Posted by bifftastic 9 hours ago
Capital gains are on realized gains. Based on the difference between purchase price and selling price.
The thing is, wealthy people don't have interests bearing investments, because they don't need the cash right now. They either have unrealized gains (shares, real estate, etc), or interest bearing products wrapped in marked to market vehicules with reinvestment (ETFs, life insurance, mutual fund, etc).
Unrealized gains are not taxed as long as you don't sell them. If you need cash, you can borrow against them, so problem solved.
As for interest bearing investments, most companies nowadays use buybacks instead of dividends to avoid withholding taxes.
1- Fundamentally, they are magnitudes of different units, one is tax/income, the other is tax/wealth/time. Not only is the denominator different, one being calculated over income, the other over wealth, but there is an additional inverse time factor.
In income tax, whether the period is yearly or monthly or hourly, is an administrative matter that doesn't materially change the rate, 1%/month is the same as 12%/month, however in wealth tax, 1% wealth tax per year is not the same as 1% wealth tax per month. In many respects one might consider wealth tax to be a second order derivative of income with respect to time. Which is again very similar to a progressive income tax. Anyone that studied polynomials knows that there is no such equivalence between ax and bx^2, they are irreducible mathematical forms.
2)Trivially, in the scenario Paul proposed, Wealth tax is comparable to income tax only with respect to capital gains. That is, if he did find an equivalence between income tax and wealth tax for capital gains (which he didn't), income tax would still apply non capital gain taxes. But I will concede that there may be an argument that, if such an equivalence were found, it could be considered that there exists an Income Tax which will always yield more tax than another specific wealth tax.
3) The equivalence between wealth and income tax cannot be linear. The example given applied to 1% wealth tax and was compared to 20%, and a risk free interest of 5%. If the wealth tax were of 2%, 5% or 10%, would that be equivalent to 40%, 100%, and 200% income tax respectively? The last one is especially ridiculous.
Explained here: https://gemini.google.com/share/e230bcecaaeb
The reality is that the total financial effect of that sort of technique is not that considerable, but the political noise that can be made out of turning it into a perpetual problem (e.g. by only proposing to fix it with drastic non-solutions like wealth taxes) is gold to the people that profit from making us hate each other.
I don't want to do math, but they aren't the same.
And people aren't investing 100% of their income in risk free 5% assets.
In my opinion it's not a tax on the employee but on the employer and one of very few solid methods of actually taxing the rich (for as long as the rich need labor to get richer).
Your income tax money never reaches your pocket so it's never a part of your actual income and if employer didn't pay your income tax, they are (not you) on the hook for that.
And if income tax rate was lowered to zero, the employer wouldn't automatically start paying you that much more. There would be a renegotiation and most of that money would stay with the employer, because you already agreed and demonstrate that you can work for as little as you do. Of course in specific cases that the position of the employee in the market is very strong, some companies might choose to use the money they don't have to pay as your income tax to compete for employers by offering higher salaries. But that's definitely not given. Company getting richer rarely automatically translates to higher salaries.
So employee, if the economy is strong, should advocate for as high income taxes as possible, because that one of the very few ways that the money in the economy flows from the rich to the poor (with a detour through governments, which are poor nowadays anyway, perpetually indebted to the rich).
How I pay tax on my labor income doesn't have a lot to do with how Paul pays taxes on his investments. Paul makes his money from investment income.
Money in the long run can buy anything, including political influence. There are no regulations that can effectively preclude this. (And empirically, America over the past 40 years has seen moneyed entities successfully re-align politics and economic policy with their interests -- this was entirely predictable). An unequal society therefore cannot be a democracy. If you believe in democracy, then you necessarily must believe in wealth redistribution. (In fact, I argue that any person who believes that the American Revolution was justified, for any non-trivial reason, will likely find that those the same non-trivial reason could be invoked to reallocate wealth away from today's wealthy.)
Counterarguments to this view (i.e. a different top-level value than democracy / meaningful sovereignty over the society in which one lives) might invoke utilitarianism: an unequal society potentially produces "better" outcomes if capitalism is allowed to run unrestrained.
But a problem this argument encounters is who gets to decide what "better" is? All systems are economic in the long term, including political ones. A good framework for understanding is that a society in the long term is not "one person one vote" but rather "one dollar one vote." Today's preferences are dollar-weighted. Those with money decide what is better. The economy serves the average dollar's interests. And the average dollar's interest are the wealth-weighted preferences of society's members.
We started with an income tax to fund the government. But today our most pressing issue is not funding the government, but not having an oligarchy. Wealth is the thing that most needs to be taxed in order to allow for any semblance of democracy. Analogies drawn to income, though interesting, are meaningless.
https://www.propublica.org/article/the-secret-irs-files-trov...