ERICOPOLY

One of the first hits on google: http://www.theguardian.com/society/2015/jan/31/inheritance-britain-wealthy-study-surnames-social-mobility Or doesn't that count as lasting? Imo it does... Social mobility is still nowhere. So nope, plenty of people do inherit their wealth. I'm not pro a heavier inheritance tax (Eric made a good point with the problem of wealthy and f*cked up kids) but pro a yearly wealth tax above a certain threshold (of many hundreds of millions or even billions). Make it 12-month LIBOR rate with a maximum, idk... Decent wealth management can keep up with this and you can view it as an annuity to society. That way when the rich get richer, they are at least paying more YoY as well... It's a better investment for society to let those people keep compounding their wealth and letting them give a certain percentage/year than trying to tax them big just once (which fails anyway). Here is the major logical flaws in that article that mentioned wealth 5 generations apart. 1st generation: it is wealthy and has 5 children 2nd generation: Out of those 5 children 4 are wiped out 1 of them is wealthy and has 2 children 3rd generation: 1 child loses 1/2 of his fortune (enough to remain in the upper middle class) and the other is wiped out. The one in the upper-middle-class has 4 children 4th generation: 1 of those children marries the daughter of a successful businessman and they have 3 children 5th generation: the children benefit from their mother who inherits the business from her father. It can now be concluded that the family wealth has survived 5 generations? There is a lot that goes on. A family over 5 generations has a lot of branches. If JUST ONE of those branches is very wealthy after five generations, it is concluded that there is no social mobility???

Eric, I deliberately avoided getting in a discussion on the actual topic. My comment was made to YOU specifically, as you have gotten overly agitated on this topic in the past. I wanted to speak up as someone who has been around here for a while. I haven't said anything about what I believe or not, but I am not responding to just one specific message. Your opponents are not blameless, no. Let's do better. I am passionate about this topic. But it's not the topic per se that agitates me. On any topic, I am agitated by disingenuous debaters. Somebody says they want the estate tax because of the top 40 families and their potential for powerful dynasties. I point out that it applies to me and I'm not in the top 40 or anywhere near it. Then they claim that even the 5m could sway an election, and I point out that if there are multiple heirs then there is no such worry. It goes on and on and on. I would rather the person just start out from the very beginning saying that no amount of inheritance is fair without a tax, no matter how small. Don't make up a bunch of false reasons for the point of view that sound better before the crowd -- I can't help it, I will debate them on those points. They then just iteratively walk down their argument until we finally hear that even a tiny inheritance should be taxed. Okay, if that's the point of view then why wasn't that put forth in the very beginning instead of the very egalitarian sounding commentary on how the top 40 families are a big problem and that's why we need the tax?

One of the first hits on google: http://www.theguardian.com/society/2015/jan/31/inheritance-britain-wealthy-study-surnames-social-mobility Or doesn't that count as lasting? Imo it does... Social mobility is still nowhere. So nope, plenty of people do inherit their wealth. I'm not pro a heavier inheritance tax (Eric made a good point with the problem of wealthy and f*cked up kids) but pro a yearly wealth tax above a certain threshold (of many hundreds of millions or even billions). Make it 12-month LIBOR rate with a maximum, idk... Decent wealth management can keep up with this and you can view it as an annuity to society. That way when the rich get richer, they are at least paying more YoY as well... It's a better investment for society to let those people keep compounding their wealth and letting them give a certain percentage/year than trying to tax them big just once (which fails anyway). Hard to say though if it's the money or the education. There are families where education is crucially important -- the grandparents were physicians, the parents were engineers, the children were PhDs. Those families tend to earn higher than average with each generation. That describes my family. I earned higher than average but it wasn't due to any inheritance. It was my education. My father earned higher than average but it wasn't due to any inheritance. It was his education. My grandparents earned higher than average but it wasn't due to any inheritance. It's hard to come up with a destitute generation when each successive son in the line is an engineer, a physician, etc... Family culture is responsible for this (in my family). In modern times it applies to the daughter (not just the son). Typically wealthy families favor education and so the data can show you whatever it is you want to find. If you want to find that the money created the higher incomes, you can find that in the data. OR if you want to find that the education created the higher incomes, you can find that in the data. In my familiy the incomes came before the inheritance. It cost my grandparents little to send my father to engineering school at the University of Sydney. He didn't inherit any money until in his 60s/70s. But the data will tell you that he had above-average income and that he inherited money -- take that data with a grain of salt. The US tax code encourages giving money to kids while they are still infants -- so you might find in the data for the US that higher incomes came after inheritance. Beware of drawing conclusions from that.

I'm curious. Why is adesigar not getting the same comment? Because Eric is being a jerk and adesigar isn't. You might not have read the entire thread, but if you follow the plot he argued that people with $5m are swaying elections. When I pointed out to him that $5m divided amongst many heirs in not enough to sway an election, he said I was a whiner. So a person who has his argument knocked down and then resorts to calling you a whiner as a last resort, is not a jerk? I don't really get why anyone missed that. After that point, he argued that he was poor and that his grandfather was poor and that if I had 7m I should basically just shut up because he was poor and his grandfather was poor. My property rights mean nothing because there are people out there with 1.4 trillion dollars and it's a big problem and I have 7m and I should stop whining because he is poor and so is his grandfather. I'm supposed to put up with all of this and I just couldn't -- so I lost my temper and became a jerk too.

One thing that was argued is that the richest 40 families control more than a trillion in assets and will influence our politics with that money. Well... a little bit of common sense I'll share with ye'... they got that way DESPITE the estate tax. The majority of those people didn't inherit their wealth. So if the thing you want to get rid of is the richest handful of people having more than a trillion put together, then you need to think of another solution. Obviously, the estate tax AIN'T doing it for ye! Arrr.... matey! That's a brain stumper for ya there. You'll just have to pass a law that nobody can have more than X amount of money -- because that's your stated problem (that too few people have too much and that they'll therefore influence politics). You have that problem based on what people are accumulating on their own -- it's not coming from gifts/inheritance. Gates and Buffett, Soros, Munger... did they inherit it? The Google guys, the Facebook guys, the Oracle guys, the Koch Brothers. You just need to confiscate their wealth to solve this "problem". Estate taxes obviously ain't doing it for you. This discussion sort of reminds me of the drug discussion. I think all the drugs should just be legalized because we've tried to throw everyone in jail already and here we are several decades later with as big a drug problem as ever. Criminalizing it just creates criminals (very rich ones and violent too). At least you could get rid of the criminals by legalizing it.

Well... actually the estate tax laws in Australia did cause one problem... Early on when my father was younger, Australia had an estate tax. My grandparents set up a family partnership in response and named my father, his sister, and his two brothers as partners. The goal of the partnership was to ensure that future appreciation of the investments occurred outside of my grandparents' estate. It was tacitly understood that while in the kids' names, they were not to touch the money and it was just an arrangement to reduce estate taxes. Australia eventually abolished the estate tax and so this entire episode was unnecessary. Before that happened my strong-willed aunt married a catholic and my grandmother was horrified and resisted the marriage. Out of protest, my aunt demanded her inheritance which was legally in her name at this point. She was in her early twenties. She then proceeded to donate her entire inheritance to the Catholic church in order to spite my grandmother. Rather than selling her shares, my grandparents cashed her out by mortgaging their real estate property. There was a huge fight when my grandmother died because my aunt believed that she was being cheated when she was left a relatively paltry amount compared to what my father and his siblings were left. This is because the mortgaged land was a large property that today is known as the Avondale Golf Club in Sydney -- my grandfather purchased the land as a green belt and never thought it would be unlocked for development potential as soon as it did. My aunt was cashed out when it was still a green belt and thus never shared in the astronomical appreciation that followed. She wants that money today and regrets her decisions made when she was still relatively a child. None of this would have happened and there would be more harmony within the family today if the tax code had not sucked my grandparents into a scheme of assigning the assets over to immature people without the proper life experiences to realize what they had. We can return to the discussion about how people who oppose the estate taxes are just whiners -- that was a real discussion compared to my contributions.

I will not rip on adesigar any further. I've had a fairly unusual life experience that let's me see what's wrong with the estate tax system that others haven't contributed to the discussion. 1) I grew up in a rich neighborhood and went to a private school. Now that I'm 42 I can see how the kids with the trust funds were changed. It altered their lives and generally in a negative way. 2) My wife's family was rich once (wife's grandfather was in US congress when Eisenhower was president). But it was dwindled away and my two brother-in-laws have been impaired by the money that was gifted to them every year under a scheme to reduce their estate taxes. My father-in-law was an estate attorney and favored this kind of thing. My mother-in-law's brother inherited businesses and was an alcoholic that wasted it all away. 3) In my own family the only wealthy person in my lifetime was my grandmother in Australia who didn't have to worry about estate taxes, so she just held onto all the money and nobody was spoiled by it. The thing that is frustrating for me is that I could avoid most of my eventual US estate taxes if I just gave the money away to my children today. That way it grows in their estate and not mine. And that's what the estate tax code does -- it encourages families to do exactly that. They'd rather roll the dice that it won't ruin their kids rather than risk the estate tax wiping out what they hope to leave to their families. This is what an attempt to make things "FAIR" has done -- it has directed huge sums of capital into the hands children. Yet, IMO, people don't see this because they are too busy with their jealousy and sense of fairness to see the second-order effects of their beloved estate tax. What is more fair? An America where children get their inheritance very young or one where they get it later in life after they've found their way in the world? We have different ideas of what's fair apparently. My strategy of letting my kids find their way will be taxed more heavily versus if I just gave them the money today. Is that what the estate tax proponents want to incentivize?

Yes, she had a frugal streak. She really did have a horse hair mattress. Lifestyles of the rich and famous in my "family dynasty". I've pointed out that she was frugal. She had money to spend but didn't waste anything and it grew to a huge sum over 94 years. She could have remodeled her kitchen 50 years ago or bought a larger house, fancy cars, and wound up with nothing to tax. You countered that your grandfather was dirt poor. And by doing that... you... You put me in my place? wtf? Buffett points out that he lives relatively frugally -- he says he lives like most other people aside from how he flies. Why don't you go put him in his place! So everywhere you go it must be really frustrating for you -- you come across a very wealthy person who lives frugally despite conspicuous consumption all around them... somebody heralds them as an example of thrift, and you put them in their place by saying your grandfather was poor. Does this actually make sense to you, and do you think you should really be making that comparison? How is your grandfather and 5 billion people an example of thrift if poverty leaves them with no choice? you: "Oh, that person had extreme self control? Well that's nothing, in my family we were dirt poor and slept on horse hair mattresses too". See? it makes no bit of sense whatsoever for you to say that. Your grandfather didn't live that way as an extremely rich person. He had no choice in the matter. You were just bragging that he was poorer than my grandmother after I pointed out that she was just loaded with money when she died -- why would you do that? I've got no damn clue -- it just makes no sense to me to have a penis judging contest over how your grandfather was poor after I pointed out that my grandmother had $17m and lived frugally despite the fact. What logical point are you trying to make?

The current estate tax laws allow a family to make gifts (tax-free) up to their lifetime gift-tax exemption. That exemption is the exact same size as the total estate tax exemption. My wife and I can each give about $5.3m to our kids, who are currently aged 7 and 9. That's $10.6 million total. Our optimal tax decision is to go ahead and do that now. So now a 7 year old boy has $5.3m and a 9 year old girl has $5.3 million. Now, I can give it to a trust in their name instead, but they will (by law) learn about that trust and it's value when they turn 18, even if they are not allowed to take distributions until a later time. So let's just assume they now both find out that they each have at least $10m by the time they are 18. Bravo! I just love your idiotic view of social justice. THANK YOU FOR MAKING AMERICA LIKE THIS!!!! Instead, in my view of the world I keep it in my own name until they're in their 40s or 50s before I let them know that they are getting anything. And that's the lesson you were supposed to learn from my grandmother anecdote -- under Australian law there is no estate tax and thus no incentive to give a huge sum of money to extremely young children who will then discover their fortune when they turn 18. America will penalize my family for what I have done for my children. We are not gifting them anything early, and thus the money will grow under my name and the future gains will be subject to estate tax. So my family is voluntarily paying a ton more tax because we don't want to ruin our kids. Other families are ruining their kids and you support this system. You could ruin a great many less families by abolishing the tax for all but the very large dynasties which is ostensibly what you care about anyhow. Does taking 45% of a $20 billion fortune keep inherited wealth from interfering with mayoral elections? Does it break up a family dynasty. Just apply a little bit of common sense to your logic and see if it does. A family with $20 billion holds pretty much the same amount of power as a family with $11 billion, no? It's families that break down the fortunes, not this estate tax. $17 million of my grandmother's money was inherited by 22 different people. I'll point out that it's less than a million dollars per person. Divided equally, each person has to grow it 22x in real terms just to restablish the power the family "dynasty" had before. Bloody likely!!! And yet you scoff at it. What is not perfectly obvious about the math to you?

But if they had a gift/estate tax she would have been motivated to gift it to us earlier to whittle away her estate and that would have screwed us up perhaps. The gift/estate tax laws create the very kind of entitled/spoiled children that you hate -- gettting the annual gift exclusion from their parents when they are 18 because the parents don't want to pay the estate tax. Not having an estate tax lets us rich evil people keep it from our children for longer until we make sure they turn out right. But I'm sure you know much better than we do. Do I want my kids to find out they have this big amount of money socked away in a trust when they turn 18? No, I want to keep it a mystery and pretend they're not getting any of it. But that's going to cost my family a lot of money, because I can't make use of the annual gift exclusion if I try to bring them up that way.

Jealousy looks a lot like that. People with assets that don't want to be seized are just whiners. Call the cops because you are being robbed. Ah, whiner... there are people who don't have televisions. You provided a list of reasons why they need to be seized, and those reasons are wrongheaded. A person inheriting $1.2m is not getting a dynasty and is not tipping elections. Exasperated and defeated, you instead switch to name calling... "whiner". Don't you have a logical argument you can present in lieu of character assassination? Let's say it was $6m divided 14 ways... what is the social goal of limiting someone from inheriting $428k? Does it "unfairly" get his children admitted to private school? There must be something left you can argue after that pathetic mayoral race comment. Can't you just live with the fact that life isn't fair and if your family wasn't frugal/lucky/etc... you may not have the same as everyone else? Or is it absolutely necessary to take from other families what they may have amassed from 94 years of frugality and compounding (my grandmother is that person... died three months short of 94 with paint peeling from the ceilings because she couldn't justify the cost of repainting). I mean, you should have seen the stuff we had to go through -- horse hair mattresses brought over from England after WWII. They even had an old brown upholstered couch that was inherited from my great-grandmother... and no, not the valuable type of antique, but rather the falling apart kind. The kids playhouse in the yard was built from the packing crates that were used to bring their goods over from England when they moved. Nothing but thrift and holding onto shares, reinvesting the proceeds. Oh, and it's "too much" you say. Okay, well it wouldn't have been "too much" if she had given it away to us all 30 years ago before it ballooned in size. But.... She.... Didn't... Want.... To.... Ruin.... Us.... So she let us wait until we were graduated from college, married, 35+, etc... And then left each grandchild $100,000 Australian, with the rest going to her children who had to wait until 65+.

Whining about being estate taxed at 5 million forgets that though 5M might be just a house in Los Altos or a condo in NYC, it is enough to retire and not work for the rest of your life in the rest of the country. I somewhat agree that this could be adjusted a bit depending on the number of people inheriting. I have 13 other cousins. Had my grandmother left us each an equal amount, that would be $17 million divided by 14. That would be $1.2m each. Damn, I can't even appoint myself as mayor with that much money. This is being driven by jealousy more than logic. "It's not fair that he got something without working for it -- jeez, it must be nice to have a rich grandmother!" With a bunch of specious logic to call it something other than envy: "No, the very fabric of democracy is at stake here! The mayors race can be swayed!" Which is completely ridiculous. I don't even remember if I'm registered for a political party, and don't really give a crap who the mayor of my town is. Therefore, I should be taxed because "What if I did care and was a total crook!". That's like punishing somebody for a crime that they might be tempted to commit.

So you are concerned that $5m will influence a mayoral election. Hmmm... Are you going to propose that nobody is allowed to grow their wealth beyond $5m? Your argument has little to do with inherited wealth if you believe we have no democracy at the $5m level. I have much more than that -- do you believe I have the power to appoint a puppet mayor? Is Obama the puppet of the ultra wealthy you claim hold the power? Which of his tax hikes did they pay for? I think you have a comic book version of reality where the wealthy are villains and the poor are virtuous.

Here is an example of a "dynastic" amount of wealth if fully paid off: http://www.zillow.com/homes/for_sale/15582795_zpid/1_pnd/37.525656,-121.976223,37.392391,-122.2756_rect/11_zm/1_fr/?view=map It's a friggin' house on 0.38 acres. Where are the butlers and ascots? Or here's one for $7m on a quarter of an acre: http://www.zillow.com/homes/for_sale/19496160_zpid/1_pnd/37.446056,-122.114818,37.429393,-122.15224_rect/14_zm/1_fr/?view=map I grew up in Los Altos Hills in a house that was purchased for $52k in 1970 and Zillow claims is now worth a bit over $4m. Should you be worried that if it climbs another 25% it will become a seed for a family dynasty? That's a "seed" for a dynasty, not yet a dynasty. Put Roundup on the seed to kill it because there is a chance it could be a dynasty after decades of further cultivation by the heirs, who normally spend it anyhow? Could your neighbor have a dynasty? What if the guy at work had a secret dynasty? Communities can organize and form watches to look out for potential dynasties. Beware, the guy who moved in down the street could be harboring plans to have a dynasty. The pastor could be one of them too. Maybe that nice guy... oh wait, but what if he is one of these dirty dynasty types too? Oh, you really have to watch out these days... these dynasties could be anywhere.

I have yet to see an article on estate taxes that doesn't list the DuPonts or the Waltons or the Kochs or some other very extremely large fortune as a reason why we need the tax. Notice these articles don't obsess upon fortunes that are only $5m in size. The author doesn't want to be laughed at perhaps? Yet that's the size of "fortune" where the tax kicks in. What "great crimes" lie behind the $7m fortunes? Hmm? Why are not the families with $17 million being vilified by these articles? We must crack down hard on those with $6m, right? For the country would be ruined if their 6 grandchildren each inherited $1m? It's absurd and you know it -- which is why the articles only talk about the billion dollar fortunes. "Man of 35 years (and his 3 siblings) each inherits $1.25m while avoiding the estate tax -- enough to buy a condo in Santa Barbara. We must raise taxes to prevent this sort of dynastic wealth transfer." The estate tax hitting $6m "fortunes" isn't about stopping dynasties -- it's about taking money. You must be kidding if $6m is a dynasty. In Los Altos Hills, it's called "mom and dad's house that they paid $50k for in 1970".

Was there dynastic wealth before the gift and estate taxes were created? Or did they solve a problem that only exists in the imagination? http://www.forbes.com/sites/phildemuth/2014/07/07/the-family-is-a-machine-for-destroying-wealth/ Ah an article from Forbes magazine about no dynastic wealth. Wasn't the magazine started by the current Forbes' grandfather about 100 years ago. I believe the word you are reaching for is "nepotism". Forbes works for his money. Was he fairly chosen for the job out of a pool of thousands of candidates? Probably not. http://www.celebritynetworth.com/richest-businessmen/ceos/steve-forbes-net-worth-2/ Forbes inherited the Forbes magazine is all. And speaking of Forbes and articles on Forbes. http://www.forbes.com/sites/kerryadolan/2015/07/01/billion-dollar-bloodlines-americas-richest-families-2015/ http://www.alternet.org/corporate-accountability-and-workplace/wealth-america-getting-increasingly-dynastic-we-should-be Edited to add one more article http://www.forbes.com/sites/katiasavchuk/2015/07/01/americas-oldest-billion-dollar-family-fortunes/2/ Your alternet article claims that a great crime lies behind every great fortune. Why don't you tell that to Gates and Buffett instead of sharing it with us? That sounds like well-researched information to me. Oh yes, it gives examples of some families that have remained rich like the DuPonts. Does it explain what harm that has brought upon us? Instead, the article lists (Koch brothers) a crime from getting rich on fossil fuels -- but that's without inherited wealth. Hmm.... And a complaint that Steinbrenner made a lot of money in baseball -- oh, can't we just confiscate it because it was "absurd"? So the crime is being really wealthy, because a great crime lies behind each fortune. Ahh.... lock up the really wealthy people because they are criminals. That's a really great article, thanks for sharing.

See, if I spend less (due to taxes coming out of my budget) then the people who provide me with goods/services will have less income. So how much of that income will actually make it back to them after going through the government? Do my taxes put a damper on my spending, their income, or both? Is it my money that's being redistributed, or their "would be" income that is being redistributed? It confuses me. Above a certain level of after-tax income, any excess income will just get saved and not spent. But there is a middle-ground there where most people exist -- raise their taxes and they'll spend less, which directly results in less income for the people who serve their needs.

The government (ostensibly) is wanting to raise taxes to redistribute it to help the less fortunate. Spending your money is by definition spreading it around to people who are willing to work for it (providing you with goods or services in return). A consumption tax: does it encourage or discourage this? Let's say I get taxed 20% on what I spend. Living within a budget, this means that LESS of my money is distributed DIRECTLY to the people who work for it (perhaps I take fewer vacations). Instead, 20% of my budgeted expenditures will go FIRST through the government, which will waste it on other causes and only leave a portion left over to those who provided me with goods/services. The question is: can the less fortunate get access to my money through working for it (providing me with goods or services) or is there some impediment to their participating in that system? There will always be crippled people, etc... but what about the rest?

Thank goodness my Dhandho investment is neither "liquid" nor is it "real estate". I don't have to pay tax on that asset under your proposal.

The size of the estate shouldn't matter. Depends on what your goal is. If you intend to limit one individual from being given too much, then it should be an inheritance tax instead of an estate tax. $10m inherited by an only child is very different from $20m inherited by 8 children (4 of them spouses of 4 children born) and 14 grandchildren (22 people all put together). It's not a dynasty when you inherit less than a million! $20m may look like a lot, but it really only matters how much each person is actually getting IMO. My grandmother died in 2011 and she had about $18 million in shares, cash, and property. She had 4 children, all surviving, and each was married. There are 14 grandchildren including myself -- we were all at least 35 yrs old. It looks like a lot, but it's not a dynasty. The only people to get more than a million were the children, who were all in their late 60s and early-mid 70s at the time. It's not going to ruin their lives and they are too old for it to become a "dynasty" problem -- once divided amongst their children, it's just not a mind-blowing amount of money and won't change the lives much. So to meet social goals of limiting dynastic wealth, I don't see why a $17m estate necessarily needs to be taxed. And it wasn't taxed -- her estate was in Australia.

Was there dynastic wealth before the gift and estate taxes were created? Or did they solve a problem that only exists in the imagination? http://www.forbes.com/sites/phildemuth/2014/07/07/the-family-is-a-machine-for-destroying-wealth/ Ah an article from Forbes magazine about no dynastic wealth. Wasn't the magazine started by the current Forbes' grandfather about 100 years ago. I believe the word you are reaching for is "nepotism". Forbes works for his money. Was he fairly chosen for the job out of a pool of thousands of candidates? Probably not. http://www.celebritynetworth.com/richest-businessmen/ceos/steve-forbes-net-worth-2/

Was there dynastic wealth before the gift and estate taxes were created? Or did they solve a problem that only exists in the imagination? http://www.forbes.com/sites/phildemuth/2014/07/07/the-family-is-a-machine-for-destroying-wealth/

She didn't announce an increase in ST cap gains rate -- if she were to do that, she would be taxing it at a rate higher than ordinary income. Short-term (ST) capital gains today are taxed at ordinary income tax rates. The proposal is expected to add a mid tier (1 to 3 years) at a rate of at least 28% That's pretty terrifying. Look at the stock market valuations these days. What if you hold an index ETF that only returns 4% and inflation rate runs at 2%. Those aren't implausible numbers. That leaves you with a real pre-tax capital gain of just 2%. Yet it is taxed at 56% rate, not 28%. And that tax rate goes up to 84% if the index ETF only gains 3% in a year of 2% inflation. Why doesn't somebody propose that only real capital gains are taxed, and just tax them at the ordinary income tax rates? So bloody simple and fair. It isn't hard to adjust your cost basis with the government CPI data. However I do believe there is a lot of risk that you can lose your money and rates should reflect that -- which is a good reason to make the tax rate less than the income tax rate. Capital gains are hardly a given -- who shares when we lose? Because everyone that owns stocks is a millionaire and all bankers and their analysts working in 2008 should be in federal prison. But seriously, I agree with a lot of what you've posted. I hate the double taxation. I'm not sure what system I'd propose, but I don't understand how there can be capital gains taxes in the first place. The company or investors should get credits to offset any double taxation while keeping some minimum rate. It's not complicated. The corporation merely needs to declare how much US corporate taxes were paid on a per-share basis. Of those taxes paid, the corporation needs to declare how much were retained and how much were paid out as dividend. The shareholder merely needs to take that as a credit so he isn't double taxed. It's an easy problem to fix. The Australians do exactly this -- for dividends. They call it a "franking" system for dividends. Completely eliminates double taxation of dividends. This ensures that the Australian dividend is taxed at the Australian income tax rate. So if your personal income tax rate is 45% and the corporation already paid 28% Australian tax on the money returned as a dividend, you would only owe the difference: 17%. You get a full credit for what the corporation already paid. Not a terribly hard problem to solve. Corporations could screw their shareholders and elect not to do the extra work of declaring this stuff if they so choose. It doesn't have to be compulsory and create a headache for corps that don't want to help their shareholders. But for those who do want to help us shareholders, then why not allow? Makes it all fair and ends all the debates.

She didn't announce an increase in ST cap gains rate -- if she were to do that, she would be taxing it at a rate higher than ordinary income. Short-term (ST) capital gains today are taxed at ordinary income tax rates. The proposal is expected to add a mid tier (1 to 3 years) at a rate of at least 28% That's pretty terrifying. Look at the stock market valuations these days. What if you hold an index ETF that only returns 4% and inflation rate runs at 2%. Those aren't implausible numbers. That leaves you with a real pre-tax capital gain of just 2%. Yet it is taxed at 56% rate, not 28%. And that tax rate goes up to 84% if the index ETF only gains 3% in a year of 2% inflation. Why doesn't somebody propose that only real capital gains are taxed, and just tax them at the ordinary income tax rates? So bloody simple and fair. It isn't hard to adjust your cost basis with the government CPI data. However I do believe there is a lot of risk that you can lose your money and rates should reflect that -- which is a good reason to make the tax rate less than the income tax rate. Capital gains are hardly a given -- who shares when we lose?

I have a couple of reasons for why LT cap gains and dividends are taxed at lower rates than regular income. 1) Risk-adjusted tax rates Employees earning a wage are not risking their capital. They take home a paycheck, but how much money did they risk losing in order to earn the paycheck? Should an investor get taxed at the same rate as earned income when he's risking a total loss of perhaps many multiples of that expected income? What if you pay 40x earnings for a growth company that soon goes kaput? You were risking 40x your expected earnings. That's like a McDonald's janitorial worker losing $1,200,000 in order to try to earn a $30,000 pay check. That's what it feels like to lose 40x your expected earnings. 2) Are capital gains tax rates indeed lower??? What if you earned only a 10% capital gain over a 4 year holding period when inflation was running 2% per annum. You get taxed 20% on the entire capital gain, but that wipes out 100% of your real earnings. Since when is a 100% tax on your real gain considered low???