Hacker News Reader

Comment by rmason | Hacker News Reader

This is a misleading statement. She's paid a salary while he's living off capital gains and they're taxed at separate rates.

https://www.entrepreneur.com/article/338189

View on HN

That is exactly the point. The tax code privileges sources of income that prevail among those who already possess wealth. That is the definition of regressive.

Capital gains are lower because because corporations pay income tax on their earnings already.

Salaries aren't paid out of earnings?

Not exactly, capital gains also cover things like passively growing trees as a land barron.

I pay taxes on my income and again at the point of sale.

and you pay capital gains if something you owns appreciates and you sell it.

That is why dividends are subject to special rates, not capital gains.

Is that a good or fair argument though?

I get paid and pay 20% then 40% on the rest (banded)... Then as soon as I buy practically anything I'm taxed another 20% on top of that.

A corporation pays 19% and then those profiting from that owe 7/32/38% (depending on their total income).

They're taxed at separate rates, and the net effect is that his tax rate in income from whatever source is the same as his secretary's. Distinguishing by source is more misleading, in my opinion.

No it's not, to even get capital gains you must have kept that money in the market for a year, if you pull out early it's taxed as income.

Nothing about it is misleading.

"Why not tax it all as income?" is the point folks are trying to make. Treating "Real Work" > "Capital Work", because income is income.

You might argue, "That'll dissuade investment!", but when $17 trillion in negative yield bonds [1] (a third of the bond market) are communicating, "Hey there, not a lot of investment dollars needed kthx", that argument falls flat. Your investment dollars aren't needed. There is nowhere productive for them to go. So why have public policy treat their income differently?

[1] https://www.bloomberg.com/graphics/negative-yield-bonds/

This is the right take. When you get to a certain level of income/wealth, it's all about figuring out ways to:

1. shift earned income into capital gains (e.g., private equity carry, small business earnings into equity vs salary)

2. defer taxes (401k, mortgage deductions, 1031 exchanges on real estate, etc)

3. avoid taxes (shift jurisdictions)

4. get accountants, lawyers, and lobbyists to figure out additional ways to lower tax burden

I'm not saying the government is efficient or that 100-200k incomes should be taxed more, I'm just saying that's the game as it stands. Tax expenditures are the ways the government gives (rebates?) money back, mostly to the wealthy.

even without the bond market signals, the “dissuade investment” argument for the capital gains rate fails miserably. capital wants to be invested if there’s even one dollar to be gained over any alternatives. and no, most rich americans won’t move to vietnam or whereever just to avoid those taxes.

My argument would not be that it would dissuade investment, but rather limit the ability to achieve class mobility in the United States. It's near impossible to move up an economic class without investment. You can only get so far by saving alone (and it really isn't that far if you are fighting inflation without any return on that cash).

But now if you tax the hell out of that vehicle, then it limits the ability to move oneself up even further.

Everyone talks like it is only the rich that invest. This just isn't true.

The most likely way one becomes wealthy in America (class mobility) is through starting a business [1]. Treating investment income as income does not change that, when existing legislation promotes reinvesting profits from a business back into a business.

[1] https://whorulesamerica.ucsc.edu/power/wealth.html

That's absolutely not misleading, but point on.

As you said:

She's paid a salary while he's living off capital gains and they're taxed at separate rates.

And THAT is precisely why the wealthy pay lower taxes!

Reply on news.ycombinator.com