Hacker News Reader

Comment by throwing838383 | Hacker News Reader

It's misleading because the rich that they're talking about already paid a much higher rate when they originally got the money in earnings. It's just the 2nd round of taxation: the capital gains which is lower, as it should be.

And let's not forget, taxes are extremely high on everyone. The US Govt spends 38% of all US GDP, currently (recently above 40%!). https://tradingeconomics.com/united-states/government-spendi...

And that's not even including 2nd order effects. When you go to spend it, your costs are much higher because part of what you're paying is someone else's really high tax rates. IE: the plumber has to charge you 300$/hr instead of just 200$/hr.

View on HN

I don't see why capital gains should be taxed lower.

Money you get from working, from your blood and your sweat should be heavily taxed, but money you're earning just by already having money (whether it's from your work, inherited, donated from family members) shouldn't be taxed as well?

What's the logic here?

Let's say that the 20% rate applies to income tax, corporation tax, dividend tax and capital gain tax.

When a company allocates $100 to its employee, the employee receives $100 of salary, pays $20 of income tax, and ends up with $80.

When a company allocates $100 to its shareholder, it's first considered as profit, so the company pays $20 in corporation tax, the shareholder receives $80 of dividends, pays $16 of dividend tax, and ends up with $66.

When a company has $100 profit but does not distribute any dividends, it has to pays $20 in corporation tax, so the shareholder value increases by $80, so if the shareholder sells the share, he receives $80 of capital gain, pays $16 of dividend tax, and ends up with $66.

So, yes, if the all the tax rates are the same, you actually end up taxing capital more than salaried income, which would be a big incentive against creating your own company.

This was more true in the past.

Now, companies often put all profits into R&D avoiding both dividend tax and corporation tax. Investors are much more willing to value companies based on growth rather than actual dividends.

But the money the company pays out doesn't count as tax paid by the shareholder, and there is very good reason for this from the shareholder's perspective. The company is a separately legal entity created to protect the shareholder from liability (among other reasons). At least in theory an owner can avoid this "double tax" by doing all business under their own name and accepting the potential liability which comes with that.

The motivation for the OP's argument is that "tax has already been paid" on certain income. It's an arbitrary "rule" put forward by advocates for the wealthy. There's no reason capital gains can't be taxed as income other than: people who make lots of money on capital gains don't want it to be (e.g. the entire hedge fund/private equity industry, along with the budding American aristocracy).

Note: I'm not saying changing the tax rate on capital gains wouldn't have an impact on investment patterns. It would.

"I don't see why capital gains should be taxed lower."

The point of taxing capital gains lower than income is to encourage the wealthy to invest rather than hoard their wealth. This is good because invested money helps drive economic growth which is usually good for everyone.

That seems like a very good argument for taxing wealth.

Not really. We're talking about economic growth not equity. The argument that widespread private investment is better for growth than widespread hoarding is better established than the argument that government spending is better for growth than hoarding. Even with regard to equity or fairness, government spending isn't always better as more government creates the opportunity for more government capture.

There are other arguments for directly taxing wealth, but the one I listed isn't one in my opinion.

The crux of your observation is "fairness"

The crux of our observation is that "we're all getting hosed and you just want to ensure we are getting hosed equally?"

these things can't happen in a vacuum, no matter how much you respect something with the label 'government' on it you do have to factor in what its doing with its passive funding source. Even this article correlates tax policy that benefited the rich with low GDP growth, suggesting that the government would have been a better steward of additional money. It should consider other revenue regimes.

Capital tax is only perpetuated by inequality, as it is a stretch of taxation theory and a mere convenience. The state says "so you want us to take the money now, not gonna say no!" the non-capital class cheers

> the capital gains which is lower, as it should be

Why should capital gains be lower?

> It's misleading because the rich that they're talking about already paid a much higher rate when they originally got the money in earnings. It's just the 2nd round of taxation: the capital gains which is lower, as it should be.

That's pretty much bullshit by any reasonable definition of "earnings".

Relevant to the HN crowd, let's take an example of a startup founder who hits a home run and whose equity is eventually worth a billion dollars. The founder's company had multiple funding rounds, and eventually the company had an IPO so the founder could sell his equity on the public markets. The founder will pay low capital gains rates on his stock, with a basis of 0.

At no point did the founder put any cash into the company originally from previous earnings. Instead, all of the financial gains from the equity were as a result of the founder's blood, sweat and tears - what we normally refer to as "working". Surely, of course, the founder had a lot more at risk, but at no point did the founder previously pay a much higher rate on any capital that went into the business.

Nah, the rich weren't taxed, the corporation was. If you want the legal protection of a fictional entity shielding you from liabilities we should be taxing that entity.

I take two issues with your reasoning around capital gains rates. One is on fairness, and one is on the systematic result.

With regards to fairness, it is inherently unfair to tax someone making $120k/year working a desk job at a higher effective rate someone who inherits $100M and makes all of their income from long term capital gains. The "2nd round of taxation" line are mental gymnastics. It's income. It's just the "haves" trying to push the rules further in their favor.

With regards to systematic results, taxing capital gains at a lower rate than other earned income increases the compound effect of wealth disparity. Those with wealth, whether earned or inherited, are able to keep more of it, than those without. The resulting extreme disparity is fundamentally unhealthy to our society. We are witnessing the symptoms of it now in the rise of nationalist and socialist movements, as the bottom half of this country is looking around wondering why the system isnt working for them.

Reply on news.ycombinator.com