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Comment by wing-_-nuts | Hacker News Reader

...For those making 1M / yr or more.

Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. Income is income. Plenty of other countries tax it the same and we should too.

Edit: To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?

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The argument I have heard is corporate profits are already taxed. The capital gains tax + corporate profit tax roughly equals normal income tax.

Personally, I'd prefer higher capital gains tax and lower corporate tax. I think it would be more transparent and easier to collect.

shifting even more the tax burden to the citizen why?

To improve society.

No, corporate tax is of corporate profits, which is just capital gains that haven't been dispersed and may be dispersed in the future (or may be reinvested). Salaries and wages are not profits, so they are not subject to the corporate tax. In theory, the sum of the capital gains rate + corporate tax rate is supposed to approximate the individual income tax rate.

But because most people will never understand this, we can't have a tax code that makes sense. Mass democracy is incompatible with sensible rulemaking in this area.

The argument is that dragging on corporations hurts customers and staff as well as owners. It's better to precisely target the owners.

However, I think it misses that most of the benefit to owners is in the form of unrealized gains, not subject to any of the tax rates that people talk about tweaking.

It's not a gain if you don't realize it.

That's certainly a perspective you can take. Then you'd really want to look at consumption inequality instead of wealth inequality. Consumption inequality is both much lower at an absolute level than either wealth or income inequality, and pretty much flat over time [0].

To the extent that we care about the distribution of net worth, though, unrealized gains are an important part of the story.

[0] https://voxeu.org/article/consumption-and-income-inequality-...

You can still borrow against it.

You need to realize it to pay back the loan. No free lunch.

Under current US tax law the original value of an asset is rebased upon death. Thus, you can borrow against an asset, such as stocks, and then your heirs can repay the loan immediately after your death and pay zero capital gains.

This only costs you the interest of the loan and exposes you to the risk of declining value in the assets securing the loan. Appreciation of the assets or dividends may fully offset the interest or more.

Additionally if you a founder, for example, you retain the influence/control of your company that you derive from the stock ownership, while still be able to enjoy their cash value.

Pension funds you mean ?

The concept of “tax burden” or more precisely “tax incidence” is a rather complex topic. For instance, no consumer pays gas taxes since the gas station pays them all, but most people are smart enough to realize the consumer bears a lot of the burden of fuel taxes even though none pays it directly. There is the question of who faces the burden of corporate taxes? Executives? Stock holders? Employees? Consumers? This question has been studied extensively, and with so many multinational companies, in the long term employees are the most burdened by the tax because corporations make investments in lower tax areas. The cost of an investment in a location are wages+taxes. If taxes are high, then wages must be lower for the investment to make sense. This only becomes true in the long term, but it is a good argument for lower corporate taxes and higher capital gains taxes.

Ah, yes, double taxed: once at 0%, due to Ireland, and once at 15%, due to the special capital gains rate. I wish my income was double taxed like that! Where do I sign up?

What proportion of businesses are taxed like that?

Better question: what proportion of corporate profits are taxed like that? Because the cheesemonger down the street isn't pulling a Double Irish to avoid taxes on the ~0% of GDP that they're generating.

Agreed - I would like to know what the effect would be on regular businesses are growing, not a few giant multinationals.

If people care about this loophole, how about just closing it, rather than taxing everyone else?

How do you close a loophole without bought politicians replacing one loophole with ten?

A bit of an "angels dancing on a pinhead" question, I'll admit

Look up double Irish with a Dutch sandwich. Not really my area of expertise, but in the past at least basically all big tech companies used that strategy.

I don’t need to look it up, I know what it is.

The proposal would hit every business not just a few tech giants.

Yeah, everyone knows what it is, and has known for a long time. It goes to show that the loophole is not an accident but rather an intentional result of our political process. Unfortunately.

Different scenario, but tech giants in the US have some amazing arrangements. I’m in New Zealand and their clever arrangements here see them paying minuscule bills on massive revenue

“In 2018 Google NZ Ltd (an entity of Alphabet group) paid income tax of NZ$398,341 – about 0.055 per cent of the estimated gross ad revenue “extracted” from the New Zealand market.”

Facebook, Apple and Amazon have all been in and out of the news here for their arrangements too.

https://i.stuff.co.nz/business/121505796/google-and-facebook...

You have to be a multinational by definition to do this, and yet the proposed taxes will hit most medium sized businesses.

“It will hurt Apple and Amazon” is not a problem. “It will hurt most growing businesses”, is.

On account of where campaign finance comes from, I'm afraid politicians see it the other way around.

True - but of the business activity is in EU, then really it's Ireland's issue to sort out with the EU, it's a separate issue from the 'other side' of the taxation in the US. What they should do is sort it out.

> capital gains tax + corporate profit tax roughly equals normal income tax

Doesn't this apply exclusively to the corporate profits not shielded in a Double Irish (or it's latest incarnation) arrangement [0]?

[0]https://en.wikipedia.org/wiki/Double_Irish_arrangement

> Personally, I'd prefer higher capital gains tax and lower corporate tax.

Same, but it'd mean more tax money for foreign governments, too, since those untaxed profits would be contributing to cap gains tax in another country (in the case of foreign investors) instead of domestic corporate tax.

That doesn't make sense. Those are taxes with different bases. It would make sense to talk that way about corporate profit tax and corporate dividend tax for example.

> The argument I have heard is corporate profits are already taxed

I've heard time and time again that it's a moral imperative for corporations to reduce their tax burden to zero using every loophole available. Are big corporations actually paying tax?

https://www.washingtonpost.com/business/2021/04/05/corporati...

>55 corporations had zero federal tax liability in 2020, including household names like Nike, FedEx and Dish Network, analysis finds

That's not relevant. If you pay out dividends, you cant evade those taxes. Capitol gains is supposed to be based on expected future dividends.

And that argument is complete junk: https://i.imgur.com/QpvGlnV.gif

The money I spend of my income buying goods from other businesses is "already taxed" and then when those businesses collect it from me its "taxed again".

Mysteriously, the one form of taxation the already wealthy benefit from is very concerned about this happening.

The argument is not junk, there's value in understanding how taxes work through the value chain.

A little bit like a VAT, we don't want to tax, tax and tax some product that has a long and complicated line of distributors, rather, tax the final product, either using VAT rebates etc.. This is more economically beneficial.

With corporate and individual incomes, we think at little bit the same way - i.e. how the taxation will flow through via corp tax, income tax, dividend tax and cap gains.

In Ontario, if you pay small business corp tax and then a dividend, it's pretty much the same as if you were to take a salary and pay income tax. Obviously, this because the million or so small businesses out there would rig their outgoing cash flows one way or the other, depending on tax treatment.

While cap gains is a special situation, it does still form part of those block of taxes that should naturally relate to one another in terms of how net surpluses are taxed.

When you spend your 'already taxed income' on an entirely new product or service, then that's separate economic activity, and so it's taxed without consideration to your 'previously taxed income'.

My understanding is, to encourage people to invest their money, rather than sick it in a mattress. "The asset price should reflect the inherit risk..." How? The risk of investing is losing everything. How do you add that to the price?

Perhaps income should be income. It would definitely simplify the tax code. But money needs to circulate, that is how you have a booming economy. You asked how is a dollar earned from an investment with more than a dollar from labor. Well that dollar from labor might only exist because of the dollar from investment.

Shares are a kind of property. Perhaps it would be reasonable to charge a property tax on their value. The market would fix inflated valuations right quick.

Cash is also a kind of property or more technically a "security", and a tax on it would be a "wealth" tax. The progressive vs regressive tax question can be reworded into asking how much freedom or our own wealth should we give up to the government to provide "security"?

I think inflation is the tax on cash as a security. That's what all the cryptocoin people are harping about.

True. Although a dollar from investing money is potentially worth less, risk-adjusted, than a dollar from working a job. So it makes sense that the proposed tax brackets are at higher incomes than earned income. But definitely the top rate should be increased; why the heck should a middle-class retiree pay the same rate on their cap gains as someone with way higher income?

> To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?

That's exactly right, but you're only looking at it from the point of view of someone clicking "buy" on their phone. Instead, look at it through the eyes of someone who has twenty years of working the daily grind saved up and is thinking about building something new out of nothing. Maybe it's worth the risk of losing that savings. If you tax that even more, then the balance tips even more into riskier territory and makes it less likely that you take on that new business venture.

You're saying that the market corrects for that, and it does... by disincentiving the investment by making the potential payoff less.

The government wants to incentivize investment because it causes the economy to grow. More investment = faster growth = everyone better off in the long run.

capital gains tax doesnt effect investment levels. here's a chart: https://pbs.twimg.com/media/EzmSJpLWYAgVY3V?format=png&name=...

That chart doesn't even have investment levels on it. Even if it did correlation isn't causation.

Capital gains is levied on assets other than Stocks - such as bonds, real estate, royalties.

You're also not factoring in risk that comes from investing, the argument is lower taxes on investments encourages people to invest their money. If there is risk of loss, plus high taxes when there are actual gains, there is lower return on investment and therefore, less incentive to risk your money in investments.

It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends.

I imagine large investors will just break up their investments into so many shell companies/trusts that each entity will never carry more than 1M in investments. There's always a loophole.

Given current interest rates it seems like the world has too much money to invest and not enough people spending.

Investment risk is already addressed with this proposal. The top tax bracket for earned income is way lower - something like $450k.

If you can still credit past losses against your gains, that should account for the risk shouldn't it?

only if you are assume that each person is coming out positive in eventuality. there exist always some person who has lose, maybe he is having for to withdraw money for covering expenses or retirementing.

If you never come out positive, capital gains tax is the least of your worries.

> It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends.

I never understood "double taxation" arguments. Currency circulates, of course a given dollar will get taxed more than once as it moves around the economy.

The issue here isn't "double taxation" so much as "equitable taxation". There's a theory that economically equivalent situations should face equal tax burdens; if you compare the situations of "person is a sole proprietor" vs "person creates a corporation which earns profits and pays them out as dividends" you conclude E = C + (1-C) D, where E is the tax rate on earned income, C is the corporate tax rate, and D is the dividend tax rate.

In Canada, we don't have a separate "dividend tax rate" but instead taxpayers who receive dividends get a credit for the amount of taxes the corporation paid "on their behalf".

> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor.

It's pretty simple in my mind: Retiring is hard enough, and at some point I won't be able to do any labor. Market investments are the current way that most people are able to retire, whether we like it or not.

Raising it for anything above 1M / year? No problem. They've got enough money to retire comfortably.

For everyone though? My god.

Except most people in America don't pay capital gains taxes on their retirement savings anyway.

401ks and IRAs are free from capital gains taxes. Anyone can save enough money in those vehicles for retirement unless they start saving really late in life. For those who start saving late, most of their wealth will be in basis anyway.

Right 401ks and IRA are taxed as regular old income when withdrawn and are subject to the same tax brackets as everyone else.

Right but they're only taxed once (either you don't pay income tax going in or you have a Roth account and you don't pay it going out). Either way, ignoring the fact that you might change tax brackets, it's as if you took the money post tax, invested it, and then didn't have to pay any capital gains on it.

> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor

The reason is caring about the seniors/elderly and a pro-home ownership policy.

As you age, your ability to earn a living from labor goes down, for a number of reasons (ageism, family obligations, less energy), but your costs go up (healthcare, family obligations).

Having investments and being able to sell off capital, taxed at a lower rate than income is an insurance policy against reduced earning potential in senior years.

Is that in and of itself enough to say the tax rate should be half? Maybe not. But the argument is solid. It just doesn't determine the exact percentages.

> ...For those making 1M / yr or more.

This is on a graduated tax schedule, correct?

If so, then only the 1,000,001st dollar gets the higher tax (and every dollar thereafter).

Pretty simple to me, investing is mostly discretionary. If it's encouraged, there will be more of it. If it's not, there will be less.

IMHO, mr market is more than capable enough of pricing his assets to attract investments. I fail to see why this is a government concern.

>investing is mostly discretionary

*investing is basically a luxury for many, if not most

Capital gains default to being taxed at the same rate as income in this country (as they should be). There are exceptions for certain long term capital gains, and for qualified dividends.

The rationale for this is that corporate profits are already taxed. The effective tax rate is about 25% for US corporations. For income from corporate profits to be taxed at the same rate as normal income, it should be taxed at a lesser rate once it's been distributed via dividends or buybacks (which is how the system is set up).

Changing the system would have several negative effects. It would encourage companies to take on leverage. Interest expenses are deductible for the purposes of corporate taxes. While interest earnings are and have always been taxed as ordinary income. So companies would likely shift their balance sheets to compensate. It would also make short term speculative trading more attractive for US citizens (and lord knows we have enough of that). And lead to greater foreign ownership of US equities, which is not necessarily desirable.

There are certainly fairly indefensible aspects of the US tax code. This just isn't one of them.

There's also an interesting argument that it's less distortionary to tax wage income than investment income. Because wages (and especially the variation thereof) are substantially driven by unearned human capital endowments.

> Capital gains generally are taxed at the same rate as income in this country

Maybe I'm missing something but the "Sales of Capital Assets Reported on Individual Tax" from 2012 shows 7.5x as many long term Capital Gains as short term. https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita...

Doesn't this mean the majority of individual investment gains are not taxed as income?

You're right. That's a slightly misleading way to put it, and I have revised my original post. My point was that the "default" method of taxation is the same as ordinary income. Long term capital gains and qualified dividends are legally an exception to that rule. Though I don't think it diminishes my broader point.

...For those making 1M / yr or more.

Note however that capital gains tend to be "bursty", so having $1M of capital gains in one year doesn't imply having $1M of income in a normal year. (To take a personal example: I had a very large amount of capital gains in 2020 because I sold my entire portfolio of ETFs and bought a house.)

> Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor.

A laborer gets paid $1 for working hard.

An investor gets paid for $1 for doing something smarter.

Work smarter, not harder, as a civilization. Deliver the most value to the greatest number with the lowest labor input. That's how we get scale, grow an economy, and prosper.

An investor get paid $1 because...they had money to invest.

Labor need not be taxed at all if you ask me.

The hard work of the laborer is what allows the investor to sit on their lazy ass all day long. The infrastructure the “smart” investor exploits day-to-day doesn’t just magic out of the ground…

Correct. Investors pay laborers to build said infrastructure.

Like, the investor pays all the laborer's wages even if the infrastructure idea was stupid and the investor loses his shirt in the process. The laborer still cashes paychecks while the capital lasts.

Like, think stupid VCs. Investors might just be stupid VCs. A laborer can pocket money from stupid, stupid VCs while the laborer's work provides no value to humanity.

That's why smart investors aren't bastards. And why stupid investors aren't bastards for trying but failing. It's hard to not be a stupid VC. It takes skill. And capital. And understanding what people want. And grokking the shifting regulatory environment. And a whole lot of other crap beyond fizz buzz and and and...

It to incentivise investment to make up for the possible loss.

you might want to think about what happens when companies run out of capital.

Isn't incentivizing for risk the market's job? Why should the government be in the business of rewarding risk taking, and secondly, where else would they put their money? It's not like there's a secret, riskless investment out there that has a high return and doesn't generate capital gains. Your options are to invest, or lose money to inflation in a certificate of deposit.

Lots of reasons the government should be in that business.

And artificially pushing people to invest in income vs capital gains will increase bond/guilt prices.

The median home price in California is rapidly approaching $1M, Wouldn't this just lock up the real estate market even more?

You can exclude 250k / 500k for single / married folks. It's quite generous.

Selling a $1M home doesn't mean you have $1M in income, so I think in general it wouldn't impact the real estate market except perhaps at the much higher end - maybe $5M or higher.

Our housing market would probably be more sane if developers had more pressure to focus on building units in the middle to low end of the market anyway in California.

> ...For those making 1M / yr or more.

Does that mean if someone makes $1M of capital gains and has no other job, he'll get taxed at the high rate?

The new rules have not been written, voted on, or enacted, so who knows. But under the current law, yes, capital gains count towards your total income.

I think it's because investment money can be moved away easier and faster than labor. As a result, taxes have to be more competitive relative to other areas.

I also don't think it's about incentivizing investing relative to labor. The incentives are for investing relative to other things you could do with money, like spend it, save it, move it elsewhere, etc.

Money belongs to people, and those people don't tend to move. Heck, the US is especially good at taxing people abroad. How many would really renounce citizenship just to save on taxes, and where would they go that taxes less?

There's always a pull between spending and saving, but if you save, you're either investing, or losing money to inflation.

> Money belongs to people, and those people don't tend to move.

The tax isn't for their money, it's for their capital gains, which only happen when they realize those gains (e.g. sell assets). High net worth individuals absolutely can and do move to lower tax areas if the incentive is sufficient, or otherwise choose not to move to higher tax areas. It happens between US states all the time.

> Heck, the US is especially good at taxing people abroad.

Has it improved significantly since 2014 [1]?

> How many would really renounce citizenship just to save on taxes, and where would they go that taxes less?

Perhaps somewhere other than Canada, France, Holland, Denmark or Sweden, and without renouncing their citizenship.

There seems to be this idea that simply because the IRS tax rules apply to expatriates, that everyone bends over backwards to report their incomes and pay their taxes the same way they would in the US. I just haven't seen evidence that's the case--particularly among high net worth individuals leaving for that purpose.

And regardless, ideally our rates would be competitive and investors should want to put their money here. A "where else are you gonna go" attitude only works while there aren't better options, which may not be forever for all taxpayers.

[1] https://www.forbes.com/sites/procedurallytaxing/2014/11/18/i...

I don't really see how it's fair to tax investment returns at all. When you invest money in something you are taking a risk that you will lose that investment. It's not like the government steps in to make you whole when you lose money, so how is it fair that they get to go through your pockets if you make money?

Granted probably much income that counts as 'capital gains' right now should be classified as regular income and taxed as such.

>It's not like the government steps in to make you whole when you lose money

They let you deduct losses from gains and income for tax purposes. This saved me thousands after '08.

IMHO it's the market's job to price assets and reward risk taking, not the government

Why is everyone so downvote happy on this site now? Its kind of nuts. Are there really a bunch of sad people just reading through the comments for things that they disagree with to downvote? Maybe you're a communist you thinks taxes should be 100%, fine, but why downvote this? Do you think your socialist utopia is just a few HN downvotes away?

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