It's not the progressive tax structure that's the problem, it's the fact that cap gains are taxed at a much lower rate than other forms of income.

We should tax consumption, not income.

Consumption tax is very regressive. We should tax wealth, not income. Eliminate income tax and extend property tax system to all assets, not just real estate.

Well now, that's an interesting idea! Is that your idea?

I guess it is. Haven't read Piketty, but from hearsay I thought he argues for wealth tax too.

Piketty's writing doesn't apply to the US. His work applies to Europe, where legacy far outweighs entrepreneurship.

And yet it's the US where wealth inequality is higher.

It's easy to fall for that liberal meme, but you (and they) are wrong. Pickety explains it in his book.

In Europe, most wealth is inherited, and power in concentrated in family dynasties.

I don't get your point and your focus on inherited wealth vs. entrepreneurial wealth. Even if most wealth in America is not inherited, a wealth tax wouldn't inhibit entrepreneurship.

If you have, say a $200K minimum threshold to start owing minimal annual tax, and a progressive scale after that, do you really think it would stop the next Bill Gates?

I encourage you to read Pickety's book. He argues that inherited wealth is bad because it rewards people for being born.

Why would anyone, including Pickety, want to prevent Bill Gates?

I feel like we're talking past each other at this point, so I'll drop off this conversation.

I don't agree with that at all. Consumption taxes can be quite regressive. I guess you picture the rich guy getting a huge tax bill when he buy's his yacht, but what if he just keeps saving, investing, and then, I don't know, buys a senator?

We should be trying to discourage the accumulation of power as well.

What's the average Senator cost? He'll have to pay taxes on it. /s

Take this example of poor people: A person earning 10k/year and a person earning 40k/year both need basically the same things: Water, shelter, food.

A person earning 40k per year isn't MUCH better off than the other. They are both broke, and only have money for the necessities. But if we only tax consumption. The person earning 10k will end up spending a larger percentage of their income in taxes than their counter part.

Now lets throw into the mix, me. I make a healthy 6 figure salary. Lets say I also only pay for what I use, and as a penny-pincher, I only get cheap housing, buy bread and cheese for my food, and tap water. I'm now paying the same taxes as the person earning an order of magnitude less than me.

Why would you choose a job that paid far in excess of your needs and lifestyle choices.

Do you know many people with high incomes but super frugal lifestyles? If so, are they a rare counterexample, and not the norm?

Most every person I knows spends in line with income.

For many reasons:

1. Rainy day fund, because you know one day the high pay may stop.

2. Retirement, because you know one day your ability to work may stop.

3. Estate planning, so that your family will be set up for a life that was better than the one you were given.

4. Investment capital, so you can turn your 100s of thousands into 10s of millions or more.

5. Startup capital for a future venture.

The difference between the middle class and the high-earners are that the high earners save their excess income.

Ok, sure, you save your excess income. Then, later, one of two events happen:

1. You spend the savings, and pay consumption tax

2. You die, and pay the estate tax.

The difference is that in an economic down turn, I am protected by my vast wealth, where a poor person has no savings because they spend every dollar they have on necessities.

A consumption tax is always regressive.

If you think about it, the poorest 10 percent of society consume 100% (or more) of their income, and would pay tax on all of it. The wealthiest 1 percent might only consume 20% of their income, and would therefore be taxed at a much lower rate vs. their income.

And? This is only "unfair" if you assume that people should be taxed as a percentage of their income, but by moving to consumption taxes we discard that assumption.

Also assumes that we would heavily tax the consumption of basic goods, like groceries.

More likely, we would heavily tax goods that poor people cannot afford. Things like dining out, travel, fashion, electronics, cars, and housing in excess of basic sq footage.

capital gains is the leftover of profit after tax. taxing capital gains is taxing profit twice.

in my opinion, for a clean treatment of value taxation, either corporate tax or capital gains tax must go.

No, I don't see it that way -- Taxing dividends is taxing profit twice, not capital gains. Capital gains is taxing asset appreciation.

No it's not, the corporation is taxed once, and the dividend recipient is taxed once. If a corporation is to have rights of personhood it needs to pay taxes as well. Also capital gains can come from many sources that aren't taxable.

That's to encourage money to be invested and also to compensate for the risks.

I've heard the former but I have never heard the latter unless it's been one of my friends in PE trying to justify it.

It's the investor's job to make sure their investments are producing an adequate risk-adjusted return, not the government's job to help you get there.

Taxes change the expected value of an investment. Thus, it changes the amount of risk v reward.

If I have you 51% odds on a coin flip, that's a good bet. But if you only get paid out 60% when you win, it's a bad bet.

Ok yes that's definitely a fair point. To be clear I like the idea of the tax code being simpler and rates lower since it unlocks more NPV positive projects by removing an important cost.

But I do think that's a different argument by a few degrees than the idea that capital gains taxes should be lower to somehow compensate investors for their risk.

If you made a thousand of those 51% bets, you could deduct the losses from the wins, and you'd be back to profitable.

What I gather from the 2000 dot-com bubble, the 2008 financial crisis and a slew of startups I've been seeing lately (cue, Juicero) is that _perhaps_ there should be a little more risk to investment. Idk, my own opinion here.

There was a ton of risk (they lost their pants) but they just didn't recognize it.

Yes and we've seen the outcome - top 1% benefits too much, and results in too much concentration of wealth (along with other structural issues).

And the problem with raising taxes on capital gains will be investors moving their holdings to other countries to reduce their taxes. So long as the taxes on capital gains are kept at a comparable rate across countries, this isn't a problem.

I don't think that's a given - there are plenty of countries with lower capital gain taxes, yet we don't see mass money moving to these countries.

Source: https://taxfoundation.org/capital-gains-rate-country-2011-oe...

If there is no difference between income and capital taxation people wont invest in companies.

And companies wont last with out access to capital trust me I have chaired share holder meetings caused by lack of capital

«If there is no difference between income and capital taxation people wont invest in companies.»

Nonsense. What alternatives do people have? Putting money in a lousy US savings account with a 1% annual interest rate? By comparison the US stock market's average annual return has been 7%. Hence even if income tax rate were the same as capital gains tax rate, the stock market would still give you returns 7× higher.

The problem (started by GP, tbf) is that "investing in companies" is not a binary choice. A given amount of capital is economically more productive in riskier bets in most real-world cases (i.e. bets on tech advances drive the economy forward but are risky). However, higher investment taxes tilts the investment decision towards less risky (and less productive) investments. Think of investing in 1997 Amazon vs 1997 Walgreens: the more your upside is taxed, the more attractive Walgreens is going to look (in 1997)

You lost me as soon as you said "trust me."

so how many share holder meetings have you chaired trying to save a company from going bust?

You've got a large number of logical fallacies in your comment.

Comparing your experience chairing shareholder meetings to tax policy is apples and oranges. Specifically, that because you've chaired a shareholder meeting, this somehow makes you an expert on the efficacy and outcome of changes to the tax code.

The theory of "investment fleeing" due to capital gain tax increases is, frankly, not proven by the data. We've had an increase in the capital gains taxes under Obama (2014) - yet investment continued across private equity, venture and general investment.

If I had the money, I'd renovate my roof, get a solar roof with battery backup, etc. It's an investment just as much as in any business; why am I discriminated against as an individual?

That's a tax-neutral investment. You would pay for the equipment with after-tax dollars, and your returns would be in lower utility bills, which you pay with after-tax dollars. So, your returns are effectively tax-free!

Maybe you can form a corporation and lease the roof area from your house, and deduct the investment?

I'm not really serious, but perhaps something along those lines is an option?

Are not homes exempt for CGT where you are?

Ostensibly, but really it's hard to look at it and not conclude that it's simply to ensure the rich don't have to pay taxes.

What do people imagine rich people would do with their money instead, if capital gains were taxed like income? Stuff it their madrasses, and be at the mercy of inflation? Probably not.

As the article points out we don't need to encourage money to be invested.

No, that's a post-facto justification trotted out whenever someone questions the capital gains rate.

Then add a progressive tax to investment income such as dividends, bond interest and proceeds.

I don't know why we have a flat tax on investment income but a progressive tax on labor. The easy, and fair fix, is to progressively tax investment income.

The biggest players in the bond market are either exempt (they're a pension fund, a 401(k), a foreign entity, a university endowment, a charitable organization, a church or other kind of non-profit) or pass-through (mutual fund, ETF).

I recommend Ken Fisher's "Debunkery" which covers a lot of economic what-ifs with hard data. Capital gains tax rates and treatment varied widely throughout the US history, yet collected revenues did not.

and it works because the politicians are pandering to the massive amount of people in the working class who are subject to income taxes exclusively, and don't understand the parallel tax systems

The Obama tax hikes were largely aimed at high capital incomes, though the accompanying high pay tax hikes was hardly "screwing the voters" either.

See http://money.cnn.com/2015/01/30/pf/taxes/obama-taxes-rich/in...

Pretty sure the proposed taxes in the article you linked to did not pass. The only major tax change Obama was able to get through was the Obamacare related 3.8% Net Investment Income Tax.

I stand corrected. Still, "politicians" tried to DTRT.

Amen, brother. This is why I saw Hilary and Obama as a false flag Democrats. Raise the marginal rates and screw the upper middle class (who basically carry this country) and let their billionaire friends keep their loopholes and lower rates on investment income.

Democratic or Republican, no difference at the highest levels. They will always support the people in power which are the 1%.

I've seen the song and dance for a while now and hoped Obama was different. Promise enough to get elected and hope they forget about the promises after.

Trump is literally doing to same thing. NAFTA and NATO are obsolete, oh wait now that I'm in office I didn't mean what I said. They're important.

There are many people making over $200,000/yr. With 20 years of investing $150,000 of that, it's incredibly easy to have over $6.5 million.

I don't see why it can't be a two-pronged approach with both higher income taxes and wealth taxes. It's what was done in the 1950's, and there was still plenty of wealth then.

Investing 100% of your post-tax income for 20 years is easy?

(Which would get you to three million by the way)

I'm saying there are plenty of people making $200k post-tax. Also, 7% annual returns combined with an additional $150k/yr would lead to having $6.5 million like I said.

To make $200K post-tax, you need to make at least $260K pre-tax. In the US, that puts you almost exactly at the boundary of the 1%.

I suppose this is a matter of your definition of "plenty of people".

There will be well over a million of the 1%ers by my reckoning (google says 122 million taxpayers), which is plenty by some reckoning..

1% of 300 million is still 3 million people. That's a lot of people making a lot of money.

Fewer than 5% of U.S. households [0] (or about 1.5% of working-age people [1]) bring in $200k per year. This is a big country, so I guess that's still "plenty of people," but it's not ordinary.

[0] https://statisticalatlas.com/United-States/Household-Income

[1] https://www.quora.com/How-many-people-earn-200-000+-per-year...

> It's what was done in the 1950's, and there was still plenty of wealth then.

That time period was one of great prosperity that won't be repeated. Market returns were higher; most of the low hanging fruit has been plucked, and you can expect ~5% in equities returns. Its going to take far more capital now to get the same returns your grandparents had, which is why you see capital chasing returns across the world.

https://www.cnbc.com/2017/05/07/get-ready-for-dramatically-l...

"The leaders of Vanguard Group, overseers of some $4 trillion in client assets, have been advising investors to expect a typical 60 percent stocks/40 percent bonds portfolio to deliver two- to- three percentage points less in nominal annual returns than its long-term norm. (Since 1926, such an asset mix has returned better than 8.5 percent annualized.)"

"Other forecasts are even less generous. Research Affiliates, a quantitative and "smart beta" fund manager, projects that U.S. stocks might only offer one percent a year for the next decade, after inflation. This is based largely on the so-called Shiller P/E, a ratio of the S&P 500 index to its trailing ten-year average earnings, which is now above 29 and higher than any period aside from the run-up to the 1929 and 2000 market peaks."

"And with risk-free 10-year government debt yielding a skimpy 2.3 percent in the U.S. and far less elsewhere, all other financial assets have repriced for skimpier future returns as well."

Then why not try to structure our economy so that the lower and middle classes have more money to spend? It seems like that would be a pretty good way to get the economy moving more since giving poorer people money increases the velocity of money considerably[1].

[1] https://en.wikipedia.org/wiki/Velocity_of_money

That's definitely the case, but the goal of modern politics and the top 1% is to accrue wealth, not generate it. Giving the middle classes more money to spend is great for the economy but it only accomplishes their goals if all that money ends up in their portfolios or assets, which means that eventually it all has to trickle up to the top.

Because that concept only works in an idyllic small town dominated by sole proprietors.

The example they provide

> Farmer spends $50 on tractor repair from mechanic. Mechanic buys $40 of corn from farmer. Mechanic spends $10 on barn cats from farmer.

does not involve stuff made abroad, massive corporations with economies of scale eliminating the middleman, or foreign-owned entities.

Most of that velocity will end up in China invested into another skyscraper ghost town, a massive infrastructure project or a cryptocurrency mining farm.

Then what do you recommend should be done? Because it should be obvious to most that increasing inequality, record-breaking corporate profits combined with a decreasing quality of life for most Americans outside of large cities is leading to a destabilization of our political system.

I agree entirely.

You can't save $150k a year if you make $200k per year. Your taxes on that income will be over $50k alone. And, even if they are small, you will have some expenses for food, shelter, clothing and transportation - and in most places to hold down a 200k job, you're going to need to half-decent wardrobe.