Tax Burden, new statistics released by the IRS in Money Magazine...v.richpaymore - Page 2

WickedLou9 · 03-31-2008, 12:01 PM

Originally Posted by Ardentfrost

The argument for most is that the money is already taxed. CGT is a second tax on pretaxed money. This is easily seen when you think about a company performing a stock buyback. They are using cash on hand to increase the value of stocks by buying up a shit ton of it. The cash on hand they have has been applied to their company taxes which they have or will pay. They buy stock from someone who then has to pay taxes on the money he got over what he paid for it, eg., the money the company is giving him extra. Thus it gets sent through the ringer again.

The reality is that our money is taxed more than twice. when I get paid, I pay income taxes on my money. Then I spend that money and I pay sales tax and depending on what I buy, a host of other taxes. Every time money moves form one person to another it's taxed. So if the company earns a profit, it pays taxes. when the company does something, issues a dividend, buys back stock, whatever, money is changing hands and it gets taxed. Increasing the cap gains tax to 25% would not effect this. Short term capital gains are already taxed at the full income tax rate anyway. It's the long term gains that are taxed at the lower rate.

A_C_E · 03-31-2008, 02:56 PM

Originally Posted by Phantom

AFAIK, capital gains taxes GAINS, not the principal invested, so the principal would not be taxed twice.

The argument is that the principal you are using to invest has already been taxed, whether you build the principal via W-2 income or commercial transactions.

Ardentfrost · 03-31-2008, 03:07 PM

Originally Posted by A_C_E

The argument is that the principal you are using to invest has already been taxed, whether you build the principal via W-2 income or commercial transactions.

Yes, that, plus the gains you get back from the market have already been taxed as well. The money in the market is just a bunch of money that has already been taxed floating around. New money comes from companies that pay taxes on the money before it enters or from people introducing new money into the market who paid taxes on the income used to buy the stocks or whatever.

It's a decent argument imo. There are a lot of tax laws created to prevent money from being taxed multiple times, this is just one of the times that money is.

Ardentfrost · 03-31-2008, 03:09 PM

Originally Posted by WickedLou9

The reality is that our money is taxed more than twice. when I get paid, I pay income taxes on my money. Then I spend that money and I pay sales tax and depending on what I buy, a host of other taxes. Every time money moves form one person to another it's taxed. So if the company earns a profit, it pays taxes. when the company does something, issues a dividend, buys back stock, whatever, money is changing hands and it gets taxed. Increasing the cap gains tax to 25% would not effect this. Short term capital gains are already taxed at the full income tax rate anyway. It's the long term gains that are taxed at the lower rate.

Well, there are a lot of facets to it. As far as CGT goes, it's a federal tax on top of what you've paid in federal income taxes. Sales tax is a state thing. It's also a consumption tax, which is an indirect income tax, not a direct one like straight up income tax or CGT.

Phantom · 03-31-2008, 03:16 PM

Originally Posted by Ardentfrost

Yes, that, plus the gains you get back from the market have already been taxed as well. The money in the market is just a bunch of money that has already been taxed floating around. New money comes from companies that pay taxes on the money before it enters or from people introducing new money into the market who paid taxes on the income used to buy the stocks or whatever.

It's a decent argument imo. There are a lot of tax laws created to prevent money from being taxed multiple times, this is just one of the times that money is.

Again, when is money being double-taxed?

If I earn $5k in wages after taxes, it's been taxed once. If I throw that in the market for a few years and it grows to $12k then sell, I pay taxes only on the $7k in gains and no new taxes on the $5k principal.

The only double-taxation that I can think of is C corp dividends, but that's outside the scope of this discussion.

Ardentfrost · 03-31-2008, 03:18 PM

Originally Posted by Thorgrim

You have to understand the problem that is unique to hedge fund managers...

They really screw up...pay nothing in taxes or really to anyone
They really get lucky, they only pay 15% on taxes for a huge amount of money

I don't get it. The problem with the whole CGT system is hedge funds? And the managers aren't getting taxed on their fees? Why is their income different than mine?

Or, you're saying that these people use their own money to put large sums of cash on volatile markets? The money they use has to come from somewhere. It's not that they made a large sum of cash from the ether, it came from taxed money.

I don't know enough about hedge funds to really critique how they make money. I know they make large bets on volatile markets and are paid to be right often enough to make up for the times they are wrong. If they're wrong more than they're right, they tend to fold (I seem to remember that happening a lot not too long ago). I'm pretty sure they work like a mutual fund, except the money comes from a single or few sources instead of lots. I imagine they are paid from the RoI or from standard fees... either way, that is their income and it should be treated as such (I don't know if it is or not, but being paid by someone rich who got money from the market shouldn't mean they are exempt from income taxes).

I welcome you to educate me and others on what is special about the hedge fund market that creates some sort of problem with the CGT (preferably one that counters the argument previously stated). Again, I'm not versed enough in the intricacies of hedge funds to have any specific problems with it.

Perhaps we would be in agreement on problems with the hedge market

A_C_E · 03-31-2008, 03:21 PM

Originally Posted by Ardentfrost

Yes, that, plus the gains you get back from the market have already been taxed as well. The money in the market is just a bunch of money that has already been taxed floating around. New money comes from companies that pay taxes on the money before it enters or from people introducing new money into the market who paid taxes on the income used to buy the stocks or whatever.

It's a decent argument imo. There are a lot of tax laws created to prevent money from being taxed multiple times, this is just one of the times that money is.

Even still, I wouldn't be averse to raising the percentage tax a bit.

When you understand that the majority of wealth in the top 1% is gained via capital gains, and not income, it sort of defeats the point of having capital gains taxed at a lower rate than income. I'm not saying raise it to 36% or whatever, but I would be fine with moving it from 15% to 20%.

A_C_E · 03-31-2008, 03:22 PM

Originally Posted by Phantom

Again, when is money being double-taxed?

If I earn $5k in wages after taxes, it's been taxed once. If I throw that in the market for a few years and it grows to $12k then sell, I pay taxes only on the $7k in gains and no new taxes on the $5k principal.

The only double-taxation that I can think of is C corp dividends, but that's outside the scope of this discussion.

hmmm.....that makes sense.

Ardentfrost · 03-31-2008, 03:28 PM

Originally Posted by Phantom

Again, when is money being double-taxed?

If I earn $5k in wages after taxes, it's been taxed once. If I throw that in the market for a few years and it grows to $12k then sell, I pay taxes only on the $7k in gains and no new taxes on the $5k principal.

The only double-taxation that I can think of is C corp dividends, but that's outside the scope of this discussion.

You were taxed on the money that you got the $5k from. You put it in the market. Other people are taxed on the money they put into the market. Them putting their money into the market increases the price of your stock which you sell for $12k. The money put in by others (or the company itself in the form of stock buybacks) is where your capital gains came from. All of that has already been taxed.

Let's take it a step further: you pull the money out, are taxed (let's say) 15% on your $7k which reduces you to $5950. You put that money back into the market into another stock. By simply moving your stock, the market is worse off by $1050 (we can't really include the fees charged by the firm holding your money since their fees increases their cash on hand which they would then put back into the market... after taxes). Your $5950 increases the value of another stock which someone then sells, taking some of the money you just put into the market back out... which is then taxed.

And that could go on and on as long as you have gains.

Ardentfrost · 03-31-2008, 03:31 PM

Originally Posted by A_C_E

Even still, I wouldn't be averse to raising the percentage tax a bit.

When you understand that the majority of wealth in the top 1% is gained via capital gains, and not income, it sort of defeats the point of having capital gains taxed at a lower rate than income. I'm not saying raise it to 36% or whatever, but I would be fine with moving it from 15% to 20%.

If the point of the Democrats is to increase the tax burden of the wealthy, then CGT should only apply to the wealthy. At least then the middle class would only be paying more taxes in their increased consumption.

Not saying I condone that behavior. I think we all know I am for next to zero taxes

Phantom · 03-31-2008, 03:39 PM

Originally Posted by Ardentfrost

You were taxed on the money that you got the $5k from. You put it in the market. Other people are taxed on the money they put into the market. Them putting their money into the market increases the price of your stock which you sell for $12k. The money put in by others (or the company itself in the form of stock buybacks) is where your capital gains came from. All of that has already been taxed.

Let's take it a step further: you pull the money out, are taxed (let's say) 15% on your $7k which reduces you to $5950. You put that money back into the market into another stock. By simply moving your stock, the market is worse off by $1050 (we can't really include the fees charged by the firm holding your money since their fees increases their cash on hand which they would then put back into the market... after taxes). Your $5950 increases the value of another stock which someone then sells, taking some of the money you just put into the market back out... which is then taxed.

And that could go on and on as long as you have gains.

You're looking at "the market" as a zero sum game. This is a great fallacy that anyone invested in the stock market should understand.

You can't add up all the money put in and taken out of the market in a single day to determine the "value" of the market. It simply doesn't work like that and there isn't enough room here for an explanation.

Anyway, I still don't see where anyone is taxed twice on the same income. Maybe person 2's capital gains are increased by the action of person 1, but there's nothing in this that causes either of them to be taxed twice on the same income.

Ardentfrost · 03-31-2008, 03:46 PM

Originally Posted by Phantom

You're looking at "the market" as a zero sum game. This is a great fallacy that anyone invested in the stock market should understand.

You can't add up all the money put in and taken out of the market in a single day to determine the "value" of the market. It simply doesn't work like that and there isn't enough room here for an explanation.

Anyway, I still don't see where anyone is taxed twice on the same income. Maybe person 2's capital gains are increased by the action of person 1, but there's nothing in this that causes either of them to be taxed twice on the same income.

The money in the market is not created from thin air. The value is determined by people's overall willingness to pay compared to their willingness to sell the stocks, bonds, or commodities available. Taking that into consideration, all money flowing in has been taxed by direct income taxes (including that money coming from businesses). There is nothing being consumed, it is merely represents a flow.

When you are taxed on your income, you are being taxed on what you can produce for society. When you are being taxed on what you buy, you are being taxed on what you consume. When you are being taxed on market gains, you are being taxed on what OTHERS have already produced for society, which they have already been taxed on.

Phantom · 03-31-2008, 03:55 PM

Originally Posted by Ardentfrost

The money in the market is not created from thin air. The value is determined by people's overall willingness to pay compared to their willingness to sell the stocks, bonds, or commodities available. Taking that into consideration, all money flowing in has been taxed by direct income taxes (including that money coming from businesses). There is nothing being consumed, it is merely represents a flow.

Of course, the value depends on willingness to buy and sell. That willingness is based on all kinds of things including speculation, stupidity etc. and the amount of cash going in/out is only one variable out of thousands that affect the value

Originally Posted by Ardentfrost;

When you are taxed on your income, you are being taxed on what you can produce for society. When you are being taxed on what you buy, you are being taxed on what you consume. When you are being taxed on market gains, you are being taxed on what OTHERS have already produced for society, which they have already been taxed on.

When you are taxed on capital gains, you are taxed on YOUR gains from investments you have made in others. In the simplest case of a corporation, the corporation takes your cash and their employees' labor and returns to you some of your investment and pays the employees in labor.

Still, nobody is taxed twice on anything in this picture.

Caveat - we are ignoring the corporate double tax scenario for corporate dividends.

Ardentfrost · 03-31-2008, 04:02 PM

Originally Posted by Phantom

Of course, the value depends on willingness to buy and sell. That willingness is based on all kinds of things including speculation, stupidity etc. and the amount of cash going in/out is only one variable out of thousands that affect the value

When you are taxed on capital gains, you are taxed on YOUR gains from investments you have made in others. In the simplest case of a corporation, the corporation takes your cash and their employees' labor and returns to you some of your investment and pays the employees in labor.

Still, nobody is taxed twice on anything in this picture.

Caveat - we are ignoring the corporate double tax scenario for corporate dividends.

Yeah, I think everyone agrees on dividends

Anyway, while someone's willingness to buy and sell a stock may be based on a multitude of things, it is the job of the guy who sits on the floor to decides what the price of a stock is (I forgot what that guy is called, but he bases it on supply and demand). If something is in high demand, people are willing to pay a higher price for it. When you sell at that price, you are selling (vicariously) to someone who wants to buy in. How is the money that went from his pocket to yours not pretaxed money? He certainly paid taxes on that money.