Personally, I'd prefer higher capital gains tax and lower corporate tax. I think it would be more transparent and easier to collect.
The money I spend of my income buying goods from other businesses is "already taxed" and then when those businesses collect it from me its "taxed again".
Mysteriously, the one form of taxation the already wealthy benefit from is very concerned about this happening.
A little bit like a VAT, we don't want to tax, tax and tax some product that has a long and complicated line of distributors, rather, tax the final product, either using VAT rebates etc.. This is more economically beneficial.
With corporate and individual incomes, we think at little bit the same way - i.e. how the taxation will flow through via corp tax, income tax, dividend tax and cap gains.
In Ontario, if you pay small business corp tax and then a dividend, it's pretty much the same as if you were to take a salary and pay income tax. Obviously, this because the million or so small businesses out there would rig their outgoing cash flows one way or the other, depending on tax treatment.
While cap gains is a special situation, it does still form part of those block of taxes that should naturally relate to one another in terms of how net surpluses are taxed.
When you spend your 'already taxed income' on an entirely new product or service, then that's separate economic activity, and so it's taxed without consideration to your 'previously taxed income'.
“In 2018 Google NZ Ltd (an entity of Alphabet group) paid income tax of NZ$398,341 – about 0.055 per cent of the estimated gross ad revenue “extracted” from the New Zealand market.”
Facebook, Apple and Amazon have all been in and out of the news here for their arrangements too.
https://i.stuff.co.nz/business/121505796/google-and-facebook...
“It will hurt Apple and Amazon” is not a problem. “It will hurt most growing businesses”, is.
If people care about this loophole, how about just closing it, rather than taxing everyone else?
A bit of an "angels dancing on a pinhead" question, I'll admit
The proposal would hit every business not just a few tech giants.
Doesn't this apply exclusively to the corporate profits not shielded in a Double Irish (or it's latest incarnation) arrangement [0]?
Same, but it'd mean more tax money for foreign governments, too, since those untaxed profits would be contributing to cap gains tax in another country (in the case of foreign investors) instead of domestic corporate tax.
I've heard time and time again that it's a moral imperative for corporations to reduce their tax burden to zero using every loophole available. Are big corporations actually paying tax?
>55 corporations had zero federal tax liability in 2020, including household names like Nike, FedEx and Dish Network, analysis finds
However, I think it misses that most of the benefit to owners is in the form of unrealized gains, not subject to any of the tax rates that people talk about tweaking.
To the extent that we care about the distribution of net worth, though, unrealized gains are an important part of the story.
[0] https://voxeu.org/article/consumption-and-income-inequality-...
This only costs you the interest of the loan and exposes you to the risk of declining value in the assets securing the loan. Appreciation of the assets or dividends may fully offset the interest or more.
Additionally if you a founder, for example, you retain the influence/control of your company that you derive from the stock ownership, while still be able to enjoy their cash value.
But because most people will never understand this, we can't have a tax code that makes sense. Mass democracy is incompatible with sensible rulemaking in this area.
Perhaps income should be income. It would definitely simplify the tax code. But money needs to circulate, that is how you have a booming economy. You asked how is a dollar earned from an investment with more than a dollar from labor. Well that dollar from labor might only exist because of the dollar from investment.
That's exactly right, but you're only looking at it from the point of view of someone clicking "buy" on their phone. Instead, look at it through the eyes of someone who has twenty years of working the daily grind saved up and is thinking about building something new out of nothing. Maybe it's worth the risk of losing that savings. If you tax that even more, then the balance tips even more into riskier territory and makes it less likely that you take on that new business venture.
You're saying that the market corrects for that, and it does... by disincentiving the investment by making the potential payoff less.
It's already been mentioned that some of the money has been taxed once already, when the corporation pays taxes on profits before they're paid out as dividends.
I imagine large investors will just break up their investments into so many shell companies/trusts that each entity will never carry more than 1M in investments. There's always a loophole.
I never understood "double taxation" arguments. Currency circulates, of course a given dollar will get taxed more than once as it moves around the economy.
In Canada, we don't have a separate "dividend tax rate" but instead taxpayers who receive dividends get a credit for the amount of taxes the corporation paid "on their behalf".
It's pretty simple in my mind: Retiring is hard enough, and at some point I won't be able to do any labor. Market investments are the current way that most people are able to retire, whether we like it or not.
Raising it for anything above 1M / year? No problem. They've got enough money to retire comfortably.
For everyone though? My god.
401ks and IRAs are free from capital gains taxes. Anyone can save enough money in those vehicles for retirement unless they start saving really late in life. For those who start saving late, most of their wealth will be in basis anyway.
The reason is caring about the seniors/elderly and a pro-home ownership policy.
As you age, your ability to earn a living from labor goes down, for a number of reasons (ageism, family obligations, less energy), but your costs go up (healthcare, family obligations).
Having investments and being able to sell off capital, taxed at a lower rate than income is an insurance policy against reduced earning potential in senior years.
Is that in and of itself enough to say the tax rate should be half? Maybe not. But the argument is solid. It just doesn't determine the exact percentages.
This is on a graduated tax schedule, correct?
If so, then only the 1,000,001st dollar gets the higher tax (and every dollar thereafter).
*investing is basically a luxury for many, if not most
The rationale for this is that corporate profits are already taxed. The effective tax rate is about 25% for US corporations. For income from corporate profits to be taxed at the same rate as normal income, it should be taxed at a lesser rate once it's been distributed via dividends or buybacks (which is how the system is set up).
Changing the system would have several negative effects. It would encourage companies to take on leverage. Interest expenses are deductible for the purposes of corporate taxes. While interest earnings are and have always been taxed as ordinary income. So companies would likely shift their balance sheets to compensate. It would also make short term speculative trading more attractive for US citizens (and lord knows we have enough of that). And lead to greater foreign ownership of US equities, which is not necessarily desirable.
There are certainly fairly indefensible aspects of the US tax code. This just isn't one of them.
There's also an interesting argument that it's less distortionary to tax wage income than investment income. Because wages (and especially the variation thereof) are substantially driven by unearned human capital endowments.
Maybe I'm missing something but the "Sales of Capital Assets Reported on Individual Tax" from 2012 shows 7.5x as many long term Capital Gains as short term. https://www.irs.gov/statistics/soi-tax-stats-sales-of-capita...
Doesn't this mean the majority of individual investment gains are not taxed as income?
Note however that capital gains tend to be "bursty", so having $1M of capital gains in one year doesn't imply having $1M of income in a normal year. (To take a personal example: I had a very large amount of capital gains in 2020 because I sold my entire portfolio of ETFs and bought a house.)
A laborer gets paid $1 for working hard.
An investor gets paid for $1 for doing something smarter.
Work smarter, not harder, as a civilization. Deliver the most value to the greatest number with the lowest labor input. That's how we get scale, grow an economy, and prosper.
Like, the investor pays all the laborer's wages even if the infrastructure idea was stupid and the investor loses his shirt in the process. The laborer still cashes paychecks while the capital lasts.
Like, think stupid VCs. Investors might just be stupid VCs. A laborer can pocket money from stupid, stupid VCs while the laborer's work provides no value to humanity.
That's why smart investors aren't bastards. And why stupid investors aren't bastards for trying but failing. It's hard to not be a stupid VC. It takes skill. And capital. And understanding what people want. And grokking the shifting regulatory environment. And a whole lot of other crap beyond fizz buzz and and and...
Labor need not be taxed at all if you ask me.
you might want to think about what happens when companies run out of capital.
And artificially pushing people to invest in income vs capital gains will increase bond/guilt prices.
Our housing market would probably be more sane if developers had more pressure to focus on building units in the middle to low end of the market anyway in California.
Does that mean if someone makes $1M of capital gains and has no other job, he'll get taxed at the high rate?
I also don't think it's about incentivizing investing relative to labor. The incentives are for investing relative to other things you could do with money, like spend it, save it, move it elsewhere, etc.
There's always a pull between spending and saving, but if you save, you're either investing, or losing money to inflation.
The tax isn't for their money, it's for their capital gains, which only happen when they realize those gains (e.g. sell assets). High net worth individuals absolutely can and do move to lower tax areas if the incentive is sufficient, or otherwise choose not to move to higher tax areas. It happens between US states all the time.
> Heck, the US is especially good at taxing people abroad.
Has it improved significantly since 2014 [1]?
> How many would really renounce citizenship just to save on taxes, and where would they go that taxes less?
Perhaps somewhere other than Canada, France, Holland, Denmark or Sweden, and without renouncing their citizenship.
There seems to be this idea that simply because the IRS tax rules apply to expatriates, that everyone bends over backwards to report their incomes and pay their taxes the same way they would in the US. I just haven't seen evidence that's the case--particularly among high net worth individuals leaving for that purpose.
And regardless, ideally our rates would be competitive and investors should want to put their money here. A "where else are you gonna go" attitude only works while there aren't better options, which may not be forever for all taxpayers.
[1] https://www.forbes.com/sites/procedurallytaxing/2014/11/18/i...
Granted probably much income that counts as 'capital gains' right now should be classified as regular income and taxed as such.
They let you deduct losses from gains and income for tax purposes. This saved me thousands after '08.
IMHO it's the market's job to price assets and reward risk taking, not the government
Heck, even if it were for everyone, I've yet to see a solid reason why earning a dollar from investing money is somehow better for society than earning a dollar for investing your labor. Income is income. Plenty of other countries tax it the same and we should too.
Edit: To those that say it's to incentivize investment and reward risk; I thought that was the market's job? Why is the government in the business of rewarding an investor for risk? The asset price should reflect the inherent risk in order to incentivize investment right?