Wages taxed twice as much as investment income

By the way, this affects all of us here who are brokers. For the most part, you are earning income (even if it's on a 1099 vs W-2) and TRYING to build wealth. Meanwhile, the government is trying its hardest to punish WORKING while calling it wealth re-distribution.

Meanwhile, your buddies who aren't working but have inherited wealth are completely unscathed. Zero wealth tax (that'd be too extreme right) and a tax on their income (from capital gains, dividends) at HALF the rate you're paying.

Is this fair? The argument to defend this is well it's already been taxed before. That's not exactly true is it since the estate tax is already so easy to evade without being repealed.

Essentially our politicians keep pushing their electorates' buttons and confusing them between high income vs wealth. Making it harder who those who work hard to actually build wealth, while inflating wealth through low interest rate economics (asset inflation).

It's truly one of the greatest scams of our lifetimes.

1. Do not forget that much of investment income is taxed at a corporate level already. So total tax is investment income tax + Corporate tax.
2. Carried interest treatment at investment income for private equity is certainly questionable.
3. If the corporate tax rate gets reduced, there is indeed a case for having an additional "buffet tax" for investment income over say $1mm per year. 3.8% Obamacare tax did increase the total investment income tax to 23.8%.
4. For state and city, investment income gets taxed as ordinary income.

Thanks you, Luxury for espousing perhaps the most important social and economic issue of our time. I am far from a Socialist but see the ever increasing wealth gap as extremely dangerous to the stability of our political system and our entire social fabric. The US is witnessing a significant erosion in our democratic processes as we have allowed special interest groups that favor the wealthy to have more power than even our elected officials. We become less democratic with each passing year. Its no wonder so few people vote.

Trying to build wealth today is like banging your head against a wall. One step forward, two steps back. The real estate market is one of the best examples. In order to make wealth, one must already have wealth. Property values continue to increase well above wages, increasingly shutting out many hard working people from the American dream of owning a home. We are creating both a permanent underclass and a permanent luxury class. Imagine the impact on productivity if social mobility keeps getting lower?

If it were indeed criminal, it would be a lot easier to fix. And if you think our country is going through some tough times today, just wait.

Income inequality is a very real consequence of the efficiency/tech/automation gains we've seen over past decade and will continue to see over the next 100 years. Some form of redistribution is clearly needed to help the losers of this trend and prevent all out mutiny and civil rebellion.

The problem with blatantly shaking down the rich to pay for large and larger handouts is that it weakens the entire national economy, ultimately shrinking the pie and making it even harder to pay for welfare programs over time. In the future, countries with more 'free' market economies and less taxation will take the wealth along with the rich people who generate it ... creating loser countries with unsustainable welfare states and dying economies.

Baummm, I agree with much of what you say except for the suggestion that the rich are being "shaken down". Take a look at effective tax rates especially for those with passive income. We are supposed to have a progressive tax system but in reality it is regressive to an extreme with the most benefits going to corporations and the "passive rich".

https://www.bloomberg.com/news/features/2017-09-12/why-american-workers-pay-twice-as-much-in-taxes-as-wealthy-investors

I agree with the sentiments and, strangely, almost with all viewpoints to some extent.

1- Investment taxes are usually the 2nd layer of taxes, as there is a corporate tax before receiving the dividends. For ex, $1m net corporate income, taxed at 40%+ currently, then if distributed, the $600k gets another 35% tax in NYC, so you are looking at net $400k or so, effectively a 60% tax
2- Tech gains are causing this, not horrible policy. Today, it is possible for an individual with a computer and a few genius programmers to create value in the economy to tunes of billions of dollars and increasingly those billionaires can control or significantly influence all govt branches
3- Shout out to baummm for basically breaking out the Sovereign Individual & bitcoin thesis!

The combination of the trends implies the following, I think:

1- Increasingly, a few will create increasing amounts of wealth due to frictionless distribution & tech
2- Govts will be powerless to do much bc the wealthy can move money around much easier now (and that will get even easier in the future as people's wealth will become more digital and encryption will become more powerful, especially as new wealth is becoming more stealthy)
3- Nation-states will need tax revenues to pay for the losers in the system, which will be most, if not all of us, eventually
4- They will not be able to tax as easily due to frictionless movement of money and the fact that there are large swaths of the world now that can act as playgrounds for the rich with minimal taxes (a situation that will likely "worsen" as companies and capital can be managed with a basic high-speed internet connection)
5- Large nation-states with poor demographics will be forced to cut benefits, although in democracies, this will be political suicide
6- They may have to inflate away the currencies to pay back debts and entitlement programs

There is not much that will be done about any of this, in my opinion. People will become more enamored with their phones. Food and clothes will be abundant. Real estate in non-prime areas will be cheap, but many in the next generation won't care because they will be plugged into their matrix all day long anyways, living their dreams in their digital lives. Prices of CPUs will continue to plummet, making the digital world increasingly more vivid and immersive and the analog world less important. Billionaire dictators will rise but not only will the public not care, they will cheer them on from their digital devices, because they will all be zoned out anyways.

Eventually, the tides of technology will rise and even middle managers and upper middle class individuals will start to drown, and then eventually universal income of some variety will likely start filtering its way into the system and be talked about less as welfare for the lazy and more as a consolation prize.

Strap on your seat-belts!

Along side these changes will be basically free highly-skilled labor, and energy, so while almost everyone will be relatively poor, there will be incredible abundance.

so plumbers with charge $1,000 to fix a wax ring.

Incredible abundance, Chasing, except of the mind. What a dystopia! Makes me want to buy a Winabago and drop out. Too bad that drugs are bad for you. I am glad I will be dead before this dream/nightmare is realized but since I plan on freezing myself, I might need to care a little. Don't want to reawaken one distant day and start screaming "solyent green is people!"

People will retreat into virtual experiences and opt out of the gene pool. The only survivors will be Amish and Pitcairn Islanders. What does that do for NYC real estate?

baummm - to be fair I don't think anyone here is talking about shaking down the rich. It is a very valid point that even the bleeding heart leftists like Bernie keep harping on "income inequality" which is a total scam. Neither party even likes to mention "wealth inequality." It's purely meant to confuse the vast majority of their base.

Check out the new proposed tax bill. It completely plays down the fact that investment income rates remain the same (0 to a max of 23.8%). They act as if there's no where else to cut. How about equalizing the rates? How about treating all forms of income the same?

By the way, I'm totally aware that corporate income is already taxed before dividends and capital gains. However, there is a permanent group of people who have never worked or been taxed on any of the wealth they simply inherited.

The inheritance tax seems way too easy to avoid (why the low take as a % of total tax revenue?) and there are so many tricks as we know in real estate to pass wealth on (step up in basis etc.).

It's criminal and parasitic.

So much about this tax bill is a joke. It is not about tax relief for the middle class or about meaningful tax reform and more about redistributing wealth to corporations and the "passive rich", just in time for next year's mid-term elections. To prove this point, the bill's sponsors are also sneaking in provisions related to abortion, immigration and health care.

Our progressive tax system is based on the Declining Marginal Utility of Wealth theory which states that the more wealth one has, the less each marginal dollar of wealth adds to your utility. Translated a different way, the more money you have, the less you need it.

Even if you don't believe in progressive taxes, I don't think we should allow regressive tax policy to get even worse.

I think many part of the tax bill are good.

Corporate tax cuts are much needed as the rest of developed world has lowered the taxes and corporations can move.

Almost every one everywhere making less than 100k gets a break.

Screwing coastal high income salaried people due to proposed removal of deductions not great.

Estate tax removal does nothing to the economy.

Carried interest left untouched which is a shame. Democrats did not touch is either.

There should have been higher capital gains tax for investment income > $1mm or even $5mm so that republicans can score some points. After all corporate taxes are getting reduced.

Measures of effective corporate tax rates show that the US is in the middle of the range especially compared to the other G-7 countries. Should we really care that Ireland has a nominal corporate rate of 12.5%?

This issue reminds me of the debate in the 1980's and 1990's over competition between New York City, New Jersey and Connecticut for major corporate office tenants. In the end most stayed, not because NYC was the cheapest but because it was the most desirable. The US has the same advantage vs. most of the world.

What explains inversions and many companies moving most their corporate headquarters out of American not to mention a big chunk of earnings via foreign subs results in lower effective tax rate?

I am not an expert but I believe inversions are a way for US companies to exclude corporate profits from US taxation until such time as they can negotiate a deal to repatriate the profits tax-free. I ask why this is even legal as it appears to be little more than tax evasion disguised as tax deferral. But I know this has happened in the past through the granting of tax holidays.

As I understand it, the current bill allows such profits to be repatriated not at 35% nor the proposed 20% but at 12% for cash assets and 5% for non cash assets. I am sure it is more complicated than this but it still looks like quite a deal to me, all things considered. A much better deal in any case than for individuals in particular those US citizens living and working overseas.

Supporters of this bill will undoubtedly argue that such repatriation creates jobs and raises wages but I have my doubts. Just one more way in which our tax system is heavily slanted to benefit corporate "citizens".

Would an individual taxpayer ever receive such beneficial treatment? Certainly not those American citizens living and working overseas whom the IRS goes after for every taxable penny of their world-wide income.

I am just not OK with this double standard.

In addition to provisions related to abortion, immigration and health care, I see that this "tax" bill would repeal the Johnson Amendment which prohibits tax-exempt organizations like churches from engaging in political activity.

The estate tax plan from the Senate is much more palatable. Fine $11mm cap, but definitely keep it in place. Removing it does not help the economy in any manner. In fact, why don't we make it harder to outright avoid?

Also, I'm fair certain the estate tax originated with our country's founding fathers to avoid the kind of un-American, dynastic wealth that had characterized the ancien regime in Europe.

If you want to borrow $1.5 trillion dollars ... fine but do it in more equitable ways. How about simplify and cut rates for everyone? How about actual tax reform and treating all income equally (investment and wages)?

Borrowing $1.5 trillion to do stuff like cut the estate tax entirely, keeping loopholes like carried interest. It's almost a joke. Can't believe we even have to talk about it.

Also very scary - if you look on WSJ comments for tax related articles, commenters actively try to discourage people from even considering wealth. All the focus is on income. Any talk about taxing wealth is immediately called out as Marxist and crazy.

Republican leadership has admitted this week that this tax bill was written to appease their corporate and wealthy benefactors. They have also admitted that not getting this bill passed will have enormous consequences not just for their chances of retaining their legislative majorities in 2018 but may even endanger the future of the Republican Party. Wow, they sound so desperate that I almost believe them.

Here is an interesting discussion of the estate tax. Notably, the effective rate of the estate tax, after exemptions and other exclusions, is only 17% vs. the nominal rate of 40%.

https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax

So 17 percent of total value rather than marginal? If exemption is 10mm and estate is 11mm at 40 percent tax is $400k which is less than 4 percent of 11mm?

I should have said that 17% is an average and assumes average estate value is higher. But you are right, effective tax rate can be much lower than 17%, 0% in fact if estate is valued less than $10mm.

Also noted in the article is that the estate tax prevents heirs from avoiding any tax upon inheritance as such inherited assets are exempt from capital gains treatment at time of death.

There are lots of ways the wealthy (and corporations) avoid taxes that others cannot. I think we should keep this tax around for the time being as the wealthy are already getting more of their fair share of these tax bill benefits.

I think better alternative is to reduce simply charge capital gains tax on the untaxed amount beyond an exemption amount of max 10mm for a couple.

That 17% is just an average because of the exemption amount (~$11mm per couple) .. most people's estates are not going to be much larger, that's why the average rate is lower than 40%.

There's absolutely no rational explanation for why we should borrow to fund an estate tax cut. I agree, a lot of New Yorkers will probably like the Senate version to move the limit up to $11mm per person, but after that it's really not reasonable. Why would we borrow to fund estate tax cuts for someone with a $500mm estate, or a $1 billion?