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Memo Pad

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Two Tricks To Raising Capital-Gains Taxes Fairly

February 16th, 2012 8:31 pm Ray Madoff

Feb. 16 (Bloomberg) — From Warren Buffett’s secretary to Mitt Romney’s tax returns to the general uprising against the 1 percent, tax reform is on everybody’s radar. In the cross hairs is the preferential treatment for capital gains.

Profits from investments are taxed at a maximum rate of 15 percent, which is less than half the 35 percent maximum tax rate imposed on wages and other ordinary income. One can hardly open a newspaper or click on a blog without seeing a call to eliminate this special rate for capital gains to increase fairness and raise federal revenue.

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  • freethinker

    Unfortunately, the day I died my stock showed a paper increase of $900,000. The government now demanded $300,000. from my heirs. Unfortunately for them, the price of the stock fell to $100,000 the next day so they wound up owing $200,000 they didn’t have and couldn’t get from estate. But after all, it was a ‘logical change and certainly effective’.

  • JOE BLIVITZ

    I do not have any investment income but don’t have a problem with someone who does only paying 15%. When you work at a profession, you know how much you will be paid. When you make an investment you put your money at risk and don’t know how much you will make and maybe lose it all. If you do have a loss, does the IRS give you some of that money back for trying??? Yeh, I know, offsets–big deal.
    Want to talk fairness, how about the 50 % of workers who pay no income tax?? What is their fair share?. The people footing the tax bill make too much money to qualify for government programs and the 50 % paying no taxes receive all the handouts. It is a privilege to live in the country and everyone should be required to do their fair share to support it, even if it is only half a ham sandwhich. The point about 401K retirement investments not getting 15% treatment is a valid point and should be fixed.

  • Common Sense Patriot

    There just is no excuse for treating capital gains as a special category of income. It does benefit the rich and espite their claims, has done nothing to create capital that will create jobs in this country. Along with that, the carried interest rule should be eliminated. Republican calls for eliminating the estate tax are just one more way to keep their money from taxes and not pay their fair share. And rules that allow money earned in foreign countries to be parked there and not brought home and taxed should also be eliminated. The middle class is disappearing and the poor class is increasing in number while the richest 1% have accumulated 50% of the wealth in this country. They also earn 50% of the income (through capital gains mostly). I have never been one that thinks “tax the rich” is the answer to every problem, nor that giving the government more money is going to solve anything since they waste most of it, but this is clearly a system that is broken. The tax code needs to be greatly simplified and all the myriad loopholes eliminated. That will only happen with a Constitutional Amendment, because otherwise, Congress will just implement a thousand new rules that favor the rich and powerful donors and corporations that make Congress rich. Over 50% of the members of Congress are millionaires. What’s wrong with this picture? Along wiht it, we need a phased in Constitutional Amendment that requires a balanced budget, with exceptions only granted with a 2/3 majority vote of Congress and a referendum within 6 months of all the people to approve it — just as we have to approve local bond proposals. Otherwise, nothing will change and we’ll just end up with new loopholes that replace the old ones.

  • LTC Mike

    Let’s keep it simple. Classify real capital gains after inflation, dividends, and carried interest all as one set of income. Tax the first million dollars at 15% and anything remaining at whatever bracket applies, probably 35%. As for the 50% of workers who pay no taxes (because they don’t make enough money to qualify), let them pay at least $100 a year. It isn’t much, but it is symbolic. Do not impose capital gains taxes upon death. We already have estate and inheritance taxes.

    We should rework the tax code to allow the majority of citizens to keep more of their incomes and be less reliant on the government for their support, especially in their retirement years. No tax on the first $10,000 of interest income from any source is one example to benefit lower income folks.

  • JamesLoughran

    Why should the richest class in all human history be given a break on capital gains? People who actually use physical labor have to pay taxes on everything. Taxpayers who get lots of income from capital gains and dividends pay less tax than those who earn most of their income from wages. People who get all of their income from long-term capital gains and qualified dividends will never pay a combined federal individual income and payroll tax rate of even 15 percent, no matter how much they make. The millionaires pay up to a cap of $100,000 and nothing after that. Although poverty wage people pay no income tax they still pay Social security, medicare, state taxes, interest, and fees, ending up a bigger percentage than the rich pay. Why should a person who provides labor pay more than someone who lays around the pool and collects dividends? Every economic study has shown that when the rich pay more in taxes, they reinvest more and create more jobs. Now they just hoard their massive amounts of capital in the Caiman islands making nothing and creating no jobs because they have no incentive to do otherwise.

  • Dan Williams

    I worked for IRS National Office in 1975-6 when exactly the situation you postulate happened on a much larger scale than you imagined. The Piper Aircraft Company was a closely held corporation with nine heirs getting Mr. Piper’s inheritance and also swapping their own in a sale to one of two bidders in 1974 just before that recession hit the market and the buyers stock went down by a considerable amount. Eight of he nine heirs had so much money it didn’t much bother them, which I bet is the case with most inheritances. The other made an offer in compromise which, under the circumstances, was acceptable. There are many more horror stories for the poor than for the rich, I guarantee it. If one of wall street banker went bankrupt I don’t think many would shed a tear, but no wall street banker sheds a tear for anyone else.

  • plc775

    The objective should be to reward investors and make speculators pay. My preference is to eliminate the capital gains tax in its entirety and replace it with a transaction fee. The fee would be 5% on all margin transactions (especially shorting) and 3.65% on cash transactions. The fee on cash transactions would drop 0.01% every day the asset is held so that if held for 365 days, the fee would be zero. This would virtually halt day trading and restore stability to the stock market. For Real Property I would make the fee be 36.52%. Thus a property held ten years or longer pays no fee; but speculators who buy and flip houses pay dearly.
    What I haven’t figured out is how to keep the fees low for buyers and sellers of commodities and make them sky high for speculators who are in it for the market movement. Driving speculators from the commodities markets would stabilize prices for food and fuel. Market speculation brings us the bubbles that make everything unaffordable and the collapses that caused the great depression and the great recession. Imagine if banks had to pay upwards of 25% for foreclosing on a property and then flipping it. It should provide a lot of incentive to write down the principal and keep the homeowner where they are.

  • hgltraveling

    Taxing Capital gains at a higher rate for everyone doesn’t necessarily affect only the wealthy, it also affects economically challenged Seniors or Disabled people or those who are economically challenged because of the economy who are relying on an investment portfolio for income when all they have is a few stocks that are giving them little or no dividends. ONLY A “GRADUATED” Capital gains tax would work, in other words taxing capital gains at the same rates as all other income, but taxing the wealthy must be done across the board at higher rates than those who are middle income or economically challenged, to be fair and effective.

  • Jeffersonian

    Income tax on anyone earning under $300,000 per year should be lowered, to think that the wealthy will EVER be taxed without numerous loopholes to avoid paying their fair share of taxes is ludicrous. Both major political parties are controlled by “the wealthy”. Deficit spending, debt due to war-mongering and nation building, is neither a traditional Conservative or Liberal concept. The Neoconservative and Neoliberals (aka Progressives) are nothing but pawns of the Federal Reserve, IMF and the Multinational Corporations.

  • Jeffersonian

    Impose huge tariffs on goods coming in to the US from slave labor gulag nations. Stop the police actions, never-ending warfare and nation building that has benefitted only the bankers and has eliminated any chance of prosperity for the remainder of this generation and easily the next 2-3 generations to follow. Eliminate superfluous Federal agencies, like DHS and NSA. The FBI and CIA is more than enough. Slowly move away from Keynesian economic policy, fractional reserve banking and fiat money. During the past 100 years, these economic blunders have taken this nation from 0% inflation and monetary stability to imminent currency collapse and national bankruptcy. We are no longer a free society. We are serfs in a new Feudal system which is a melange of National and Fabian Socialism, where the power is held by the major multinational Corporations. This new era of Corporatism and gloablism only benefits the likes of George Soros, The Rockefeller and Rothschild families, etc.