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

[rj.phila]

Steve and Bades-you guys seem to be saying that cap gains tax means getting "taxed twice". im confused. i was under the impression that if you go out and earn $100, invest it, and earn $30 additionally, cap gains taxes that $30, not $130. you guys seem to be implying that the cap gains rate is levied upon the entire portfolio value of $130? that's true?

[feh]

Steve and Bades-you guys seem to be saying that cap gains tax means getting "taxed twice". im confused. i was under the impression that if you go out and earn $100, invest it, and earn $30 additionally, cap gains taxes that $30, not $130. you guys seem to be implying that the cap gains rate is levied upon the entire portfolio value of $130? that's true?

No, that's not true. You have it right - only the gains ($30 in your example) are taxed.

[disneysteve]

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.

True, but it doesn't just benefit the wealthy. Anybody can buy stock and pay the very same 15% capital gains rate. It doesn't matter if you earn 30K and are buying a couple of shares of stock or earn 300 million and are buying a controlling interest in the company. As I said, I bought my first shares of stock when I was still a student in my 20s. I didn't have any money. I literally bought 3 shares of stock.

Steve and Bades-you guys seem to be saying that cap gains tax means getting "taxed twice".

No. I didn't mean to imply that. I was just saying that the wealthy person already paid 35% marginal tax rate on their income then used that income to buy stock. Only the gain, if any, enjoys the lower capital gains rate. They haven't avoided the high marginal rate in any way.

[seen]

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.

Except that's not entirely true. You're conveniently leaving out the part where if you suffer a loss, your losses are tax deductible up to a certain amount per year, with the remaining rolling over into future years until it's either gone or your gains cancel out the loss.

This means, all other things equal, as a moderate investor if you are in the 35% bracket you are essentially tax deducting your 35% when you incur loss, but only paying 15% when you gain.

And if you're so bad with investments that you are constantly losing and never gaining, well you probably shouldn't be investing at all.

[feh]

True, but it doesn't just benefit the wealthy. Anybody can buy stock and pay the very same 15% capital gains rate.

It benefits the wealthy disproportionately. Let's say the cap gains rate was 25% instead of 15%. Joe Six Pack sells his 10 shares of XYZ for a profit of $1000. At 15%, he can keep $100 more than he would at 25%.

Joe Millionaire sells his 1000 shares of XYZ for a profit of $100000. His tax savings are $10000.

Low capital gains taxes clearly benefit Joe Millionaire more than Joe Six Pack.

Many wealthy individuals (ie. Romney) get a high percentage of their income from capital gains.

[disneysteve]

It benefits the wealthy disproportionately.

That's true since the wealthy have more money to invest in other businesses. What are you suggesting as the alternative? Do you think the capital gains tax should be tiered the same way the income tax is tiered?

[feh]

That's true since the wealthy have more money to invest in other businesses. What are you suggesting as the alternative? Do you think the capital gains tax should be tiered the same way the income tax is tiered?

I'm not suggesting an alternative. I'm just trying to explain to the OP why many people are unhappy about the cap gains rate. It's a primary contributor to the disparity of wealth in the US.

[rj.phila]

That's true since the wealthy have more money to invest in other businesses. What are you suggesting as the alternative? Do you think the capital gains tax should be tiered the same way the income tax is tiered?

i would bet dollars to donuts that the majority of americans think that anyone who pays a 35% income tax rate should pay the same rate on investments as well.

we have a progressive tax in america. a 15% cap gains rate DOES equate to a giveaway to anyone who is in a tax bracket higher than 15% for their EARNED income.

[bjl584]

It benefits the wealthy disproportionately. Let's say the cap gains rate was 25% instead of 15%. Joe Six Pack sells his 10 shares of XYZ for a profit of $1000. At 15%, he can keep $100 more than he would at 25%.

Joe Millionaire sells his 1000 shares of XYZ for a profit of $100000. His tax savings are $10000.

Low capital gains taxes clearly benefit Joe Millionaire more than Joe Six Pack.

Many wealthy individuals (ie. Romney) get a high percentage of their income from capital gains.

That is always going to be the case. If the top tax rate was 99.9%, there are still going to be people that take home way more than people at the bottom.

The only way to "fix" it would be to make the capital gains taxes progressively higher as income or number of shares sold and profit made increases. But that might cause people to hold assets. Or just take their business overseas more than they do already.

[feh]

That is always going to be the case. If the top tax rate was 99.9%, there are still going to be people that take home way more than people at the bottom.

People aren't upset that wealthy people take home more money. They're unhappy about the cap gains rate relative to the income rate. 15% is a long way from 35%.

[bjl584]

I'm not suggesting an alternative. I'm just trying to explain to the OP why many people are unhappy about the cap gains rate. It's a primary contributor to the disparity of wealth in the US.

I think alot of factors contribute to the disparity of wealth in the US.

High college tuition rates.
Social programs that encourage people not to work.
Shareholders coming before employees in business.
Peoples' own dumb mistakes.
Laws and regulations that discourage growth.

to name a few.

[bjl584]

People aren't upset that wealthy people take home more money. They're unhappy about the cap gains rate relative to the income rate. 15% is a long way from 35%.

I'm at the lower end of the tax spectrum but I have a lot of investments. I pay 15% on them when I sell a position for a profit. It is what it is. I guess I'm not upset about it.

What's wrong with not paying high taxes?

I have a 401K and a Roth IRA to lessen my tax burden. I own several tax advantaged funds to lessen my tax burden. I don't think that there is anything wrong with that.

At what point do we say that for certain people it is ok but for others it is not? If Joe sixpack can do it, then why can't Joe millionare? What is the cutoff point?

[photo]

i would bet dollars to donuts that the majority of americans think that anyone who pays a 35% income tax rate should pay the same rate on investments as well.

But there is an enormous difference between someone who is at the bottom of the top income tax bracket (33% since 2004)and a billionaire. For a couple of years, I was in that top income tax bracket, and Uncle Sam was squeezing, let me tell you.

[feh]

What's wrong with not paying high taxes?

"High" is a relative term. The current tax levy is at historic lows.

Nothing is wrong w/ paying low taxes, as long as you don't mind large deficits.

I have a 401K and a Roth IRA to lessen my tax burden. I own several tax advantaged funds to lessen my tax burden. I don't think that there is anything wrong with that.

At what point do we say that for certain people it is ok but for others it is not? If Joe sixpack can do it, then why can't Joe millionare? What is the cutoff point?

This is why we have a progressive tax structure. But, there's nothing progressive about the long term cap gains rate.

[disneysteve]

I have a 401K and a Roth IRA to lessen my tax burden.

Good point.

Joe 6-pack earns the median income of 50K. He gets to put 10% of that, or 5K, into a Roth every year and never pay taxes on that money again. He also gets to put up to 17K in a 401k and postpone paying taxes on that money for decades.

Joe Millionaire earns $1 million. I'm sure he would like to have an investment vehicle that lets him put away 100K each year and never pay taxes on it again but that isn't an option as there is an income cap for Roths. Instead, he invests that 100K in stocks and pays 15% capital gains taxes on any gains each year.

Obviously, the millionaire still comes out ahead no matter how you look at it, but there are plenty of tax breaks that benefit the lower income folks too. I'm not saying it is a level playing field. It certainly isn't. I just think sometimes people don't pay attention to all of the tax breaks that are out there.