[KellyMP]

Fair, in this case, is not being used to mean "equal."

[Vobomei]

When Buffet eats at an all you can eat buffet, he should have to pay a million times what the average Joe would (I'm not just saying this because my name is Joe, and not just because I'm not average either), because the food that sustains him is a million times more important. We know this because Buffet has a million times more money. Jimmy Buffet on the other hand could eat at the all you can eat buffet for only ten thousand times the regular price.

This is fair. Any other system is in direct contradiction to the laws of thermodynamics.

[NewYorkDoctorD]

When people talk about "the rich" not paying "their fair share" they're probably thinking of people like Mitt Romney who only pays 15% of his income in taxes.

In the case of romney, who may or may not have paid earned income taxes on his current "income", this is a fair criticism. In the case of somebody who has earned income, paid taxes on it, then paid additional taxes on the time and risk values accruing to his investments, it is stupidity generated by the idiotic and financially nonsensical definition of "income" currently in use

[yqpY4iw6]

Addendum for KH: I fully agree with your criticism of "income", in the way politicians typically use it, as an incoherent economic concept. If I were discussing this with you alone, I would have written my post much differently, or just assumed we agreed and moved on. I chose to write a post using the popular definition of "income" for the benefit of other posters, not for you.

[quorceopporce]

In the case of somebody who has earned income, paid taxes on it, then paid additional taxes on the time and risk values accruing to his investments, it is stupidity generated by the idiotic and financially nonsensical definition of "income" currently in use

I'm actually making this argument on facebook right now. Among my friends, I feel like you on Apolyton

This is what I wrote in response to 'the rich avoiding tax on certain incomes'. For you/Jaguar, it'll sound sophomoric but I have to approach this slowly like a teacher, not confound people with algebra/terms they wouldn't understand Kindly correct any mistakes I made so I can keep looking smart to my peers.


Well yes but we already have a progressive income tax system. The effective tax rate for the richest is higher than the ETR for poorer portions of the population. What complicates it is when a rich person has a large share of their income coming from capital gains which is taxed at a lower rate; that is how Romney pays a lower tax rate than some other millionaires. Here's the problem. Capital gains lower the tax rate some rich people pay but bumping up the capital gains rate is problematic for a few reasons: 1) Capital gains in the US are double taxed in two ways: Corporations are taxed (with Japan's recent cutting of their corporate tax rate, the US now has the highest corporate tax rate in the world) and because the money used to purchase an asset was income at some point and was taxed BEFORE the investment was made; 2) Capital gains, especially with long-term assets like land, are largely due to price inflation and may actually represent no gain in value; 3) Taxing capital gains at a rate equal to or higher than income tax would dis-incentivize investment in favor of consumption; consider, making an investment and achieving a return means you borne risk and put off current consumption. Increasing the capital gains tax rate would discourage such behavior. What these problems mean is that increasing the capital gains tax to 'correct' ETR's would be foolish.

The rich avoiding taxes on investment income isn't a valid criticism. Let me expand on the idea of double taxation; not just from the fact that corporations are taxed first, then dividends are taxed on individuals (remember also that the price of a share is the present value of all future dividends, even if a company doesn't currently offer dividends), but also because the money used to make an investment was taxed as income of some sort before the investment. Let's say I earn $100,000 as ordinary income (for simplicity's sake, let's suppose I have no expenses). That's taxed at a 25% rate. I put my remaining $75K in stock and sell later for $85K (13.3% return). I've realized a capital gain of $10K. This $10K is taxed at 15% so I make $8500. In net, I earned $110K, paid $26.5K in taxes, and made $83.5K in profit for an ETR of 24%, slightly lower than my nominal tax on ordinary income. I look like I'm UNDERpaying my taxes but what is forgotten is that I IMPLICITLY paid a 25% tax on my capital gains income because I could not invest $25K that was paid in ordinary income tax. To illustrate, suppose there was no capital gains tax and instead, I am taxed on total end of year income at a nominal rate of 25%. I'm now able to invest my full $100K at 13.3% return so now I earn $113.3K, paid 25% of it in taxes ($28.3K in taxes), and made $85K in profit. Note now that my ETR is 25% but I actually made more money; I paid a higher tax rate but I'm now richer because I was NOT implicitly taxed on my foregone investment income. This disparity is the effect of double taxation.

[Mehntswx]

Obama realizes the Buffet rule polls well among voters and may hurt the Republicans.

[saturninus.ribb]

Jaguar, I messed with Kuci before but to be clear, interest income is taxed as ordinary income, not as capital gains

[beatrisio]

Alby, are you trying to suck up to Jaguar?

Not sure what would give you that impression.

[strongjannabiz]

Is it only munis that are exempt? I thought Treasurys and state bonds were also exempt.

[immoceefe]

Why only most?

[Wsjltrhe]

If you could have understood that in fewer words, great for you. Other people might benefit from the airtight algebra. Most of the formulae are just copy and paste from the initial version, with the new taxes added in. I don't feel bad about spending seven or eight minutes on a post that explains a simple concept that many leftists, including and especially President Obama, are unable to understand.

Without commenting on the argument itself, I have to say (as an economic illiterate and liberal arts weenie) that looking at that mass of variables hurt my eyes. Al's concrete-example way of expressing it, assuming you're talking about the same thing, was better. No offense intended.

[leijggeds]

The big majority opted for a lower tax bill when asked to choose specific rates; precisely 75 percent said the right level for top earners was 30 percent or below.

The current rate for top earners is 35 percent. Only 4 percent thought it was appropriate to take 40 percent, which is approximately the level that President Obama is seeking from January 2013 onward.

The Hill poll also found that 73 percent of likely voters believe corporations should pay a lower rate than the current 35 percent, as both the White House and Republicans push plans to lower rates.

The new data seem to run counter to several polls that have found support for raising taxes on high-income earners. In an Associated Press-GfK poll released Friday, 65 percent said they favored President Obama’s “Buffett Rule” that millionaires should pay at least 30 percent of their income. And a Pew poll conducted in June found 66 percent of adults favored raising taxes on those making more than $250,000 as a way to tackle the deficit. The American people already seem to think the rich pay more than their fair share: http://thehill.com/polls/212643-hill...duals-business

[bQXHsKzS]

Without commenting on the argument itself, I have to say (as an economic illiterate and liberal arts weenie) that looking at that mass of variables hurt my eyes. Al's concrete-example way of expressing it, assuming you're talking about the same thing, was better. No offense intended.

His post is a lot cleaner and straight-forward. Algebra is a lot more concise than words. I also like his preference for taxes restraining consumption better than my use of ordinary and capital gains income.

In general, I have criticized KH and Kuci for assuming the education of their audience, but Jaguar is always pretty good at explaining things. The way he kept indicating which portions were wage income and which were capital gains would be helpful to a student.

[Cuccuccaltefe]

You must know some ****ing dumb people then...

I know. They're liberals.

To be fair, only one guy bit and I'm not sure he's very liberal. He's currently a law student, though.

I was hoping to argue more.

[GVsdJZ2H]

Something to consider... If, in a world with no dividend or CG taxes, shares in company X paid a dividend of $5/share in perpetuity were valued at $100. What would be the effect on the share value if all dividends and CG were charged at 20% tax. What would be the effect on return on investment?

Mostly interested in seeing thought processes....

[sDePrx59]

why would shares stay valued at 100

Currently valued at $100.

[DongoSab]

I think you've missed the point entirely.

In simpler language, I'm asking what the effect on stock prices and yields is when introducing a dividend tax.

[Enfotanab]

Someone still has to explain me why value resulting from labor*capital-wage should be considered different than value from labor*capital-profit.

[strollerssfsfs]

Ultimately, no capital could value without labor.

Why then should we make a difference between capital gains and earned income?

[mirzaterak]

Thanks for the explanation.

I'm not really convinced the distinction is all that useful though.