Raise the capital gains tax and treat investment earnings like ordinary income

Between 1950 and 1959, he notes, the highest earning 1 percent of Americans paid an effective tax rate of 42 percent. By 2014, it was only down to 36.4 percent—a substantial but by no means astronomical decline.

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There are a few obvious reasons why the taxes the rich actually paid in the 1950s were so much lower than the confiscatory top rates that sat on the books. For one, the max tax rates on investment income were far lower than on wages and salaries, which gave a lot of wealthy individuals some relief. Tax avoidance may have also been a big problem. Moreover, there simply weren’t that many extraordinarily rich households. Those fabled 90 percent tax rates only bit at incomes over $200,000, the equivalent of more than $2 million in today’s dollars. As Greenberg notes, the tax may have only applied to 10,000 families.

https://slate.com/business/2017/08/the-history-of-tax-rates-...

I do acknowledge that areas with SALT exemptions tend to be areas that pay a disproportionate amount of taxes for the benefits they receive but I think this solution to that issue is ludicrous. Investment by the government should ideally try and maximize the benefits given by that investment means that denser population areas should be targeted unequally to receive benefits but SALT exemptions are crazy.

Also, just a note, this portion of their argument seems silly, what is one number compared to another number without context, if 82.7% is just too much for the market to bear than let's talk about 58.3% as a base marginal tax rate on $10M and above - in actuality the utility of assets decreases so steeply that I don't know if 82.7% really is "silly" but all this talk about specific numbers should be decided by people way more specialized than the general public.

Why would you want a flat tax for everyone above 30k?

If you raise taxes on capital gains you'll get less investment. Maybe that's a good thing.

Either way, I'm in favor of tax simplification in all of its forms; Tax law is like that spaghetti legacy codebase that is just dying for a refactor/rewrite.

I don't mean to be harsh but your user name indicates you haven't actually entered the work force yet.

Some of the specialized property tax reductions (like urban agriculture) can stay, but ideally we'll be pretty selective and get rid of the silly religious property tax exemptions.

Surplus wealth is largely going to be invested unless you actively prevent it, you don't need to tax favor capital income to get that result. Tax favoring capital income (i.e., tax penalizing other, most notably labor, income) just means that those that already have significant capital accumulate more faster while other people have a drag force applied preventing them from accumulating signficant capital.

Now, this is not to say that some taxation on savings isn't sometimes appropriate; for instance, some forms of investment are non-transparent and might be used to shield earned income from taxes that should bear on it; also, higher-income folks tend to save more and to choose riskier investments that yield higher expected returns; so returns correlate with ability to pay in a way that's worthy of note because it doesn't impact incentives too much. Taxes that bear on some peculiar assets, such as the land-value of urban real estate, EM spectrum rights, or investment into highly-polluting industries, also don't adversely affect incentives. However, existing taxation on capital appears broadly appropriate to take advantage of these things; the bulk of taxes should still fall on tax bases other than savings and investment, such as the portion of income that's not saved but spent on non-baseline consumption of goods and services.

US Federal taxes are not primarily paying for things. They are to encourage use of the dollar; to redistribute wealth; to act as tools of policy. The government needs to issue debt in quantities similar to the expansion rate of the economy: when less is issued, the economy will suffer, and when more is issued, inflation begins.

We’ve never been able to pull in more than 18% of GDP in tax receipts for more than a short time period. We’re currently collecting ~17%, so we have a tiny bit of head room based on historical precedents. Beyond that, I don’t know what we can do other than cut some spending. Auditing the DoD and means testing Medicare might pick up some low hanging fruit. Hard to say what’s most likely to work, IMO.

Insofar as we need tax favored retirement vehicles, we have plenty—general taxation of capital income need not be concerned with that. There are two legitimate interests I see addressed by special consideration of long term capital gains (but the current “jist give it a lower rate” approach is suboptimal for addressing them.)

(1) Gains over >1 year taxed as current income in the year realized, when this is not repeatable (that is, when the owner doesn't have a large pool of long term investments to liquidate some of each year) is unfair in a progressive tax system because you will get high taxes in the realization year because of a high bracket, but you need to use the income across multiple years.

This can be simply addressed by allowing taxpayers to recognize income for tax purposes before realizing it (and/or allowing deferring some of the income received in a spike year.) I prefer combining both.

(2) Because of inflation, the real net gain from capital may be much lower than the nominal gains for assets held for a long time. (If appreciation is less than inflation, you may have a real loss with a nominal gains.) This is best dealt with by inflation-adjusting basis values when computing capital gains.