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

[KTP]

As a tax professional I See it VERY differently.

Funny. As a tax professinal I would have thought you may have noticed some things like the harsh phaseout of deductions (the tuition deduction is one that gets me every year), the enormous amount of child tax credits, the 0% capital gains rate for those with lower incomes, the 50% match the government gives lower incomes for saving to a Roth, the games you have to play to even be able to contribute to a Roth if you are just a few dollars over the limit, etc.

Yes, maybe people who have benefitted from lower capital gains like Buffett, and have already amassed a huge fortune can say "tax me" (although they never really send in a check voluntarily, do they?). Those of us still making mortgage payments on time, still paying a decent amount in total tax (around 45% of income if you include fed, state, ss, and medicare) would like the opportunity to take the few dollars they leave us and invest it without also getting taxed to hell and back. Otherwise, how can we even hope to become 1/10000 as well to do as Buffett?

[KTP]

One other thing to mention. In a way, you ARE getting taxed twice on earned income.

Say you have $100 that you have been taxed 35% on (we will leave out SS, state and medicare)

If you invest that $100 instead of spending it, you must now overcome inflation, otherwise you would have been better off spending it.

The kicker is that you will be taxed on that portion of capital gains that just keeps the money at the same $100 value in real dollars! So in that way, you ARE taxed twice and it is no myth.

Example: Bob earns $100 after paying tax. He buys a 10 pound box of astronaut ice cream, with a 20 year shelf life using the $100. After 10 years he decides to eat it...yum!

Bill earns $100 after paying tax. Bill puts the $100 in a CD for 10 years. After 10 years, Bill has $135 (he earned 3% a year). Bill again pays tax of $12 on the $35, leaving him with $123. Bill goes to buy himself some astronaut ice cream, but to his shock and dismay, he finds it now costs $150 for a 10 pound box because of inflation. Bill is sad, but actually comes out ahead because he does not have to pay the medical fee for eating 10 pounds of 10 year old astronaut ice cream in one sitting.

[jteezie]

I only think it is an issue when investment professionals are paid with capital such that they NEVER pay 35% tax that they originally should. I realize it's very nebulous how and what can be classify as "income," but if you're being paid for services or goods, that sounds like income to me.

Once I've paid my taxes and I invest it and earn capital gains... that's a little harder to classify as income per my above distinction... but I suppose it's all somewhat arbitrary...

[rj.phila]

Your myopic vision seems to equate earning money with managing money. Mike Tyson earned about $400 million during his career yet spent all of it plus millions more. Tragically, several high profile people have earned fortunes only to lose it all due to mismanagement.

Shockingly enough, there are even people who claim to be in the top income tax bracket who haven't mastered basic writing skills.

im not equating the two at all. they are obviously two different things. here's my quote, which referred to this idea of a lower LTCG rate as an offering of sympathy to those impacted: "if someone in that bracket is bitching about their tax burden, its cause they either arent smart with their money(unlikely if they got there in the first place), or they just want preferential treatment."

so if mike tyson were to claim that his tax burden was unfair, thus he deserves a 15% LTCG rate, my quote would apply.

re: writing skills-i'm not clear on what this is in reference to. please detail more explicitly. who are you referencing?

The tax paid affected me a lot more than it did Oprah Winfrey.

im sure it did. so what would your response be to Oprah if she came to you and said "my tax burden is higher than yours, i think i deserve to pay a lower rate than you on a portion of my taxes"?

also, i think its worth reiterating that this conversation started as a discussion of a 15% capital gains rate, not a discussion of the merits of a progressive tax system. lets make sure we're distinguishing between the two.

[disneysteve]

Someone who actually earned $300,000 a year should be taxed differently from someone who inherited $30,000,000 and is just living off the earnings.

There have been several references to the "trust fund babies". What about the wealthy folks who actually earned their wealth? Do you feel differently about those who started with modest means and built vast empires? Someone like Sam Walton. Or you mentioned Oprah. She was raised dirt poor. She's no trust fund baby.

I guess I wonder at what point you are penalizing someone for being successful. We are not socialists. There is no law against accumulating wealth and no law requiring you to give it to others. Actually, many of the super wealthy give vast sums to charity (and yes, they do get a nice tax deduction in the process). Raise their capital gains taxes and that may reduce the aid they are able to give to the less fortunate.

[rj.phila]

I guess I wonder at what point you are penalizing someone for being successful.

this, while a bit peripheral to the OP, is a very interesting question, if actually taken literally-not rhetorically. im curious what rate people would actually deem "penalizing". steve, what income tax rate AND tier would you consider penalty? let's say someone earns $100M on one year. at what % would you consider their tax rate a penalty, and not a contribution to the "republic"?

[Nika]

I guess I wonder at what point you are penalizing someone for being successful.

Hmm... if you use that logic, than why should I be penalized more than twice as harshly for working?

[seen]

One other thing to mention. In a way, you ARE getting taxed twice on earned income.

Say you have $100 that you have been taxed 35% on (we will leave out SS, state and medicare)

If you invest that $100 instead of spending it, you must now overcome inflation, otherwise you would have been better off spending it.

The kicker is that you will be taxed on that portion of capital gains that just keeps the money at the same $100 value in real dollars! So in that way, you ARE taxed twice and it is no myth.

You are not being taxed twice. Bob is paid $100 for his time/services/product/whatever. He is not being paid the purchasing power of $100 over an indefinite period of time. You're grouping apples and oranges together in the same basket.

Inflation affects prices, sure; however it also affects your earnings. If Bob was earning $100 ten years ago at the office, all other things equal he should be earning more at the present day due to inflation. If he is now making $150 he would be taxed on the full amount. If he invested $100 ten years ago and it was worth $150 today, why wouldn't he be taxed on the +$50 gain?

[thekid]

You are not being taxed twice. Bob is paid $100 for his time/services/product/whatever. He is not being paid the purchasing power of $100 over an indefinite period of time. You're grouping apples and oranges together in the same basket.

Inflation affects prices, sure; however it also affects your earnings. If Bob was earning $100 ten years ago at the office, all other things equal he should be earning more at the present day due to inflation. If he is now making $150 he would be taxed on the full amount. If he invested $100 ten years ago and it was worth $150 today, why wouldn't he be taxed on the +$50 gain?

He will be taxed on the $150 he earns 10 years from now and on the $50 produced by his $100 invested today. Think the argument is on how his $100 he has today is affected (spent on astronaut ice cream or invested).

[seen]

He will be taxed on the $150 he earns 10 years from now and on the $50 produced by his $100 invested today. Think the argument is on how his $100 he has today is affected (spent on astronaut ice cream or invested).

Right. And my point is that income is a separate issue from inflation. There is no double taxing involved.

[thekid]

Right. And my point is that income is a separate issue from inflation. There is no double taxing involved.

I agree that there is no double taxing.

I did find the argument to shield investments returns up to the level of inflation from taxation to be interesting though. I had never thought of it that way.

[KTP]

Right. And my point is that income is a separate issue from inflation. There is no double taxing involved.

I say it is a double tax. If you buy government inflation adjusted treasury bonds (TIPS) of a short enough term, you can actually lose money after taxes, even though this is supposed to be a way to just "keep up" with the spending power of money today. How is this not considered double taxation???

[thekid]

I say it is a double tax. If you buy government inflation adjusted treasury bonds (TIPS) of a short enough term, you can actually lose money after taxes, even though this is supposed to be a way to just "keep up" with the spending power of money today. How is this not considered double taxation???

Because you are not taxed twice.

What you are talking about is whether it is fair to tax returns that just keep up with inflation. I think that's a good point, but I don't see it as double taxation either.

In the end, it's just semantics, a question of definition. If you include "inflation adjusted future value of money" in your definition of "money you have already paid taxes on", then sure call it double taxation. I wouldn't use that definition though. What you paid taxes on is $100. Not 100$ pegged to inflation.

[Scanner]

A. You aren't taxed twice. You are taxed on additional income. The Right always overuses the "double taxation" argument. I could argue that I am double taxed everytime I buy a beer (liquor tax on top of my income tax).

B. As a country, you don't tax productivity (earned income) higher than passivity (unearned income).

You tax it the same.

If this means wage tax has to come down while raising capital gains/dividend tax, then so be it. As Herman Cain said, "Unite the taxpayor."

No wonder everyone is sitting around collecting unemployment checks and welfare. . .we tax productivity in this country.

[KTP]

No wonder everyone is sitting around collecting unemployment checks and welfare. . .we tax productivity in this country.

I agree with you. The Left always wants to tax productivity by having a high corporate tax rate. The USA actually has one of the highest corporate tax rates in the world.

From: http://www.nytimes.com/2011/05/03/bu...y/03rates.html

"Topping out at 35 percent, America’s official corporate income tax rate trails that of only Japan, at 39.5 percent, which has said it plans to lower its rate. It is nearly triple Ireland’s and 10 percentage points higher than in Denmark, Austria or China."