Maybe all cap gains should just be taxed at the same rate. 1 year threshold his so artificial.
Of course, irregular income from other sources that isn't simple hourly work often also can result in windfalls from work over a longer period of time, or naturally intermittent so that an a large income one year is the result of a pattern of activity that also resulted in a smaller income other years. A simple way to address this that isn't specific to capital income is to tax all income equally, but allow, within certain bounds, income to be recognized for tax purposes, and associated taxes paid, in advance of realization and, perhaps in certain cases, deferred and recognized over a period of years after realization.
This would mitigate any overtaxing of cashing out events that took many years to "earn" the income, without favoring any particular kind of income or creating gameable thresholds.
Raise them prospectively based on the date of asset purchase, starting some specified time after the date the change is adopted. Problem solved.
They get the relative burden of taxation shifted off the of other sources of income, including the source they are using to get money to pay for retirement. (The specific effect depends on how that relative shift is used.)
In any case, if the current favorable treatment of capital is inequitable, there is no entitlement for people to expect it to continue going forward.
> They get the relative burden of taxation shifted off the of other sources of income, including the source they are using to get money to pay for retirement. (The specific effect depends on how that relative shift is used.)
You say that as though an increase in taxes here will be used to decrease taxes elsewhere. That does not match the reality of changes to tax law; tax revenue will simply increase, with no changes to taxes elsewhere.
> In any case, if the current favorable treatment of capital is inequitable, there is no entitlement for people to expect it to continue going forward.
There is no entitlement for government to apply arbitrary taxes and expect people to bear it, either, without providing a commensurate improvement in value.
This will happen regardless, as tax rates have nowhere to go but up in the USA (considering trillions in unfunded liabilities).
> And what, precisely, do they get in return for that added tax burden?
Civilization. That's exactly what taxes pay for.
Because when you've run up a giant pile of debt, the response should be "get and spend more money" rather than "spend less"?
> Civilization. That's exactly what taxes pay for.
As long as we're being snarky: product not as advertised, cost inflated well over initial agreement, return policy non-existent and no refund available. Would refuse to do business with again if not for geographic monopoly and coercion.
I don't get why more people don't do this!
My state, unlike most in the US and unlike the US federal government, at least has a requirement that all tax issues must be voted on by the general public rather than just passed by the legislature and signed by the governor.
The federal government, however, is the largest source of both taxes and onerous regulations, the most challenging and time-consuming to get involved with, and the most resistant to change.
(This is, oddly, a larger-scale version of the same problem Wikipedia has or many other organizations have: whoever has the most time to waste can be the most successful creating and thriving in a bureaucracy, winning by sheer volume rather than by merit. Or, alternatively: anyone who would want the job shouldn't have it, and anyone who should have the job wouldn't want it.)
As for "anyone who would want the job shouldn't have it," that's cute to some, but to me it's a tired thought-terminating cliche. It says "it's ok to be cynical, hur hur, and complain without doing anything about it," but does that get us any further?
I don't, however, think it ought to take a life-consuming effort to make it stop affecting a lot of people's lives. But unfortunately, it probably will. Not least of which because there are a large number of people who feel entitled to make it affect a lot more of people's lives.
In any case, though, I'm surprised that you say "I don't get why more people don't do this!"; I think it's fairly obvious why more people don't do this. If it were the kind of thing you could spend a few hours doing as a volunteer effort and have an impact, rather than the kind of thing you could spend your life on and possibly accomplish nothing, then more people might do it. On the other hand, if it were that way, then there wouldn't be as much of a problem to deal with in the first place.
Tax-sheltered vehicles such as IRAs and 401Ks already exist specifically for retirement. That's unrelated to the issue of preferential tax treatment for capital gains, which is not limited to retirees and is completely regressive, privileging those who already have access to capital over those who rely on their labor for income.
Well, their accountants and financial advisers might, since their work of structuring things to make sure most gains are long-term and in the right categories would be less valuable. But cutting taxes for all taxpayers -- including the rich -- on short-term games, and for most taxpayers on several categories of long-term games, may not that widely object to by people paying capital gains taxes in the first place.
All of these things are done to change the incentives about something, you can't expect them to be consistent without reference to those goals (and even then...)
"In a tax system with progressive marginal rates on annual income, treating income resulting from action over multiple years as earned in the year realized results in a artificial increase in the tax burden on those with that kind of income pattern. So, there's a sense in which treating capital gains earned over multiple years differently than capital gains earned over a single year or less (the latter taxed as general income), given the progressive nature of the tax system."