Comments on: The stupid complexities of the tax code http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: april876 http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-30047 Thu, 25 Aug 2011 13:45:15 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-30047 DogFase: Consumption would be better than savings. Consumption would result in ordinary taxable income to someone else, plus the multiplier effect of the money flowing thru the system.

As time goes on I also get confused about the logic of Long Term Cap Gains set at 365 days. That is a huge tax cut to simply hold onto an asset for several days to get a 57% cut in the tax rate. Especially for hard assets like Real Property, which shouldn’t be so speculative anyway.

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By: realist50 http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29910 Tue, 23 Aug 2011 00:39:27 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29910 I’m sympathetic to the idea of identical capital gains and ordinary income rates – with a top rate lower than the current maximum ordinary income rate.

That said, there are a few of Mr. Jones’s “rough justice” arguments for a lower capital gains tax, including not only inflation but also both (i) limitations on using capital losses to offset ordinary income and (ii) the fact that capital gains on C-Corp’s are also wound up in the whole question of double taxation of corporate income.

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By: right http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29900 Mon, 22 Aug 2011 20:22:07 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29900 “Here’s a simple suggestion, then, for the super-committee taking the latest long hard look at US fiscal policy. Rationalize the tax code, pick a number for any given annual income, and declare that number to be the tax rate — no matter whether it’s for personal income or corporate income, income from labor or income from capital gains.”

I’ve always thought this would be the best approach, as it would take away a lot of the politics of “Vote for me and I’ll raise taxes only on OTHER people” (which both parties tend to practice). I would add that it could also be a VAT rate as well. Ideally you’d have a system where there was one rate across all types of federal taxation, with one large individual income tax deduction and these were the only two levers people ever debated. No exceptions, no loopholes.

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By: DogFase http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29899 Mon, 22 Aug 2011 20:14:41 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29899 ” If you have money, you really have no choice but to invest it.”

Of course you have a choice. You can invest it or you can spend it.

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By: loudnotes http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29898 Mon, 22 Aug 2011 20:12:59 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29898 I’m feeling a bit dense here, but I can’t think of an example that fits Blinder’s Econ 101 concept:

“a proposed investment that loses money before tax (and which, therefore, should be rejected) but which actually turns a profit after tax because of the preferentially low capital gains rate”

If I invest $100 today and sell for less than $100 in the future, how exactly could a lower tax rate on my loss result in a profit?

Does he mean that a project with negative NPV (but still pre-tax profitability) could be made to have positive NPV at a lower tax rate? Because in that case the lower capital gains rate is functioning exactly as designed, by encouraging additional marginal investment.

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By: AlexBBB http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29894 Mon, 22 Aug 2011 18:10:14 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29894 Amen! The Laffer curve idea that tax rates discourage work certainly makes intellectual sense with earned income. If my labors are taxed at 80%, my desire to work, especially in my later years, is going to be near zero. The trade-off between labor and leisure if pretty clear. Investments on the other hand, is merely a question of current consumption or future consumption. For the vast majority of people who need to save for retirement, the question of whether the (non-IRA or 401(k)) GAINS on those savings are going to be taxed at 15% or 25% or 39% is irrelevant. You need to save that money, i.e. you can’t spend it now. The tax rate just should not modify the behavior.

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By: MyLord http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29889 Mon, 22 Aug 2011 17:54:43 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29889 If anything, lower capital gains rates preference consumption over investment. Taxes encourage investment by encouraging deferral. Rather than promoting the best return, lower rates promote the extraction of that return.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29883 Mon, 22 Aug 2011 15:42:50 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29883 There is already a strong economic distortion created by the way we differentially tax capital gains and dividends. Dividends (even if reinvested) are taxed upon distribution. Capital gains are taxed only when the asset is sold.

The effect of this is to encourage corporations to use their capital for acquisitions (which often struggle) rather than allowing investors to direct its use.

Let corporations manage the businesses they know best. Return the income generated to the shareholders, and let THEM decide where it ought to be invested.

The simplest solution is to tax consumption, not income.

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By: MrJones http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29882 Mon, 22 Aug 2011 15:34:43 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29882 @samadamsthedog Gains from the sale of a principal residence are generally tax-free up to $500K for a married couple – this is a separate rule from the capital gains rate. Except in the case of hyperinflation, labor gains aren’t subject to much inflation: most people are paid within a month of the performance of their labor. The capital gains preference as a means to prevent taxation of inflationary gains is “rough justice,” but that’s one of its original purposes.

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By: blades2000 http://blogs.reuters.com/felix-salmon/2011/08/22/the-stupid-complexities-of-the-tax-code/comment-page-1/#comment-29881 Mon, 22 Aug 2011 15:27:09 +0000 http://blogs.reuters.com/felix-salmon/?p=9462#comment-29881 We had the nirvana of a 28% maximum capital gain rate and income tax rate until an unholy combination of Democrats and Republicans destroyed it. Ronald Reagan accomplished the feat with a major revision of the tax code in 1986, thereby essentially ending the tax shelter industry overnight.

The Republicans squandered this achievement by trading Clinton tax increases on high income for low rates on capital gains.

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