from this sort of tax subsidy game?

Investment income shouldn't be taxed either, so the availability of regulatory arbitrage into capital gains is welfare-enhancing.

[Kuciwalker]

and split capital gains rates so that venture/risk capital to fund real startups and expansions (as opposed to creating proxy entities to shelter income) are tax exempt, while ordinary capital gains from resale of assets are taxed at something closer to, but still less than, the applicable tax rate on ordinary income.

This is exactly backwards. Startups and expansions are much more likely to represent disguised wage income than capital gains on ordinary assets are.

[MrFun]

Who exactly benefits from this sort of tax subsidy game?

The wealthy. As you've illustrated, it has **** to do with job creation.

[MichaeltheGreat]

This is exactly backwards. Startups and expansions are much more likely to represent disguised wage income than capital gains on ordinary assets are.

In a small business, yes. Then again, we already have excessively punitive PSC rules to address that. I'm not talking microcapitalization of small businesses by insiders or affiliates.

[Kidlicious]

Investment income shouldn't be taxed either, so the availability of regulatory arbitrage into capital gains is welfare-enhancing.

Then the only people who would work, would be those who don't have the means to invest money, and they will, of course, pay more tax.

[Kuciwalker]

Even in the case of larger startups/IPOs the economic activity is in the gray area between wage income and capital income.

Regardless, none of it should be taxed at all.

xpost

[Kuciwalker]

Then the only people who would work, would be those who don't have the means to invest money, and they will, of course, pay more tax.

I have been over this with you enough times that I suffer no delusions you will ever understand the arithmetic.

[Kidlicious]

I have been over this with you enough times that I suffer no delusions you will ever understand the arithmetic.

I don't know what you're talking about. I haven't talked to you since you were living at home with your mom and dad. But I'm not sure what kind of arithmetic you're talking about. If you cut someone's taxes you have to raise someone elses taxes if you want the same tax revenue.