Raising the Capital Gains Tax Would Be Un-American | Hacker News Reader

Raising the Capital Gains Tax Would Be Un-American

bloomberg.com

20 pointselsewhen49 comments

This is a poorly written op-ed. The author claims to prioritize the valorization of wealth, the encouragement of saving, and the encouragement of children, but fails to make any case for why we should value these. He then completely neglects to make any case for how increasing capital gains might lead to the deterioration of these values.

Raising capital gains is not going to discourage the next innovative companies, in fact it's likely to have the opposite effect. When a startup succeeds enough to reach a taxable event it is often at an exponentially large return on investment. In comparison a simple doubling of the tax rate is not going to materially affect the magnitude of that outcome.

Capital is always in search of returns. A general tax on net gains is not going to materially change that fact. The primary effect it will have is to further encourage investment into value-generating assets instead of speculative plays, something desperately needed right now in this frothy market.

:eyeroll: I’ll preface that to define what America is, is dumb; if it’s freedom, then let it mean what it wants to mean to individuals. But in the vein of the article, I thought America valued work, not living off of appreciating assets. Especially when values are inflated by massive buy backs funded via tax cuts and loopholes. I have benefited so much off of capital gains, do I like parting with a lot of it sometimes, no, but I’m happy to pay taxes. It doesn’t mean I don’t scrutinize how they are spent, but this whole article is a prelude to gaslighting.

I thought America valued work

As a worker who goes to work a job created by a Job Creator, I'm sure that is exactly what you were told, yes. And if we tax the gains of those Creators of Jobs, there won't be any more jobs.

I value work, but that doesn't mean an enjoyer of work can't call propaganda when they see it.

Does it? Even pre-pandemic, I don’t think the massive Trump tax cut had the effect they claimed it would in employment (or much of anything else really). I could also argue that done right, fuller government coffers yields to more government spending and, if done right, which I grant you is a big stipulation, creates many more jobs, blue collar ones too.

Guess my post needed sarcasm tags because it seems you're attempting to refute my point, which was that America only says it values work. But as famously pointed out by Warren Buffet that his secretary pays more in tax than he does[0], it is obvious what America really values: asset holders, not workers.

[0] Buffet's secretary pays a higher rate on earned income than Buffet does on capital gains.

I think Cowen has a lot to offer and he frequently challenges me to think about things differently.

But this is perhaps the least convincing argument I've ever read from him (and the commenters on Marginal Revolution seem to agree.) It does nothing to convince me that raising the rate on very wealthy individuals is a bad idea.

I'd be willing to entertain thoughtful arguments on either side of the debate and I wonder if anyone here can point to more convincing examples.

I agree. Love Cowen, thought this article was very meh. Seems like it's always his weakest stuff showing up on HN :/

A better critical take on the capital gains issue is Scott Sumner's short and succinct one: https://www.econlib.org/capital-gains-nonsense/

But this is hardly the only argument against high capital-gains taxes. Capital gains taxes share the extreme inefficiency of capital taxation more generally (taxing "capital" just means double taxation of your already-taxed earnings - as long as you don't spend it, that is!), and place an especially unfair burden on risky assets that are linked to the highest economic growth. It's just a terrible idea. Say anything about the federal "FairTax", many people don't like that either but it would be a lot more sensible than this.

In its currently proposed form, a 40% tax on gains at the moment of sale, is effectively a tax on middle class. Those with a million in a brokerage account, i.e. the solid middle class, usually have to sell most of that when buying a house, and so they'll have to pay 40% on their entire gains. In practice, this tax will take back the gains from the last year's bull run of the stock market. If the new tax stays for long time, it'll effectively reduce the sp500 gains from 10% minus inflation to 10% minus 4% minus inflation, so about 3% per year at most. The rich, on the other hand, have 100M in stocks, but they need to sell only 250K per year or 0.25% of their assets and pay 40% only on that miniscule amount, while the 20M gains from the last year will keep sitting tax free. If the WH created an annual capital gains tax regardless of whether assets have been sold, that would tax the rich to the full extent and those rich would be furious and would do anything to change the US administration at the next elections.

Most of the American middle class does not own stocks separately from a 401k or other retirement savings vehicle.

Also, the 40% rate wouldn't kick in for incomes below $1 million. Someone making a $1 million a year is not middle class and indeed would be in the top 0.01% of all earners, worldwide.

I think you need to adjust your internal model as to what constitutes solidly middle class. To quote some more realistic numbers:

>> Here, we define the middle class as the middle 60 percent of the income distribution in terms of what a family usually makes in a given year—ranging from $25,300 to $111,400 in 2016 (the latest year for which data is available). The median middle-class family has total liquid assets, defined as checking accounts, savings accounts, money market accounts, call accounts, and prepaid cards, of just $4,000. Unsurprisingly, the top quintile is more secure with a median of $31,300 and the bottom quintile is even less secure, with just $600.[1]

[1] https://www.brookings.edu/blog/up-front/2020/03/26/the-middl...

$4K in "assets" is poverty, it's the underclass or the bottom 50%. A one basic car worth of assets is nowhere near middle class either. The truth is that the middle class is rapidly shrinking.

We are talking about liquid assets though, not net worth. As other commenters have pointed out, the middle class has most of their net worth tied up in non-liquid assets such as cars, houses, or retirement funds.

Those with a million in a brokerage account, i.e. the solid middle class

Found the SV bubble resident. :-) One can do a quick search and select from any number of sources that basically say, "a million bucks in a brokerage account means you're not middle-class anymore". Tone I read most often is that not only is the middle-class shrinking, it is burdened by debt, not capital gains taxes.

So what do you call it? A million bucks in a brokerage account no doubt means you probably lead a far more comfortable life in the US than most, but it is still very far from 'rich' in the private jet to St Moritz and your kids never having to worry about money sense.

I'd call that "rich", a category that spans a lot. There's private jet rich, and then there's "don't worry about money much, if it all" rich. This, with the caveat that I assume there's a job backing that accumulation of $1MM, which pays better than most. Another way to put it is that 7% of U. S. households hold millionaire status (meaning $1MM in investable assets, excluding house and retirement plans)[0]. If that ain't rich, then I don't know what qualifies as such.

One could call it "upper middle-class", and I'd accept that. But "solid middle-class" it ain't by any stretch of the imagination.

[0] https://finance.yahoo.com/news/millionaires-america-2020-50-...

Those 7% are likely retired old people who have enough money to not work as a greeter at a Walmart. 1M when you're 65 means you probably (subject to healthcare costs) won't end up on the streets during your remaining lifetime.

The fact that a million dollars isn't attainable to 75% of the nation doesn't make that million an enormous amount of money one can live off the rest of his life. This fact only says that 75% will never become that middle class. And the SV bubble is one of few last places where one can climb to the middle class level. I prefer to call things the way they are: Americans have been sliding into poverty. Doing clever stats and percentiles doesn't work around this fact.

If 75% of people aren't there now, and never will be, it isn't "middle class". "Middle class" does not mean "the top 25%".

So if in 50 years the top 1% owns 99% of the economy, will we call folks with zero debt and zero assets the middle class or will it be more fair to say that the middle class is gone? My definition of middle class is it "those who have to work, but are financially secure and can afford their own place, cars, kids and some vacation", while the rich are those who live off capital gains and don't need to work at all, and underclass are the paycheck to paycheck crowd (half the nation).

So anyone who has a million dollars, but still has to work because a million isn't enough to retire on, is middle class by your definition. Let's just call that a minority view of the definition of middle class...

(I can accept the definition of "rich" as "able to live off of capital, and therefore not needing to work". But there might be another layer between that and "middle class". You might call it "wealthy rather than rich" or something. Having a million in capital puts you a long way past "able to take a vacation".)

If you're smart enough to amass $1,000,000 in a brokerage account, you should be smart enough to know that it would be stupid to liquidate the whole account to pay cash for a house, better to get a mortgage now that interest rates are around 3%. In that case you only need to come up with the down payment, and then enjoy that sweet mortgage interest deduction.

You should also be smart enough to have a fair amount in a 401(k), in which case you can loan yourself the down payment up to $100,000 and pay no capital gains tax at all.

>they'll have to pay 40% on their entire gains

Wrong, unless your income is over $1,000,000. Otherwise your capital gains tax will be considerably less, even if you are stupid enough to liquidate your brokerage account to pay cash for your house.

His arguments aside, I find calling anything to be "un-American" or "un-<insert country name>" to be annoying. Its a random nativist and unhelpfully pot-stirring sentiment to throw into an important debate. Who is Cowen or Bloomberg to be an important arbiter of what is or isn't American?

yes part of the schtick is making certain people react like that -- it makes the piece go viral

There's no greater place to make a ROI, might as well charge for that privilege. If capital doesn't agree, then more money will flow to places it can be used.

The article is deceptive from the very first sentence. Only the top bracket of the capital gains tax percentage is proposed to be raised, i.e. only applied to people with income over $1,000,000. But the article plays the old shell game of letting the reader assume that the rate is going to be raised for everyone, for every dollar of capital gains.

I think regarding immigration:

Low tax attracts high skilled people High tax attracts low skilled people

Don't get me wrong. Maybe it is untrue. But just the intuition behind it: High tax means high redistribution. Also I don't think US would attract so much talent if you had very high taxes.

I don't think taxes are a major factor in US immigration, considering the slightly lower taxes are offset by far higher healthcare costs.

I don't think healthcare can be solved by taxes, since the US population is already paying more per capita then for example Germany where everyone is insured.

By the way, I think healthcare is also kind of a factor, which attracts rather young high skilled workers who can afford an insurance policy.

>> First and foremost, any system of taxation is about values. And a much higher rate of capital taxation would undermine some of America’s core values.

Is it just me, or taxation is about everyone paying their fair share?

Or is it about raising the funds to provide public goods in a way that minimizes waste and deadweight loss?

To me that argument about "paying your fair share" never made any sense.

Wouldn't "fair share" be defined as how many/much of the government offerings you use?

So how is it that someone making $1m/yr in exchanges is somehow using MORE government offerings and therefore has to pay more in order to keep up with their "fair share"? Do they somehow use more roads because they have equities? Perhaps they use the sewage system more? Use more welfare dollars? Use more school?

Just makes no sense. It's straight up inequality and classism.

Personally there is no such thing as fair in taxes or even in life. there is only what "the people" can agree on via their representatives.

one way to rationalize it is like insurance. someone protecting a 100K house pays much less than someone protecting a 500K house. It might not be linear with the value of the house.

Your share of the military is larger than someone that makes less because the military is creating more value for you by protecting more assets.

Your share of the SEC is because you receive more value from the SEC than the poor

etc

It is value based taxation instead of cost based taxation.

Is that really less fair?

In the end the only thing that matters is 1) enough taxation to pay for the things "the people" want. 2) minimize the drag that taxation causes on the economy.

Why would cost-based pricing be the only "fair" pricing model?

I'm pretty sure if a startup tried to use cost-based pricing instead of value-based pricing, they would get told that they were idiots.

Jeff Bezos and Elon Musk certainly get a lot more value out of roads existing than most people do. Their entire business is dependent on it.

https://archive.is/pmKuB

I'm increasingly disappointed in what has become of Tyler Cowen. I guess this is always what he was and I was just blind in the past. Oh well.

Discussion of US tax policy is so frustrating. I just wasted 20 minutes trying and failing to even find what Biden's proposal actually is. What are the exact rate brackets? Does this restore the distinction between long term and short term gains or apply to everything? Does this remove the loophole for carried interest? Not a peep. Every single article is just exactly the same choose your talking points that can be predicted to a tee from the pre-existing political lean of the parent publisher. Not a single attempt to actually inform voters.

Media is trash.

https://home.treasury.gov/system/files/136/MadeInAmericaTaxP...

Thank you. Let me add my angry indictment of search engines that a search for "Biden tax plan" doesn't surface any links to the actual plan but rather just commentary on it.

Sadly, the plan itself doesn't even answer these questions and only mentions capital gains once, saying past reductions are one of many factors responsible for labor share of federal tax revenue increasing relative to corporate share.

That just raises the next question of what are pundits even opining about if there isn't actually a plan at all?

Let’s not forget that the marginal tax rate for highest brackets was over 70% until Reagan .

Let's not forget that the 70% rate brought in less than 1% of total tax revenue. (One reason that democrats suggested lowering the top rate in 1981.)

Those high rates encouraged all kinds of unproductive investments to take advantage of loopholes built into the law. Where people couldn't get around the rates, there were deadweight losses from economic activity that didn't occur. Even if someone thinks it is morally ok to take that much of someone's income, those kinds of high rates hurt the economy.

I don’t think it was 1%.

It was less than one percent, "Of the $517 billion the Treasury collected in 1980, only $3 billion to $5 billion came from the 70 percent bracket — less than 1 percent of total tax revenue."

But that was also because we had many fewer millionaires and billionaires back then. The same rate and thresholds in 2021 would represent a significant fraction of the tax revenue raised by the IRS in 2021. Estimates range between 5 and 15%, depending on the pundit. (And even the notoriously right-wing "Tax Foundation" notes that a 70% rate would raise more than 150 billion in additional tax revenue.)

>...The same rate and thresholds in 2021 would represent a significant fraction of the tax revenue raised by the IRS in 2021. Estimates range between 5 and 15%, depending on the pundit.

I don't understand what you mean here by 'thresholds'? Are you suggesting a politician is proposing a 70% tax rate starting at 108 thousand? If not what are you saying? And what pundits are claiming 15% tax revenue for such a tax?

>...even the notoriously right-wing "Tax Foundation"

From looking at their web site, this is not how that organization would describe themselves. Labeling someone 'notorious right wing' is just a shallow low effort attack. These sort of preemptive attacks to poison the well don't really belong here. The guidelines recommend against this kind of behavior: 'When disagreeing, please reply to the argument instead of calling names. ', 'Please don't sneer,' etc If you think, they are misrepresenting facts, argue against that.

>..."Tax Foundation" notes that a 70% rate would raise more than 150 billion in additional tax revenue.)

I searched their web site to see how they came up with that, and didn't find what you are talking about. I only found this page:

https://taxfoundation.org/70-tax-proposal/

They estimate one version of a 70% tax would bring in 189 billion additional revenue over a period of 10 years and the other version would result in a tax loss of 63 billion over 10 years. Where are you seeing them estimating 150 billion in one year?

The U.S. uses a progressive tax rate, meaning that only income above a "threshold" is subject to that tax rate (or a higher rate). The threshold for the proposed 70% rate is $1 million, so no middle class individual would be paying it. (And note that the thresholds are adjusted for inflation, automatically.)

The Tax Foundation was originally founded as a non-partisan think tank. In the 1990s, it shifted to a right-wing organization, and has generally issued nearly all of its "analyses" at the request of the GOP or its extremely conservative donors, including among them the Mercer family and the Koch brothers. Of crucial importance: the Tax Foundation has criticized every Democratic tax, and gushed over every Republican tax policy of the past 4 decades, and been completely wrong in the its analysis of the outcomes, to the extent that it is now a running joke in the tax community that the most likely outcome of a tax proposal is the opposite of what the Tax Foundation says it will be.

My comment notes that even the TF low-balling the tax proposal would raise over $150 billion; I did not specify a time-frame. Conventional analyses note that the tax proposal is expected to raise at least $290 billion of the next 10 years, and have proven more accurate than the "dynamic scoring" methodology used by the TF, which takes into account subjective ideological factors rather than data-based factors used by conventional scoring methodologies.

It really isn't clear to me what you are trying to say.

As I pointed out, and you agreed, the 70% tax rates in the 1970's brought in <1% of total federal tax revenue. You then added:

>…The same rate and thresholds in 2021 would represent a significant fraction of the tax revenue raised by the IRS in 2021. Estimates range between 5 and 15%, depending on the pundit.

I then asked for clarification on where the 70% margin would start.

>…The threshold for the proposed 70% rate is $1 million,

What politician is suggesting a 70% rate a million? The suggestion by AOC was for a 70% rate at 10 million.

>In the 1990s, it shifted to a right-wing organization,

The wikipedia entry looks like a balanced take:

>…Its research and analysis has historically emphasized publicizing federal and state financial information, arguing against the use of tax systems for "social engineering," and urging "broad bases and low rates" tax reform.

I don't think their goals have changed:

>…The Tax Foundation's first project was a successful effort to stop a tax increase in Westchester County, New York, where they provided research and analysis (including an "Expenditure Survey" of state spending) to local activists.

https://en.wikipedia.org/wiki/Tax_Foundation

Trying to label a group or to talk about polarizing donors instead of their actual argument are just low effort attempts to poison the well.

>…My comment notes that even the TF low-balling the tax proposal would raise over $150 billion;

You haven't provided any analysis showing that they are "low balling" the revenue. Also they did not say it would raise 150 billion. (I don't know if you are simply misremembering, you are trying to mislead or if there is a different report on their web site.) They said it would depend greatly on the specifics of how it was done, so they showed two scenarios and in one version of a 70% tax would bring in 189 billion additional revenue over a period of 10 years and the other version would result in a tax loss of 63 billion over 10 years.

>…I did not specify a time-frame.

To be charitable, I thought that since you were saying how a 70% rate would raise 5-15 percent of federal revenue, that you must be thinking it was that much every year, otherwise you would likely just be trying to mislead by implying they had some level of agreement with you by conveniently not mentioning the actual timeframe they were using.

>…Conventional analyses note that the tax proposal is expected to raise at least $290 billion of the next 10 years,

You have provided no citation for that. Indeed the Tax Foundation is talking about the AOC proposal of a 70% tax rate at ten million, and you now seem to be saying that you are talking about a 70% tax rate starting at 1 million.

Your point at the start was:

>...The same rate and thresholds in 2021 would represent a significant fraction of the tax revenue raised by the IRS in 2021. Estimates range between 5 and 15%, depending on the pundit.

Federal revenue this year will be about 1.9 trillion. Even if your proposed tax would bring in an average of 29 billion a year, that is obviously not 5-15 percent of IRS tax revenue - it is much closer to 1%.

Trying to label a group or to talk about polarizing donors instead of their actual argument are just low effort attempts to poison the well.

The Tax Foundation is backed by ultra-right wing donors that funded, among other things, challenges to votes in November 2020, the seditionist protests in January 2021, and are are currently funding the vote "audit" in Arizona. As such, the fact that these ultra-right wing donors make up the bulk of the Tax Foundation's funding indicates their political bias is toward extreme far-right positions in which all tax cuts are good, and all tax increases are bad. And that is indeed what the Tax Foundation has spent the last ten years publishing. Yes, decades ago they were a nonpolitical organization, but that hasn't been true for longer than either of us have been alive.

The brains of Americans are not some sort of detached entity disconnected from the rest of the world.

People have hated rich people since the dawn of time, America is no different .

US tax rate is getting more and more in line with Europe, and why wouldn't that be?

Hatred for rich people is something known for centuries now.

Taxes aren't just a way to raise money for federal and local governments, they are also an elegant way which society has to allocate social hatred. You need a corporate tax because people hate corporations, a wealth tax is being discussed and on the horizon because people hate the wealthy, this capital gain tax is on the table because people hate those who make money via capital investment, that's because it's very far removed from doing any work which is perceived as "real work" by the population.

It's a lot simpler than that. Biden has this infrastructure project, an admirable idea to be honest, but he needs funding for it. There aren't many ways to get this much money. I'm sure he proposed to print the money, but was told no, and he has proposed to raise corporate taxes, but the rich have objected, so he is left with cap gains tax on the rich and on the middle class. The rich, well, have objected the first idea, so only one option was left, and the middle class can't object. In practice, this tax will create tiered cap gains for the rich and for everyone else. If you put 1 billion into sp500, it will grow at 10% per year as usual, for there are no taxable events for such capital. If you put 1 million, you'll get only 10% minus the 4% tax. Needless to say that 10% and 6% are very different tracks with wildly different outcomes in 30-50 years.

Come around to every day America. Across the country. The number of people. In the tens of millions. Possibly 100M, who in different and varying ways, don’t want to tax the rich or [big] corporations much differently than the 95/99%.

Similarly, many, many people do not hate the rich in America. I’m not sure what rich amount you’re referring to. Another way of knowing there is no real hatred of the rich in the country is how few people are leftist or further left than that. Any one to the right of progressives who are to the right of the harder leftists, do not uniformly hate rich people or corporations. Maybe the ones they don’t agree with at best.

I’m speaking in generalities and am never saying things are 100% or 0% with any group I bring up. Just largely the case.

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