Let’s consider how Joe Biden’s proposed new federal long-term capital gains tax rate of 44.6 percent would work without the inflation adjustment that other inflation-plagued economies have. We start with a California-based investor who purchased General Electric stock for $100/share in June 1997 and sold it for $162/share today:
At official CPI rates, the investor has lost money. $100 in June 1997 has the same spending power as $195 Bidies today. On top of the agony of the loss, he/she/ze/they will have to hand over to the Feds tax on $62 of fake profit. Let’s assume the investor lives in California and is financially comfortable. The total tax rate under Uncle Joe’s latest proposal will be 58 percent (44.6 federal plus 13.3 state). So the investor will pay $36/share in tax and thus net $126/share for a stock that cost $195 in today’s money. (The numbers are far worse if we use the cost of California real estate as the relevant measure of inflation rather than official CPI.)
Another way to protect the already rich from being joined by working stiffs.
Poor kid who starts a successful business and wants to sell it after 25 years? Taxed at 44.6 federal plus 13.3 state.
Rich kid whose father starts a successful business and passes it to the kid via a trust, who then sells the business? No tax at all, as the inheritor receives a basis step-up.
So any stock option or business sale of any size will be treated as regular income. (or really, a windfall) So take two brothers, one who becomes a firefighter in California and makes 250,000+ yr in total compensation for 5 years, and the other who joins a startup and has a salary of half that and options that make up the rest, but heavily tail-loaded, and the slow and steady one gets dramatically better tax treatment. So much for building equity…
> Poor kid who ? Taxed at 44.6 federal plus 13.3 state.
Actually that kid who starts a successful business and wants to sell it after at least 5 years is eligible for “qualified small business stock” (QSBS) rules. It let investors exempt up to 100% (varies by state) of capital gains tax on sale of their shares.
https://en.wikipedia.org/wiki/Qualified_Small_Business_Stock
FJB!
It’ll never happen but what will happen is an increase in the net investment income tax. When that was created 10 years ago, $200k was very wealthy. Today, $200k is poverty & the homeless are now paying the NIIT.
It is a common misconception, in my opinion, that taxes need to be fair. Taxes exist to fund the government, not to promote fairness. While it is preferable for taxpayers to perceive taxes as just, the primary concern of those imposing taxes (taxes are called “impôts” in French, “impuestos” in Spanish, “imposta” in Italian…) is typically to collect as much revenue as possible without causing excessive disruption, akin to blood-sucking parasites extracting blood with minimal disturbance.
How do you then explain tax deductible “foundations”, that finance lavish billionaire retirement hobbies and travel and property destruction in Ivy League + riots in a tax-free manner?
If taxes exist to fund (non-malicious) government, why would government tell retired idle billionaires that their hobbies and childhood fears are more important then funding the government?
The current income tax regime makes the most sense if you imagine a system which appears fair on the surface, but which is secretly designed to give the best treatment to people whose income comes from rent and/or the government. (Government workers, government beneficiaries, and landlords, everyone else is getting taxed at 35-55% effectively)
Arguably, the less fair of all taxes is government borrowing. It taxes future taxpayers many of whom do not yet vote. Far less just than the case described by the host.
Kings and Lords, use to tax the poor to fill their pockets and belly. The poor had it and revolt against the Kings and Lords.
Today, government is taxing the middle class to fill their pockets *and* to fill the belly of the “poor” [1]. Soon the middle class will revolt against the government.
If you are still wondering why Trump gets the 1/2 of the countries support, even after all the outrageous stuff he said and continues to say, this is why.
[1] The only poor person is the one who keeps asking for more fish, instead of a fish net.
I can see why Biden likes this tax–his tax return shows no income from capital gains or stock dividends at all. So it’s a tax on other people–the best kind! He is such a lousy investor that he has very little savings after all this time. His personal financial statement shows a dozen small holdings of oddball funds.