43.4% tax rate on long term capital gains for high income individuals-Biden plan

[Investor20]

https://www.wsj.com/articles/on-capital-gains-joe-biden-is-no-jack-kennedy-11597006775

 

"Then long-term capital gains and qualified dividends would be taxed at the ordinary income-tax rate of 39.6% on incomes above $1 million plus an investment-income surtax of 3.8%, bringing the total to 43.4% Finally, the step-up in basis for capital-gains taxation at death would be eliminated."

 

I feel stock market at least in short term will take a hit.  Long term as the article points out is not good for economy as it will lock up gains in sectors that are not most efficient.  Also it will reduce start up investment since a start up if successful, the investors hope to make more than 1 million.  When most start up investments fail and the few that are winners get 43% (plus states taxes depending on location) would kill start ups, IMO.

 

I am not sure how it works for Berkshire, how their equity sales are taxed.

 

 

[stahleyp]

Rich people will survive, I suspect.

 

I think there should be some benefit vs ordinary income but I do like this better than the current method.

[RichardGibbons]

I don't think it's a matter of whether rich people can afford it. It's a question of what's optimal for the country long term.

 

The evidence suggests that Investor20's points are correct:

 

https://www.jec.senate.gov/public/_cache/files/0dc035df-5637-4f47-84cf-c9f0a304f395/optimal-capital-gains-tax-policy--lessons-from-the-1970s-1980s-and-1990s.pdf

https://www.iedm.org/sites/default/files/web/pub_files/cahier0218_en.pdf

 

I think the stepped up in basis for capital gains taxation at death does make sense, as right now, that stepped up basis discourages people from moving capital into the investment with the highest future returns.

[stahleyp]

Well, you can certainly see that this level of wealth inequality is very, very "suboptimal" so I think this would help bring it closer to optimal. The purpose of a country is not to just produce as much wealth as possible after all.

[TwoCitiesCapital]

Well, you can certainly see that this level of wealth inequality is very, very "suboptimal" so I think this would help bring it closer to optimal. The purpose of a country is not to just produce as much wealth as possible after all.

 

Especially given the behavior of some billionaires and CEOS recently and the very poor optics of lower and middle class Americans struggling while the billionaires get even more billions.

 

Don't get me wrong, I totally understand Elon Musk cutting workers' pay in a vacuum considering COVID's impact on the auto sector.

 

On the flip side, we don't live in a vacuum and his net worth was soaring with Tesla stock at the time and they successfully did a $5 billion offering. Couldn't it have been $5.1 billion instead to make workers whole on previously agreed upon salaries so everyone benefits instead of Musk's network quadrupling while cutting worker pay? 

 

Just terrible optics and outcomes for a country already very divided by wealth and the outcomes it affords you and is likely to build support for greater taxes on these assholes.

 

 

[Guest cherzeca]

does anyone know whether the Biden max rate on cap gains kicks in if OTHER income is >$1mm, or if the cap gain itself is included in the $1MM threshold

[mbreject]

Gah. First, they get rid of the stretch ira and now he's eyeing the step-up basis?!

 

[RichardGibbons]

Well, you can certainly see that this level of wealth inequality is very, very "suboptimal" so I think this would help bring it closer to optimal. The purpose of a country is not to just produce as much wealth as possible after all.

 

Yeah, I agree.  I think the real challenge is to make the wealth redistribution better, without killing the incentives that lead to the massive wealth generation. As of the last few years, I've been leaning toward "massive death taxes". Like, you can get as rich as you like, but when you die, your kids are only at the 99th percentile of wealth, but not 99.1th percentile.

[stahleyp]

Well, you can certainly see that this level of wealth inequality is very, very "suboptimal" so I think this would help bring it closer to optimal. The purpose of a country is not to just produce as much wealth as possible after all.

 

Yeah, I agree.  I think the real challenge is to make the wealth redistribution better, without killing the incentives that lead to the massive wealth generation. As of the last few years, I've been leaning toward "massive death taxes". Like, you can get as rich as you like, but when you die, your kids are only at the 99th percentile of wealth, but not 99.1th percentile.

 

I think that's pretty fair.

[thepupil]

Where do we draw the fairness threshold?

 

If an immigrant family toils to build a dry cleaning business/hotel/apartment worth $2 million, is it fair for that to be taxed at 50%+ at death?

 

If my grandpa sat on Gillette stock for 70 years and has a 100+ bags of P&G that he wants to put in an educational trust for my future kids,what tax rate should apply at death? (This is a real life example lol)

 

Should the rate be different because the immigrant worked harder and had a harder life than my grandpa? (This is objectively true) Or because the dry cleaning business is a “real

Family business” whereas clipping divvies from tide pods and 10 bladed razors is not?

 

What amount of dry cleaner/P&G is it fair to inherit? $500K, $1mm, $2mm? $10mm? Does it change if the money is to be spent on a Ferrari vs education?

 

I think we need higher rates from a fiscal standpoint, but think that death duties at rates which amount to seizure are antithetical to the bedrock of capitalism and freedom: property rights.

[Castanza]

You can't tax your way into prosperity.

 

"When Congress votes for all sorts of benefits, without voting for enough taxes to pay for them, they get the support of those who have been promised the benefits, without getting grief from the taxpayers. It's strictly win-win as far as the welfare-state politicians are concerned. But it is strictly lose-lose, big-time, for the country, as deficits skyrocket."

Thomas Sowell

[Gregmal]

Inheritance tax is disgusting. What has the government done to stake claim to that money? They already likely taxed the heck out of that money while it was being accumulated...whether a dry cleaner business or dividends from stock.

[rb]

You can't tax your way into prosperity.

 

"When Congress votes for all sorts of benefits, without voting for enough taxes to pay for them, they get the support of those who have been promised the benefits, without getting grief from the taxpayers. It's strictly win-win as far as the welfare-state politicians are concerned. But it is strictly lose-lose, big-time, for the country, as deficits skyrocket."

Thomas Sowell

If wealth is concentrated in a few at the top. Is your country really prosperous?

[stahleyp]

Why is removing the stepped up basis wrong? I fail to see why there should be less tax due if party A sells it versus party B? I mean, you don't get a step up for IRAs either.

 

By the way, you can tax yourself to more social harmony. But it's a fine line because you don't want to kill ambition either.

 

 

[Castanza]

You can't tax your way into prosperity.

 

"When Congress votes for all sorts of benefits, without voting for enough taxes to pay for them, they get the support of those who have been promised the benefits, without getting grief from the taxpayers. It's strictly win-win as far as the welfare-state politicians are concerned. But it is strictly lose-lose, big-time, for the country, as deficits skyrocket."

Thomas Sowell

If wealth is concentrated in a few at the top. Is your country really prosperous?

 

Is it not prosperous? Poverty is relative no?

 

edit: Anyways I don't want to stray into politics on general thread, so I'll end with that.

[Gregmal]

Yea, its this simple, and just leave it at that. How do "poor" Americans compare to poor people in other countries? Hint: they're the top 1% of the poor.

[stahleyp]

You can't tax your way into prosperity.

 

"When Congress votes for all sorts of benefits, without voting for enough taxes to pay for them, they get the support of those who have been promised the benefits, without getting grief from the taxpayers. It's strictly win-win as far as the welfare-state politicians are concerned. But it is strictly lose-lose, big-time, for the country, as deficits skyrocket."

Thomas Sowell

If wealth is concentrated in a few at the top. Is your country really prosperous?

 

Is it not prosperous? Poverty is relative no?

 

edit: Anyways I don't want to stray into politics on general thread, so I'll end with that.

 

If the wealthy stay wealthy due to government funded debt, shouldn't they be obligated to help pay for that debt?

 

To the point of Tesla, so Elon Musk is way, way richer now than he was just a few months ago. However, if the government bailouts didn't occur, there is a very high probability that Tesla would've gone bankrupt. So, isn't it right for Musk to now help pay for the benefits he received?

[Investor20]

Where do we draw the fairness threshold?

 

If an immigrant family toils to build a dry cleaning business/hotel/apartment worth $2 million, is it fair for that to be taxed at 50%+ at death?

 

If my grandpa sat on Gillette stock for 70 years and has a 100+ bags of P&G that he wants to put in an educational trust for my future kids,what tax rate should apply at death? (This is a real life example lol)

 

Should the rate be different because the immigrant worked harder and had a harder life than my grandpa? (This is objectively true) Or because the dry cleaning business is a “real

Family business” whereas clipping divvies from tide pods and 10 bladed razors is not?

 

What amount of dry cleaner/P&G is it fair to inherit? $500K, $1mm, $2mm? $10mm? Does it change if the money is to be spent on a Ferrari vs education?

 

I think we need higher rates from a fiscal standpoint, but think that death duties at rates which amount to seizure are antithetical to the bedrock of capitalism and freedom: property rights.

 

I would add to the dry cleaner and PG stock, the start ups.

 

What about the start up with a new technology (lets say a new vaccine technology - a real example) who takes risk, develops a new vaccine technology that helps may be Covid or other future infections?

 

Why should government take 43.4% from that person?

 

I have developed interest in investing in start ups and actually put in a little money in two start ups. But now I have to worry what ambition the founders would have to develop with these type of taxes when they cash out.

 

Also the idea behind start up investment is you put little bit money in many startups and hopefully few become facebook or uber.

 

But if I loose no one will pay me.  If I hit my lottery, the government will take atleast 43.4%.  Heads I loose.. Tails I loose too a lot.

 

I am afraid this will kill the start up industry.  Which will kill technology development.

[rb]

Where do we draw the fairness threshold?

 

If an immigrant family toils to build a dry cleaning business/hotel/apartment worth $2 million, is it fair for that to be taxed at 50%+ at death?

 

If my grandpa sat on Gillette stock for 70 years and has a 100+ bags of P&G that he wants to put in an educational trust for my future kids,what tax rate should apply at death? (This is a real life example lol)

 

Should the rate be different because the immigrant worked harder and had a harder life than my grandpa? (This is objectively true) Or because the dry cleaning business is a “real

Family business” whereas clipping divvies from tide pods and 10 bladed razors is not?

 

What amount of dry cleaner/P&G is it fair to inherit? $500K, $1mm, $2mm? $10mm? Does it change if the money is to be spent on a Ferrari vs education?

 

I think we need higher rates from a fiscal standpoint, but think that death duties at rates which amount to seizure are antithetical to the bedrock of capitalism and freedom: property rights.

Well the whole rationale for having lower rates for capital is to stimulate economic activity. That means new real means of production. So from that perspective dry cleaning would qualify and clipping divvies would not.

 

As for inheritance taxation I would say that duties that amount to seizure are not the way to go. But I also don't think anyone is talking about that. I do think that income shouldn't be sheltered forever and has to be taxed at some point. Personally I like Canada's system where there is no estate tax but you have a deemed disposition on death. But even that system could use some improvement especially when it comes to IRAs.

[Castanza]

Where do we draw the fairness threshold?

 

If an immigrant family toils to build a dry cleaning business/hotel/apartment worth $2 million, is it fair for that to be taxed at 50%+ at death?

 

If my grandpa sat on Gillette stock for 70 years and has a 100+ bags of P&G that he wants to put in an educational trust for my future kids,what tax rate should apply at death? (This is a real life example lol)

 

Should the rate be different because the immigrant worked harder and had a harder life than my grandpa? (This is objectively true) Or because the dry cleaning business is a “real

Family business” whereas clipping divvies from tide pods and 10 bladed razors is not?

 

What amount of dry cleaner/P&G is it fair to inherit? $500K, $1mm, $2mm? $10mm? Does it change if the money is to be spent on a Ferrari vs education?

 

I think we need higher rates from a fiscal standpoint, but think that death duties at rates which amount to seizure are antithetical to the bedrock of capitalism and freedom: property rights.

Well the whole rationale for having lower rates for capital is to stimulate economic activity. That means new real means of production. So from that perspective dry cleaning would qualify and clipping divvies would not.

 

As for inheritance taxation I would say that duties that amount to seizure are not the way to go. But I also don't think anyone is talking about that. I do think that income shouldn't be sheltered forever and has to be taxed at some point. Personally I like Canada's system where there is no estate tax but you have a deemed disposition on death. But even that system could use some improvement especially when it comes to IRAs.

 

Income is taxed when you earn it....

[rb]

Where do we draw the fairness threshold?

 

If an immigrant family toils to build a dry cleaning business/hotel/apartment worth $2 million, is it fair for that to be taxed at 50%+ at death?

 

If my grandpa sat on Gillette stock for 70 years and has a 100+ bags of P&G that he wants to put in an educational trust for my future kids,what tax rate should apply at death? (This is a real life example lol)

 

Should the rate be different because the immigrant worked harder and had a harder life than my grandpa? (This is objectively true) Or because the dry cleaning business is a “real

Family business” whereas clipping divvies from tide pods and 10 bladed razors is not?

 

What amount of dry cleaner/P&G is it fair to inherit? $500K, $1mm, $2mm? $10mm? Does it change if the money is to be spent on a Ferrari vs education?

 

I think we need higher rates from a fiscal standpoint, but think that death duties at rates which amount to seizure are antithetical to the bedrock of capitalism and freedom: property rights.

Well the whole rationale for having lower rates for capital is to stimulate economic activity. That means new real means of production. So from that perspective dry cleaning would qualify and clipping divvies would not.

 

As for inheritance taxation I would say that duties that amount to seizure are not the way to go. But I also don't think anyone is talking about that. I do think that income shouldn't be sheltered forever and has to be taxed at some point. Personally I like Canada's system where there is no estate tax but you have a deemed disposition on death. But even that system could use some improvement especially when it comes to IRAs.

 

Income is taxed when you earn it....

Well you're gonna have to earn your capital gains at some point.

[Castanza]

Where do we draw the fairness threshold?

 

If an immigrant family toils to build a dry cleaning business/hotel/apartment worth $2 million, is it fair for that to be taxed at 50%+ at death?

 

If my grandpa sat on Gillette stock for 70 years and has a 100+ bags of P&G that he wants to put in an educational trust for my future kids,what tax rate should apply at death? (This is a real life example lol)

 

Should the rate be different because the immigrant worked harder and had a harder life than my grandpa? (This is objectively true) Or because the dry cleaning business is a “real

Family business” whereas clipping divvies from tide pods and 10 bladed razors is not?

 

What amount of dry cleaner/P&G is it fair to inherit? $500K, $1mm, $2mm? $10mm? Does it change if the money is to be spent on a Ferrari vs education?

 

I think we need higher rates from a fiscal standpoint, but think that death duties at rates which amount to seizure are antithetical to the bedrock of capitalism and freedom: property rights.

Well the whole rationale for having lower rates for capital is to stimulate economic activity. That means new real means of production. So from that perspective dry cleaning would qualify and clipping divvies would not.

 

As for inheritance taxation I would say that duties that amount to seizure are not the way to go. But I also don't think anyone is talking about that. I do think that income shouldn't be sheltered forever and has to be taxed at some point. Personally I like Canada's system where there is no estate tax but you have a deemed disposition on death. But even that system could use some improvement especially when it comes to IRAs.

 

Income is taxed when you earn it....

Well you're gonna have to earn your capital gains at some point.

 

Why not tax income less and establish a flat tax on consumption? The issue with income tax is it's difficult to balance incentives to earn more. I think inflation is also more detrimental with high income tax because you can't exactly scale back how much you're paying. But if tax were primarily consumption based well you can scale back. I just think this idea of creating a class warfare on the rich is misguided and ignorant of history. This hasn't ever worked long term and basically destroys incentives long term all for some short term relief?

[rb]

Why not tax income less and establish a flat tax on consumption? The issue with income tax is it's difficult to balance incentives to earn more. I think inflation is also more detrimental with high income tax because you can't exactly scale back how much you're paying. But if tax were primarily consumption based well you can scale back. I just think this idea of creating a class warfare on the rich is misguided and ignorant of history. This hasn't ever worked long term and basically destroys incentives long term all for some short term relief?

It's been discussed many times. High flat consumption taxes are a bad idea because they are regressive and because they discourage consumption.

 

This thing with a class warfare on the rich is nonsense as well. The argument that the rich should pay less and the poor more (like your consumption tax example) is in itself class warfare - against the poor. Only they don't have lobbyists and publicists. Also it's highly misguided and ignorant of history. As that historically hasn't worked well and in some cases produced some truly catastrophic results.

[SharperDingaan]

Amusing thread.

 

Tax on a capital gain, does not mean being taxed on the entire gain. In most places it simply means than a portion of the gain will be taxable - with the portion typically being a function of how long you held the investment. If you are trading/merchandising, 100% taxable, as buy/sell is your business. If it's something you've had for a long time, 0% taxable, as buy/sell is not what you do.

 

Build a business from scratch and it's 0% taxable on sale - 'cause you paid the tax along the way, by hiring more employees and meeting the employer portion of their benefits. Buy an asset to resell years later and it's 0% tax on sale - 'cause you contributed both stable capital, and liquidity, that the market subsequently used to grow the business. Buy and sell securities in rapid succession, and you pay 100% - 'cause your actions are disruptive, parasitic, and contrary to long-term capital formation.

Obviously, not what the financial sector wants to hear.

 

Heresy to say, but inheritance tax is a good thing - and largely neutral. The estate just bitches 'cause it's less money for them. Your assets have benefited from annual inflation every year that you held the asset. If your primary asset is a house that you owned for 25 years, with 1.5% inflation/yr, inflation increased the value of the house by at least 1..015^25 - 1, or 45%. Paying an inheritance tax of 30-35% on death, is just taking back the inflation gain.

 

Given that the sums are large, and 'incentives' huge, most people are going to end up paying around <1/2 what they should.

Perfectly 'OK' , if you got there by making charitable donations - at independently assessed market value; as those donations were just another kind of tax.

 

Ultimately either do something useful with your stash, or lose it - your choice.

No one likes misers.

 

SD

 

 

 

 

[JRM]

Amusing thread.

 

Tax on a capital gain, does not mean being taxed on the entire gain. In most places it simply means than a portion of the gain will be taxable - with the portion typically being a function of how long you held the investment. If you are trading/merchandising, 100% taxable, as buy/sell is your business. If it's something you've had for a long time, 0% taxable, as buy/sell is not what you do.

 

Build a business from scratch and it's 0% taxable on sale - 'cause you paid the tax along the way, by hiring more employees and meeting the employer portion of their benefits. Buy an asset to resell years later and it's 0% tax on sale - 'cause you contributed both stable capital, and liquidity, that the market subsequently used to grow the business. Buy and sell securities in rapid succession, and you pay 100% - 'cause your actions are disruptive, parasitic, and contrary to long-term capital formation.

Obviously, not what the financial sector wants to hear.

 

Heresy to say, but inheritance tax is a good thing - and largely neutral. The estate just bitches 'cause it's less money for them. Your assets have benefited from annual inflation every year that you held the asset. If your primary asset is a house that you owned for 25 years, with 1.5% inflation/yr, inflation increased the value of the house by at least 1..015^25 - 1, or 45%. Paying an inheritance tax of 30-35% on death, is just taking back the inflation gain.

 

Given that the sums are large, and 'incentives' huge, most people are going to end up paying around <1/2 what they should.

Perfectly 'OK' , if you got there by making charitable donations - at independently assessed market value; as those donations were just another kind of tax.

 

Ultimately either do something useful with your stash, or lose it - your choice.

No one likes misers.

 

SD

 

lol.  I've never heard inflation as a justification for the estate tax.  I'm generally in favor of an estate tax on some level, but true inflation is a tax in and of itself.  So now there will be an incentive to create even more inflation to produce more capital gains taxes!  Seems counterproductive.