Comment by nemo44x | Hacker News Reader

Comment by nemo44x | Hacker News Reader

If you're truly wealthy there's a good chance your "personal income" isn't coming from a paycheck you worked for. Your income is in the form of qualified dividends, proceeds from long term capital gains and other investment income. Of which you're likely paying very little (long term capital gain) to no (qualified dividend) tax on.

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.

I don't disagree with you, but I'd like to see a high threshold for this tax to take effect. I'm a small time investor who is trying to take the money I've put in the market and put it towards starting up a business.

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.

Indeed and why I said that the "standard deduction" should be higher than labor. This means people who do not use the markets as a primary source of income but rather as a tool to go from no wealth to acquiring wealth aren't paying taxes on it for reasons you've stated. Or a minimal tax.

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.

Have you considered a small business loan?

> 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.

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.

I never said they should be tax free, only that as a small time investor they should be modestly taxed.

That's what progressive taxation is all about - low tax rates for low income, high rates for high income.

The turkeys will absolutely never vote for that thanksgiving! And the wealthy turkeys run the show.

Do you think inheritance tax eventually captures a lot of this passive income?

Gary Cohn (Trump's chief economic advisor) recently said, "Only ‘Morons’ Pay the Estate Tax" : http://nymag.com/daily/intelligencer/2017/08/gary-cohn-only-...

Federal inheritance tax is levied on 0.2% of the US population. It doesn't apply until you leave behind about $5.45 million dollars.

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.

It’s also not that useful at getting revenue, compared to costs of administration.

Not to mention it is $10.9 million for married couples. How many people are leaving that much money behind?

0.2% of the population of the USA.

No. 0.5% of a huge number is a still a very large number. $4T in income tax revenue so 0.5% is $20B. That's about the size of NASA. Percentages are horrible at that.

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 a person's parents already paid taxes on it when they earned it, why are they required to pay taxes on it again? It's double taxation, and it's utterly unfair.

> If a business already paid taxes on it when they earned it, why are they required to pay taxes on it again? It's double taxation, and it's utterly unfair.

> 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 creates more consumption and investment which leads to better markets.

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.

Which is why you lower the corporate tax rate. This gives companies more leverage to use the investment money they get. They can purchase assets, fund R&D, buy smaller promising companies, and hire more labor.

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.

> Right now they will use any savings to buy back stock

It seems you imagine that isn't actual investment. Of course it is, just like anyone else buying stock is investing the money.

No, actually this is not investment. It’s returning money to shareholders who may decide to invest, or they may not.

The money gets spent or invested. Not hoarded. Invested money gets spent as well. After all, companies do not sell shares unless they intend to spend the proceeds. It's the whole point.

Sure, but there's a flow rate problem: they're predominantly good at a productive skill whose fruits are taxed at a lower rate than those of people with different productive skills. Now, because most people have some stake in investment, the progressive rates could start quite high - maybe in the tens of millions - but the monetary system simply won't work forever at the trajectory its on.

> the monetary system simply won't work forever at the trajectory its on.

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.

That's the Chartalist (and MMT view, I think). Friedman did make a strong case for the central bank's role like you describe to end recessions, but he was also sensitive to the fact that money was not identical to productive capacity, ie that which would produce capital gains. The concern as I understand it is that unless you did something radical like literally gave the cash to people directly, there is still the liquidity trap with the central bank's levers.

Friedman showed in MH that the stability of the money supply was greater with the "blind" operations of the market than with the enlightened levers of the Fed.

> because (naturally) wealthy people get wealthy by being good at investing.

[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.

> [Citation needed]

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.

That has little to do with money hoarding.

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.

Productive investments are good for the economy.

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.

Digging down into what investment is, your are providing money to a person with the expectation that he will give you more back. Somehow, that extra has to be produced.

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.

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