Forum Post: Re: tax cuts - "More than half of today's tax benefit on investment income goes to people in the top one-tenth of 1 percent."
Posted 12 years ago on Nov. 30, 2012, 3:08 p.m. EST by toobighasfailed
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Also: "Fewer than 20 percent of taxpayers report income from dividends, and even fewer get money from long-term capital gains." In other words, the capital gains tax cut is almost solely a gain for Wall Street and the uber rich.
(NPR & Roberton Williams of the tax center policy.)
Yea.but they do need the money.
No worries. Obama wants 1.6 trillion in tax increases.
Good news - he wants it from the wealthy - YAY.
If you think the middle class won't shoulder the majority of that burden then you are deluded.
Well DUH. People who don't have the money to invest, CAN'T. And people who don't earn capital gains, ALSO don't pay capital gains taxes.
Here's a primer on capital gains, what the rates are, and what they will be starting in Jan 2013.
http://taxes.about.com/od/capitalgains/a/CapitalGainsTax_4.htm
I appreciate the link, but why do you assume I don't know those things?
Why did you assume that nobody knows what your title states?
I don't assume nobody knows it, but there are plenty of people who say that a capital gains tax increase would hurt the widespread economy. I think that idea is a definite "maybe" because the tax cut currently disproportionately helps the extreme wealthiest, thereby increasing their ability for regulatory capture and cronyism.
ANY tax is an amount of money taken from an outside source by the government.
If I earned a million dollars-working by myself, honestly and painstakingly over a course of years, and paying all owed taxes on it as I earned it, I think you'll agree that it's MINE. I can then do whatever I want to with it-burn it, give it away, bury in my backyard, hoard it etc.
But YOU want to start a business so that you can also earn more money or help others to have jobs etc. You come to me with a business idea and ask ME to "loan you" some of my money in order to start up your business.
Now, you can't give me ANY assurance that I'll EVER get my money back. So the only "incentive" I have other than just being a nice person who gives it to you outright, is that I MIGHT make even more money than I actually loan you-either through you paying me interest, or by you "selling me" a share of your business's profits.
Now-keep in mind that I already paid ALL THE TAXES I OWED on the money I have-that I would loan to you.
The government WANTS more people to have jobs. BUT, it doesn't own or create any businesses itself. (it shouldn't) AND it's illegal for the government to collect a tax on the same money from the same person more than once. (Don't you agree?)
Since the government WANTS more people to have jobs and more businesses to be built, it has to find an INCENTIVE to offer to people who might otherwise RIGHTFULLY not want to invest their already earned money into something or someone else. And the way it does that is to say "If you invest money you have already paid taxes on, into a company or venture that helps others make money/have jobs/helps society at large, AND you make money off of that investment, we will only charge you 15% tax on the "capital you gain" from the deal. (It cannot charge you tax on the money you loaned or paid into the business because it already HAS taxed you on that money)
The government ALSO taxes the poor and everyone in between when THEY make a "profit" or "gain capital" somehow outside of earning it at a job or career. Sale of a house, collectables, lottery winnings, ANYTHING that brings in additional CAPITAL to your wallet that you did NOT earn from a regular job-and thus get taxed as "income/wages" in the first place.
Now, if there is no "INCENTIVE" offered to someone with already taxed wealth-why on earth would they spend it on something that carries with it the risk of never getting that money back? Why would they "invest" it into America's economy if there's not something in it for them as well? Why wouldn't they just either keep it or use it to do something that they KNOW will benefit society-like building a hospital or giving it to a college etc and or other charity in the first place?
If you keep kicking the people who can invest in the economy-those who have enough wealth to do it-the RICH-then they WILL stop investing it and that WILL hurt the widespread economy.
But there's still is a strong incentive to invest even if the tax rate goes from 15% to 20%.
It's like this: If had $1M sitting around, I could 1) put it in a mattress and lose money 2) put it in a savings account or CD and get a 0.5% return 3) invest it to get some capital gains.
If I choose 1, I lose money because of inflation.
If I choose 2, I end up with $5,000 at the end of the year (which will be taxed anywhere from 10% upward). If I choose 3, I could end up with a 4-8% increase (assuming I'm a savvy investor).
Let's say that I choose option 3 and I end up with a 5% return of $50,000.
Even if the $50,000 is taxed at 20% ($10,000) I'd still end up with $40,000.
So if I'm a savvy investor, of course I'd choose the $40,000 over the $4,500 (after a 10% tax) I'd get from a CD earning 0.5%.
The capital gains tax IS ALREADY INCREASING to 20% on the rich in Jan 2013! Nothing to be said about that at this point is there?
Capital gains earned by holding an asset for LESS than a year (short term capital gain) are taxed at REGULAR INCOME TAX bracket rates-so if a "rich" person bought and sold something within 365 days-they are taxed on it at their normal-35% rate-NOT 15%. (soon to be 20%)
Only "long term capital gains" (assets held longer than a year) qualify for a lower rate of 15% (soon to be 20%).
But back to your examples- 1) if I put my money in a mattress-I won't actually be losing any of it. It just becomes worth LESS than it was before because inflation makes things cost more. But there's no "risk" that my original $1M is going to go anywhere.
2)CD's ARE an "investment" vehicle but the TAX owed the amount they earn over and above what you put into them is taxed at your normal income tax rate. They have a lower return rate because they aren't as risky as other forms of investments-the markets they are invested in are less volatile than high risk ones-and a rich person would have to pay a tax on them that equaled their income tax rate. So you might get a 0.5% return on your million, but you're going to pay 35% tax on it when you cash it out.
3) some investments-such as collectibles which include everything from fine wines to paintings and gemstones and precious metals have a CG rate of 28%. If you invested $1M for over a year, got a 5% return and then withdrew that investment entirely, AND had no job or other form of income during the year, then you're tax rate would be 15% (20% soon) on your remaining amount. (If you invest it for LESS than a year, you're going to pay taxes on it based on how much you made compared to the regular income tax brackets)
So it really depends on WHAT you're investing in and how long you invest in it and when and how you withdraw those gains. You COULD lose some, most, or all of it in the event your investment tanks.
Right. But I'm asking, What savvy investment banker would choose option 1 or 2 simply because the capital gains tax cut goes away?
First, you don't have to be a banker to invest.
You have to face the fact that investing in anyone, or anything ALSO involves RISK. The risk of losing some, or all of the money you put in. It's gambling in a manner of speaking, and some people are hesitant to put their money anywhere in which they stand to end up LOSING instead of winning.
Most people would rather lower the risk and take a lower amount of return. THAT's the saner choice. But high risk investments need investors too-and the only way to entice someone to take on that risk, is to offer them something that stands to benefit them MORE than anything else they could do with their money.
People make decisions based on the weight of pros against cons. And investing huge amounts of money has HUGE cons that go with it.
So let's say an investor chooses to not risk getting a higher return and instead sticks with a 0.5% return in a savings account (again, I don't think a savvy investor would do that, but let's just say). Then a commercial bank would have the $1 million (or whatever amount), and would be able to lend more. In other words, that money would still go toward lending.
And if the person decided to put that money with a small local lender, it'd likely go to help with local mortgages or local small businesses. So it'd still be helping the economy.