(07-30-2015 01:11 PM)dawgitall Wrote: I am always skeptical of radical changes that are suppose to be a cure all.
HA!! Good thing the ACA wasn't radical.
So following decades of 'experience' of this in Europe is 'radical'? It's only radical because we haven't done it here. To the rest of the world, we live in the taxation stone age.
(07-30-2015 01:46 PM)Redwingtom Wrote: The effective tax rate paid goes down because those with more income tend to have their income come from investments that were capped at a maximum tax of 15%. It doesn't come that much from adjustments as most of those get limited the more you make. And your numbers are from 2012 (and earlier) which was under the old rules. The maximum is now as much as 24%. From your WaPo source:
Quote:In the year this data was compiled, 2012, the top capital gains rate was lower still, at 15 percent. So it will be interesting to see whether the recent capital gains rate hike -- up to a maximum of 24 percent -- has much of an impact on these trends.
That is entirely the point, Tom... but what you fail to understand is that 'income' is almost by definition generated here. Capital gains doesn't have to be. Even if the company generating the product is here, the investment dollars could easily be in an offshore trust and often are. We're getting 20% of their reported income, but they're only reporting a portion of their actual 'increase in wealth'.... which is where the 125+%(x) comes from. If you raise the gains rate here, there is more reason for them to use that sort of trust.
We can change our income rate to be whatever we want, and that will absolutely affect people with w-2 income... but 'gains' is something set by the world of global investment options and not merely us. It's hard to move my labors... It's easy to move my investments.
Quote:And sorry...when you're going to make assertions about taxes and rates and the like, you need to be specific. You can't just through out terms like "the rich" or "wealthy" and then leave that to the whim of the reader to classify that anyway they like. You also need to be specific as to whether you're talking about a tax bracket rate or an effective tax rate. Doing otherwise will never prove any point you're trying to make.
Actually, none of this is true. First, there are so many nuances of the tax code that there IS no single definition.
But in an attempt to address your concerns (and show you why I don't define it for you) Once you pass about 250k/yr in income, your marginal and effective tax brackets start to converge. The further you get away from the bottom of the top tax bracket, the closer they will be. Simple example, If we had two rates... 0% for 100,000 and 50% above there... the person earning 101,000 has a marginal rate of 50% but an effective rate of 1/2 of 1%. The person earning 100mm has the same marginal rate of 50%, but his effective rate is 49.95%.
But that is only true of 'income'. For gains, it's even simpler. The difference is, someone who lives off of their 'high' income... like say a young doctor might be considered 'rich' by some measure because he makes 500k/yr. But he doesn't yet have much of an investment portfolio and he earns all of his money from his labors here... so he is subject to the maximum tax rate. Alternatively, someone with a billion dollars in the market that doubles in value, who doesn't work at all and sells 500k of his investments, but picks and chooses which ones such that he generates virtually no 'gains' will report ZERO in AGI and ZERO in gains and functionally be subject to ZERO tax liability, again, despite doubling his net worth... and have 500k to spend while the doctor has let's say 350k to spend.
The definition of 'rich' for these purposes isn't a level of income. It's a point at which you have two ways to generate income as opposed to one. One, which almost by definition everyone has and MUST be here and subject to US taxes, and another, which most people do not and doesn't have to be here or subject to US taxes at all. Yes, we charge 15% on gains... but only on REALIZED gains.
If you have 100mm in a trust, how much of those gains do you really need to 'realize'... EVen if we agree that the number is $5mm, I can show you an example where I could sell $5mm and pay zero tax... or where I'd have to sell more like $7mm to net $5mm... so when you ask me what that person's tax rate is, I can't give you a single answer.
I can't possibly give you the myriad of possibilities... but if you think that we are actually taxing anywhere near the lions share of the 'growth in wealth' of the investor class... you are completely missing the boat. You don't capture more of that money by raising the rates... you capture more of it by lowering it (relative to the options globally). The wealthier someone is, the more true this is. The less wealthy someone is, the more subject to the effect of the progressive tax structure they are.
Forget that the VAT that Europe has acts as an incentive for us to import their products and as a disincentive for them to import ours... which would be eliminated if we followed their model resulting in less demand for THEIR goods here and more demand for our goods there.
But there I go, muddying the waters again. It's obvious that if you raise the income tax rate... the more you make the more you pay. That's why the wealth gap (and the deficit) decreased under Clinton (when the max income rate was 28% and the max gains was 20) and is expanding under Bush and Obama (when the max income rate is almost 40 and gains is 15) /sarcasm
Using the chart in the link I provided (that's not my source... it's just a source with a similar story... I use the actual data myself) you see that the effective rate increases to a point and then decreases. That decrease DOES represent the point at which people are more frequently investors and less frequently earners... but that can happen at a variety of income levels. Their decision of how much income to report isn't so much a function of how much they earned... but of how much they need to spend. If they need to spend 100mm, then they have to pay taxes on 100mm and they will chose to 'recognize' the 'cheapest' $100mm they can. If they don't need to spend a dime, they functionally won't pay any taxes at all. Our current system allows them to pay as little as 15% on whatever 'gains' they report to generate the $5mm they want to spend.
Do you understand that? If in order to get $5mm to spend, they sell something they paid $5mm for, they pay zero in tax and have $5mm to spend. Their WORST case scenario is that they sell something they paid $1 for that now is worth $5.75mm and they pay 750k in taxes (15% of the gain) and spend $5mm. If instead, (using the simplest math example... not that it is the optimal one) we taxed their $5mm in spending at 25%, we would collect $1.25mm. It wouldn't matter to us whether they sold winners or losers... and they wouldn't have to spend money and tie up their investments for 'specified' period of time to shelter their income from taxes. Having to keep your money in a trust or tie up the investments for arbitrary periods of time is a 'cost'... opportunity cost if nothing else. If the rate on gains held for a year were 20% and the rate on gains held for 5 minutes were 20%, nobody would hold gains for the tax advantage. If the rates were 40 and 15%, you would.
Yes, raising gains is an option, but it's not one we control on our own. Gains can be held and reported almost anywhere.
