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View Diary: Reid: Social Security cuts for defense sequester relief would be a 'stupid trade' (255 comments)

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  •  Post the Tax Reform Act of 1986 it's hard to pay (0+ / 0-)

    little or nothing unless you have primarily municipal bond interest income and have a tax loss carryforward to offset any capital gains.

    The increases that went into effect at 1/1/13 were significant raising the top marginal rate from 35% to 40% and long term capital gains rates from 15% to 24%.

    "let's talk about that"

    by VClib on Fri Oct 18, 2013 at 01:38:03 PM PDT

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    •  You might want to tell Mitt Romney that. (0+ / 0-)

      Okay, he did pay an infinitismal amount of taxes, so I guess that's not quite true.

      But you might want to let Warren Buffett into the secret.  You know the guy who makes billions and pays less than his secretary.  

      I'm sorry, but there are plenty of corporations and individuals who make a ton of money every year, yet pay little to nothing in taxes - some of them even receive credits resulting in them getting money.  As long as you're able and willing to pay a good accountant and tax attorney a nice chunk of money, you can do a whole lot with income other than municipal bond interest and tax loss carryforwards.

      •  gusty - Romney paid $1.9 million of federal income (0+ / 0-)

        tax for the last year that he disclosed in the campaign, 2011, for an effective rate of 14%. That's a low rate but nearly $2 million is hardly nothing. My guess is that if your income was Romney's tax payment you would describe it in another manner.

        "let's talk about that"

        by VClib on Fri Oct 18, 2013 at 02:41:15 PM PDT

        [ Parent ]

        •  I really don't care about the hard number. (1+ / 0-)
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          It's the rate that matters.  And 14% is VERY low.  And that, of course, is only considering his taxable income.  If I had Romney's income, I would quite definitely not have a problem paying a more reasonable amount in taxes.  

          Poor, poor Romney.  My heart just bleeds for him because he had to pay nearly two million in taxes.  Not.

      •  Buffet is a special case (0+ / 0-)

        and I wish when he made the remark he gave more of the data so people could put his statement in the correct context. The statement is accurate, but misleading. Buffet has an annual salary of $100,000. It's been the same amount for 25 years and is LESS than his secretary's. If Buffet was paid a salary and cash bonus at the average of CEO's of similar size companies he would have $3-5 million of earned income which would dramatically change his effective federal income tax rate. And it would be much higher than his secretary. Nearly all the rest of Buffet's income comes from long term capital gains, taxed at favorable rates. Buffet's rate was much lower than Romney's, because of all his charitable giving. However, Buffet did pay $7 million of federal income tax in 2011.

        "let's talk about that"

        by VClib on Fri Oct 18, 2013 at 02:50:19 PM PDT

        [ Parent ]

        •  Wow. You are full of excuses. Of course Buffet (1+ / 0-)
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          is no special case.  A significant portion of his income is capital gains - therefore, it's taxed at a lower rate.  That's hardly "special" with the highest income people.  His statement was not misleading in the least.  It was 100% accurate and is fully understood.  He paid a lower rate than did his secretary, who had only a tiny portion of his income.

          •  Buffet's statement is misleading because (0+ / 0-)

            few people know that his salary is only $100,000 and assume he has earned income in the millions because he is the CEO of a Fortune 500 company.  If he did have a normal CEO compensation package, his effective tax rate would be significantly higher than his secretary's.

            "let's talk about that"

            by VClib on Fri Oct 18, 2013 at 03:38:47 PM PDT

            [ Parent ]

            •  How do you know what people assume? And what (1+ / 0-)
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              difference does it make to him or to us whether his income is from capital gains or earned income?  Absolutely none.  It's still the same amount of money. And so he ends up at the rate he pays.  There's nothing misleading about that whatsoever.

              What you're really doing is establishing the senselessness of have lower rates for capital gains than for earned income.  You base your entire argument on the thesis that our current system of undertaxing capital gains or overtaxing earned income somehow makes sense.  It doesn't.    

              •  gusty - every country in the G20 has a lower (0+ / 0-)

                tax rate for long term capital gains than for earned income. Ever since the inception of the US federal income tax we have had a lower tax rate for long term capital gains than for earned income, with the exception of a few years after the Tax Reform Act of 1986 when both the earned income rate and long term capital gains rate were capped at 28%.  I do support lower tax rates for long term capital gains income as compared to earned income for the following reasons;

                Higher long term capital gains tax rates don't result in higher long term capital gains income for the Treasury. I know this sounds counter intuitive, but it's true. When long term capital gains rates are high people who own appreciated capital assets don't sell them. They just keep them and borrow against them.

                It we taxed long term capital gains income at the same rate as earned income it would put the US in a less competitive position internationally. In addition to all the G20 having a differential many developing countries have a zero capital gains tax rate to encourage capital formation and investment.

                We significantly limit offsetting realized capital losses against earned income. If we were to tax them at the same rate a taxpayer should be able to write off their realized investment losses.

                Lower long term capital gains tax rates do encourage capital formation and investing in startups, thereby nurturing our entrepreneurs. I have watched this first hand for more than 25 years.

                "let's talk about that"

                by VClib on Fri Oct 18, 2013 at 08:17:26 PM PDT

                [ Parent ]

                •  While I'll acknowledge the sense of some you (2+ / 0-)
                  Recommended by:
                  VClib, Mogolori

                  say, the manner in which this country does it does not make sense.  First, "long term" should definitely be more than 1 year.  Second, the reduction should be based upon how long you've owned an asset.  In other words, if you're gain has accumulated over a period of 40 years, your tax rate should be slightly less than if it's accumulated over a period of 3 years.  Third, the difference in the tax rate is far too much.

                  I will further disagree that people invest in entrepreneurial efforts because of capital gain rates.  They invest because they anticipate making a profit.  They'll do that whether they're going to be taxed at 15% or 25%.  You don't pass up profit because you get to keep slightly less of it.  That's one of the great myths people such as yourself love to maintain in order to justify this unfair system.

                  I'll acknowledge that some people would avoid selling assets in order to avoid paying taxes and borrow the money instead.  However, I don't believe the impact of that would be anything close to what you're claiming.  First, people can seldom borrow as much as they can get by selling.  Second, if someone has an opportunity to make a profit, they're not going to turn that profit down because of a slight increase in the percentage of the profit they'll be entitled to keep.

                  What a very low capital gains tax does is provide another opportunity for the wealthy to plan their transactions to take advantage of the tax system.  I realize you're invested in the current system and therefore honestly believe it's a good thing.  You've bought into all the vacuous arguments the wealthy have been making for decades about how low taxation of them is really a positive thing for everyone else.  I think opening your eyes to a new way of looking at things, rather than accepting the very trite and tired justifications, would be a good thing for you to consider.

                  •  gusty - thank you are a very thoughtful reply (1+ / 0-)
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                    I will end with just one example. For the year 2011 Congress passed a law that investments made in startups that met a certain criteria (number of employees, total capital raised) would have a ZERO long term capital gains rate when sold. As we approached the end of 2011 investments in startups surged. As it turned out Congress extended the law for a second year and in the 4th quarter of 2012, investments surged again. So while I agree that the primary incentive is the expectation of earning a profit, tax consequences do drive many investment, and other financial decisions.

                    I am too lazy to go find the numbers but federal tax receipts from capital gains have gone down every time they are raised. Even the President when asked the question directly has stated that he knows that raising long term capital gains tax rates don't increase long term capital gains tax revenue. However, for him it is a fairness issue and he believes that long term capital gains tax rates should be higher. For me this is the biggest issue. The fact that higher rates don't lead to more tax revenue means that the case to raise them has a very high hurdle to meet.

                    "let's talk about that"

                    by VClib on Sat Oct 19, 2013 at 09:55:28 AM PDT

                    [ Parent ]

                    •  Two flaws I see in your reasoning here: (0+ / 0-)

                      1.  A reduction in capital gains tax does not necessarily mean a reduction in taxes.  At least some of that reduction would be as a result of people not playing the waiting game for 12 months to pass before recognizing their profit, and therefore paying their tax as ordinary income or short term capital gain rather than  long term capital gain.  

                      2.  Using an example of there being NO tax on a certain type of income is meaningless.  It raises absolutely no income for the government and is unsustainable.  Of course people would be willing to take a higher risk/lower profit if they don't have to share any of the profit at all but can share the risk.

                      And overall, establishing a tax system that doesn't encourage people to play games with waiting is always a good thing.  It would enable people to make purely profit/loss decisions, without having to worry about timing so much.  When they have a chance to make a profit, they could go for it, without worrying about whether it's going to be long term or short term.

                      This magical number of 12 months makes no sense whatsoever, but is established solely for the purpose of enabling a larger portion of unearned income to be taxed at a lower rate than earned income.  Set it up so that for every year you've held something, your tax get reduced by say 1%.  I'd have no problem with that.  If you've held it for 40 years, you get a significant reduction.  If you've only held it for 1 year, it would be very little difference.  People could then make decisions based solely on business reasons, without taxes being a major factor to consider.

                      •  gusty - one year has been the standard (0+ / 0-)

                        from the outset of the capital gains tax. In the beginning of the income tax investment income wasn't taxed. The one year requires the investor to take significant market risks and it stops short term trading from being eligible for long term capital gains.

                        Revenue to the Treasury surges when capital gains rates are lowered because people view it as a good time to liquidate appreciated capital assets. The reverse is true. When rates are increased we see a surge, and we did in late 2012, leading up to the increase and then a decline in several years to follow. For financial assets there are numerous ways for investors to lock in profits without creating a taxable event while they wait for rates to decline. If the Democrats win the Presidency in 2016 they would likely sell the assets and pay the new tax, but they can certainly be patient for a few years. Certainly there are transactions that happen regardless of tax rates because of personal preference or market risks. But higher capital gains tax rates over time have produced actual lower revenues and always dramatically lower revenues than the CBO's scores. The CBO can only use static models in their scoring.

                        There are many people who agree with you that the length of time an asset is held should be a factor. However, they believe the cost basis of the asset should be indexed to inflation and no tax paid on the difference between the cost and the new basis. Only that amount above the new basis should be subject to the long term capital gains tax.

                        "let's talk about that"

                        by VClib on Sun Oct 20, 2013 at 08:57:45 AM PDT

                        [ Parent ]

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