Tax Plan Punts on a Loophole for the Wealthy
nytimes.com
nytimes.com
Any tax reform that does not address the fact that investment income is taxed more or less flat compared to labor which is taxed progressively is missing a huge opportunity to tackle income inequality and making the wealthy "pay their fair share".
- Lower the corporate tax rate significantly. This creates more value in companies and possibly a larger labor pool.
- Install a progressive tax system on capital gains similar (larger standard deduction than labor) to how labor is currently taxed. Investors are making more on companies that pay lower taxes now. If investment is your sole source of income you'll actually be paying your "fair share" now.
- Lower taxes on working people who spend most of their income. This creates more consumption and investment which leads to better markets.
If I was a politician I would leave it alone and let states deal with it. I think most people that are against the "death tax" know it won't affect them but it's the idea that income that was taxed is now being taxed again. The emotional appeal of leaving a better life for those you love, etc.
So, I'd get rid of it. It's insignificant. It accounts for about .5% of total Federal revenue. Easy sacrifice.
Keep the "death" tax, and here's the thing. Due to death, the assets changed hands. That money wasn't yours. It was your parent's money, so this is the first time that you are acknowledging the income. You personally won't get taxed on it again. Same with dividends and other stock related taxes No recognized income from you personally until you get the money. That's when you get taxed, pure and simple.
> If the customer already paid taxes on it when they bought it, why business required to pay taxes on it [that income] again? It's double taxation, and it's utterly unfair.
Double taxation arguments are like mad libs you can pick any two parties in a taxed transaction and make the same argument. Pretty much every other kind of transaction is taxed. Yet the other places we tax, income and sales, generate healthy economic activity (labor, wealth, and consumption). Unlike inheritance which has little more than net 0 impact on the economy.
This is another variation on the old "rich people hoard cash" trope.
Rich people invest the money that they don't spend. They tend to invest well, meaning highly productive investments, because (naturally) wealthy people get wealthy by being good at investing.
Productive investments are good for the economy. The notion that wealthy people invest in unproductive things doesn't make any sense.
Right now they will use any savings to buy back stock - that's the rational thing to do and makes the investors happy. But if we tax investment income progressively then buying back stock is great for the US Treasury - someone has to sell that stock to the company buying it back and it's taxed more!
It becomes more reasonable to reinvest that money from a corporate perspective. This is what the investors will want done.
It seems you imagine that isn't actual investment. Of course it is, just like anyone else buying stock is investing the money.
It can under a fiat money system (which we've had since 1914). If you or I borrow money, we have to pay it back. That's not so for the government with fiat money. It can just print more money anytime, or do the equivalent (issue more bonds), and it can do this forever.
This is why the dollar today is worth just a few cents of what it was worth in 1914. (The 1914 dollar was worth the same as the 1800 dollar.)
Check out "Monetary History of the United States" by Friedman.
[Citation needed]. There's lots of wealthy people who got funded, got lucky (some investments are good only looking back - would you like to pay me to sign a few bytes 7 years ago?), got family fund, play the right sport in the right country, etc. People can get continuously more wealthy just by owning things - at that point you can outsource the investing to someone good at it. We've got very well known examples of people who inherited fortunes, failed at investing it multiple times and are still wealthy.
See "The Millionaire Next Door" by Stanley
It stands to reason that if wealthy people as a group are bad at investing, they'd sooner or later stop being wealthy. Then, by survivorship bias, the wealthy ones remaining were good at investing.
One aspect of wealth is that it's a capture of some local increase in human-useful efficiency. The most common use of large amounts of wealth is to buy more capital. All systems have a limit to their efficiency, and even when efficiency improvements are possible, it's often not obvious or easy to achieve them. What is easier, though, is to decrease efficiency in a neighborhood you do not own, and then use capital to provide a more efficient solution to that neighborhood's problem in a neighborhood you do own. Clearly this is bad for the greater economy, yet is a good investment for the foreseeable future for those who can afford it.
Are they? Or are you defining "productive" circularly here?
If I'm wealthy and I invest in derivatives or complicated tranches, is that "productive" because it's enabling further circulation of money, or is it "productive" because I can gain more capital on it?
Given that there's an infinite supply of ever more derived tranches, I suspect that my definition of "productive" different from yours here.
Analogously to a flying airplane - it is producing more lift than its weight. This must be true even if you haven't the slightest idea how all the whorls of air and eddies around it are created or how they influence the airplane.
What derivatives do is they spread risk in exchange for a lower rate of return, as well as provide liquidity. This is a productive thing that financial markets provide.
I've used my personal income which was already taxed at the state and federal level, put it into the market at my own risk, and then gets taxed again when I get gains on it. Now, because Bill Gates and Warren Buffet aren't getting taxed enough, you're hurting the small time folks.
You're creating a moat whereby the small time folks can never escape, and the folks who have already made it won't be hurt.
But once you've become a successful investor over the years and have acquired more and more wealth your dividends are starting to get taxed higher and your proceeds which are now comparable to an income or possibly a primary income are becoming taxed. Because of compound interest and appreciation of capital assets you're being taxed on your new wealth.
Except the money you originally put in is not taxed again. Only the gains are. I don't see a compelling argument as to why your gains should also be tax free.
Even if both houses switch heavily Blue/Red/Something else, lobbying touches all.
This easiest is to tax things that cannot move away, like real estate instead of giving giant deductions.
I really wish we went full Georgism back in the day.
This easiest is to tax things that cannot move away, like
real estate instead of giving giant deductions.
38% or whatever agreed upon percent as a national flat sales tax. And for the bleeding hearts that will scream this hurts the poor, Sentence two: The first 5,000/year in clothing tax free, and the First 10,000/year in food tax free.
IRS? Dissolved. H&R block? Dissolved. No more audits. No more income tax. You keep your entire paycheck! No more asset seizure by the IRS. No more tax fraud. No more tax evasion.
Per person? In that case, we can lower it to $1k/year.
I like plans that take care of this with a prebate - $200-$500/mo checks for everyone. It could also be a precursor to UBI.
Take your average thrifty bum. Pays X% on the totality of what they earn, minus some lump sum. And your average billionaire. Pays X% on the totality of what they spend, minus the same lump sum.
That doesn't quite seem right, unless you tax financial transactions at the same rate as groceries. It might be just me, but methinks Wall Street will have none of that.
As to not needing tax auditors, just no. You'll still need to audit companies, and their incentive will be sky high to get cash transactions and declare only some of them.
Not to mention that the fact that we have a progressive tax system isn't the reason it's complicated. The complication is that we have tax exemptions and deductions and the like. And those are valuable tools to making things like owning a house and getting an education more affordable, as well as incentivizing certain beneficial actions like using renewable energy.
1. It's incredibly telling of you that you call those who would (rightfully) point out that your scheme is incredibly regressive as "bleeding hearts".
2. Those deductions are nowhere near enough, especially if you have a family.
Personally, I think we need to keep the inheritance tax and remove other loop holes when people are making money. For instance, there is no reason we can't get rid of like kind exchange. People are always more readily accepting to pay a tax out of part of their profits.
* Capital flight (people invest in other countries with more sane tax policies)
* recessionary effects, including job loss.
* huge burden on small business owners that are barely making a profit
* Incorrect, unequal or subjective valuation of wealth
* Disproportionate effect on seniors
* Wealth taxes had high management cost and relatively low returns.
Differential taxation of ordinary income and pass-through income will do the same thing. This is just bad tax policy design.
It also looks like this cut would make it even more advantageous to use an S-corp for funneling income from contract work. Piggy-backing onto methods used to reduce top-earner's tax burden always has it's advantages for those who can exploit it, I guess.
In a sense the does, but that's somewhat illusory. As with other businesses, any reasonable and necessary expenses of maintaining and managing the property being rented are deductible as business expenses for landlords; mortgage interest is, AFAIK, currently excluded from that only because, with the mortgage interest deduction, it would be double counted. Virtually no one who supports removing the mortgage interest deduction opposes the general notion of deduction of reasonable and necessary business expenses.
(Add an income-based tax subsidy on principal payments on homes—either up front or as part of loan repayment—and you'll do a lot more to improve affordability without doing as much to encourage debt.)
FYI, I'm an expatriate living in BC, Canada where housing prices are insane and almost nobody can afford to buy a home, but the economic reasons here are more specialized to the region.
https://news.ycombinator.com/item?id=15354110
My only gripe is that this isn't just a loophole for the wealthy.
Any schmuck can make a pass through entity for $100 and do all their business through that. They might opt to be corp-to-corp contractors for every employment contract they sign.
This would be a godsend that spans all socioeconomic classes.
The article addresses this - the tax rate for a married couple making ~150k or so is already 25%, so it's only people who make more than that who would be impacted by this.
finally.
For example: $5k annual income = 0% taxes $10k - 10% taxes $75k - 150k - 35% taxes $150k - $250k - 30% $250k - $1kk - 25% $100kk - 1%
Not just awful in the sense that Trump promised that it didn't benefit rich people, which it does ("It's not good for me, believe me"). The elimination of the estate tax on the top 0.2% of estates in America is the most egregious example. The immediate write off of depreciable assets, elimination of AMT and reduction of corporate taxes largely do not apply to small businesses. In particular, the immediate expensing of depreciable assets may further serve to exacerbate irrational purchases of equipment by small businesses, potentially locking them into unprofitable business practices, while benefitting large corporations that make these specialized products (see the corn glut). No comment on whether this is moral or not, in the end it brings profits to big business at the direct expense of small business.
But its also awful in the sense that its not even close to complete or reasonable. Half of the 9 page document is just empty words and opinions that have no business being on a document meant to form the basis of our new tax code. Republican analysts have yet to make up for the optimistic 1.5 trillion dollar projected shortfall introduced by this tax reform, and the various "tricks" being discussed to bridge that gap are unpalatable at best. Clever accounting reminiscent of the practices that brought Enron to its downfall, punting the problem of shortfalls 10 years down when the debt becomes to big to ignore. Taxing of retirement plan contributions and proceeds which will be borne by middle class workers. If this is all the Republicans have to show after 2 years of bluster, I can't see any significant reform going through.
Moreover, the duplicitous wording of the document gives less reason to view the Republicans in a charitable light. The whole section on the "zero tax bracket" and dependent deduction elimination represents little to the lower class Americans it purports to help. Replacing the deduction for non child dependents with a 500 dollar tax credit is a tax increase in most cases. The unspecified increase in the child tax credit is also balanced by the loss in the $4000 deduction - there is no reason to expect an actual effective tax break of significant magnitude when the Republicans can't even give us a flat answer. The elimination of most itemized deductions perturbs me as well - give people even less of a reason to spend their money in incentivized manners, punish the middle class further? We'll see what exactly they eliminate, if its comparable to the nearly doubled standard deduction.
"Finally, the committees will work on additional measures to meaningfully reduce the tax burden on the middle-class." It's amazing how long it took them to produce a mere 9 page document, much of which contains words that impart no meaning. I've written essays in high school longer than this.
This isn’t a bad thing. That money won’t dissapear. It’ll get spent or invested (either directly or indirectly by a bank if saved).
Tax cuts are good. Stop saying they’re bad. The wealthy always find loopholes because they can afford lawyers and accountats to deduct taxes or skip taxes through offshore companies, so it’s the not-so-wealthy who have a yet bigger impact but not so directly visible.
Taken to the logical limit that would imply that we shouldn't have taxes at all. You're assuming also that taxes are being cut across the board, but it is very unclear if the middle class will experience any positive change, while there is ample evidence that the President and most of his cabinet will make out quite well personally.
Except that tax cuts basically mean the government has less money to pay for things. I suppose if you don't rely on government for anything (like infrastructure to run your business) then that's good. Otherwise it is bad.
The government is a huge entity that does some very important things and wastes a lot of money (some of which being pork that it seems every party indulges in), simply assuming that cutting off the cash flow is going to improve anything is wishful thinking I think.
You know certain things will be funded (like the military) but a lot of basic services to the needy always seem to be on the chopping block despite costing a fraction of the budget (food stamps, nutritional assistance to pregnant mothers, etc).
Since you're using a ridiculous analogy here, one can easily point to CAFE standards that have dramatically increased the efficiency of cars over the past 20 years by doing exactly what you're describing - cutting the fuel...
In my lifetime I've never seen a government program cut costs or gain efficiency. At the point something like that happens I'll be much more open to government programs. In the current environment both in terms of bloat and political hostility, it's really hard to see any benefit.
Rather than worry about throwing more tax money at the problem, why not focus on how much better things would be if the department was 10% more efficient?
Can you point to any specifics about what is inefficient? I'm not doubting that it is the case, but when you say you've never seen it is that because its never happened right in front of you or you've looked hard for it and it just isn't there? I'm not trying to be a jerk, but I think we all have a tendency to criticize things we don't understand as well as we would like to think and I try to resist that urge unless I actually know a lot of details. After being a developer for a few years, I'm a lot less likely to criticize some piece of software or code someone else has written until I actually analyze it myself and try to improve it, often times I find there are reasons for a lot of the corners that were cut or hacks that were implemented. Not always, but as often as not I can't actually improve something as much as I would have initially assumed.
1) capital gains is lower than income
2) there are deductions for almost everything
3) tax-free retirement accounts
4) charitable deductions
The truth is that many of the above affect the middle class, too.
Plus:
1) Middle class typically doesn't have the ability to structure income as capital gains.
2) (See above.)
3) Given modest contribution caps in retirement accounts, not a major "loophole" for the wealthy.
4) Something we should encourage at all levels.
3. There are limits to how much can be put in them.
4. Sure, you get a tax deduction for donations to charity. But you NO LONGER HAVE THE MONEY. You gave it away. Giving money away is giving away the wealth.
This is a bad thing. That money won't disappear. It'll get spent or invested (either directly or indirectly by a bank if saved)
Tax cuts are bad. Stop saying they're good. The wealthy have money to affect political decisions because they can afford lobbyists, so it's the not-so-wealthy who have a marginalized impact.
Compare to someone who's poor - they spend most of their take-home pay on daily needs that spur the economy.
Cutting taxes for the rich only gives them more money - trickle-down theory has been proven to not work, and in fact the biggest net return for governments is to simply hand out cash (qualified as welfare/food stamps or unqualified like universal income) - that gets the government like 1.7x the amount handed out in tax receipts inbound as the cash passes through the economy.
That said, we don't live in one of those environments. We've probably had too much investment for the last 104 years or so...
You obviously have no comparative data, relevant associates or historical acumen whatsoever. Dare to say something exceedingly smart, discerning and not wish fulfilling. Noise obscures any possible policy signal. All "old saw" claims of "what everyone knows" only subtract from value creation, good planning and sound accounting. That will remain true tomorrow and 10 years from now.
Stay away from needy or greedy cheerleaders spewing nonsense. Just wait and some dummy will a wave a flag next.
Only in economics 101 would the bank need deposits for loans. In the real world there is no upper limit on money that wants to be invested, just a lack of feasible investment opportunities.
More fundamentally, governments want to stimulate the economy at all costs, so interest rates are near zero ("please take our money and create jobs") and plenty of attempts at subsidizing industries have been (and are still) made.
Since you can't quite force economic growth, startups etc., at least you can have money in circulation.
So, money in the bank, like money under the mattress, is bad for the economy. So, the tax cut may infact be bad from an economic perspective.
Ah, the ol' "trickle down economics" trope that refuses to die. I've been waiting since the Reagan administration to see it actually work as advertised.
Tax cuts are good. Stop saying they’re bad.
If only saying it made it true. The current proposal doesn't look to benefit me, a household making well into six figures. Guess we'll have to work harder to make the >$400K needed to benefit from the latest "reform" proposal. That, or start funneling all of our income through an LLC. Meanwhile, at the bottom end, the taxes go up from 10% to 12%.
Tax cuts are good if you're incredibly rich (and not just mildly rich like me). For the vast majority of us, it won't benefit us at all.
They also get the most income and wealth.
"This isn’t a bad thing. That money won’t dissapear. It’ll get spent or invested (either directly or indirectly by a bank if saved)."
Maybe. But that also doesn't mean it'll be used for something good for society, rather than Uber for Dogs.
"Tax cuts are good."
Tax cuts are a thing. By themselves, they are neither good nor bad. How they're applied is the difference. If a tax cut causes government revenues to drop to the point where they can no longer properly fund public schools, it's not the wealthy that are going to be hurt by it.