Forum Post: Why are capital gains taxes limited to 15%?
Posted 13 years ago on Oct. 16, 2011, 11:07 a.m. EST by Lefty48197
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If somebody is in the 15% tax bracket, then of course their capital gains should be taxed at 15%, but what about those making millions of dollars per year? Why is their capital gains income considered SACRED and thererfore taxed at a lower rate than the rest of their income. Is it because we have a false belief that somehow Wall St. and the capital gains they disperse are some sort of 'Holy' income and therefore exempt from normal tax rates? Is this just another example of Wall St. being favored over Main St.?
Because money that is invested is money that has already been earned and taxed. Only long-term gains; i.e., investments held more than a year, are taxed at the 15% rate. Short-term gains are taxed at the full tax rate. Losses can only be written off at a maximum of $3,000 per year.
Nonsense, capital gains are limited to 15% because the rich want it that way, and Congress listens to them more than to you. The capital gains rate has historically always been much higher than it is now. It will go back to a higher rate, no question about that.
As I have answered elsewhere on this thread, capital gains are taxed twice. They are taxed once on corporate income and a second time on capital gains.
"Because the rich want it that way" means you are living in complete ignorance and you'll say anything if it helps you bash a good person.
CORPORATIONS ARE PEOPLE, remember? It's not double taxing when two separate, distinct legal persons are being taxed.
Corporations are owned by United States citizens. You need to take a financial management course instead of trotting off whatever rationalization you have at the top of your head.
Everything is taxed more than once, except for stashing your income under the mattress in which case it simply devalues from inflation.
Regular capital gains should be taxed at individual rates. I would support a lower rate for the founder of a successful startup in the sense that he/she created new wealth and should be rewarded for taking that risk that helped expand the economy.
It is despicable that you or I working in a factory or coal mine, pay 30% or more and some rich guy sitting around drawing dividends pays only 15% and Warren Buffett agrees.
There is a point of diminishing tax revenues to the US government due to the ability for capital gains to be suspended or eliminated if the tax rate is too high to yield a proper return to the investor. The Laffer Curve addresses this issue.
Basically, if the capital gains tax is too high, investors will just not sell the assets. What that means is....instead of the government getting 15%, they get nothing.
Why 15%.....probably due to Wall Street lobbyists. Wall Street makes money off of stock (or other asset) "trades". If people quit trading.....well you get the picture.
Capital gains are investment returns on money that has already been taxed. So I invest in your company. You make $5454, which you get taxed on. Lets say I pull 1% of that in capital gains. My $5.45 will get taxed AGAIN another 15%. Thats the argument for why it locked at 15, coupled with the argument that it promotes investment
Because the wealthy write the tax code.
There is a 15% rate on capital gains because extremely wealthy people earn most of their income that way... and they write the tax laws through lobbyists. Do you have a lobbyist to write tax laws for you?
Why? Because thats the edge you get for having $$ to lobby Congress to skew the tax code in your favor.
Because the risks are higher and it encourages more investment. It allows new businesses to receive capital to create new products and services.
the current tax on carried interest makes absolutely no sense...
I am not opposed to offsetting losses with gains. In fact, I think that is necessary to encourage some risk. The tax code, Internal Revenue Code, Title 26 of the United States Code, is the most powerful force that influences economic behavior.
I just want the gain to be "fairly" and "equitably" taxed.
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Saying it more accurately: Why do capital gains taxes only have one tier. Why not everything under 250,000 a year 15%, 250.001-499,999 20%. 500.000+ 25% 1M+ 35%
good idea!
... 90% for capital gains over $XX Million...
to get double digit millions from bonds in 1 year would mean someone has over $100M in the bank.... no reasonable reason on Earth for them to have more money...
Excellent plan, Sin. We'd certainly be moving in the right direction under your plan.
thanks Lefty!
To encourage people to invest in companies via stocks. Unfortunately, the rich don't need this kind of encouragement !
Capital gains are 30% deductible at the source, same as the lottery, I think.
Don't you think you should find a better lye than "to create jobs" you've had it your way for years and yet we continually have less jobs. At least tell a lye you can support.
There is no proof anywhere that lowering tax rates has any beneficial effect on anyone other than the person receiving the break. We've heard for years that lowering marginal tax rates on income produces jobs, and there is no evidence that this is so. We've also heard for years that lowering the capital gains rate stimulates investment, and there is no proof of that either. The capital gains rate could be tied to the income tax rate on a graduated or progressive scale, too, with a higher capital gains rate for people with higher income.
Lefty48197, you are -only- slightly more reasonable than most of the other protesters because you are asking a question rather than presuming that you know the answer.
Capital gains are already taxed once. Capital gains are, in effect, a second tax. Income is taxed #1) on corporate income and #2) on capital gains. It is literally taxed twice.
That's a silly argument! If somebody pays me for a service, aren't they paying me with money that was already taxed when it was their income??? Using your logic, should I have to pay NO taxes since everybody that pays for my work does so with money that's already been taxed?
Take financial management 101 and if you still think it's a silly argument, I'll talk to you.
Honestly, you're trying to claim that capital gains are taxed twice. That's just not true. If somebody invests $1000 in a stock and then sell that same investment for $1500 a couple of years later, only the $500 is considered taxable gains. They are being taxed for the very first time, because that money never existed until the stock went up in value. We don't pay taxes on our original investments! Only the gains!
It's a mathematical fact that it is taxed twice. This is not an english class "no such thing as a wrong answer" question. Look at the financial statements for any public corporation in the United States.
(on the income statement) Net income before taxes $5,000,000 Income tax 1,750,000 Net income 3,250,000
(on the retained earnings statement) Net income $3,250,000 Less: Dividends $2,000,000
(on owner's books) Dividends before taxes $2,000 Income tax 600 Dividends $1,400
well...the simple reason is that the cash that a person invests is ALREADY after tax cash (think about the savings you have in the bank...if you have any...its already been taxed by state/federal income tax, social security and medicare).....then the cost of putting that money to work in a new business (think opening up a cafe, paying the rent, paying workers comp tax, fees, lawyers, accountants and thats before paying a single employees) is INCREASED due to GAINS on the business profit. If the capital gains are higher, why would i put money into the new business?
And for some of us. We first pay 35% on our income as earned wage, then reinvest money saved from that wage, and pay taxes again at 15% on the profit from the investment. As as TWWLN stated, sometimes the investment loses and I wonder why I didn't just put that $ under a mattress. But if I did, there would be less $ in the system, and then the younger generations wouldn't have money available to student loans, car loans, etc....
Ummm, if your investment LOSES money, then you are able to write that off aginst your income as a loss. It almost sounds like you're saying your money is taxed twice but that isn't true. You pay tax on your income and then later pay tax on the investment profit you made off of that income/investment, but you never pay more tax on the original investment.
IMHO- The income source shouldn't matter.
That money has already been taxed.
No it hasn't. If you buy a share of stock for $20 and it goes up to $30, you pay tax on that $10 gain. You never had that $10 before, the business owner never had that $10 before, it was just created as a profit from being in business. And capital gains taxes don't tax the original investment only the G-A-I-N.
the money that was spent has already been taxed as income.
The money that was spent to buy the stock? Yes it has, but capital gain realized from the sale of that stock once it goes up in value? Hell no! It gets taxed for the very first time when capital gains taxes are paid.
not the same as wages that is why it is taxed differently
this is where the buffett myth comes from
You're talking in circles. Capital gains taxes are paid on gains only not the original investment.
capital gains are taxed at the corporate rate first before it is distributed to shareholders
that is why it is less
Obama has a lot of people thinking taxes are the issue. The issue is the Federal Reserve's creation of credit and money created from thin air and that wouldn't be there in pure market conditions and only when we let pure market conditions exist we will continue this decline till the dollar crashes. At that point chaos.
Abolish the Income Tax. Abolish the Capital Gains Tax. Abolish the IRS. Abolish the Federal Reserve.
Fund LOCAL COMMUNITIES instead of an exponentially corrupt central government.
Because GAINS are NOT GUARANTEED, there is always RISK involved, and it is because of that Risk that the gain cannot be heavily taxed. A higher tax on capital gains would make an investor move their money to a safe return investment like tax free municipal bonds and thus not take the chance on other high risk investments that promote innovation and new technology etc. and most importantly CREATE JOBS.
Tax free municipal bonds? You mean investors will invest their money in public infrastructure projects if the capital gains tax is restored to it's former level. I'm all for that too. Thanks for the tip!
The ITC was made part of the tax code by President John F Kennedy. It was done to spur the economy and it was a 10 percent rate.
Investors are now neo-feudal lords. Or at least, that's the end result of the "job creator" mantra.
Capital gains taxes are tricky. Some capital gains are just compensation for inflation.
The reason why folks are wary of capital gains taxes: if you don't do it right, you really can discourage folks from investing in the first place.
The place where you can raise taxes is the upper 1%-folks with more than $5 Million in assets that control 40% of wealth in the US. They have made out like bandits since Reagan.
The only folks you would really discourage are the ones riding the ups and downs, i.e. speculators. Long term, taking some of the volatility out of the market would be a good thing.
Short term, oh golly, speculators can't make as much selling off a stock of a company that just announced a plan to cut labor costs by moving to Zhejiang province in China. Boo, hoo.
The big place I would like capital gains is on real estate capital gains that exceed the present value of investments made in the property-and any capital improvement/sweat equity the owner has put in. We aren't making more land-so we don't need to encourage folks to invest in land. Buildings are another matter.
As far as speculators, I'd leave them alone until they reach some bar-say $1-5 Million in assets. We need more small investors to improve markets. The big fish are where the real problem lies. Those folks can move markets with their actions and need to be tightly regulated.
because our retirement is stuck in capital investments.
Our retirement income is tax free until we retire and then it's taxed at our normal income rate and NOT the corporate whored 15% rate. I'm talking about people who have capital gains as normal income prior to retirement.
Washington is the most money-hungry organization in America. And at least the oh-so-villified mega-corporations provide us with products that enhance or improve our lives. What does Washington REALLY do with all the money it gobbles up from the people? I'll tell you in the form of a number.
-14,000,000,000,000.
It's called the fruits of your labor, and the 1% have earned the right to enjoy the fruits of their labor, instead of being forced to fork it over to a gang of crooks that takes it and uses it as toilet paper.
You must mean fruits of OTHER PEOPLE's labor...
they haven't earned it any more than the guy pointing a cannon at your supply shipment at a river junction asking for money...
let me explain how capitalism works (as someone who has owned a couple businesses, some venture capital funded...)
Washington is not an organization, it's an abstract concept the news media makes up to create a straw-man...
People on the other hand, are greedy. Some greedy people will stop at nothing to get their hands on other peoples' value production (aka money making). Most people (call them the middle and working classes) like job security. They will give up a large percentage of their value production in exchange for this security. The lower you go, the more they give. It's amazing what people will do just to keep a roof and some bread on the table. Corporations are simply vehicles for the ultra rich to make money from the work of other people in exchange for this security of remaining a part of the diminishing middle class or as wage slaves to keep a roof over their heads (aka Walmart or mickeyD's employees...)
Most smart people in a capitalist society do not go work for the govt'.... LOL .... that is the last place one would go to try to become a billionaire. Get it?
the govt folks are not crooks, most are just below average people who couldn't cut it in free enterprise; or for some reason have low motivation to peel money of another man's hard work. the rest, the politicians, are their to represent their corporate constituents, not you the voter.
That's the real deal.
You say you've owned a couple of businesses, but you never name them...
And that's amazing considering that government has been in place longer than the mainstream media has, and that the concept of government dates back to before public information was even understood by humans. I'm pretty sure the Neanderthals had the concept of the governing alpha-male down before they published the first volume of "The Daily Stone"...
And you never really owned a business, because if you did, you'd have an appreciation for what kind of work goes into making it into the top 1%. The top 1% spend their LIVES studying the markets, analyzing what kinds of products are in high demand, and attempting to predict products that will be so in the FUTURE. They pore over the advice of their boards and their own intuition to try and make things work. You call it greed, I call it the motivation to better one's self. And if you're so against corporations, good job using a computer built by corporations to access a website operating on a system maintained by corporations to talk about how corporations are just greedy and rob everyone else. If I took out all the commodities in your life that were given to you by the ingenuity of corporations, you wouldn't have a pot to piss in.
Capital Gains Taxes are already taxed through corporate income taxation. How many times do you want the government to get their hands in the piece of the pie.
Posters seem uninformed. Taking after tax money (savings) and investing it in a coffee shop is not the same risk as the employee collecting a paycheck and the investment (your saving) has already paid taxes. Next a 401k grows TAX FREE until you take it out, then it's ordinary income. If don't believe me, try saving enough money to open a cafe and see how it feels vs justbcollecting a paychecj
Because GAINS are NOT GUARANTEED, there is always RISK involved, and it is because of that Risk that the gain cannot be heavily taxed. A higher tax on capital gains would make an investor move their money to a safe return investment like tax free municipal bonds and thus not take the chance on other high risk investments that promote innovation and new technology etc. and most importantly CREATE JOBS.
Actually jobs are not 'created' by cutting capital gains taxes. Jobs are 'created' by having a strong middle class with jobs and with money in their pocket to spend. Yes, it's consumers who create jobs not tax cut recipients.
And where do they get "those jobs"? Usually by someone risking their savings
Without an entrepreneur taking risks no new jobs are created, larger startups require seed capital Silicon Valley and Silicon Alley were built on Seed money from investors I know of what I speak as I have consulted for several startups some have suceeded and some have not. But you must remember the "middle class" jobs of which you write are in constant change, if this were an exclusively agrarian society then you would have a point as such Netflix killed the Video Store, Itunes killed the Record Store and Kindle/Ipad are killing the book store and all of those middle class jobs so where are jobs created? BY NEW INVESTMENT IN THE NEXT BIG THING but investment entails risk and taking risks should be rewarded not penalized when they pan out. Raise the inheritane tax yes, the cap gains no.
I thought this thread was about income tax sources. Please do not bring up the resurrection of wealth transfer penalties like the Death Tax. Removal of the Death Tax was not a big impact but is what got Republicans so much power that they could destroy the financial system in other ways. We need to fix the financial system but OWS will become the 30% so fast it won't know what hit it if resurrection of the Death Tax becomes too popular here. When it comes to finding common ground and a popular movement, please keep in mind that the Death Tax has already been through the political grinder and is a non-starter for most Americans.
Oh please the "death tax" sound like someone's been drinking down the Koool Aid of a spin doctor. In a meritocracy the Prime Movers should be rewarded for their hard work not Idiot sons and daughters. If we had More Andrew Carnagies who once said "an inherited dollar is a stinking fish" the world would be a better place, BUT with one small caveat the taxed portion of the estate would be used at the creator of the wealth wishes not be distributed by some bureacrat. e.g the wealth would be used to create housing for the poor or another canegie hall. etc.
Andrew Carnegie was awesome, wasn't he? He went from poor immigrant to richest man in America, and most people are not aware of how brilliant he was. I was not aware that he wanted a system where a wealthy person was forced to donate a portion of his estate to the greater good through taxation, so long as it's use is directed in the will, but I suppose that makes sense. Not sure how such a system could be managed, and I think most politicians would just use it however they want. I think most wealthy do will some portion of the wealth to charity, actually. My opinion of people who are for the Death Tax is that they think it is a free hand-out for the descendants of the wealthy. In fact, in family cultures where there is wealth, there is typically a great deal of discipline, responsibility and hard-work in that family, and they are typically very penny conscious and non-wasteful. That is how they get wealthy and stay wealthy. I just don't want to see a feeding frenzy of imaginary demonizing of wealthy families. I don't think that's what OWS is about. Politicians already will steal all they can from the wealthy. They do not need any help through a wealth tax. Wealth taxes are a door that, if opened, will open a bag of the worst kinds of corruption, different from the ones that OWS is trying to fight, that have not been seen in this country since the early 20th century.
Ah, the good old days of robber barons and the Gilded Age. I love that Jay Gould quote:
"I can hire one half of the working class to kill the other half."
All your argument boils down to is fearmongering, while claiming an aristocracy is good for America. The biggest problem is you're closing the door to future entrepreneurs, essentially forcing them to fight for scraps while the 1% stays firmly entrenched. You're stifling opportunity for "hard work" to even get anyone anywhere. It is completely and utterly dysfunctional, and on top of that un-American.
The entrenchment of the 1% is not what I want. I want inflation so the rich have to maintain their wealth by using it in the economy not sitting on it. Your Draconian idea of stealing from whomever you want and giving it to whomever you want has been tried and failed so many times it's not even funny.
Ha. Love.
Without the death tax you're well on the way to creating a permanent aristocracy. America was founded to escape aristocracies, not to protect them...
Increasing income tax on the rich is fair and good for the economy and all participants. Redistribution of wealth through taxation is not fair, it removes any potential for rewards for success, that come from hard work, smart spending and caring about family, from everyone. Some have earned their money through hardship and that should not just be taken away from them. That's stealing. The Death Tax is just an excuse to steal. If someone wanted to give their money to the government when they die they would will it to the gov. IF you really want to redistribute in a fair way, allow some modest inflation. That way the wealthy have to put their assets to work for the whole economy or see them get devalued.
That's a nifty justification, but the end result is still permanent aristocracy. "Hard work" becomes irrelevant if it can't get wealth from out of the 1% hands. The 1% only "job" is to become more firmly entrenched as an aristocracy.
You're still saying we'd be better off with a multi-generational ruling class, which is the antithesis of what America was founded on.
Yep.
So you're saying:
If I think I could make $20 million in gains on my investment, but $3 million will be taken in taxes, I'll invest.
But if $5 million will be taken in taxes, and I'll only pocket $15 million, I won't invest?
Evidence for that?
If capital gains deserve a lower tax rate because of risk, and because they promote economic growth, then the middle class should get that lower tax rate. All capital gains in a 401k, 403b vehicle are taxed at the full marginal rate, which is usually 25 to 28%.
I have capital gains income, but believe it should be taxed at a higher rate. Most people can't afford to save for retirement in a tax sheltered vehicle and still invest beyond that. Also, there is something perverse in taxing wages higher than earnings from mutual funds.
If you think they (you) should be taxed at a higher rate, then I expect proof that you voluntarily cut a check to overpay for taxes. Otherwise, I call BS.
Don't be obnoxious. I just volunteered to see my taxes raised in the cause of fairness.
He doesn't need to prove anything to you. The point he is making is still valid. Why would money from a 401k, which is a much longer term investment, get taxed at the full rate while the other kind of capital gain get taxed at a half rate? That "...[m]ost people can't afford to save for retirement in a tax sheltered vehicle and still invest beyond that" is indicative of who the capital gains tax break benefits.
Where are these jobs you speak of??
"A higher tax on capital gains would make an investor move their money to a safe return investment like tax free municipal bonds and thus not take the chance on other high risk investments that promote innovation and new technology etc"
Yes, but how about a tax on purely speculative instruments like derivatives? While I'm aware of their function to insure against losses, it seems like they don't contribute anything to the markets. In fact, taxing those instruments may cause investors to reallocate their money into actual businesses.
Depends on the derivative instrument. CDS probably needs more insurance like regulation (which is why youncannot takenout a homeowners policy on you neighbors house), but what about buying puts on a stock? What if you own the stock and don't want to sell it and pay gains, shouldn't you be able to buy a put / sell a call? What about currency futures? Complex question
Capital losses are deductible, you know...
It's not working now, is it, you "job creators," with taxes at historic lows? Maybe that's because you're KEEPING your money. And even with billions of dollars of middle income taxpayers' money pumped into banks to keep them afloat after they almost choked on their own greed...Perhaps rather than being taxed, the super-rich should be given grants to assist in their "job creation"?
I've talked to many business owners. The people that are not hiring are doing so due to uncertainty from the government.
people arent hiring b/c people arent buying.
people arent buying b/c 90% of national wealth is sitting in the hands of the 1%...
It was Keynes who set in stone that certainty was a needed ingredient for economic growth. He said government needed to create that certainty. It could do so by guaranteeing to be the lender and spender of last resort. It's not about deficit spending alone, and it's not about redistribution, it's about counter-cyclical spending to increase aggregate demand in the bust phase, and paying down the debt and even socking some cash away during the boom phase.
It was Reagan that bastardized Keynes into deficit spending in all parts of the cycle, paying for tax cuts and military expansion on borrowed money even when the economy was booming. Fyi. This has created the uncertainty we have, by making more government spending unfeasible because we're already in a hole. Add to that the fact that the more recent further twisting of Keynes is deficit spending and tax cuts in boom phases while crying "deficits" in bust phases so the entire fucking thing is flipped on its head, and you people "wonder" why it doesn't work.
That assumes that government isn't full of idiots and people who kowtow to special interests for money and power.
All the small business owners and economists citing a "DEMAND" problem must be off their rocker, then? Or did they not mention that in your propaganda?
Oh you mean the fact that consumers don't have any money to spend on their products has nothing to do with the fact that businesses aren't hiring? it's because of 'uncertainty from the government'?
Potentially. People are not spending as much also due to uncertainty. The 2008 collapse woke a lot of people up to the importance of living with in their means and saving for the future.
However, the industry that I worked in up to the end of 2010 relies mainly on cheap gasoline. Now that is gone, the industry has shrunk immensely. This is directly due to government regulation, which could have been fixed anytime in the last 30 to 40 years or so. Unfortunately, now it is too late.
true, which would mean that the govt would need to increase the rate on their bonds to compete for money, meaning that it would be more expensive to borrow...
thus creating further incentive to reduce natl debt... which is desirable long term
The risk factor is dealt with the ability to offset losses and carry forward losses against gains. You might even be able to "carry back" losses in the past and amend the past return, but I am not certain about that.
The ability to deduct the losses is how the risk factor is dealt with. People will always pursue gains if they can, regardless of the tax.
"A higher tax on capital gains would make an investor move their money to a safe return investment like tax free municipal bonds "
And that's a bad thing ?
Also, investing in municipal bonds creates jobs. Usually more stable and long lasting jobs.
Ugh, where on earth did you go to business school? Bonds are a safe investment FOR THE INVESTOR! They are for the risk averse, tax free munis are for things like a Highway or a Bridge etc. the are not for INNOVATIONS with no guarantee of succcess. Your logic whould be greate if this were 1972 but this is 2011 I support OWS fully but people have to realize TECHNOLOGY has put people out of work and until people can get up to speed MAKING and SERVICING the technology instead of just using it they will be left behind.
When did i ever say they were for technology ? I just gave an example of my town contracting me, a private company, to do work for the town.
And what's good for you so goes the world?
It's actually not that good for me. To be perfectly honest, i only do it to keep some of my good employees happy and get them extra hours. With the economy being the way it is, i have lost a lot of accounts and would have to start laying people off if i didn't take it.
Municipal bonds did not create Google, Yahoo, Microsoft, Apple or any other tech firm that you are probably using the product right now, INVESTOR CAPITAL did that why on earth do you think Steve Jobs and Bill Gates are Billionaires, they took risk and their investors took risks backing them. Do not be naive municipal bonds can create jobs it's true they can also be a waste of investor and taxpayer money that is why the are usulally put on a ballot to be voted upon during an election, an furthermore some municipal projects can actualy lose jobs as well.
You are definitely correct about them being a waste at times, you are missing something though. I own a snow removal company and i get contracted by the town to plow certain roads and parking lot's... So the municipal bonds do create jobs in the private sector also. I'm sure there are many other examples also but I'm not aware of all of them or will comment on them because i don't know all the details.
What you are refering to is an "inellastic service" somthing that there will "aways" be a need for. e.g. as long as there is snow there will always be the need for snow removal sevices. but tell that to a Tower Records employee or a TV/VCR repairman. Those jobs are "elastic" they have become outdated by tech. Basically what I am saying is Technology has blown Elastic Jobs and a few perceived Inelastic jobs off the face of the earth and people are angry because the JOBS HAVE NOT KEPT UP WITH THE TECHNOLOGY. That is why investor Capital and investors need continued motivation to invest and penalizing via a higher cap gain is not the answer, yes increase the tax on a high Salaried executive etc. they are salaried they are going to get paid no matter how they perform it was the salaried and commission earning mortgage brokers and bank execs that got "us" into this mess now they can get us out of it.
I agree with your last comment completely. That's starting to move into a much larger problem though. One I'm definitely not the one to ask for ideas on how to fix ! lol
Capital gains are taxed twice. Corporate income is already taxed on corporate income. "Capital gains" is a second tax on the same exact cashflow.
It is not easy to explain even though the concept is quite simple. I really need you to google "corporate income taxed twice" to understand the answer.
+1!