Why people get so upset about the Wealthy/15% tax

[Bades]

It's funny when I talk to friends who aren't financially savvy or just reading the news about the wealthy paying much less taxes than the rest of the working people in America. Like Warren Buffet or Mitt Romney.

I'm talking about the 15% Capital Gains tax.

People don't seem to understand that when you invest you are taking on risk. Why should anyone be taxed the same as their own risk-less income (salary from day job)? Very easy concept to understand.

Isn't that the great thing about investing? - you take on risk - and if you come out on top you get rewarded.

[disneysteve]

It's funny when I talk to friends who aren't financially savvy or just reading the news about the wealthy paying much less taxes than the rest of the working people in America. Like Warren Buffet or Mitt Romney.

I'm talking about the 15% Capital Gains tax.

People don't seem to understand that when you invest you are taking on risk. Why should anyone be taxed the same as their own risk-less income (salary from day job)? Very easy concept to understand.

Isn't that the great thing about investing? - you take on risk - and if you come out on top you get rewarded.

What's sad is that those people seem to assume that only the wealthy (whatever that means) benefit from that 15% capital gains tax. I've been investing in stocks since I was in my 20s. I was by no means wealthy then nor am I now. My father owned stocks for as long as I can remember and he never earned more than about 40K/year. The capital gains tax benefits everyone, not just the wealthy.

[photo]

I agree with you for the most part. However, when a child is born into a family worth billions of dollars, that 15% is a lot different than the 15% you and I pay. I'm very much a capitalist, but realistically, when your trust fund earns more money than you, your children, your grandchildren, your great-grandchildren and your great-great grandchildren can ever even begin to spend in all their lifetimes put together, that "old" money just keeps getting recirculated among the relatives.

I do think there needs to be a cut-off point, probably well into the millions.

[rj.phila]

What's sad is that those people seem to assume that only the wealthy (whatever that means) benefit from that 15% capital gains tax. I've been investing in stocks since I was in my 20s. I was by no means wealthy then nor am I now. My father owned stocks for as long as I can remember and he never earned more than about 40K/year. The capital gains tax benefits everyone, not just the wealthy.

sure, but lets be clear-objections are to the cap gains tax being 15%, and the top marginal rate being ~35%. people get upset about cap gains being taxed LESS. ALL taxes benefit everyone, not just cap gains. the question people are asking themselves is "why should cap tax beneficiaries be given a lighter tax load than non-beneficiaries"?

Bades-capital gains tax is across the entire spectrum of risk. a CD is a no-risk asset. VC, high risk. you're lumping them all together.

i'd like to hear, in your own words, an argument for why capital gains income should be weighted less than traditionally "earned" income.

[disneysteve]

sure, but lets be clear-objections are to the cap gains tax being 15%, and the top marginal rate being ~35%. people get upset about cap gains being taxed LESS.

If I earn money through my job and pay my marginal tax rate of 35%, then take some of that after-tax money and invest it in stocks, the gain (if any) on that stock is taxed at 15%. So the investment money has already been taxed. It is only the gain being taxed at the lower rate.

Bades-capital gains tax is across the entire spectrum of risk. a CD is a no-risk asset. VC, high risk. you're lumping them all together.

CDs aren't taxed the same. Interest is taxed at your marginal tax rate, not the 15% rate for capital gains. So the low-risk investment is actually taxed more than the high-risk investment.

[bjl584]

It's funny when I talk to friends who aren't financially savvy or just reading the news about the wealthy paying much less taxes than the rest of the working people in America. Like Warren Buffet or Mitt Romney.

I'm talking about the 15% Capital Gains tax.

People don't seem to understand that when you invest you are taking on risk. Why should anyone be taxed the same as their own risk-less income (salary from day job)? Very easy concept to understand.

Isn't that the great thing about investing? - you take on risk - and if you come out on top you get rewarded.

It makes for a good political argument because a lot of people don't have an understanding of investing, the stock market, risk versus reward, tax laws, etc.

It's easy to play to someone's emotions. It's also easy to convince people that they are in the situation that they are in because of the actions of someone else. And that that someone else should be punished (taxed) for it.

I'm not wealthy, but I have a lot of stock holdings. All of them were bought with money from my paychecks that was already taxed. I'm taking a risk with my paycheck. If I make a good decision then I will be rewarded by making a gain. I will take the risk for a 15% tax consequence. If it goes higher, then it may make more sense to hold cash or CD's and just pay the normal income tax rates. No risk = low reward.

[MonkeyMama]

As a tax professional I See it VERY differently.

The wealthy have a stake in having the masses believe that wages should be taxed more than any other type of income. They are basically saying "only the working class should be taxed." or "They should be taxed the MOST." I have always been amazed at their ability to get the poor to fight their battles (tax wages more, and drop the inheritance tax. Why do I see people who will never pay a cent in inheritance tax griping about it???)

I applaud Warren Buffet for speaking the truth. Most the wealthy are busy buying their own personal tax breaks, honestly. The wealthy of his caliber? Tax code policy often comes down to Congress giving tax breaks to their friends. To those who gave them the most money. The tax code is filled with bribery. This is not some crazy political talk - this is just the gosh darn truth.

Capital gains tax rates are lesser because that is what the wealthy lobbied for in recent times. That is really the long and the short of it. There is no *logic* beyond that. You do realize that capital gains taxes were significantly higher for many decades pre-2000?

[bjl584]

Capital gains tax rates are lesser because that is what the wealthy lobbied for in recent times. That is really the long and the short of it. There is no *logic* beyond that. You do realize that capital gains taxes were significantly higher for many decades pre-2000?

Congress loves to play favors, I agree. But I do think that there is some economic strategy to having lower capital gains taxes. Capital gains taxes are currently 0 in China. Probably so they can encourage investment in their country. Which seems to be working in their favor.

[MonkeyMama]

Congress loves to play favors, I agree. But I do think that there is some economic strategy to having lower capital gains taxes. Capital gains taxes are currently 0 in China. Probably so they can encourage investment in their country. Which seems to be working in their favor.

You might be able to make an argument for economic strategy, but I Can assure you that is not why capital gains rates were lowered in the first place.

In the meantime, the government is significantly squeezing the middle class to afford the tax cuts that the wealthy enjoy. So, I am not really seeing much positive to this as an economic policy.

It seems to me this might be a good short-term policy, perhaps, but I see serious wealth inequality issues when it comes to long-term tax breaks on investments. More to the point, the government needs that income tax to function. IF they cut capital gains taxes to $0, they will have to tax elsewhere to make up the shortfall. IF they want to give investments a free pass, other tax rates are going to have to rise to make up for it.

[Bades]

Bades-capital gains tax is across the entire spectrum of risk. a CD is a no-risk asset. VC, high risk. you're lumping them all together.

i'd like to hear, in your own words, an argument for why capital gains income should be weighted less than traditionally "earned" income.

As some have already stated, money used to make investments have already been taxed. (money from earned income used to invest).

I wouldn't particulary say something like a CD is no risk - your money is tied up and you are now less liquid than you were before. Obviously you can take it out, but not without a penalty. You get a reward by being able to put money away for a period of time.

Anyway - I believe there is some logic, whether it was purposefully instated or not, of why capital gain taxes are lower.

[Bades]

Congress loves to play favors, I agree. But I do think that there is some economic strategy to having lower capital gains taxes. Capital gains taxes are currently 0 in China. Probably so they can encourage investment in their country. Which seems to be working in their favor.

+ 1 Right on

[bjl584]

It seems to me this might be a good short-term policy, perhaps, but I see serious wealth inequality issues when it comes to long-term tax breaks on investments. More to the point, the government needs that income tax to function. IF they cut capital gains taxes to $0, they will have to tax elsewhere to make up the shortfall. IF they want to give investments a free pass, other tax rates are going to have to rise to make up for it.

I believe China is enjoying something like 9% economic growth year over year. Probably not sustainable forever obviously, but with that much growth going on, I think capital gains become irrelivant. Income taxes and sales taxes would more than make up the shortfall with near double digit growth occuring. China may have a problem in the longterm if a lot of wealth start to get locked up and their economy starts to slow.

Would I keep investing if capital gains rates went up? Probably. To a point anyway. I don't have a problem paying more than 15% if I am making money. I've heard that paying capital gains taxes is a priviledge. It means that you are making money.

[MonkeyMama]

As some have already stated, money used to make investments have already been taxed.

This is simply not true. You are only taxed on the additional money you earn from investments. You are not taxed on the money you put in, that was already taxed (earned income, for example).

Of course this double taxation thing is *spin* the media is selling, but there is not truth to it.

[feh]

The wealthy have a stake in having the masses believe that wages should be taxed more than any other type of income. They are basically saying "only the working class should be taxed." or "They should be taxed the MOST." I have always been amazed at their ability to get the poor to fight their battles (tax wages more, and drop the inheritance tax. Why do I see people who will never pay a cent in inheritance tax griping about it???)

Yup. I am also amazed at how many people vote against their own self interests.

A book to read on this subject is What's the Matter with Kansas?

[feh]

The capital gains tax benefits everyone, not just the wealthy.

Low cap gains taxes benefit those selling stocks for a gain. That's definitely not "everyone". There aren't many working poor selling stocks and mutual funds.