Amen Brother Cuban
mattmaroon.com
mattmaroon.com
Entrepreneurs "have business to do" as Mark puts it because they stand to make some money from their efforts. The less money they stand to make, the less incentive. period.
Also, you state the following as if its fact:
"what capital gains taxes really do is favor the ultra-wealthy who live off of their investments, rather than those generating wealth directly"
No. In order for the ultra-rich person in your example to have accumulated $5M, he EARNED $6,750,000 and paid the government $1,750,000. So, by paying tax on his investment income, he's paying tax twice on the same money. That simple error aside, you're also missing the point that capital gains tax discourages investing in companies! Which has an impact on a company's cost of capital which has an impact on the price of goods and services which has an impact on you.
Tax rates are determined (well, should be) by what works. If some double taxation is good for the nation, more power to it.
A statement like the one you made really needs further reasoning to back it up. You might even be correct - but just claiming something to be true doesn't make it so.
If I hire an employee, I have to pay payroll taxes on the salary I pay him or her, and then I also have to pay business taxes on the value that the employee gives to the company in the form of increased revenue. Is this "double taxation" also a cause for moral outrage?
All I can think of is defense (not offense), intelligence, (poorly executed) safety nets, (some) education and (some) infrastructure.
Lot of qualifiers, which exemplifies the problem.
Our tax system has to try and fix one of the fundamental flaws of capitalism -- the tendency for the rich to get richer and the poor to get poorer. Without a capital gains tax, this very worst aspect of capitalism becomes even more emphasized, as capital will last forever.
Certainly, the rich may get rich faster than the poor, but that's far from the same thing.
BS. Riches to shirtsleeves abound. Wealth rarely lasts three generations. Now, there are certain subgroups that seem mired in poverty, but that's another matter. The extent to which the rich have been getting richer and the poor getting poorer for the last 30 years in America has everything to do with the explosive growth of government and regulation, NOT capitalism.
Capital gains should be zero. All wealth creation is driven by savings and capital. Maximized capital investment and the incentives to save, maximize growth.
Income taxes should also be zero, by the way. It is entirely feasible to fund a properly scoped government with excise, duties, and user fees.
$6,750,000: money
Interest paid on the remaining $5MM: other money
I'm seeing two sums of money and two taxes, a 1:1 ratio. Where's the double taxation?
I have no qualms about paying captial gains tax. But the blogger's comparison of capital gains tax vs. income tax is incorrect.
If I earn $6.75mm, then pay tax on it, I have $5mm.
Then I have $5mm in the bank and go get a job and earn another $100k, I'm only taxed (via income tax) on that $100k.
Similarly, if I have $5mm in the bank and it earns me $100k, I'm only taxed (via capital gains) on that $100k.
They are parallel taxes... not taxing the same money. The $100k is either earned income or investment income, and the $6.75mm was only ever earned income.
With dividends, it's easy to see that they are double taxed, but is that wrong? Your regular paycheck is double taxed too... first with income tax and then (in most states) with sales tax. There is nothing inherently amoral about double taxation, although it is kind of annoying how it hides your total tax rate.
To me, the annoyance of capital gains taxes is that it creates an entirely parallel tax rate structure, adding complexity (like everything Congress does with the tax code). If capital gains were treated like normal income, and capital losses (up to a certain amount) were treated like normal deductions, then taxes would be a lot easier for most people to file.
Same goes with sales tax. The fact that the government has turned every retail business in the country into a tax collector was an enormous coup. The system is impractical and a pain for businesses, placing the burden on them to raise funds for the states. It's also a massively regressive tax. Due to the impractical implementation, you can't even try to fix the regressive nature. States really need to find a better way to fund themselves.
[1] Literally, via TNT. [2] AIG, Goldman, Fannie, GM, Ford, etc [3] The TSA, the FCC, the CIA.
You can also feel free to infer that I don't think the free market would do a better job, but that wasn't ever my argument.
By the way, if you lower taxes (and thus government revenue), it's not defense and corporate subsidies that suffer--they always get their piece--it's infrastructure and social programs. The "starve the beast" concept simply creates more suffering for those who can't afford things like private schools, expensive out-of-pocket health care, and jet time-shares.
True.
as for a social safety net? i'd be fine with it if it wasn't so obviously rotten. it needs to be gutted before any good can come of it.
look at yourtaxes sometime and see what percentage goes towards state vs. federal. ponder how state government can accomplish so much more with so much less.
The debate in Washington and in the political media largely centers around whether or not a higher capital gains tax will discourage innovation, which is the argument that Matt is addressing.
I think you have a perfectly valid and consistent view, but the original article was most definitely not "strawmanism". It might have been strawmanism if he was writing the article as a reply to you, but he wasn't.
Taxes hurt entrepreneurship; higher taxes hurt it more. Denying this just increases the likelihood of more taxes.
As you said, if the tax rate was in some ridiculous extreme, of course that would be a factor. But then I'd wonder what kind of country/economy would raise taxes to such a high altitude.
Of course, we weren't in the web business, so numbers mattered to our investors.
If you think it has some meaning dependent on the tax rate, then you're not understanding what marginal means.
What A lot of people see as entrepreneurship is a largely binary exercise: success/failure. Since tax rates do not really effect the venture in this way, they shouldn't effect the decisions of an entrepreneur.
A 'marginal entrepreneur' would need to be very marginal. Even if you consider complex effects (the effect of your uncle making $1m in the 80s vs $.75m on inspiring you). Cuban's talking about the 'within reason' limits based on practical choice a government is likely to make.
What might be affected by the tax situation is the flow of investment capital. Since Cuban is disregarding that as a factor, that has no effect.
"You dont need to raise money. You need to be smart and be focused."
If you are not raising money, then tax rates do not affect you via investors.
The premise is that entrepreneurship is what will get the economy out of this. Not capital flows.
Granted, but I guarantee that the limited partners in the VC firms you might consider for funding are very familiar with the tax structure in the US. If you raise the taxes on investment income, you effectively reduce the return on venture capital funds, which reduces the amount of money VCs will be able to raise, which reduces the amount of money available to entrepreneurs.
You Are Not the Marginal Case.
It is simply not valid to extrapolate (especially if you're MC, jeez!) from yourself to all entrepeneurs. You Are Not the Marginal Case.
Just because you and Bill Gates persevered, Mark frikkin' Cuban, doesn't mean that the marginal tax rate on entrepeneurs is unimportant.
Let's restate the argument this way: "Two of the most successful entrepeneurs of all time were undeterred by high marginal taxes on their fledgling businesses, therefore high marginal tax rates do not kill fledgling businesses". Sounds a bit different, eh?
Also, just simplify the entire thing and have a simpler tax rate. It may also be interesting to see what happens if the party responsible for what tax dollars are spent on is not the same party that decides the allocation of the money. Group 1 creates a list of priorities A, B, C but voters then get to choose the tax dollar allocation.
"That ol’ Laffer Curve has a certain logic to it, but it only makes sense at the upper margin. People did work less at confiscatory tax rates imposed pre-Thatcher/Reagan but once they got down to 50 percent or lower, it was all gravy – promoting conspicuous consumption as opposed to higher productivity and overtime at the office."
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2...
I think the most that can be said without much of anyone besides accountants disagreeing is that simplifying the tax code would actually do a lot of good.
In the beginning, this is the whole point. It's not about the money. It's about doing the thing that you just have to do.
0% of nothing is a lot less than x% of something. I still prefer the latter, whatever that may be.