Growing Divide Between Rich and Poor

[Revoltingest]

If I include corporate taxes, it further proves my point, because it's not progressive.

I don't follow you. But I'd say that if we combine corporate income tax (of the bigger ones) with the dividend tax, we get something which ends up rather flat....high, but flat.

If we go with a corporation (might as well use Johnson and Johnson again), their effective worldwide corporate tax rate for 2010 was 21.3% (not sure how much of that is federal, state, and international). They pay approximately 50% of their earnings out as dividends, so getting taxed an additional 15% federal tax on that portion, means that half of my income through this company is getting taxed at 21.3%, and the other half is getting taxed at 36.3% (plus other tax), for a net result of 28.8% (plus other tax). So if me and a multimillionaire both own JNJ stock, I'm paying a higher tax rate than my wage income, and she would be paying a lower tax rate than on her tax bracket for income from wages. This is what needs to be resolved- corporate taxes need to be reduced, and individual taxation needs to be truly progressive rather than having the illusion of progression.

I don't argue with that. It's a thoughtful approach.

And if I refer to my partnership income, then both me and the millionaire are getting exceptionally low tax rates far below our tax brackets (because of the aforementioned issue of the net income being recorded so far below true cash flow). So if a wealthy person that derives most of their income from assets like partnerships, compared to me who derives most of my income from wages as an engineer and a smaller percentage from assets, her tax rate will be lower than mine.

I've no argument against making depreciation match the actual life of the asset....in fact I favor it.
It is eventually recaptured upon sale, but it's still often either a tax dodge or an unfair tax burden.

The point is that a tax code shouldn't be based around the worst case scenario of a terrible investor- someone who buys a factory, lets it sit for 10 years without operating, and then sells it.

Oh dear, this misses my main thesis entirely. Regarding capital gains tax being indexed for accumulated inflation, it doesn't matter whether the factory owner had a profit or a loss during ownership. Net income/loss would be addressed by the income tax of each fiscal year. Capital gains tax should be about economic appreciation (real
gain in value), rather than dollar appreciation (which includes phantom gain due to currency devaluation).

Stocks have historically gone up at a significantly higher rate of return than inflation.

So, if you sold a stock at a profit, you'd calculate what portion of your gain is economic gain....& pay tax on that alone.

Assets that depreciate but are purchased for a purpose of acquiring cash flow, like a factory, are valuable for their cash flow potential rather than their capital gains.

Not always true with investments. The highest & best use of an asset could be farther down the road, eg, G Selden's patent of the automobile, land held for development with less profitable intermediate uses (eg, self storage).

Seems like a good idea on the surface, but there are problems with that.
-The first problem is that of abuse. This is an increasingly flat world- if a business is located in country X, investors in that business could be located in countries A, B, C, D, E, F....X, Y, Z, and so forth. Taking taxes out of the corporation is easier than dealing with all of that.
-The second, and larger problem, is that of complexity. A large business has operations all over the world, and in all different jurisdictions. They have income from so many states and so many countries, that their tax situation is ridiculously complicated. So, teams of accountants deal with taxation on the corporate level. Pass through entities like an MLP or other publicly traded partnership provide tons of tax advantages, but they also increase complexity because all national and state taxes are on the burden of the unit holder. If each individual share holder had to individually deal with all the taxes of Johnson and Johnson, investing would be impossible.

Meh...it could be worked around. But I don't buy the premise that corporate income needs to be taxed at all. Some countries will win, some will lose, but overall it could work fairly.

So that's why I think there still needs to be taxation at the corporate level and at the individual level, but it should revert to a pre-Bush era where it's progressive taxation.

I still don't buy that it was progressive (by your measure) before Bush.

I see a bit of contradiction here- because on one hand you're saying that depreciation needs overhauling and that there shouldn't be a cookie cutter approach, but on the other hand you're saying that there are too many nuances.

Simplicity is a nice goal, but it isn't the only one.
As with all things, some things need simplification & others need a more complex solution.

I agree that the tax code needs streamlining, but any tax code is going to have nuances in this complicated world.

Tis all about optimization. But when in doubt, a good default is to keep it simple.

I think naturally some favorites should be played. Business initiatives alone do not take into account long-term planning or environmental protection. Giving incentives towards cleaner energy is important.

And we end up with government pushing corn based ethanol, financing Stirling cycle car engines, etc. I favor much more broadly based incentives....want clean energy, tax for the damage done by dirty energy, ie, a fuel tax. That steers the market by a general incentive, rather than corrupt fools in DC picking a specific solution like hybrid car & ethanol subsidy.

Plus, there's a difference between a multi-millionaire getting millions in passive partnership income, and a small business owner trying to hire employees and increase economic output. I'm for giving tax breaks for smaller businesses.

Investors who provide capital also boost economic output & hiring. I don't recognize as big a difference as you do.

I think that corporate tax needs to be reduced, but that some double taxation is both inevitable and ok, as long as the final effective tax rate is both reasonable and progressive.

Double taxation seems inevitable anyway, given the demonization of corporations in the media & politics.
It ain't like anyone will take me seriously.

 

[Penumbra]

I'll respond to that in a bit, but in the meantime, we have to watch what we say, because Bill Clinton is listening in on our debate.
Clinton calls for corporate tax cut

 

[Penumbra]

I don't follow you. But I'd say that if we combine corporate income tax (of the bigger ones) with the dividend tax, we get something which ends up rather flat....high, but flat.

We get something that, like I mentioned, starts of progressive but then becomes regressive. Like a bell curve shape.

I don't argue with that. It's a thoughtful approach.

I've no argument against making depreciation match the actual life of the asset....in fact I favor it.
It is eventually recaptured upon sale, but it's still often either a tax dodge or an unfair tax burden.

Only part of it is recaptured on sale. Only a small fraction of the real income is classified as taxable income. For the rest, the distribution payments decrease the cost basis of the investment, so when they sell, they sell with a big taxable capital gain. But considering that capital gains taxes are so much lower than the highest tax brackets, the result is that taxes are very low.

Plus, deferred taxation is a huge bonus. If I tax you at the same rate now, or in ten years at the same rate, the outcome of taxing you ten years from now results in a much, much lower real tax rate, because in the meantime, you've likely compounded the capital that you would have otherwise have had to pay in taxes.

Oh dear, this misses my main thesis entirely. Regarding capital gains tax being indexed for accumulated inflation, it doesn't matter whether the factory owner had a profit or a loss during ownership. Net income/loss would be addressed by the income tax of each fiscal year. Capital gains tax should be about economic appreciation (real
gain in value), rather than dollar appreciation (which includes phantom gain due to currency devaluation).

I believe, rather, you've missed my point. My point is that the concept of buying an asset that doesn't move in value and not using it for any purpose is bad investing and is not the type of thing we should base tax code around. Why base tax code off of weird, unrealistic examples?

Realistically, someone doesn't buy a factory for 10 years and let it sit there. They buy the factory, and use it for a purpose to make money. Factories aren't primarily bought for the purpose of making a capital gain. They may lose value on the factory, which is normal, while making up for it with substantial cash flows from the factory operation. The result is that, if they managed everything reasonably, there is reasonable taxation.

So, if you sold a stock at a profit, you'd calculate what portion of your gain is economic gain....& pay tax on that alone.

I'd be ok with that, but only if capital gains taxes are higher.

If someone got a 10% rate of return, and inflation was 3%, then we can either tax at a moderate rate for the whole 10%, or tax at a higher rate the 7% difference.

Not always true with investments. The highest & best use of an asset could be farther down the road, eg, G Selden's patent of the automobile, land held for development with less profitable intermediate uses (eg, self storage).

-Land typically appreciates.
-Assets held for less profitable intermediate uses like storage are typically part of a larger entity, like the factory example.

Meh...it could be worked around. But I don't buy the premise that corporate income needs to be taxed at all. Some countries will win, some will lose, but overall it could work fairly.

It's not that simple.

Let's take a typical partnership holding as an example, since that's what you're basically advocating all corporations should be taxed like. A typical fairly large partnership may have income from 20, 30, or even 40 or more states. Technically, when an individual investor receives the K-1 form, they are supposed to file tax returns in all states where they had income. But fortunately, many states have certain limits where if it's under a certain amount, they don't care, because their cost of filing the work is less than the tax they'll receive.

If corporations worked like this, this would be huge problem. Partnerships are only a small part of the total pie, and the taxation is a bit messed up, but if the whole pie worked like this, states couldn't just write off all of these individual investors because if they did, their tax revenues would be significantly decreased. If every investor owes every state and tons of countries a few bucks each, it will enormously complicate filing of taxes, and either make investing impossible for individuals, or result in states and countries losing tons of money.

So it's not just a shifting of win and loss, it's the fact that the tax is shattered into so many pieces that it becomes unprofitable to even collect it.

I still don't buy that it was progressive (by your measure) before Bush.

Dividend taxation was significantly higher for the top tax brackets, and capital gains were moderately higher. All of this was on top of corporate taxation.

Simplicity is a nice goal, but it isn't the only one.
As with all things, some things need simplification & others need a more complex solution.

Tis all about optimization. But when in doubt, a good default is to keep it simple.

And we end up with government pushing corn based ethanol, financing Stirling cycle car engines, etc. I favor much more broadly based incentives....want clean energy, tax for the damage done by dirty energy, ie, a fuel tax. That steers the market by a general incentive, rather than corrupt fools in DC picking a specific solution like hybrid car & ethanol subsidy.

This would only work if the taxes were significantly larger than they are now. Except for the case of a BP-type disaster, polluting companies make all sorts of environmental problems and get fined all the time, but those fines are just the general cost of doing business, and don't stop them from being immensely profitable compared to cleaner situations.

Investors who provide capital also boost economic output & hiring. I don't recognize as big a difference as you do.

Only those that buy into an IPO. Most other capital is just trading hands, and in America's case, being concentrated at the top.

Double taxation seems inevitable anyway, given the demonization of corporations in the media & politics.
It ain't like anyone will take me seriously.

Large corporations are among as profitable as they've ever been, and their balance sheets are stronger than most countries are. They're doing ok.

Like I said, I'm all for lowing the corporate tax rate, but we need some double taxation to avoid the huge problem of investors filing hundreds of tax returns or states and countries going without almost all of their business revenue.

 

[Revoltingest]

Only part of it is recaptured on sale.

It's more complicated than that. If the investment doesn't experience actual depreciation, then all the income is recaptured as a reduction in basis, but it is recognized as capital gains, which is taxed at the lower dollar rate. But in cases where value is lost, then there's less (or nothing) to recapture. Moreover, the IRS will sometimes let us deduct losses, & other times not allow it. The tax code introduces so much capriciousness, that it's almost like a roll of the dice. Such things must be quantified if one is to analyze them.

Only a small fraction of the real income is classified as taxable income.

"Small fraction" can be true for some, but not for others. It depends upon the performance of the investment....the better the performer, the less significant the depreciation deduction. There is variation in the real world.

For the rest, the distribution payments decrease the cost basis of the investment, so when they sell, they sell with a big taxable capital gain. But considering that capital gains taxes are so much lower than the highest tax brackets, the result is that taxes are very low.

That scenario can happen, but there are others.

Plus, deferred taxation is a huge bonus. If I tax you at the same rate now, or in ten years at the same rate, the outcome of taxing you ten years from now results in a much, much lower real tax rate, because in the meantime, you've likely compounded the capital that you would have otherwise have had to pay in taxes.

You're citing the same advantage twice. The after tax cash flow which is greater because of depreciation deductions. To say that it also compounds is nothing additional. Better cash flow is better cash flow, no matter how it's used, be it for re-investment or living expenses.

I believe, rather, you've missed my point. My point is that the concept of buying an asset that doesn't move in value and not using it for any purpose is bad investing and is not the type of thing we should base tax code around. Why base tax code off of weird, unrealistic examples?

I get your point, but I consider it irrelevant. Investments involve risk. That's why their expected rate of return would exceed bank account interest. Bad investments happen. Even the best laid plans of moose & men are subject to the vagaries of the economy, capricious regulation, legal changes, etc. You might think my examples weird, but I am a full time investor....I see what I see. And the tax code should treat winners & losers fairly & equitably. I sense that you don't appreciate that when things go wrong, you don't want the government fleecing you out of taxes by gaming accounting standards to treat a loss as a profit.

Realistically, someone doesn't buy a factory for 10 years and let it sit there.

Of course. Do you thing I claimed that this happens?

They buy the factory, and use it for a purpose to make money. Factories aren't primarily bought for the purpose of making a capital gain. They may lose value on the factory, which is normal, while making up for it with substantial cash flows from the factory operation. The result is that, if they managed everything reasonably, there is reasonable taxation.

It's easy to say that a factory should be "reasonably" managed & that it will be profitable, but in the real world, this does not always happen. I'd ventue a guess that you don't meet many people who own companies serving the auto industry. Butsiness is different from what the general public often think. The wolves are at the door regularly....success depends upon every link in a chain pulling the weight. Most start-ups fail within a couple years, & even large successful companies can wither & die.

I'd be ok with that, but only if capital gains taxes are higher.

I agree. Tax policy should make sense, instead of being a hodge podge of problems solved by mismatched solution which creates more problems. But that won't improve in our lifetimes. The status quo of complexity is a hellacious juggernaut.

If someone got a 10% rate of return, and inflation was 3%, then we can either tax at a moderate rate for the whole 10%, or tax at a higher rate the 7% difference.

The logical & simple approach is to tax it at 7%. Any tax rate on 10% would not accurately take inflation into account.

-Land typically appreciates.

"Typically" isn't "always". Tax policy should be based upon what actually happens, rather than what is typical. Certainly, if someone doing your job averages made $50K/yr more than you do, you shouldn't pay tax on $50K/yr more just because it's "typical".

-Assets held for less profitable intermediate uses like storage are typically part of a larger entity, like the factory example.

What basis is there for saying this? Why would it matter?

It's not that simple.

I never said it's simple....only that it's workable.

Let's take a typical partnership holding as an example, since that's what you're basically advocating all corporations should be taxed like. A typical fairly large partnership may have income from 20, 30, or even 40 or more states. Technically, when an individual investor receives the K-1 form, they are supposed to file tax returns in all states where they had income. But fortunately, many states have certain limits where if it's under a certain amount, they don't care, because their cost of filing the work is less than the tax they'll receive.

Do you have a source for the claim that a single partnership would send the investor a K1 for each & every state where sufficient income is earned? This seems odd since the K1 is a federal form, & would be an enormous paperwork burden for the partnership & the investor.

If corporations worked like this, this would be huge problem. Partnerships are only a small part of the total pie, and the taxation is a bit messed up, but if the whole pie worked like this, states couldn't just write off all of these individual investors because if they did, their tax revenues would be significantly decreased. If every investor owes every state and tons of countries a few bucks each, it will enormously complicate filing of taxes, and either make investing impossible for individuals, or result in states and countries losing tons of money.

I see it as causing a redistribution of taxation by state.

So it's not just a shifting of win and loss, it's the fact that the tax is shattered into so many pieces that it becomes unprofitable to even collect it.

I don't see it that way.

Dividend taxation was significantly higher for the top tax brackets, and capital gains were moderately higher. All of this was on top of corporate taxation.

Once again, if you look only at nominal marginal tax rates, this does not accurately reflect actual marginal or average tax rates. The tax code has complexities which greatly alter the effect of brackets.

This would only work if the taxes were significantly larger than they are now.

I don't see it that way. Changes in incentives can certainly be revenue neutral. The issue I see here isn't the level of taxation, but rather what taxation encourages in the market place.

Except for the case of a BP-type disaster, polluting companies make all sorts of environmental problems and get fined all the time, but those fines are just the general cost of doing business, and don't stop them from being immensely profitable compared to cleaner situations.

Fines & taxes steer activity. We should be wisely using incentives to achieve larger goals, eg, cleaner energy, greater efficiency, energy independence.

Only those that buy into an IPO. Most other capital is just trading hands, and in America's case, being concentrated at the top.

Even after the IPO, companies raise capital. Trading reflects value, which affects stock prices, which affects sale of stock & borrowing. If your objection is to some people becoming wealthy, that's another matter.

Large corporations are among as profitable as they've ever been, and their balance sheets are stronger than most countries are. They're doing ok.

So?

Like I said, I'm all for lowing the corporate tax rate, but we need some double taxation to avoid the huge problem of investors filing hundreds of tax returns or states and countries going without almost all of their business revenue.

I don't see your scenario happening.....at least I hope I don't....politicians will do stupid things, as evidenced by the 1099 fiasco we're facing.

 

[Penumbra]

It's more complicated than that. If the investment doesn't experience actual depreciation, then all the income is recaptured as a reduction in basis, but it is recognized as capital gains, which is taxed at the lower dollar rate. But in cases where value is lost, then there's less (or nothing) to recapture. Moreover, the IRS will sometimes let us deduct losses, & other times not allow it. The tax code introduces so much capriciousness, that it's almost like a roll of the dice. Such things must be quantified if one is to analyze them.

"Small fraction" can be true for some, but not for others. It depends upon the performance of the investment....the better the performer, the less significant the depreciation deduction. There is variation in the real world.

That scenario can happen, but there are others.

You're citing the same advantage twice. The after tax cash flow which is greater because of depreciation deductions. To say that it also compounds is nothing additional. Better cash flow is better cash flow, no matter how it's used, be it for re-investment or living expenses.

Remember, this portion of the discussion I brought up was about very specific investments: asset-heavy pass-through entities.

If you look through dozens of them, you'll see that as a rule, income is very low compared to distributions (for exceptions where it's not, it's typically a one-time thing, or a significant problem).

I get your point, but I consider it irrelevant. Investments involve risk. That's why their expected rate of return would exceed bank account interest. Bad investments happen. Even the best laid plans of moose & men are subject to the vagaries of the economy, capricious regulation, legal changes, etc. You might think my examples weird, but I am a full time investor....I see what I see. And the tax code should treat winners & losers fairly & equitably. I sense that you don't appreciate that when things go wrong, you don't want the government fleecing you out of taxes by gaming accounting standards to treat a loss as a profit.

Of course. Do you thing I claimed that this happens?

Bad investments happen, and it is those that decided to make the investment, rather than the government, that should deal with the downside. When I make an investment that turns sour, I don't consider it anyone's fault but my own. Like I said, we can't structure tax code around exceptions. We structure it around how things typically work, and possibly include some nuances to round out the exceptions.

It's easy to say that a factory should be "reasonably" managed & that it will be profitable, but in the real world, this does not always happen. I'd ventue a guess that you don't meet many people who own companies serving the auto industry. Butsiness is different from what the general public often think. The wolves are at the door regularly....success depends upon every link in a chain pulling the weight. Most start-ups fail within a couple years, & even large successful companies can wither & die.

Revoltingest, during this debate, I get the feeling you aren't reading my full posts. I don't know how many times I stated that I'm in favor of tax advantages for small businesses, and yet almost every single one of your examples involves small business.

How many individuals, outside of a business, are running factories that deal with the auto industry?

I agree. Tax policy should make sense, instead of being a hodge podge of problems solved by mismatched solution which creates more problems. But that won't improve in our lifetimes. The status quo of complexity is a hellacious juggernaut.

The logical & simple approach is to tax it at 7%. Any tax rate on 10% would not accurately take inflation into account.

Sure, tax the 7%, but tax it at a higher rate than we would at 10% to make up the difference.

"Typically" isn't "always". Tax policy should be based upon what actually happens, rather than what is typical. Certainly, if someone doing your job averages made $50K/yr more than you do, you shouldn't pay tax on $50K/yr more just because it's "typical".

Typical is what happens, pretty much by definition. With millions of individual situations, tax structure should be based around how things work, not tailored to protect investors that get hit by the risks they should have analyzed in the first place.

What basis is there for saying this? Why would it matter?

Because things need to be considered as part of the whole rather than individual components. Isolating an example of a factory doesn't address my arguments.

I never said it's simple....only that it's workable.

Do you have a source for the claim that a single partnership would send the investor a K1 for each & every state where sufficient income is earned? This seems odd since the K1 is a federal form, & would be an enormous paperwork burden for the partnership & the investor.

I see it as causing a redistribution of taxation by state.

I don't see it that way.

They don't send a K1 for each and every state. The single K1 per investor includes income allocatable to the states, if applicable.
http://www.cohenfund.com/files/articles/masterlimitedpartnerships.pdf
Answers to Recent Questions: Taxes, K-1s, MLPs, and Why These 7 Pipeline Companies - Seeking Alpha

-Filing K1 forms is an enormous paperwork burden for the partnership, but not specifically because of the state tax issue. I believe the way they do it (or more accurately, the way the company they hire to do it does it), is to calculate all taxes for the partnership as a whole, and then do the fairly simple calculations for how much applies to each investor.

-Filing K1 forms is indeed an annoying paperwork burden for an investor (it comes late, it's a bit complicated, it costs $100/extra for my tax preparer to handle it for me, etc), but it's significantly mitigated by the fact that almost all non-multimillionaire investors don't have to worry about most of the states, since their income per state is so low that it falls under thresholds where the state doesn't care.


So what ends up happening is, millions of investors end up owing very little to each state, so often this isn't paid and it's not a legal issue since it falls under certain thresholds. This isn't a huge problem, because pass-through entities represent a pretty small amount of total capital in the world, so states and countries can just sort of write it off. But if every corporation worked like this, every investor in the world would owe various small dollar figures to all sorts of states, provinces, and countries all over the world, to the point where it wouldn't even be cost effective to gather that revenue. It's not just redistribution of wealth- it's a huge loss in taxable revenue- because these little pieces of owed tax aren't just being shifted around- they're all being counted as too small to collect.

If you want single taxation, this is how it goes. Businesses bring in income, so various places have income taxation, all passed down to the investor, if there is no income taxation at the business level.

Or, we could just skip that mess, and double-tax (but take note of how much the double tax is). The corporation gets taxed as a whole, since it's easy to collect large sums from companies than it is to collect that same amount of revenue scattered among a million investors, and then investors get taxed on capital gains and dividends. The status quo is fine, except the numbers need a little tweaking to make it more progressive.

Once again, if you look only at nominal marginal tax rates, this does not accurately reflect actual marginal or average tax rates. The tax code has complexities which greatly alter the effect of brackets.

I've already showed how, with the example of JNJ, taxation is only in the 20% range for the federal level even after taking into account JNJ's full tax percentage and dividend taxes.

I don't see it that way. Changes in incentives can certainly be revenue neutral. The issue I see here isn't the level of taxation, but rather what taxation encourages in the market place.

Fines & taxes steer activity. We should be wisely using incentives to achieve larger goals, eg, cleaner energy, greater efficiency, energy independence.

Many countries in Europe have far outpaced the US in terms of alternative energy specifically because of tax help.

Even after the IPO, companies raise capital. Trading reflects value, which affects stock prices, which affects sale of stock & borrowing. If your objection is to some people becoming wealthy, that's another matter.

Companies gather capital an IPO, and if/when they offer later stock offerings. Stock price matters for executive compensation and such, but doesn't come into play too strongly until the company decides to issue shares to make an acquisition, or to avoid an wanted takeover, etc.

So?

So what would you expect? When people are broke, and the government is broke, but corporations are as profitable as ever, with workforces in places substantially outside of the US, who would you expect the general US population to vilify?

I don't see your scenario happening.....at least I hope I don't....politicians will do stupid things, as evidenced by the 1099 fiasco we're facing.

See my description above. In order for that scenario not to happen, we have to not do it that way.

 

[Revoltingest]

Bad investments happen, and it is those that decided to make the investment, rather than the government, that should deal with the downside. When I make an investment that turns sour, I don't consider it anyone's fault but my own. Like I said, we can't structure tax code around exceptions. We structure it around how things typically work, and possibly include some nuances to round out the exceptions.

I don't understand your point. Of course the investor should deal with bad investments. (I oppose government bail-outs.) I've never said otherwise.
How "things typically work" is that you win some, & you lose some.

Revoltingest, during this debate, I get the feeling you aren't reading my full posts. I don't know how many times I stated that I'm in favor of tax advantages for small businesses, and yet almost every single one of your examples involves small business.

I read them. Btw, I don't favor tax advantages based upon the size of the business.

How many individuals, outside of a business, are running factories that deal with the auto industry?

The answer would seem to be zero...for any industry, since running a factory is a business endeavor.

With millions of individual situations, tax structure should be based around how things work, not tailored to protect investors that get hit by the risks they should have analyzed in the first place.

Once again, I am not saying the tax code should protect investors from loss. I argue that taxes should not be paid on a loss.

It doesn't seem that we understand each other, so I'm going to pass on the rest of your post.

 

[Mercy Not Sacrifice]

I am SO using this in future debates.

 

[Penumbra]

I don't understand your point. Of course the investor should deal with bad investments. (I oppose government bail-outs.) I've never said otherwise.
How "things typically work" is that you win some, & you lose some.

What I mean is, you present examples like 7% inflation and a factory that doesn't increase in any real value, and that they get taxed on the inflation increase. That's an example of a bad investment, unless the factory was used to pull in strong cash flows like it should.

When the wealth is being concentrated in a smaller and smaller portion of the population, it's pretty clear that this is not the typical investment- a bad factory investment. Let's tax what's really happening rather than discussing atypically poor investment decisions.

As far as a debate is concerned, I'd be willing to separate inflation increases from capital gains, as long as doing so doesn't complicate the tax system too much (I doubt that it would), and as long as the tax on the remaining "real" portion is higher to compensate. This would result in the same taxation but reduce the possibility of getting caught with a dud investment and paying taxes on it anyway.

I read them. Btw, I don't favor tax advantages based upon the size of the business.

The answer would seem to be zero...for any industry, since running a factory is a business endeavor.

Exactly. And I've stated that I'm primarily concerned with the lack of individual progressive taxation here. I'm for fairly low business taxation, of both small business and corporations. Whether large businesses or small businesses get taxed at the same rate, I'm open for discussion, but my primary concern is that individuals need progressive taxation to fix our budget and to stop the progression of wealth being concentrated, without disrupting business investment too much. Hence, moderate and progressive individual taxation, but low business taxation.

Once again, I am not saying the tax code should protect investors from loss. I argue that taxes should not be paid on a loss.

It doesn't seem that we understand each other, so I'm going to pass on the rest of your post.

Why pass on the rest of the post? What are you thoughts on my counter to your proposition of utilizing no income taxation for businesses? What is your cost effective solution to deal with individuals owing local, state, and national taxes to places all over the country and all over the world?

And re-focusing the debate, you don't see a problem with the wealth being concentrated in a smaller percentage of the population? You've already acknowledged that an inability to save and invest is a key reason for this happening. Do you think this is a stable system, if wealth is increasingly concentrated? Those who have money can continue to compound it, while those who cannot save continue their trend. How far can it go until mass protests result and the system breaks?

 

[Biblestudent_007]

In the NT, it says that $money$ is 'mammon'.

 

[Sunstone]

The poor aren't useless; they either have no opportunity or have had none for so long that they've given up, probably agitated as well by a constant ethos which suggest how useless they are.

I'm only going by personal experience, but I think some of that depends on the skillfulness of supervisors. So far as I can see, most of the poor, when they do enter the workforce, tend to end up mismanaged. Basically, they get low-paid, largely untrained, and untalented supervisors.

Years ago, I used to do contractual training for employees, supervisors and/or managers of telemarketing centers. What I would do is contract with a call center to train either their sales force, their supervisors or their managers. I usually didn't contract to do all three -- at least not in the same contract. But what I noticed was, you could typically make the biggest difference in productivity by training the managers or the supervisors. There seemed to me at least two reasons for that.

First, there were numerous things they had the authority to do, but employees didn't have the authority to do. Second -- and more interesting -- if the call center was not making it's goals, the chances were very good most of the problems lay with the incompetence of its supervisors and managers. They didn't know how to run a call center -- some of them didn't even know the basic metrics used in the industry to identify problems and measure performance -- and, more importantly, they were clueless about people. They didn't know how to motivate them. They didn't know what it was key to do, and what they could pass on doing. They didn't know how to solve common employee problems.

Oddly enough, the worse the management/supervisory team, the more the team blamed the employees. Only the very best said anything like, "I need to improve as a supervisor or manager." Most of them said, "I can't get good people".

As you might imagine, the labor pool for most forms of telemarketing was the working poor.

I was pretty successful at what I did, and once achieve a seven fold increase in sales -- but I had to replace the whole supervisory team to do it. They were intractable. So, I brought in new supervisors, but kept the same employees, and under the supervisors I trained, sales soared.

 

[Revoltingest]

......I'd be willing to separate inflation increases from capital gains, as long as doing so doesn't complicate the tax system too much (I doubt that it would), and as long as the tax on the remaining "real" portion is higher to compensate.

I'd agree that capital gains (non-currency deflation portion) taxes should then be raised, but not to compensate.....rather because it ought to be treated as Schedule E income.

This would result in the same taxation but reduce the possibility of getting caught with a dud investment and paying taxes on it anyway.

Perfecto!

Why pass on the rest of the post?

We seem to each be missing the other's points. So I'll stick to areas where I think I'll be clear.

....you don't see a problem with the wealth being concentrated in a smaller percentage of the population?

Au contraire....I do see it as a problem, albeit more of a symptom of an underlying problem which concerns me most - decreasing productivity of the poor.

Do you think this is a stable system, if wealth is increasingly concentrated?

No, which is why I favor lessening governmental restraint of trade, particularly for entry level businesses.

 

[ninerbuff]

Rev is envious to know that the BACON BACON truck is now in the SF Bay Area!

Inside Scoop SF » And now, the Bacon Bacon Truck

 

[Revoltingest]

Rev is envious to know that the BACON BACON truck is now in the SF Bay Area!

Inside Scoop SF » And now, the Bacon Bacon Truck

Ain't small business wonderful? Any individual can start up a service to others,
although the capital cost of a Bacon Bacon truck looks higher than some.

 

[ninerbuff]

Ain't small business wonderful? Any individual can start up a service to others,
although the capital cost of a Bacon Bacon truck looks higher than some.

You should do this................oh wait a minute you would eat your product.

 

[Penumbra]

I'd agree that capital gains (non-currency deflation portion) taxes should then be raised, but not to compensate.....rather because it ought to be treated as Schedule E income.

Perfecto!

For someone that is in favor of government simplicity, I'm surprised you'd want this. What do you propose should be the official source of inflation information, and what safeguards would be in place to ensure that it's accurate? And if I hold an investment over 10 years, what calculation do I use for inflation? A weighted average over the time period?

We seem to each be missing the other's points. So I'll stick to areas where I think I'll be clear.

I don't think it's unclear. I'm waiting for your explanation of how to efficiently gather all of this distributed tax. If the corporation doesn't pay all of its international, national, and state taxes, shareholders will have to. How do you propose such a complex tax burden is collected in a cost-effective way?

Double taxation is the easiest way to do it, as far as I can tell.

Au contraire....I do see it as a problem, albeit more of a symptom of an underlying problem which concerns me most - decreasing productivity of the poor.

And why do you think the poor are less productive? Why do you think this same problem doesn't occur equally in other countries of similar development?

When wealth is shifted towards the top 1%, and away from education and medical treatment of those without the requisite wealth, and free trade allows corporations to employ people in nations that have too-relaxed or nonexistent pollution and human rights laws, what effect would you expect this to have on the less privileged people in America?

No, which is why I favor lessening governmental restraint of trade, particularly for entry level businesses.

Specifically what restraint of trade are you referring to?

 

[Revoltingest]

For someone that is in favor of government simplicity, I'm surprised you'd want this. What do you propose should be the official source of inflation information, and what safeguards would be in place to ensure that it's accurate? And if I hold an investment over 10 years, what calculation do I use for inflation? A weighted average over the time period?

As I've proposed on other threads, a system could be similar to determining the Michigan Judgement Rate Of Interest.
TREASURY - Interest Rates for Money Judgments
There is also....
http://www.usinflationcalculator.com/
A metric is selected (eg, CPI, T-bills) to give the yearly percentage of inflation, which we may call "i". Then for each year, you
multiply (1+i) times the others, with a different "i" for each year. This gives you a result of the form (x+1), which is the factor
for total inflation, & x is the amount of inflation. This is simple & done all the time.
You don't sue many people & collect judgements, do you? I wouldn't recommend getting a lot of experience at it......it blows goats.

I don't think it's unclear. I'm waiting for your explanation of how to efficiently gather all of this distributed tax. If the corporation doesn't pay all of its international, national, and state taxes, shareholders will have to. How do you propose such a complex tax burden is collected in a cost-effective way?

I prefer that corporations pay no income tax at all.
The shareholders would pay income tax on dividends, payable to their governing tax authority.

Double taxation is the easiest way to do it, as far as I can tell.

Easy isn't necessarily equitable.

And why do you think the poor are less productive? Why do you think this same problem doesn't occur equally in other countries of similar development?

This is a bit of a tautology. The poor are generally poor because they don't have employment where they do anything valuable
enuf to receive high compensation. More basic reasons: stupidity, lack of education, lazy, obsolete skills, too young, too old,
bad family planning, criminal record, bigoted discrimination, lack of economic opportunity. (I saved the biggie for last.)

When wealth is shifted towards the top 1%, and away from education and medical treatment of those without the requisite wealth,....

I don't buy the argument that wealth is "shifted". An economy is not a zero sum game....wealth is created by those who are productive.
The poor aren't poor just because of the old cliche that the rich have all the money.

.... and free trade allows corporations to employ people in nations that have too-relaxed or nonexistent pollution and human rights laws, what effect would you expect this to have on the less privileged people in America?

This has a two-fold effect:
1) The lose manufacturing jobs & must switch to non-relocatable service jobs.
2) Their dollar buys more.

Specifically what restraint of trade are you referring to?

A Dream Deferred | The Institute for Justice
Las Vegas Limousines - Background | The Institute for Justice
NY Wine - Latest Release | The Institute for Justice
Maryland Animal Massage | The Institute for Justice
I also noticed when hiring independent contractors to shovel snow, cut grass, etc, that they had to buy Workers Compensation Insurance
(for which they weren't even personally eligible) because of the legal environment of insurers & employers. This was quite a burden ($750/year)
for someone just starting up a tiny business where only a snow shovel or lawn mower is needed. Government also collects more taxes if a worker
is an employee as opposed to an independent contractor, so Michigan is prone to auditing many contractors & try to declare them as employees.
This is an expensive fight against a disingenuous foe. The list of government roadblocks is endless.

 

[Penumbra]

As I've proposed on other threads, a system could be similar to determining the Michigan Judgement Rate Of Interest.
TREASURY - Interest Rates for Money Judgments
There is also....
Inflation Calculator | Find US Dollar's Value from 1913-2011
A metric is selected (eg, CPI, T-bills) to give the yearly percentage of inflation, which we may call "i". Then for each year, you
multiply (1+i) times the others, with a different "i" for each year. This gives you a result of the form (x+1), which is the factor
for total inflation, & x is the amount of inflation. This is simple & done all the time.
You don't sue many people & collect judgements, do you? I wouldn't recommend getting a lot of experience at it......it blows goats.

So use US treasuries as a proxy? Could be reasonable, but since it changes, what do we do over a period of time? Use a weighted average?

I wonder if the additional financial tax expense of doing these calculations with hundreds of millions of people with a variety of investment types would justify the benefits it would provide. I'm not vehemently opposed to it, but I don't see how it helps on any significant magnitude, and I can see many scenarios where it bogs things down.

I prefer that corporations pay no income tax at all.
The shareholders would pay income tax on dividends, payable to their governing tax authority.

Easy isn't necessarily equitable.

So regardless of where the corporation is located, and where their business activities are, people should pay taxes to their own authority rather than to the places that would typically bring in taxation revenue from these businesses?

In what way is that equitable?

This is a bit of a tautology. The poor are generally poor because they don't have employment where they do anything valuable
enuf to receive high compensation. More basic reasons: stupidity, lack of education, lazy, obsolete skills, too young, too old,
bad family planning, criminal record, bigoted discrimination, lack of economic opportunity. (I saved the biggie for last.)

What would you propose we do to address any of these issues? Social Democracy provides frameworks to progressively deal with a number of them.

I don't buy the argument that wealth is "shifted". An economy is not a zero sum game....wealth is created by those who are productive.
The poor aren't poor just because of the old cliche that the rich have all the money.

It doesn't have to be a net zero game for it to continue shifting.

I've already shown in multiple different ways how the wealthy have so many opportunities to continue compounding their wealth, and how they pay a low percentage in taxes, while the poor and middle class are caught up with expenses that make saving minimal and compounding unlikely. There's only one direction this can go in.

What percentage would it take to convince you? If 30% of total wealth is concentrated in top 1% of population, that's ok? What if it were 40%, 50%, 60%? At what point would you say it is a problem, or would you suggest that this trend can happen infinitely with no consequences?

This has a two-fold effect:
1) The lose manufacturing jobs & must switch to non-relocatable service jobs.
2) Their dollar buys more.

1) And how is that preferable? It damages the environment, it provides us with a huge trade deficit, and it makes those unfit for service jobs to be jobless. If all we do is provide services with no manufacturing, we are a shell of an economy rather than a full economy.
2) Their dollar buys more what? Yachts? Is it worth boosting the dollar if we undermine the middle class? And how does it boost the dollar more if over time, our trade deficit grows, a larger percentage of people are out of a job, and we've been involved with social manipulation across the globe?

A Dream Deferred | The Institute for Justice

Las Vegas Limousines - Background | The Institute for Justice
NY Wine - Latest Release | The Institute for Justice
Maryland Animal Massage | The Institute for Justice
I also noticed when hiring independent contractors to shovel snow, cut grass, etc, that they had to buy Workers Compensation Insurance
(for which they weren't even personally eligible) because of the legal environment of insurers & employers. This was quite a burden ($750/year)
for someone just starting up a tiny business where only a snow shovel or lawn mower is needed. Government also collects more taxes if a worker
is an employee as opposed to an independent contractor, so Michigan is prone to auditing many contractors & try to declare them as employees.
This is an expensive fight against a disingenuous foe. The list of government roadblocks is endless.

I'm in favor of not having impediments to business when it is safe to do so.

As for insurance, if we had universal health care and a more robust social system this would be less of a problem. Choosing between ensuring that people have coverage before they work, or risk dangerous conditions with no coverage to work, a more preferable situation is to ensure everyone has coverage.

 

[Revoltingest]

So use US treasuries as a proxy? Could be reasonable, but since it changes, what do we do over a period of time? Use a weighted average?

No. The factor is the product of (1+i) for each year....same method as the judgement rate of interest calculation.
A weighted average would be inexact & no easier or simpler.
We've covered this before, yet it crops up again & again. So here's a hypothetical example:
Year 1: 2% inflation
Year 2: 3%
Year 3: 1%
Accumulated inflation = (1+.02) x (1+.03) x (1+.01)
Let's approximate this product as 1.06. Let's say a 10% profit is made on the sold asset.
Real gain = .10 - .06 = .04
Easy as making a BLT!

I wonder if the additional financial tax expense of doing these calculations with hundreds of millions of people with a variety of investment types would justify the benefits it would provide. I'm not vehemently opposed to it, but I don't see how it helps on any significant magnitude, and I can see many scenarios where it bogs things down.

The taxpayer's expense of calculating it would be minimal....a drop in the bucket compared to the total cost of a return.

So regardless of where the corporation is located, and where their business activities are, people should pay taxes to their own authority rather than to the places that would typically bring in taxation revenue from these businesses?

Sounds good to me.

In what way is that equitable?

Whether the form of ownership of a Schedule E business is sole proprietor, LLC, partnership or corporation, the tax rate would be the same.

What would you propose we do to address any of these issues? Social Democracy provides frameworks to progressively deal with a number of them.

Lower marginal tax rates for all, eliminating income tax below some threshold (which creates progressivity), & removing barriers which are merely restraint of trade would be a good start.

It doesn't have to be a net zero game for it to continue shifting.
I've already shown in multiple different ways how the wealthy have so many opportunities to continue compounding their wealth, and how they pay a low percentage in taxes, while the poor and middle class are caught up with expenses that make saving minimal and compounding unlikely. There's only one direction this can go in.

I oppose wealth transfer. It's a good way to create & maintain a permanent underclass of non-workers.

What percentage would it take to convince you? If 30% of total wealth is concentrated in top 1% of population, that's ok? What if it were 40%, 50%, 60%? At what point would you say it is a problem, or would you suggest that this trend can happen infinitely with no consequences?

It isn't something I'd quantify.

1) And how is that preferable? It damages the environment, it provides us with a huge trade deficit, and it makes those unfit for service jobs to be jobless. If all we do is provide services with no manufacturing, we are a shell of an economy rather than a full economy.
2) Their dollar buys more what? Yachts? Is it worth boosting the dollar if we undermine the middle class? And how does it boost the dollar more if over time, our trade deficit grows, a larger percentage of people are out of a job, and we've been involved with social manipulation across the globe?

I never said it was preferable. I just answered you question about what would happen.

I'm in favor of not having impediments to business when it is safe to do so.

Woo hoo...detente!

As for insurance, if we had universal health care and a more robust social system this would be less of a problem. Choosing between ensuring that people have coverage before they work, or risk dangerous conditions with no coverage to work, a more preferable situation is to ensure everyone has coverage.

Note that the self-employed workers themselves are not eligible for workers compensation insurance benefits. It's only for their employees. They must buy it even if they have no employees because of legal & insurance requirements of the business who would hire the contractor. It's an expense which serves no purpose other than government say so.

 

[Yeshe Dawa]

How, in your opinion, should this issue be most practically, fairly, and appropriately addressed?

Hi Penumbra!

I think resources should be distributed fairly so that all people have food, clothing, shelter, medicine, and education. I also don't think we should limit the scope to the United States, but to the whole world. I am especially thinking of the people in Somalia and Ethiopia at this time, who are suffering from a terrible drought. They lack even the basic necessities of life. We have the resources to help them, if we could just change our way of thinking.

Peace and blessings
Yeshe
:flower2:

 

[Penumbra]

Hi Penumbra!

I think resources should be distributed fairly so that all people have food, clothing, shelter, medicine, and education. I also don't think we should limit the scope to the United States, but to the whole world. I am especially thinking of the people in Somalia and Ethiopia at this time, who are suffering from a terrible drought. They lack even the basic necessities of life. We have the resources to help them, if we could just change our way of thinking.

Peace and blessings
Yeshe
:flower2:

Thanks Yeshe,

Could you perhaps provide a bit more specifics on an economic model to support this?