The Insanity Of Capital Gains Tax Breaks...

[eniwetok]

Those making their money off capital gains live the life of Riley. All this income is exempt from payroll taxes which support the OASI and DI safety net... and if they are in the top income tax bracket, the tax rate is about half that of their "earned" income. As a tax expenditure, the CBO calculates that 90% of the tax breaks (I assume the income tax, not OASI DI) go to the top 10% and a full 70% go to the top 1%... which means other people pay more... or we steal from future taxpayers, to make up the difference.

[radical noodle]

1. There are those of us who have capital gains

who are not wealthy, who save our money and put it in investments for our retirement. I think that capital gains taxes might be reduced for lower income folks who work every day and pay into SS & Medicare. Just a thought.

[eniwetok]

2. I have no problem with...

I'm aware of this argument... and the little grandma with some dividends from old stocks... and certainly a law can be drafted to exempt some capital gains... but this doesn't address the larger question why some very real INCOME is exempt from payroll taxes AND gets a massive tax break on income tax. Reagan made the moral argument for capital gains being taxed at the same rate earned income was. Of course he did so while cutting the top tax rate for the uber rich from 50 down to 28%.

[radical noodle]

8. I absolutely agree with you n/t

[Abouttime]

19. Contrary

A fair capital gains tax is 50%

[radical noodle]

21. Why?

[Grey Lemercier]

29. above what level?

[Hoyt]

3. Of course the other side of capital gains are losses that while somewhat deductible still cost

folks more than they'll ever get back in tax savings.

I'm all for taxing the wealthy more -- as well as some so-called middle classers -- and am not really sure I would support a capital gains tax reduction (particularly to extent the white wing buffoon is talking about). But it's not "all the life of Riley," or all of us would be living that life.

[eniwetok]

4. you might want to flesh your argument out...

Are you talking about real loses or paper loses?

[Hoyt]

5. I'm talking about investing most of the money you have into something that goes south. You might be

able to get a tax break on a portion of that (offsetting other capital gains), but you are still out a bunch of money that any tax deductions aren't going to get you back.

[eniwetok]

6. what do loses have to do with income?

One can certainly have a tax system that allows for losses yet taxes real unearned income. Not sure why you feel the two are so intermingled the issues can't be separated.

But in the real world... if someone is going after those high returns... then they should know the risks.

[Hoyt]

10. I get they can be separated -- if you gain, we want most of the money. If you lose, you should have

known the risk. I think that's a prescription for a high unemployment rate and cutbacks in most social programs.

[eniwetok]

30. you're totally losing me....

I can't follow your argument... or why trying to increase taxes on capital gains income would hurt social programs.

What I would say is any tax breaks on capital gains income should be tied to some social purpose. If we need people to make higher risk investments in something like medical and energy R&D I don't mind giving them a tax break. But I can't see where profits from speculating in commodities or equities deserves a tax break. That income should be subject to the normal progressive tax rates on earned income. Then there's the bigger question of why capital gains are exempt from payroll taxes.

[Hoyt]

31. I'm not talking about speculating in commodities, I'm talking about investing in a small business

that creates jobs and tax revenue that is available for social programs if Congress weren't dominated by white wingers. I'm not even sure investing in commodities results in that many capital gains because one has to hold the investment for 1 year to even qualify for capital gains. I do agree with offering tax breaks for social purposes.

[dawg]

7. The rationale is that much of long-term capital gains are actually just the effects of inflation.

The economic value (or purchasing power) of the asset hasn't really risen, so it doesn't make sense to tax the gains as heavily as ordinary income.

Of course, that makes little sense when talking about deemed allocations to hedge fund managers, or trading gains won by Wall Street guys who held their positions for a year and a day.

But for that 50 shares of AT&T stock that Grandma has owned since 1987 - it kind of makes sense.

[eniwetok]

9. since when is earned income given such a break?

Income is income. If someone is getting 10% returns... are you suggesting we deduct 2% off for inflation?

Maybe there should be an inflation break in the other direction... so if someone's fixed wage depreciates by 2%... their can adjust their income down by 2%.

[dawg]

14. The income tax brackets and exemptions are adjusted for inflation each year.

People aren't getting an actual tax cut, but their tax brackets do not go up unless the real economic value of their salaries increase.

[eniwetok]

17. oh shit...

I forgot that inflation was to be calculated into bracket creep going back to either the 1981 or 1986 tax laws.

Duh!

But if someone is getting shit for bank interest... and it's below inflation, they get no break I know of.

[libtodeath]

11. The capital gains tax rate should be progressive and tied to personal wealth.

[FarCenter]

12. It is tied to income, with 0, 15, and 20% brackets

And some types of assets are taxed at 25 and 28%.

See http://www.bankrate.com/finance/taxes/capital-gains-tax-rates-1.aspx

The government shoots for a 2% annual inflation rate, which is equivalent to a 2% tax on assets.

[Jim Beard]

23. Thanks for the link. It was good for me 2/3 of the way down and

then it became unpleasant for me. My tax person was right.

[TreasonousBastard]

13. The theory is that risk is invoved, and taxation as income would...

deny the risk, presumably reducing investment.

Of course, that's just theory, and the fact is that it becomes simply a game to reduce taxes. One invests for gain, and if no gain happens-- tough shit.

I am more curious why inheritances aren't taxed more. Even though I have personally benefited from this, I don't feel it was fair to get several years of income in one huge swoop and pay nothing for it. Kinda like winning a lottery (which also is exempt from state taxes in many places). There are times when it wouldn't be right to tax a working farm or business out of existence when the kids take it over, but that sort of thing can be dealt with. And remember that trusts are really gifts, so isn't there a gift tax?.

You get a pile of money deposited into your account and you shouldn't have to feel screwed just because you actually worked for it. In a just world, one would think "unearned" income could be taxed at a higher rate.

Follow the money. There is a huge industry out there getting well paid for scheming ways to reduce taxation. There is no well-paid corps of accountants and lawyers finding ways to tax you more.

[A HERETIC I AM]

25. Minor point, but lottery winnings are state tax free in only 8 states

And 2 territories ( USVI & PR )

https://www.washingtonpost.com/news/get-there/wp/2016/01/09/the-best-and-worst-states-for-winning-the-800-million-powerball-jackpot/?utm_term=.2b38b35fc8d6

If ten out of 52 is "many", then so be it.

[Johnathan146]

26. Gift taxes really dont exist for most people

I can give 14,000 a year away per person tax free. (28k if Im married)

If I give you more than that, say 20k, I dont actually pay gift taxes, its goes against my lifetime exclusion, which is about 5.5 million, and 11 million if Im married.

Im sure Bill Gates has to plan for the gift tax, but most people will never pay a dime in gift taxes.

[csziggy]

15. Your assumptions are not completely correct

Capital gains do not apply strictly to stocks and bonds. They can apply to other more tangible investments.

For instance, some years ago when my business was booming I checked into cutting the trees off about ten acres of my lowland. If I sold the trees, the money they brought in would have almost covered the cost of clearing, fencing and planting the land in grass to add to our pastures. There might have been enough profit to pay for the damage to the pastures the timber trucks would have to drive through to get to those back acres.

That is, it might have been enough until I factored in paying the capital gains from the growth of the trees. At that point capital gains would have taken 28% off the top and that would not have left me enough to make the land usable. Even at the rates that have been in effect more recently the marginal amount for the trees I might have gotten was not enough for the improvements I hoped to make.

As a result I did not make the improvements and our limited pasture space cost us in additional hay cost and loss of business.

It's all good, though - our farm is a unique ecosystem and the increased land left dedicated to wildlife is a benefit to future generations.

[eniwetok]

16. OK... but what are you saying...

Sure, what makes up the capital gains, and what is taxable, is a complex issue. I know since I'm in the process of selling a property that include a home and some rental space and just consulted with my attorney on the matter last week. But are you suggesting that no capital gains income should be taxed as regular income? So I'm not sure what you're saying. And are you suggesting the government give you a tax break just because you thought the money could go to some socially desirable effort?

[csziggy]

18. I'm saying that capital gains is a much ore complicated subject than just financial investments

And increasing capital gains taxes can really hurt a lot of people.

[hfojvt]

20. pretty sad thread

even on a liberal message board a bunch of people are like "oh no, don't tax my capital gains".

No wonder Republicans keep winning - they completely control the narrative.

[radical noodle]

22. I already pay taxes on my capital gains

I just don't want to pay any more. If I was a millionaire, then I wouldn't care, but I'm not. The "sad" about this thread is that some don't seem to understand that there is a vast difference between the need for capital gains for the average person and capital gains for those with millions of dollars who can just sit back and rake in the cash.

[hfojvt]

28. no, it is pathetic that we can apparently be bought

Republican politicians can give us $50 while they give those rich people $50,000 and we will fight like hell to keep our $50.

The average person does not have significant capital gains.

[eniwetok]

32. you're conflating...

Leaving aside the fact you seem to want some, presumably your, income getting a tax break... there are two variables in play. One is the TYPE of income... and why capital gains is treated differently... then there's the matter of the progressive tax rate.

If one's retirement is largely based on capital gains... presumably they'd be at a lower tax rate. But we also have to deal with the fact that any capital gains tax break is a gift at a time when We The People have pissed away some 19 trillion on ourselves since 1981 that we refuse to pay for. Any tax break you seem to want is being subsidized by money stolen from future tax payers who will have to pay more in taxes and get less in return... just to pay for our 19 trillion party.

We know the GOP has been determined to starve the beast since the 80's... to run up massive debt then use it as a pretense for dismantling the New Deal and Great Society. Dems SHOULD know better since this strategy poses an existential threat to their legacy... yet too many are also buying into this Free Lunch mentality... and I blame Obama for pushing to make most of Bush2's irresponsible tax cut permanent. WTF was he thinking? And why... when paying down debt was such a big issue in the 2000 elections, Dems have dropped it?

[radical noodle]

33. Here's the thing

Middle-class folks who are retired will always have approximately the same income no matter what. As their income remains stagnant, prices and costs increase, sometimes exponentially. The older one gets, the more expenses there are. Risky investments that pay more are ill advised for those who are older, health insurance supplementals and drug costs skyrocket as we age, even with Medicare. Our property and real estate taxes raise every year. Interest income at a bank is non-existent. Couples worry about one of them perhaps being confined to a nursing home for many years, an expensive proposition.

We did all the "right" things. We saved. We did without things others had. We helped our daughters get through school, so they could make their own way in the world. We still help them sometimes when they need it.

Still, we pay about $6000 out of our meager income for taxes. I never begrudged paying taxes. I never took weird deductions. I always paid on time. I was happy to pay when I was working and could afford it.

Our 19 trillion dollar party was largely the celebration of Republicans who spent like madmen on the military. I don't want to run up more debt at all, but let's get the money from those who have boatloads of it to spare because they have so many loopholes that they don't pay as much as I do.

[Jim Beard]

24. Most of the things discussed here are mostly for retirement.

You have to own the property for at least a year. Also, from what I read in the link posted above, if you are in the 5% tax bracket, you pay zero.

For me, I sold my farm and all the depreciation I took over the years from my center pivot irrigation systems would have to be paid back unless I reinvested.

[hfojvt]

27. retirement investments are already tax sheltered

And just because the rate is zero for poorer people still does not make it right.

Yes, I myself had a $15,000 capital gain from some land that I bought in 1987 and sold in 2009. I personally saved something like $2250 in taxes right there. A great gain for me, to be sure, but that STILL does NOT make it right. The fact that if I had worked for $15,000 that I would have had to pay the income taxes on it, but when I did NOT work for the money that I didn't have to pay taxes on it. It's is patently unfair to tax work more than taxing non-work.

My only complaint about that land sale was the way the basis was calculated. I paid $4,500 in 1987 and got $22,000 in 2009, minus realtor fees leaving about $20,000. Well, I also had a cost of some 22 years of property taxes that should have been part of the cost. Something like $3,000 that I paid in property taxes. That's legitimately part of the cost, in my eyes.

Of course, it feels like a gain to get the $4,500 back too.