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« Fumble | Main | Public servants »

Jan 30, 2012

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Kim

One of the reasons cap gains are 15 per cent might be political in nature.
I like the way they use debt to finance their special dividends.

Ed Cone

Cap gains rates are low by historical standards.

But a key point here is that these guys are allowed to classify earned income as cap gains.

So whatever we might agree upon as the appropriate rate for capital gains, Romney and his friends are getting a special break.

Kim

Agreed. Tax reform will never happen.

greensboro transplant

"So whatever we might agree upon as the appropriate rate for capital gains, Romney and his friends are getting a special break."

c'mon ed. your comment implies romney got some sort of one-off deal or engaged in the type of crony capitalism that the current white house supports.

if you have evidence of that please share it. otherwise that sort of smear is beneath you.


Ed Cone

GT, your inference is not my implication.

It's a big, systemic problem.

Romney tried to avoid releasing his tax returns to keep people from talking about that big problem.

That didn't work. I don't think "Leave Mitt alooooone" is going to work, either.

cheripickr

Yeah, GT, Ed's saying it's a big, systemic problem....but also that Romney and his friends get a "special break". Guess Romney must have a big, systemic group of friends. Quit inferring things.
Remember, Ed makes equivocation an art. Nobody does it better.

polifrog
But a key point here is that these guys are allowed to classify earned income as cap gains.

It is not simply a matter of "classification". The income is a result of a long term capital gains that could very well have been a loss. As such it is rightfully classified as a capital gain.

The primary point being that there was no absolute expectation of being paid for the work rendered.

cheripickr

And as I said before, I can lose my ass, on capital losses and have, yet can only write off $3000 in losses per year. I won't live to recoup what I would get if I got it as a lump sum, yet there is no limit to the amount of capital GAINS I can be taxed on in a year. If someone increases the rate on that from 15 to 35% or whatever Ed and his kin deem 'fair" why the hell would anyone want to invest under those circumstances? These sorts of policies are aimed at reducing the wealth gap by dragging the rich down faster than they do the poor.

sean coon

"Dragging the rich down" as if the difference between Romney's 13.9% rate this past year and a steady 30% (which it once was) would "drag him down." He'd still have $15m after taxes. Poor, poor Mitt and viva la revolucion!

cheripickr

bare naked class envy, pure and simple

polifrog

sean coon:

"Dragging the rich down" as if the difference between Romney's 13.9% rate this past year and a steady 30% (which it once was) would "drag him down." He'd still have $15m after taxes. Poor, poor Mitt and viva la revolucion!

Just as Romney is wealthy relative to most of us you are wealthy relative to the citizens of Chad. Just how much or what percentage of your income should go to Chad?

If the logic fits wear it.

Andrew Brod

A lot of people here are missing the point. This isn't about whether capital gains should be taxed at 15% or some other rate. That was a thread from last week. The issue here is the loophole (call it systemic, call it a special break, whatever) that allows one particular kind of earned income to be taxed as though it is what it isn't, a capital gain.

In other words, it is precisely a matter of classification.

polifrog

Yeah, right Cheri. But that whole cap on deducting losses while being subject to a limitless tax on gains thing is intended to incentivize making profits rather than losses; this despite, as we all know from Andrew Brod, that fact that a low capital gains rate does not incentivize investing.

Incentives operate under what is known as "Brodian rules".

Andrew Brod

I never said that, but whatever.

Andrew Brod

In fact, what I said was that a low capital-gains tax rate spurs (financial) investment by so much that people with other kinds of income, such as earned income a la Mitt Romney, try to wedge their income into the category of investment income.

(Conservatives are keenly aware of the unintended consequences of public policy, except, apparently, when it skewers their guy.)

polifrog

No, what you said was that it is not clear that investing in the economy is a good thing:

Of course the real question is not whether a lower capital-gains tax rate incentivizes investment, but whether incentivizing investment is good for the economy, e.g. does it create jobs. And that's not at all clear. As in so many other cases, tax rates are not as determinative of economic behavior as conservatives wish they were.

But whatever.

==Did Romney earn a salary? No.
==Was Romney's income guaranteed? No.
==Was Romney's income immediate, daily, monthly or even annual? No.

On the other hand--
==Was Romney's income tied a percentage of a profitable investment? Yes.
==Did the income require years of patience to realize? Yes.
==Was the income the result of long term capital gains? Yes.


Andrew Brod

As my own quote makes clear, I didn't say that investing isn't a good thing.

Andrew Brod

Also, I do a fair amount of consulting. Is that income a salary? No. Is it guaranteed? No. Is it immediate, daily, monthly, or even annual? No. And yet no one who understands these issues would claim that it isn't earned income.

Your other points miss the point. Structuring earned income to make it depend on various business results doesn't render it unearned income. Sales commissions are a percentage, but they're still earned income. A finder's fee can be a percentage of the size of an investment, and it's still earned income. If a service is provided, then the income is earned... even if the person providing the service is a Republican.

polifrog

Oh, then you must have said incentives such as low tax rates for investment stimulate investment and investment in our economy is a good thing.

cheripickr


Andrew, maybe you should define "the point" as well as who's point it is. Is it Ed's? The author's? And are other points not valid in refuting or supporting "the point"?

sean

frog:

"Just as Romney is wealthy relative to most of us you are wealthy relative to the citizens of Chad. Just how much or what percentage of your income should go to Chad?

If the logic fits wear it."

what's the problem keeping this conversation relative to US taxpayers? i pay taxes in the highest bracket with only the average deductions available to me as a homeowner and small business owner. while i may be considered "wealthy" compared to other people in america, i pay a *higher* tax rate than them as well. why is is that only the über rich are excluded from this same model?

your turn. and if you use the phrase "job creator" you lose.

Ed Cone

"Ed makes equivocation an art. Nobody does it better."

[blushing] Thanks!

But I'm trying to be clear here: The tax system is broken in the way it classifies a certain type of income as capital gains instead of earned income.

Mitt Romney is one of the small group of people who benefit from this broken system.

And this is relevant in part because he's running for president and seems to have no interest in fixing that particular problem.

Now, there is equivocation on this topic. It comes when people change the subject to capital gains themselves, or proclaim class warfare, or invoke their belief in free market capitalism to defend something that isn't that.

polifrog

Brod:

Is that income a salary? No. Is it guaranteed? No. Is it immediate, daily, monthly, or even annual? No. And yet no one who understands these issues would claim that it isn't earned income.

So, how would you figure the tax on income that unlike sales commissions and finder's fees is only realized years later?

If the income being taxed this year is the result of labor performed years ago should this year's tax returns follow the rules under which the labor was performed?

If not how can an individual plan their current labor when it will be subjected to unforeseen changes in tax code?

If yes, then how would that be applicable under law?

cheripickr

"why is is that only the über rich are excluded from this same model?"

They are not "excluded" from anything, and if they were, it would not be based on being "uber-rich". "They" pay taxes based on current tax law, like everybody else. The differences in the percent of income that various INDIVIDUALS owe, is partly a function of differences in relative proportions of different types of income accrued in a given year, which are by law, taxed at different rates. It's the only model there is. You obviously don't like that, so I am sure that you are a proponent of raising the capital gains tax rate. Otherwise, I am not sure what you are asking.

polifrog
why is is that only the über rich are excluded from this same model?
They are not. Romney, for example, pays 15% on income that has suffered the blows of corporate taxes. The result is that his income taxes approach 50% (federal).

Perhaps it is you who excluded from their model.

Andrew Brod

CP, I wouldn't have thought it confusing or arbitrary to say that the point of the thread is related to the original post. But fair enough: blog commentary is a free-for-all, and you can change the subject if you want.

Frog: So now you have a new angle, that it somehow matters that the income is earned years later. But that's just another way to structure earned income. Restructuring earned income doesn't magically make it unearned.

Moreover, by harping on the timing of tax-rule changes, you make it clear that you're not defending an idea, you're defending Romney. So fine, let's allow Romney to keep his tax loophole but change the law moving forward. Doing so will protect a Republican, which appears to be your goal, and it'll rationalize tax law, which is my goal.

"The result is that his income taxes approach 50% (federal)."

This is the kind of comment that has led Ed to opine here that the character "polifrog" is actually an installation of performance art. As for me, I'll just note that if this is really your idea of arithmetic, then no one will be able to persuade you otherwise. You win!

Andrew Brod

I meant to say "...that the income is paid years later."

polifrog

Andrew Brod:

So now you have a new angle, that it somehow matters that the income is earned years later. But that's just another way to structure earned income. Restructuring earned income doesn't magically make it unearned.

It is not new. It is one I am leading you toward. And it is one you are now attempting to dodge.

As you said:

Is that income a salary? No. Is it guaranteed? No. Is it immediate, daily, monthly, or even annual? No.

If it is the case that the income in question is earned from work done years earlier, how do you tax it as this year's income?

One choice is to tax the income years before it is earned, but it is not clear how this is done over periods that can extend outward 10 years. Imagine doing this year after year with multiple overlapping projects beginning and concluding at various times..

The other is to tax the income years after it is earned. Again, it is not clear how this is done. Do we use current tax law or do we use the tax law under which the work was performed? If we apply the tax law under which the labor occurred to income that resulted years later then we run afoul current tax law. If, however, we apply current tax law to years old labor we create a situation under which current investment and work decisions are made blindly relative to tax law that could be profoundly different 10 years hence.

That you attempt to ignore these questions indicates to me that you don't like the resulting answers, and that those answers don't fit the political point behind your contention that "The issue here is the loophole (call it systemic, call it a special break, whatever) that allows one particular kind of earned income to be taxed as though it is what it isn't, a capital gain."

Your lack of focus suggests political gamesmanship.


The fact is that the capital gains tax exits to solve capital gains tax issues which is exactly what Romney's income is. There is a reason the IRS labels his income a capital gain.

justcorbly

Romney pays a lower tax rate on the income he derives from the way he earns his living because there's a law that allows him to call it one thing, while the rest of it have to call our income something else and pay higher taxes.

If I found a salaried job that paid me what Romney earned last year, my tax rate would not be 15 percent.

That's why it's unfair. No amount of willful blindness and money envy from the right is going to change that. A stink bug is a smelly thing, even if some folks pretend it isn't.

James


As I understand it, the so-called conservatives on the thread are arguing for social engineering, for using tax policy to encourage certain kinds of behaviors on the part of individual investors.

The Frogman and the Picker advocating for social engineering through economic policy! How ironic is that?

sean

frog:

"Romney, for example, pays 15% on income that has suffered the blows of corporate taxes. The result is that his income taxes approach 50% (federal)."

spare me the suffering verbiage. i get it. you're a humanist and hate seeing companies wounded. answer me this: was romney's income last year (the $21.9M taxed at a reported 13.9%, not the 50% you profess) earned income or income based on a sell off of stocks, mutual funds, etc.?

as far as i know from my limited experience in the stock market, if he had bought into holdings in 2011 and sold them prior to the end of the calendar year, that would qualify for a capital gain tax @ 15%, correct? so after only paying out 13.9% to uncle sam, i'm left with assuming that all of his earnings fell into that category and there were even more deductions made. somehow, i don't believe that to be the case and that his earnings were classified as such via a loophole in the tax system. the point of all this isn't to string up romney or others making mad coin, the point is that there should be no such loopholes, that we all should be working from the same set of rules.

oh... i just read the above comment. you make no sense. forget responding to me, please.

polifrog

James:

The Frogman and the Picker advocating for social engineering through economic policy! How ironic is that?

You conflate "social engineering" with individual liberty.

sean

yeah, frog, the flag you wave is soooooo american. give me a break.

polifrog

Justcorbly

Romney pays a lower tax rate on the income he derives from the way he earns his living because there's a law that allows him to call it one thing, while the rest of it have to call our income something else and pay higher taxes.


No. As I argued in the comment prior to yours, it is called a capital gains because that is what it is.

Taxes on capital gains exist so as to tax events that span multiple tax seasons.

polifrog

sean:

yeah, frog, the flag you wave is soooooo american. give me a break.

Back up a moment. The removal of your social engineering is not my social engineering; it is a return to individual liberty.

cheripickr

No amount of money envy from the right?
Exsqueeze me?
Oh I got it, it's just justcorbly (as Seany Drama veers toward his usual emotive implosion)
Wheeeee!!!

polifrog
i get it. you're a humanist and hate seeing companies wounded.

Yes. Wounded companies are wounded employees are wounded Americans, are a wounded economy.

sean

riiiiight.

companies are wounded because they're taxed, but as a human being (that's what they are, now) they don't enjoy the use of local or national infrastructure or, say, protection provided by our our national defense (which no one on the right seems to want to pay for, but love to chicken hawk situations that might spur huge federal spendings)... right?

companies just float in nebulous space, providing properly scaled wages to people -- especially americans, even when labor is cheaper elsewhere -- standing alone as self-reliant cloud cities of industry, never leaning on government when needed, pumping opportunities through their veins to the most qualified applicants -- local, first and foremost -- while providing top notch medical insurance packages and committing long-term to their employees with a goal for employees to head back into our american consumer economy on the weekend, armed to spend cash, no plastic, to avoid landing in micro-economic crippling debt, whether via small purchases or unaffordable mortgages.

oh wait, that's the naive post-taxation world libertarians believe would occur, forgetting that a capitalist will always be a capitalist and that the bottom line of executives and shareholders trump everyone else, no matter the levity provided the firm.

unless you're arguing for the rich to get richer, which is your right to argue, you need to be much more explicit in your utopian professions of a tax free corporate world and its role in avoiding a "wounded economy."

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