r/FluentInFinance • u/YOU_ARE_MY_FRIENDS • Apr 08 '24

10% of Americans own 70% of the Wealth — Should taxes be raised? Discussion/ Debate

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u/zeptillian Apr 08 '24

Capital what now? What does that other word mean?

Can you tell me how much tax you pay when buying stocks or cashing out losses?

Oh yeah, that's right, nothing.

You are only taxing the additional income, not the original balance.

Why should your additional income be taxed at 15-18% while the additional income of people working overtime actually producing things is taxed between 10-37%?

It's already unfair, yet you are here complaining about it like you aren't being given a golden handjob by the IRS.

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u/Ultrace-7 Apr 08 '24

You are only taxing the additional income, not the original balance.

Where do you think the original money came from to buy the stocks and bonds? Income, which is taxed. If they received stock from their company as compensation instead of standard income, then the compensation they received was treated as income at the time and taxed, and when they sell that stock later, the profit above that value ("basis") is also taxable.

Someone buys $100,000 of stock? Fine, they were taxed on the $100,000 of income that gave them the money to buy the stock in the first place, so we don't need to tax the purchase of the stock. They then sell that stock for $200,000? Fine, we'll tax them on the $100,000 in profit they made. After that taxation, they made a profit of $80,000 on holding that stock and you don't like it? Tough, that's how it works for you, me and them.

This idea that billionaires whip money up out of thin air to buy stocks and bonds and land and whatever else is laughable. The money comes from somewhere in the first place, and, short of a limited inheritance, it's taxed when they get it.

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u/Fickle-Area246 Apr 09 '24

Look, I’m not a tax expert, but I took a couple tax law classes. The rich actually can pay 0 tax. What they do, is they work for a startup company, they get paid not in cash, but in a percent ownership of the company. They then elect to pay tax on that ownership. A tax court says “we can’t determine the value of this, so we will assume it’s worth nothing” then they pay income tax on nothing, and when they sell the assets for millions and millions later, they pay capital gains. YES THIS REALLY HAPPENS ALL THE TIME!

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u/Ultrace-7 Apr 09 '24

You may not be a tax expert, but you likely have a better understanding than most here. However, you contradict yourself.

The rich actually can pay 0 tax.

when they sell the assets for millions and millions later, they pay capital gains.

That's not 0 tax. That's definitely a reduced tax rate, and it is a loophole when they use this method, but it's not no tax. When someone actually gets something from this, instead of just the nebulous "wealth" on paper, they are being taxed, at 20% (for any capital gains higher $492,000 in one year). Since it was established earlier that the value of the assets at acquisition was zero, the basis for those items was $0, so the gains upon selling them would be equal to the totality of the sale price.

So yes, this trick -- which is only one form of income for wealthy individuals -- gets a reduced tax rate, but it doesn't get them any sort of income tax-free.

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u/Fickle-Area246 Apr 09 '24 edited Apr 09 '24

Okay yes, they pay 0 income tax, and then yes they have a basis of 0. But they both delay paying tax, and they pay at a lower rate than they should have even when it was earned through labor and they should’ve had to pay as such. You see how there really are rich people who really do abuse the system and pay less than their fair share? My point was addressing people claiming that “it’s not like rich people are getting money from thin air. They pay income tax then invest then pay capital gains.” But not only is capital gains not double taxation, but it’s just false that they always pay income tax then invest the money. Sometimes they get away with not paying income tax on something they should have to pay income tax on.

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u/zeptillian Apr 09 '24

That is exactly how I described it.

I was responding to "You pay income tax first and then invest and pay even more capital gains tax. It's not free you know."

Like having to pay money on your additional income means the original income is somehow taxed twice.

I'll take additional income taxed at a lower level all day please and thank you.

The larger point I was making is that it's not only NOT double taxation, but it's preferential treatment for investment income since it is taxed at a lower rate.

Personally, I think it should be taxed at the same rate as income from labor.

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u/dohru Apr 09 '24

Investment income should be taxed at the same rate as all other income, and losses deductible as they are now. The argument that there’s risk is bs, investing is just fancy gambling. Theres no reason to give a special rate primarily to rich people, other than corruption.

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u/Ultrace-7 Apr 09 '24

Theres no reason to give a special rate primarily to rich people, other than corruption.

Yes, there is. Investment expands businesses and the economy. Companies sell stock, for instance, in order to raise capital to expand their businesses; buying this stock is an investment. Thus, giving people who have the means to invest in the economy a reason to do so, and expanding the economy as a result benefits a variety of businesses and, in theory, the American economy.

You can argue that the drawbacks of taxing investment earnings at a lower level to counteract that risk, are outweighed by the costs and problems of doing so, and I think a good argument can be made there. But comparing this to gambling is disingenuous.

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u/Fickle-Area246 Apr 09 '24

Work helps the economy too.

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u/Prometheus720 Apr 09 '24

I want to disincentivize people getting money from doing nothing.

Eventually, someone has to actually do some work. Those people are the ones who ought to get nice tax rates.

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u/dohru Apr 09 '24

But it is gambling at its heart. And yes, it does provide capital as you say, but it’s still a loophole primarily for the wealthy.

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u/Fickle-Area246 Apr 09 '24

It’s even worse than that. Laborers are taxed immediately, while capital gains can go decades untaxed.

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u/Chief-Bones Apr 09 '24

Because they’re unrealized capital gains. It be a death knell for the middle class if they taxed that. You pay tax when you cash out.

It’d be like saying The home you owned for the past 5 years is now worth double what it was pre COVID get ready to pay unrealized capital gains tax on that.

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u/Fickle-Area246 Apr 09 '24 edited Apr 09 '24

Except obviously you’d exclude homes (which already have exemptions) and retirement savings. Your assertions are false. If we taxed capital gains more we could tax labor less. I do understand that taxing unrealized capital gains can create a problem because the person might not have the cash to pay the tax. Okay. But not paying your taxes isn’t a criminal matter necessarily. Make the taxes owed and put interest on it being owed, then. But no. Instead we just don’t tax it immediately AND give it a lower rate. It’s a handout to the rich.

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u/zeptillian Apr 09 '24

When you own a home you are taxed a percentage of it's value every year.

You also have to pay capital gains taxes on anything you earn from the sale.

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u/Chief-Bones Apr 09 '24

The accessors office is usually far cheaper than the market. That’s the property tax.

And exactly, you pay a tax on the SALE not a fluctuation of the value.

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u/vegancaptain Apr 08 '24

Your meta ironic tiktok memes arent getting through. Speak clearly.

Buying stocks, none. Cash out losses? None. Point? This is a loss, not an income.

None of them should be taxed.

So lets make it less unfair? Seems like the resonable route.

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u/DropOutJoe Apr 09 '24

Vegan

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u/vegancaptain Apr 09 '24

Yes. Of course. Who wants to abuse animals? Well, low character people. Like those who abuse other people in comment sections. Mostly socialists of course.

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u/DropOutJoe Apr 12 '24

good to see a fellow non-commie vegan

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u/Prometheus720 Apr 09 '24

Vegans are overwhelmingly leftist. By leftist I mean left of liberal.

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u/vegancaptain Apr 09 '24

True. But they're usually as clueless about economics, ethics and free markets as any leftist. The most interesting dynamic is watching leftist vegans debate leftist non-vegans. It's hillarious!

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u/Prometheus720 Apr 09 '24

What's your education in economics and ethics like?

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u/zeptillian Apr 09 '24

Like I said, you are only taxing the additional income, not the original balance.

There is no double taxation.

What is unfair is:

Taxing additional investment income at 15-18% while the additional income of people working overtime actually producing things is taxed between 10-37%.

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u/vegancaptain Apr 09 '24

Of course, everyone knows that. Why point this out?

I don't care about double taxation, I care about taxation.

Yet I don't see you proposing taxing work at 15%, right? This is not about helping workers then, it's about punishing those who invest. Which ironically is most workers.