Gyroscopic Investing

Benko wrote:

Storm wrote:   Austerity in the face of recession never works.

But increasing taxes and increasing spending does?

moda0306 wrote:

Benko wrote:

Storm wrote:   Austerity in the face of recession never works.

But increasing taxes and increasing spending does?

Yes.  After Pearl Harbor we ended unemployment almost over night.

Benko wrote: CBO: ADDS $3.9 TRILLION MORE TO DEFICIT...

systemskeptic wrote: The problem is separate taxes on capital gains, pure and simple. 

1. You have $0 in net worth and work your ass off 70 hours a week to earn $450,000 a year and you pay 35% (now 39%) in taxes.

2. You are unemployed and sit on your ass drinking cocktails at the beach with a $10M net worth collecting $400,000 in dividend checks and you only pay a 15% rate (now 20%).

Is this a proper way to design a society?

Storm wrote: If you subscribe to the tea party strategy of "starve the beast" you're also looking pretty good because the US is now collecting only 17% of GDP in revenue where we historically have collected 19%.

MachineGhost wrote:

Storm wrote: If you subscribe to the tea party strategy of "starve the beast" you're also looking pretty good because the US is now collecting only 17% of GDP in revenue where we historically have collected 19%.

But that's only because we're in a recession or a tepid recovery.  It will even rebound to above the 19% GDP average once the economy gets going again, if ever.

The Laffer Curve has done more to damage the Republican Party than anything else.  To think that fiddling with marginal income tax rates will increase/decrease revenues ignores the evidence and confuses correlation with causation.

Storm wrote:
This is a contrived analogy designed to produce an emotional response.

1. You work, make money, and pay taxes (some of the lowest in the first world, I might add).
2. You already paid taxes on the $10M net worth when you earned it in the first place, so why should you pay taxes twice?  The inheritance tax is a good example of double taxation.

systemskeptic wrote:

Storm wrote:
This is a contrived analogy designed to produce an emotional response.

1. You work, make money, and pay taxes (some of the lowest in the first world, I might add).
2. You already paid taxes on the $10M net worth when you earned it in the first place, so why should you pay taxes twice?  The inheritance tax is a good example of double taxation.

There is a grave error in your assumptions.  You are viewing the world as if people earn an income to become rich.  In reality, almost all large wealth these days is created via capital gains.

Did Warren Buffet become a billionare earning a high wage? No.  99% of his wealth is capital gains, on which taxes are never paid until you sell.  Even then he only pays 15% on it, but he has already stated he plans to donate almost all of it to charity -- aka ~50 Billion dollars that never have taxes paid.

Why should a billionaire pay 0-15% when someone in the middle class pays 40+%?  The progressive tax system is an illusion, there are only two tax brackets:  capital gains and income.  Those without capital pay far more in taxes because they are forced to pay income tax (actually perform work). 

Our current system of Capitalism is in a word, disgusting.

MachineGhost wrote: No one pays marginal income tax rates.  The effective tax rate is around 20% average even when the top marginal rate was was 91%.

Storm wrote: I disagree.  If capital gains taxes were charged before gains were even realized the government would soon own every dollar produced by capital flows.  You can't just double, triple, quadruple, or quintuple tax the same income over and over again and expect anyone to invest money any more.  The smart money would just flow to international equity markets that don't have such silly tax codes.

MediumTex wrote: If more of the working class knew how the Social Security wage base worked I think that there would be a lot more political pressure to apply the payroll tax to all earnings, not just the first $100,000 or so.

systemskeptic wrote:

Storm wrote: I disagree.  If capital gains taxes were charged before gains were even realized the government would soon own every dollar produced by capital flows.  You can't just double, triple, quadruple, or quintuple tax the same income over and over again and expect anyone to invest money any more.  The smart money would just flow to international equity markets that don't have such silly tax codes.

If I buy $1000 of AAPL today, sell it tomorrow for $1000 cash, and use those shares to buy $1000 of VTI the day after, where is the tax on any of these "capital flows."  From what I can see the tax owed is $0 unless there is a profit (income). 

If I buy $1000 of AAPL today and sell it in 20 years for $10M, I pay a 15% tax rate.  Someone else working for 20 years to earn $10M via a salary pays 45% all along the way.  Both are an income [increase in net worth].  So how do you justify the tax difference?

It's okay if you believe that the (under capitalized) poor should pay tax but the (well capitalized) rich shouldn't, I guess, but is that really your position?

MediumTex wrote: When you look at it a certain way, there is really no distinction between labor-derived income and investment-derived income.  They are both the result of the allocation of certain types of capital.  It seems odd to me that we don't tax these different forms of income the same way if they are all basically the result of capital allocation decisions.

MediumTex wrote:

systemskeptic wrote:

Storm wrote: I disagree.  If capital gains taxes were charged before gains were even realized the government would soon own every dollar produced by capital flows.  You can't just double, triple, quadruple, or quintuple tax the same income over and over again and expect anyone to invest money any more.  The smart money would just flow to international equity markets that don't have such silly tax codes.

If I buy $1000 of AAPL today, sell it tomorrow for $1000 cash, and use those shares to buy $1000 of VTI the day after, where is the tax on any of these "capital flows."  From what I can see the tax owed is $0 unless there is a profit (income). 

If I buy $1000 of AAPL today and sell it in 20 years for $10M, I pay a 15% tax rate.  Someone else working for 20 years to earn $10M via a salary pays 45% all along the way.  Both are an income [increase in net worth].  So how do you justify the tax difference?

It's okay if you believe that the (under capitalized) poor should pay tax but the (well capitalized) rich shouldn't, I guess, but is that really your position?

For whatever reason, lots of people like the idea of taxing income derived from labor at a higher rate than income derived from allocations of capital (i.e. investments).

I don't fully comprehend the distinction myself.  It seems like income ought to be considered income, regardless of the source.

If people say that higher taxes on capital gains have a chilling effect on the allocation of capital, wouldn't it also be true that higher taxes on ordinary labor-derived income should have a chilling effect on people's willingness to learn how to provide profitable personal services?  Obviously, this doesn't appear to be the case.  I've never heard a person say they would have become a c-suite executive or skilled surgeon, except the taxes they would have to pay on their incomes would just be too high so they instead opted to become an unskilled laborer.

Why would higher taxes have a chilling effect on the allocation (and creation) of capital but not the allocation (and creation) of labor?

When you look at it a certain way, there is really no distinction between labor-derived income and investment-derived income.  They are both the result of the allocation of certain types of capital.  It seems odd to me that we don't tax these different forms of income the same way if they are all basically the result of capital allocation decisions.

Storm wrote: I agree with you, but earlier systemskeptic was talking about how it was not fair that Warren Buffet doesn't pay taxes even though his stock increases in value every year (until he sells it).  There seems to be a huge difference between saying "capital gains should be taxed at the same rate as regular income" and "capital gains should be taxed before the gain is realized."

Also, to some extent, having capital gains taxed at a lower rate makes sense, because the original principal investment was always earned in some way or another, so the principal has already been taxed once.

What does seem a little bit strange to me is that capital gains on housing is not taxed.  You can make $250,000 profit flipping a home and not pay 1 cent of tax.  This is a straight up bribe to the housing lobby if I've ever seen one.