If only there were some larger body with more power that could prevent extrajudicial corporations from throwing states and municipalities over a barrel and going to town on their butts.
Alas.
So one reason I felt all the sea lioning earlier in this thread about income over a lifetime was BS is that it ignores the key issue of concentration of wealth which is somewhat different than income. In the big picture, wealth endures and income is transient.
On that note, here is an article from the Financial Post showing that the top 1% in the US own 56% of stock market value.
From the article, I calculate the following breakdown:
top 1%: owns 56% of stock value.
next 9% (91 to 99%) owns 32% of stock value.
bottom 90% of the population owns 12% of stock value.
That is the cold hard reality that no amount of whining about lifetime fluctuations in income or any other form of trolling/sea-lioning/etc. can get around: 90% of the population have only a tiny taste of stock market value. Although the article doesn’t get into this detail, I wonder what share the bottom 80% has? Or the bottom 60%? Pretty F’ing small I would guess.
Of course, stocks are not the only form of wealth but they are a form of wealth that is very large and also gets a huge amount of public and media attention.
And in the last 3 decades, that share owned by the top 1% has grown from 46% to 56%. IIRC, the share of the top 1% in the 50s was in the low-30s percentage wise.
These kinds of numbers are the hard reality that needs to be looked at when discussing inequality in the US.
My solution: eliminate capital gains tax and make it regular taxable income, with two exceptions:
legitimized retirement funds and pensions (401K’s and similar funds)
Folks who have income under $100k and assets under $1mil.
Capital gains tax doesn’t apply to these types of funds. They are taxed as regular income when they are paid out.
It’s yet another example of the subtle way in which capital gains advantage. The idea that retirement funds are taxed as regular income, with generally a higher rate than capital gains, as opposed to investments that are taxed at a lower rate, would seem insane to most Americans, and yet, it is the way it is.
Note: I agree with Alstein’s ideas, but in addition you also have to make the income tax more progressive, especially at the top end.
That’s … pretty messed up. Thanks for spelling it out for the financially functionally illiterate like myself, lol.
Wait!!! I don’t have to pay income taxes on capital gains after I pay out the 15%? (at my bracket, for 1 year hold)
I firmly believe this is the primary and most effective means we have to actually reduce income inequality. It works! And we have a political party whose sole and overriding purpose has been, for many decades, to undo it to the maximum extent possible.
To be fair, the original invested income wasn’t taxed at all, which is why distributions are taxed as income. And if you invest in a Roth the distributions aren’t taxed at all, though they can force your other income (i.e. social security) into taxable status.
Not a penny. Income from investments is capital gains, not “income” in the taxation sense. So it’s cash that completely bypasses income taxes.
This is like finding out I’ve been grinding a game for 25 years the wrong way without the cheat codes.
Unless you did something really weird on your taxes, you haven’t been paying additional taxes on it. Or do you just mean that you weren’t aware of it (not that you’ve erroneously been paying it)?
Yep, I just didn’t know the rules. I thought capital gains were on TOP of regular income taxes. It just seems so unfair.
As an aside, arguing about wealth inequality being important seems difficult. For a comfortable, upper middle class person it seems like an academic problem (easier to convince someone who constantly struggles with bills and eviction).
First they will say that society is fair and everyone has an equal chance. If you can somehow convince them that concentration of wealth is actually increasing over time over the last century or so, they will then start to dispute that concentration of wealth is an actual problem. Usually the myth of a meritocracy goes right back in.
More cynically, maybe whoever I am arguing with secretly knows there’s a line, and they are on the RIGHT side of the line that’s profiting from the system.
This is a bad take.
You don’t pay income tax on a 401K. It lowers your tax liability (which is worth more for high income people.). Instead, the income is taxed at withdrawal at a regular income tax rate. However, for most people the withdrawal amt in retirement is likely to be far lower than their top rate when they’re working.
Conversely, if you’d rather do something different then create a Roth IRA.
But one reason you don’t pay cap gains on a 401K is b/c it’s untaxed labor income and not a capitol gain in first place. You have gains on investment gains from your acct.
I dunno, most people have more in their 401k than they put in there, and the difference is mostly a gain on capital investment, which we usually call a capital gain.
Except that AFIAW, all of your 401k distributions are taxed as income, not just your gains. For normal investments, only withdrawal amounts above the cost basis are treated as gains. 401k just allows deferral of taxes on that income so that you can leverage it for investment. The real benefit of 401k investment for most people isn’t the tax shelter; it’s the employer match incentive and the forced saving.
Hardly true anymore. Tax brackets are so compressed now that the 24% a white collar worker can make while working is barely more than the 22% they’ll pay while retired.
Yes, I know. I’m just objecting to the idea that there aren’t any capital gains in your 401k.
I’m not sure I agree with that. The compounding interest on the tax deferred component can be substantial. Obviously, having an employer match (if you have one) is a good thing, but one can argue that’s just an alternative form of compensation rather than pumping it directly into your salary—it’s not like that’s magic, free money. The comparison, therefore, is more akin to how you take your lottery winnings (lump sum now or spread out).
It’s only an advantage if it’s actually invested. I’m skeptical that people in general invest the entire tax deferment.
I think your proposal and Bidens (eliminate cap gains over $1 million income) don’t go far enough. After a short (1-2 year max) transition period, I would simple eliminate any preferential treatment of capital gains for all incomes. I think it sends the wrong message that passive income should be taxed more lightly than active income.
The first Reagan tax cuts got rid of preferential capital gains. The 83/84 bill restored them, but the main argument was that inflation was causing prices to rise so quickly that people were being taxed on imaginary gains, i.e your house/farmland went from 100K to 130K because of 10% inflation.
The preferential capital gain tax is addressing two problems that no longer exists in America, high inflation, and lack of capital. We have almost no inflation and we are awash in capital, thanks in small part by the Fed’s actions. The capital market tell us this. The stock market is near record levels, despite a pandemic. We are record low interest rates, despite elevated risks of bankruptcy, and there is more VC money than there are good companies.
There are a lot of dumb Republican slogans, but one that still makes a lot of sense is lower the rates and broadening the base. I don’t think we can afford to lower the rates now, but getting rid of lower capital gains will raise a ton of money. Plus as a added bonus, we can eliminate a lot wasted effort by smart people who figure out various schemes of turning ordinary income into capital gains.