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Comment on But how would they be able to live on that?

damnedfurry@lemmy.world ⁨2⁩ ⁨months⁩ ago

We really need to both make capital gains equally taxed to earned income

The capital gains tax isn’t lower than income tax just because. There are very specific reasons:

(TL;DR: a low capital gains rate has historically raised more in tax revenue)

The justification for a lower tax rate on capital gains relative to ordinary income is threefold: it is not indexed for inflation, it is a double tax, and it encourages present consumption over future consumption.

First, the tax is not adjusted for inflation, so any appreciation of assets is taxed at the nominal instead of the real value. This means investors must pay tax not only on the real return but also on the inflation created by the Federal Reserve.

Second, the capital gains tax is merely part of a long line of federal taxation of the same dollar of income. Wages are first taxed by payroll and personal income taxes, then again by the corporate income tax if one chooses to invest in corporate equities, and then again when those investments pay off in the form of dividends and capital gains. This puts corporations at a disadvantage relative to pass through business entities, whose owners pay personal income tax on distributed profits, instead of taxes on corporate income, capital gains, and dividends. One way corporations mitigate this excessive taxation is through debt rather than equity financing, since interest is deductible. This creates perverse incentives to over leverage, contributing to the boom and bust cycle.

Finally, a capital gains tax, like nearly all of the federal tax code, is a tax on future consumption. Future personal consumption, in the form of savings, is taxed, while present consumption is not. By favoring present over future consumption, savings are discouraged, which decreases future available capital and lowers long term growth.

Not only has a low capital gains tax rate worked to encourage savings and increase economic growth, a low capital gains rate has historically raised more in tax revenue.

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nickwitha_k@lemmy.sdf.org ⁨2⁩ ⁨months⁩ ago
The goal in my mind is not to necessarily increase total revenue but to erode the capacity to hoard wealth. The lower rates are gamed to increase wealth disparity, giving a distinct advantage to those who are already wealthy, over those who are not.

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- damnedfurry@lemmy.world ⁨2⁩ ⁨months⁩ ago
  The wealthiest’s wealth is all invested in the economy, literally the opposite of “hoarding”.
  
  “The lower rates are gamed to increase wealth disparity” is false–they are that way to encourage entrepreneurship and the like, the things that keep the economy strong. The fact that those who create the things that strengthen the economy become wealthy faster than those who don’t is a feature, not a bug. A rising tide lifts all ships. And make no mistake, one’s assets appreciating in value takes nothing away from those who haven’t invested–the latter group’s level of wealth is not affected by the former’s. In other words, the wage my job pays me does not change based on how wealthy other people’s assets are, from the billionaires, down to even a neighbor whose house has appreciated in value.
  
  Wealth disparity is not inherently a bad thing–a century ago, the ‘gap’ was much smaller, as was the number of billionaires, but the average person’s wealth was also MUCH lower.
  
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  - nickwitha_k@lemmy.sdf.org ⁨2⁩ ⁨months⁩ ago
    
    The wealthiest’s wealth is all invested in the economy, literally the opposite of “hoarding”.
    
    The economy is more than the NYSE and bought politicians.
    
    “The lower rates are gamed to increase wealth disparity” is false–they are that way to encourage entrepreneurship and the like, the things that keep the economy strong.
    
    Don’t know what to tell you there. The money doesn’t buying legislation to keep workers in places of economic instability doesn’t really encourage entrepreneurship or reduce its inherent risks. Entrepreneurship is also pretty well dominated by the wealthy who can afford the Russia, largely due to inherited wealth.
    
    The fact that those who create the things that strengthen the economy become wealthy faster than those who don’t is a feature, not a bug. A rising tide lifts all ships. And make no mistake, one’s assets appreciating in value takes nothing away from those who haven’t invested–the latter group’s level of wealth is not affected by the former’s. In other words, the wage my job pays me does not change based on how wealthy other people’s assets are, from the billionaires, down to even a neighbor whose house has appreciated in value.
    
    Wealth disparity is not inherently a bad thing–a century ago, the ‘gap’ was much smaller, as was the number of billionaires, but the average person’s wealth was also MUCH lower.
    
    Wealth disparity is the root of most crime and human suffering. Also, the years leading into the Great Depression may not be a good reference point on average wealth.
    
    You know what, I didn’t think that we’re going to see eye to eye on these matters, regardless of how much back and forth we have. I hope you have a pleasant day and eventually see an increase in empathy that shifts your worldview.
    
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