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View Diary: Steven Rattner offers ideas on raising tax revenue and I respond (72 comments)

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  •  Excellent diary, Teacherken (24+ / 0-)

    You are so right about the capital gains tax, which should be set at the same rate that all other income is taxed.  You may find some of the arguments I included in a diary I posted in September entitled, The Lie Behind Capital Gains Tax Rates.  Here's a key excerpt:

    To understand why Republican claims re: the Capital Gains Tax Rate are so patently false, voters need to understand the difference between Financial Investments and Economic Investments.  They are not the same thing.

    ECONOMIC INVESTMENTS are the kind of investments that actually end up "growing the size of the pie."  They occur when money is spent on capital goods or other economic resources [like humans] that are then used to produce more capital goods or more of the final goods that consumers find desirable.  In other words, economic investments either increase output or expand the supply-side's productive capacity.

    That is what happens whenever firms purchase machinery/equipment to improve productive efficiency or when they spend money on the construction of new stores or factories or on the salaries of new employees.  However, not all firm expenditures are economic investments.  (e.g., money spent by firms on advertising that either (a) misleads consumers or (b) does nothing to help them with their purchasing decisions.)

    FINANCIAL INVESTMENTS are purchases or commitments of money that provide the "investor" with an income stream.  Saving money is a financial investment because it provides interest income; purchases of assets can be financial investments if they eventually provide a capital gain.

    Economic investments made by firms are usually also financial investments because they generate income that exceeds their cost.  The economic investments made by governments that improve infrastructure or human capital are not financial investments because they do not provide the government with an income stream.

    Some financial investments are also economic investments, but many of them are not.  The purchase of a piece of land, for example, is a financial investment if it appreciates in value over time, but it is not an economic investment if it just sits there, undeveloped.

    Purchases of stocks in secondary markets (e.g., NYSE, NASDAQ) are clearly financial investments if the stocks appreciate in value, but they are not economic investments because they involve nothing more than exchanges of titles of ownership of already existing assets.  One financial investor hands money over to another financial investor for a piece of paper.  

    These transactions do not typically put any money into the hands of firm managers that could be used for economic investments.  That normally happens only when stocks are first sold by companies to underwriters, prior to an initial public offering.  New stock issues are rare for companies trying to raise capital, especially when interest rates are at historical lows.

    Keep up the good work, Ken.
    •  It is a bit funny (30+ / 0-)

      that when I told this community about my going into the classroom I said I would not be around here as much.  In the sense that I now rarely post more than once a day (although on Friday I posted 3), for some reason a good deal of what I have been posting speaks to this community and stays visible for some time.

      While my focus is on my students - and trust me, I have tons of planning and grading to do today because I procrastinated the past few - when I look at major issues of policy I find I cannot remain silent precisely because of the impact policy decisions will have on their lives.  To motivate some of my students I need to be able to say honestly that we are not taking away their future.

      "We didn't set out to save the world; we set out to wonder how other people are doing and to reflect on how our actions affect other people's hearts." - Pema Chodron

      by teacherken on Sun Nov 25, 2012 at 04:11:56 AM PST

      [ Parent ]

    •  Capital gains taxes (1+ / 0-)
      Recommended by:
      madhaus

      "You are so right about the capital gains tax, which should be set at the same rate that all other income is taxed."

      Agreed; however this isn't what Rattner wrote, or diarist teacherken either. Rattner called for a capital gains rate of 28%, as it was in Clinton's first term. He also doesn't mention, for obvious reasons, that the rate was lowered to 20% in Clinton's second term.  

      Rattner never says, so we're left to wonder why, capital gains deserve a lower tax rate than wages.  To my mind this would only hold true with stock market capital gains from IPOs, when the money actually goes to companies to use for productive purposes. All other stock trading is simply shares trading hands. Why should this qualify for a preferential tax rate? Beats me.

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