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April 2, 2019
Sen. Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee, announced today that he would soon release a proposal to eliminate massive tax breaks enjoyed by the wealthy on their capital gains income. If successful, the proposal would ensure that income from wealth is taxed just like income from work.
His plan, which he has promised to flesh out in a white paper in the coming weeks, would tax the appreciation of assets owned by the very wealthy as income each year, an approach known as mark-to-market taxation. It would also subject that income to ordinary tax rates rather than special, lower income tax rates that apply to capital gains.
https://itep.org/sweeping-reform-would-tax-capital-gains-like-ordinary-income/
https://www.wsj.com/articles/top-democrat-proposes-annual-tax-on-unrealized-capital-gains-11554217383
(Score: 5, Insightful) by NotSanguine on Sunday April 07 2019, @01:35AM (10 children)
Fair taxation.
And, in general, I usually think Ron Wyden's proposals are pretty good.
However, this really doesn't make a lot of economic sense.
I'd be all for taxing short-term capital gains at the same rate as regular income, long-term capital gains at a slightly lower rate, and taxing "carried interest" [wikipedia.org] at even higher rates.
That said, the point of a capital gains tax is to encourage investment. With the idea being that you invest and both you and the economy profit from said investment. You allow that investment to grow over the long term, and pay tax when you sell that particular investment.
If you tax profits from those investments *before* they are sold, you pretty much destroy the incentive to invest for the longer term -- which is generates significantly more economic good than short-term investments.
In fact, we should be doing all we can to incentivize folks to invest and think over the longer term, as that will help keep the economy stable and discourage the kind of short-term thinking that gave us high-frequency trading and the harms caused by corporate managers too focused on quarterly profit growth (stock buybacks instead of investments in building a business, massive layoffs, mergers and asset selloffs) that they sacrifice the health of companies to ensure their bonuses/raises/stock grants/etc.
This is a bad idea.
No, no, you're not thinking; you're just being logical. --Niels Bohr
(Score: 2) by AthanasiusKircher on Sunday April 07 2019, @01:45AM
Absolutely -- this is a point I meant to make in my post below, but I got sidetracked with the absurdity of it all. Yes, we need market stability. Long-term investment is better for that.
(Score: 3, Interesting) by driverless on Sunday April 07 2019, @02:16AM (5 children)
The problem is that the most optimal form of capital gain for the investor is to buy something, slap a coat of paint or a new business veneer on it, and sell it again quickly, which doesn't add any value to anything except the investor's bank balance. What we have here (non-US country) is time-constrained capital gains tax, if you flip a property/business within a year or two of buying it you pay CGT, if you hold onto it for longer you don't, with exceptions e.g. for the family home. This encourages actual investment, not just speculation and turning over properties as fast as you can.
(Score: 1) by EJ on Sunday April 07 2019, @02:52AM
That's the theory behind short-term versus long-term CGT. I'm all for them significantly raising the tax on short-term investments.
(Score: 2) by NotSanguine on Sunday April 07 2019, @03:20AM (3 children)
Which is sort of what we have here in the US [wikipedia.org]. If you don't hold your investment (and that goes for stocks, securities and other instruments, as well as real property) long enough, you pay one rate. If you hold them for longer, then you pay a lower rate.
Currently, both rates are lower than the lowest income tax bracket.
It's only the most optimal if you incentivize such activities. Which is what taxing capital gains at a lower rate than income, and more apropos to this thread, so would taxing "unrealized" capital gains.
I'm not really sure where you see that I said something different. I'll assume that you think that's important, so you decided to emphasize the point I'd already made.
No, no, you're not thinking; you're just being logical. --Niels Bohr
(Score: 3, Informative) by schad on Sunday April 07 2019, @04:26AM (1 child)
Short-term capital gains are taxed as ordinary income. Long-term capital gains are taxed at 0% up to about $40k (single) or $80k (married), 15% up to about $500k, and 20% past that. The lowest income tax bracket is 10%. Your statement is only correct for people who probably aren't investing in the stock market much or at all.
(Score: 2) by NotSanguine on Sunday April 07 2019, @04:48AM
I am aware of the tax structure.
My point wasn't that those in the lowest tax bracket aren't getting a fair shake because their capital gains rate is too high. My point was that those who have significant capital gains generally pay less on those gains than the income taxes much poorer people pay.
No, no, you're not thinking; you're just being logical. --Niels Bohr
(Score: 3, Informative) by linuxrocks123 on Sunday April 07 2019, @05:35AM
Short-term capital gains are taxed as ordinary income, meaning they are taxed at exactly the income bracket you're in, and definitely not lower than the lowest one.
(Score: 0) by Anonymous Coward on Sunday April 07 2019, @05:00AM (1 child)
So you think were this thing to pass (very unlikely as the fat cats will ferociously oppose) the rich would go to do honest work instead of investment and living on dividends? That does not sound very realistic to me either.
(Score: 3, Informative) by NotSanguine on Sunday April 07 2019, @05:23AM
I would hope that just about *everybody* would oppose this, as it's really dumb and would have lots of negative ripple effects on the economy.
No, no, you're not thinking; you're just being logical. --Niels Bohr
(Score: 0) by Anonymous Coward on Monday April 08 2019, @12:35AM
Fair Taxation is an oxymoron. There is nothing fair about a tax.