Romney: zero capital gains tax for middle class

dragoncar · Post by **dragoncar** » Thu Oct 18, 2012 7:08 am

secretwealth, you don't think a company considers taxes when, for example, choosing between two different states to expand into?

C40 · Post by **C40** » Fri Oct 19, 2012 4:37 am

I'm going to do some thinking and reading about progressive tax systems. I don't currently understand why they are so widely accepted and considered to be good and fair.
I don't really think zero capital gains or a consumption tax are necessarily good things for the whole.. I suppose I'd most favor a flat tax for everyone* with no deductions of any kind. (* Except with the tax rate sharply dropping to zero where welfare begins)

secretwealth · Post by **secretwealth** » Fri Oct 19, 2012 7:57 am

Sorry--I'm travelling so I don't have much time to write out a full response, but if you want to read on the virtues of progressive taxation, Adam Smith is a good place to start; he said:
"It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

Christopherjart · Post by **Christopherjart** » Fri Oct 19, 2012 2:28 pm

""While punishing poverty and making it harder to save if you're making minimum wage. Doesn't sound great to me."
A consumption tax doesn't punish poverty, it punishes consumption... I think it would make it easier to save, since there would be a penalty for spending. But fine I'll engage; vittles would be exempt from the consumption tax.""
The less money you make the higher % of you income you have to spend on real necessities. You need clothing, shelter, transportation and food. That's of course why it is easy for someone with a high income to save 80% of his income whereas it is very difficult for someone with a low income to do the same. FYI, I find most of the budgets people post here to be luxurious yet many of you still save over 60% with so many luxuries. why? because you have higher incomes. A lower % goes toward things you need so you can live like a poor person, but rents only go so low and the bus & the subway aren't free. Normally the cheapest housing isn't walking or biking distance from work. Typically expensive apartments are near/next to offices.
so if you have a high sales tax or high VAT it will in effect make it more difficult for a poor person to survive and save. A rich person can reduce luxury spending. A poor person still has to live.
I see the pledge to eliminate capital gains tax there as a way to get retired boomer votes since most of them are retired or close to it, they would benefit.

JohnnyH · Post by **JohnnyH** » Fri Oct 19, 2012 3:01 pm

We've covered, and I understand, the proportions and % of total... I countered that food should be not included, and let's add housing, heating energy and public transport for argument-all tax free.
Now with the above being tax free, do you still contend a consumption tax would be detrimental to the [so called] poor?
Idk, I'd rather see mindless consumption reigned in than punishing the "rich" and promoting the "poor" -this forum suggests both labels are basically meaningless.

Spartan_Warrior · Post by **Spartan_Warrior** » Fri Oct 19, 2012 3:23 pm

@JohnnyH: Yes, I still believe it would be detrimental, and I think I can best counter it with some questions of my own: do you believe that ever increasing consolidation of wealth and social stratification is a good thing? The less progressive the tax scheme, the faster the acceleration of wealth inequality. Do we really want to go back to peasants and lords?

Christopherjart · Post by **Christopherjart** » Fri Oct 19, 2012 3:29 pm

we'll we'd also need to include non-luxury clothing, hardware, gas prices (since high gas prices would make public transport go up) and education. oh and computers and internet should be excluded too or should only the rich be able to have a computer with internet at home?

Spartan_Warrior · Post by **Spartan_Warrior** » Fri Oct 19, 2012 3:42 pm

Also, regarding the whole taxes affecting hiring thing. I really know very little about business tax reporting, but it's always seemed counterintuitive to me that certain classes of small businesses report all their business income as personal income. Personal income tax should be on wages drawn for yourself ONLY, not on money you're using for business expenses like hiring workers. I don't think anyone's even talking about these kinds of loopholes, but if business income was treated as business income and personal income as personal income, always, then a progressive tax scheme on personal income would actually benefit hiring, as the leaders of the hedge funds and stuff that comprise the 3% of small businesses that report more than $250,000 of income would be incentivized to give themselves lower personal wages to avoid the higher taxes. Do CEOs really need to suck up such a large proportion of a business's profits in personal compensation anyway? The rest of the money would be kept in the business--aka spent on expansion, hiring and wages.

Chris · Post by **Chris** » Fri Oct 19, 2012 7:46 pm

but it's always seemed counterintuitive to me that certain classes of small businesses report all their business income as personal income.

If you're referring to sole proprietorships, income is taxed at the personal rate. But income is revenues minus expenses. Paying employees would be an expense, reducing the income. The sole proprietor doesn't pay income tax on the wages he pays out.
If the sole proprietor keeps all of the business income for himself, then it makes sense for him to pay the personal income tax rate on that full amount. It would be like a corporation paying out all profits to employees: the business wouldn't pay tax on that amount, but that amount would all be hit with personal income tax by the employees. The difference between the two is that, assuming business income is equal between the sole proprietorship and the corporation, more total tax will be paid by the sole proprietor because of a progressive structure of income tax.

Chris · Post by **Chris** » Fri Oct 19, 2012 8:14 pm

This is an interesting discussion to be sure. But I'm a bit disappointed that the idea of a consumption tax has been so heavily criticized based on some hypothetical disastrous consequences. I'm not saying there wouldn't be consequences, but I think we can look around the US for some experimental data, instead of relying on conjecture.
There are 9 states that do not impose a tax on labor. A constructive study might compare two states with different tax structures (consumption vs. income). You'd need to use states that are similar in politics and social services (say, WA and OR). Washington has a state sales tax of 6.5%, Oregon has an income tax between 5-11%. From an income inequality perspective, both sport a similar Gini coefficient. There are other metrics you can use to compare as well.
All that to say: this discussion would be more interesting by adding some real-world examples of what you're all talking about.

Spartan_Warrior · Post by **Spartan_Warrior** » Sat Oct 20, 2012 12:15 am

@Chris: "If you're referring to sole proprietorships..."
Yeah, possibly. I don't know. It's just a frequent talking point that small businesses will do less hiring if the personal income rates are increased. Your explanation of income being revenue minus expenses certainly makes sense, which is why I don't understand the talking point. The actual cost of running the business doesn't change as a result of the income tax. And the business owner has to eat the tax rate no matter how he gets his income--whether he's a worker or a business owner, anyone making X has to pay Y. Therefore most people will continue running the business. And continuing to run the business means meeting demand. If demand requires new hiring, the business owner hires. The only thing the taxes affect are how much the owner's taking home--and not by virtue of him being the owner, but simply because of the amount of the income.
The only way I could envision personal income tax rates affecting hiring is if the expense of hiring did in fact come out of revenue that's being taxed as personal income, but if it doesn't... how do lower taxes, particularly for the rich, increase profit margins (for the business, not the owner)? How does it lower prices?
I just can't wrap my head around this. I'm going to go get drunk now instead.

Post by **jacob** » Sat Oct 20, 2012 12:51 am

Well, for some companies the cost of employee wages probably does come out of wages that would otherwise go to the owner. In such cases, the owner might think that if the after-tax compensation drops because of a tax-increase, he might as well fire/not hire an employee and do the work himself.
In particular, owners are likely anchored to the business income they get (because most people are locked into their lifestyle expenses). If tax expenses go up, some other expenses, say wage expenses, have to come down.
In the anecdotal examples I've seen, owners are usually nice enough not to fire people. They will, however, make existing employees work harder to make up for not hiring new people. The less desirable alternative would be to pay themselves less.

Haplo · Post by **Haplo** » Mon Oct 22, 2012 2:19 am

I think it's important to consider that 90% of all startups fail within the first 10 years. This can happen for various reasons but the bottom line is that they run out of money. Tack on a bunch of taxes and absurd regulations and force employers to pay for health insurance for every employee and for the same amount of production/sales they will run out of money just that much faster.
I must say the whole "decide how other people should live->find a way to indirectly force that upon them->write up some laws/taxes to make it happen" paradigm really makes me sick. Not only is that putting responsibility in the absolute wrong place, but every time it's used the leash gets tighter and people become more and more acclimated to obeying like good little sheep-dogs.
Let's not forget that government schools are where the rat race, conspicuous spending and a lifetime of debt are first shoved down children's throats and presented as the one and only possibility for being happy and successful. This is no coincidence. Big industries and old money own the government, and they're all for sending your children to a hellish indoctrination camp to learn to be a good slave. After all their children are all privately tutored and set to inherit fortunes built on the stupidity of those same slaves.
Another thing, I may be biased being well read in austrian (and to a fair extent also banking school) economics, but I would not by any stretch say that ERE depends on the fact that nobody saves. Nobody saves because interest rates are kept at 0% by artificial government manipulation (see: Federal Reserve) so nobody can make more than negative real interest by saving in a bank account (after inflation at ~6%). That, and loans are oh so cheap for the same reason. The reason ERE works is because we're willing to deny anything useless, frivolous and unnecessary and find things that we actually enjoy and get use out of instead. Sure, if everyone did that there would be a huge economic disturbance. Any time something huge changes in the market there's a disturbance. However I wouldn't call it a catastrophe, I mean after all the only businesses it would threaten are cable companies, TV manufacturers, McDonald's, the makers of silly bands and so on. You know, all the worst most culturally destructive businesses that spend their time ruining people's health and keeping landfills in business. We (theoretically) should be buying based on quality and value, and I believe the term used to describe the result of such behavior is an "efficient market".

JohnnyH · Post by **JohnnyH** » Mon Oct 22, 2012 3:05 am

@Spartan: "Progressive" tax schemes have far less to do with wealth distribution than regulatory capture... Money has a gravity to it, as long as their is no disruption larger masses will grow more than smaller ones. I would argue that the solution to feudalism is less government, not more.
@Christopherjart: I have not bought 1 article of clothing this year. I'm not sure what "hardware" is defined as, but I doubt much spending on it is needed to live. Higher education, also not required to live and more often than not financially detrimental. Computers are ridiculously cheap (not Macbook pro, $20 P4 desktop), so even if they were taxed it shouldn't matter one way or the other... And sure, internet would be tax free.
I'm always amused by this subject. Here we are gathering on this site with the common interest, and belief, that you can live well on a few hundred dollars a month.

Yet, the instant federal taxes are brought up people start talking about infinite hardship of the "poor" person. Many people's spending here puts them solidly under the "poverty line". I deduce that the "poverty line" and other metrics of "poverty" in the US are mostly BS.
A much more interesting and relevant question would be why do some people do better with equal resources than others? And how to change that... Or keep doing what we've been doing, and expect different results.

Christopherjart · Post by **Christopherjart** » Mon Oct 22, 2012 4:20 am

Perhaps computers are very cheap where you are. They aren't cheap here.

conpewter · Post by **conpewter** » Mon Oct 22, 2012 5:05 pm

@Christopherjart: Perhaps you are trying to buy a computer new? Used older computers that are just fine for internet and email are really cheap at any local thrift store. Just wipe and re-install an old copy of XP and it should run fine.

Haplo · Post by **Haplo** » Mon Oct 22, 2012 6:57 pm

"A much more interesting and relevant question would be why do some people do better with equal resources than others? And how to change that... Or keep doing what we've been doing, and expect different results. "
Why is it any of our responsibility or any of our business what other people do? Any one of us personally can learn to live on less resources, and any one of us personally can change what we are doing. If the rest of the developed world decides to jump off a cliff, and they've already made that choice, then what do you suggest we should do about it? Stand on the edge so we get shoved off with the stampede?
You're talking about changing the values of an entire multi-hundred-million-person culture. Values that now include arrogance, greed, violence, conformity, bread and circuses. These values come from school, TV, and most places of work, with an infinite pool of validating peers to maintain the reality of that way of life. What you're saying is the same as telling the masses that they can't have their TV, sports car/SUV, their McMansion with glass on 3 sides and granite countertops, etc; they'll hang you first, or more likely just laugh you off as a crackpot. Neither the average person nor the government has any interest in what we are doing, and many would feel directly threatened by it because they identify their own value by how well they can conspicuously spend.

C40 · Post by **C40** » Mon Oct 22, 2012 7:22 pm

Conpewter - I believe Chris lives in Mexico. There are no thrift stores there. People often use things until they are completely worn out and unrepairable. In central and south America, people don't buy things and get rid of them quickly like in the U.S. There are also more (import) taxes, So things like electronics, furniture, and appliances generally cost more (sometimes twice as much as in the U.S.)

conpewter · Post by **conpewter** » Mon Oct 22, 2012 7:50 pm

C40: I do tend toward a US-centric view; so I appreciate the insights into how the second hand market (or lack-thereof) is in Mexico.
Perhaps there would be a market for used computers from the US in Mexico, here they just get scrapped or thrown in a landfill, you'd have to deal with import taxes though. I know the last company I worked at had to pay to have someone haul away CRT monitors.

Christopherjart · Post by **Christopherjart** » Mon Oct 22, 2012 9:52 pm

Even if there were working computers in thrift stores here, they wouldn't be good enough. I use Photoshop along with many different filters. It will barely run on my current system. ( and yes, I use my computers until they either break down completely or can't run the software I need. I have had my computer repaired a few times. The last time I had the power supply replaced. I think I had my computer assembled about 5 or 6 years ago. I've replaced the keyboard and mouse a few times. I also added a video card about 2 years ago which helped a lot.)
In any case, a computer should be good enough to do more than just use the internet. If I only wanted internet access, I'd just buy a tablet computer.
Computers are more expensive here due to currency exchange rates (it was almost 10:1 when I moved here in 2001 and now I think it is around 13:1), import taxes (because most computer components are imported from the USA), and finally middlemen (The importer and finally the reseller want their cut).
I really can't say if there is a thrift store somewhere in the city, I just haven't seen one.