Hacker News Reader

Comment by jshen | Hacker News Reader

"Of course her rate is higher."

I think the vast majority of people would expect a billionaire to pay a higher tax rate than an upper middle class person. I wouldn't call that nonsense.

View on HN

Depends. The entire quip plays on peoples assumption they're both employees taking a standard wage and are "equal" besides the amounts. Unless I'm mistaken, Warren Buffet makes money from the ownership he holds, not as a salary, so the assumption people make ("of course he pays more", "what, he doesn't?!") is because they assume he's an employee and equal in everything but the amount, which isn't the case. He makes his money (a variable amount) from ownership, not work. If you prefaced the statement with an explanation of how he pays capital gains and not income tax because of the different types of money nobody would be confused / surprised.

I know you just want to make the case for a more differentiated view here, but what you are in fact doing is defending a higher tax rate on work than for capital gains through mere ownership.

Well, there are lots of reasons as to why capital gains are taxed at a lower rate than ordinary income. I'm not advocating that any of them are correct (and, obviously, many countries tax capital gains and ordinary income at the same rate, or possibly capital gains at a higher rate), but you could argue that a lower tax rate on capital gains offsets the impact of double taxation (corporation is taxed on the income, then you are taxed on your income), or offsets inflation, or, probably most prominently, encourages investment which in turn can encourage innovation, and so on.

There presumably are other ways to reach these same results, but that's the policy choice we have made. I don't see it as much as valuing "mere" ownership over labor, just that we've made certain policy choices as to what incentives we want in our economy.

Precisely. I inherited tens of millions, then invested it, should I pay a lower rate than a person that works for a living?

In that case, the more "fair" solution is high inheritance tax (maybe it's already in place?).

Discouraging long-term investment through high capital gain is not a good solution.

I have no idea if you should, but in the US, you probably will. Depending on what year you inherited the money, you'll have paid up to 55%.

That seems reasonable. My problem is with the party that wants to abolish the estate tax and cut capital gains taxes.

Plenty of people know that he gets his money in a different way and still don't understand why that makes it OK for his tax rate to be so low.

>different types of money

That's where you're wrong. Different ways of getting it, but it is still USD.

I'm sure that you're right, but then the vast majority of people are easily swayed by cheap political rhetoric. If they're playing by the same rules, which it appears that they are, then what's the problem? It's not like he hasn't already paid income tax on that money the first time he earned it, and his absolute tax bill is vastly larger than hers is.

If not being jealous and covetous of those who make more than I do puts me in the minority, then I guess that's where I'm at. Sadly, I believe that to be the case.

The capital gains rate & structure is a legit policy question. Talking about flag burning laws, who wears a flag pin or not, those are cheap political squabbles.

Keep in mind, capital gains haven't always had a lower tax rate than ordinary income. There is no rule of nature that says it has to be that way. We could make the capital gains rate 0%, or 0% up to $200,000 and then 40% for everything over $200,000. Or we could make more than simply 2 rates based on the length of time it took for the gain. Or we could make it any number of other options.

Which one of these is preferable for economic or philisophical reasons is a good question. Warren's Buffet's secretary is no different than Joe the Plumber - they are a personification of the policy. It's hard to latch on to abstract reasoning but easy to see when presented as a comparison of two people.

Nice straw, man.

Thinking that a progressive tax system is a good idea has nothing to do with being jealous and covetous of those who make more than you. If you disagree with a progressive tax system go right ahead and support your case, but you're not going to do that with bs arguments nobody is making.

Capital gains are not really double taxation. Sure he paid tax, but then he earned more. Many countries charge income and capital gains at exactly the same rate, eg the UK does now.

How are they not being taxed twice? A company (which has owners) pays income tax on their profits, so the company and therefore, owners, have less capital remaining. Then, if the owners want to cash out anything from the post-income-taxed margin, they'll have to pay capital gains as well.

It's not that simple. One could just as easily make the case that workers get a lower salary due to higher corporate taxes, therefore they should pay a lower tax rate than owners. In short, it's not at all clear that a higher corporate tax rate is purely a tax on owners, and nothing else.

Employees are payroll taxed, that is different and regardless of the company's income, net or otherwise.

I'm certain the amount of profit after taxes affects the wages a company is willing to pay. Do you really think they are completely independent?

I pay state income tax on my paycheck, and then I take that money and buy a new computer and have to pay state sales tax too!

And where I live, I pay state income tax, buy a car and buy sales tax, and then every year after that I pay property tax on the value of the car. It's a triple tax!

I'm not really sure why capital gains is such a problem. And truthfully a lot of capital gains (maybe even most?) are not doubled taxed. If you buy stock with after-income-tax money, then yes you pay that tax twice. But if the capital gain is derived from equity compensation a lot of times you don't pay income tax so it is only a single tax. That is what the Buffett rule is all about (and this article as well).

That sounds like dividend taxes, not capital gains.

We're off the original topic now, but I've never understood why the US doesn't enact a dividend imputation scheme, which nicely solves the double taxation problem on dividend income by giving the recipient of a dividend a credit for the corporate tax paid on that dividend. Australia has such a system.

If they're playing by the same rules, which it appears that they are...

Of course they are playing by the same rules. Rich and poor alike get preferential tax rates on capital gains income the same way that rich and poor alike get tax breaks on private jet ownership depreciation. Anything else would be class warfare.

Reply on news.ycombinator.com