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View Diary: I am going to ask, no insist, that you read something (104 comments)

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  •  let's go back to the pre-Reagan (4+ / 0-)
    Recommended by:
    cybrestrike, k9disc, cocinero, ChemBob

    marginal tax rates. I propose a 70% marginal rate on incomes over $1,000,000. Take the motivation (greed) out of Wall St. manipulations.

    There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy.

    by cigale on Sat Dec 14, 2013 at 10:58:54 AM PST

    •  cigale - do we get the old code back? (2+ / 0-)
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      Bluehawk, JanL

      The Tax Reform Act of 1986 so fundamentally changed the US tax code for individuals that rates before 1986 and rates after have no relationship to one another. The rates are apples and oranges. I think the 1% would be very happy with 70% rates and the old code that went with them. I was a 1%er and when the top marginal rate was 70% my effective rate was 10%. When the top rate was 70% the average effective rate for the 1% was about half that. With the new top marginal tax rate of just under 40%, and the post TRA86 code, the effective rate for the top 1% will be about 30% (what it was under Clinton) so we aren't too far from the effective Pre-Reagan effective rate.  

      "let's talk about that"

      by VClib on Sat Dec 14, 2013 at 01:00:18 PM PST

      [ Parent ]

      •  Don't higher taxes force more investment and (1+ / 0-)
        Recommended by:
        NoMoreLies

        spreading around of money?

        I mean you want to be fairly lean on the profit end so you don't lose your shirt having your 'excess money' taxed. Didn't the 1% at that time have to run a much finer line of serving their shareholders and making profits?

        Seems to me that a great incentive for spending your money your way instead of taking it as profits is that you can escape those heavy taxes for 'taking too much'.

        Democracy - 1 person 1 vote. Free Markets - More dollars more power.

        by k9disc on Sat Dec 14, 2013 at 01:52:39 PM PST

        [ Parent ]

        •  No, it doesn't (1+ / 0-)
          Recommended by:
          k9disc

          I think you are confusing three separate issues. Prior to the Tax Reform Act of 1986 the way an INDIVIDUAL could lower their federal income tax was to invest in projects that had legal, reputable, tax shelter elements. Depending on the project, real estate, oil and gas, research & development, movies and many others you could take as a deduction from your salary the amount you invested before calculating your taxable income. In some cases you could legally take more than the amount you invested as a deduction from your salary income. So the code for individuals had high rates but clearly did create incentives for personal investments. TRA86 changed ALL of that. Now, with a few exceptions, if you invest in a project there is no deduction against your salary available at tax time. The investment may qualify for long term capital gains, but there is no "tax advantage" to making the investment. That era ended in 1986.

          As it relates to CORPORATIONS the rules are different. Investments made by corporations can be written off over time against revenues but the cash goes out the door in year one and the tax benefit comes over three to five years. There is also this notion here at DKOS, that is widely shared, that higher corporate income tax rates are an incentive for companies to invest in additional employees, plant and equipment. Anyone who has taken the first college level class in financial management or financial accounting will tell you that the idea is nonsensical. Corporations have capital and investment budgets. Projects are funded based on the best after tax rate of return. Higher taxes penalize projects and depending if the taxes are local, state or federal is puts that political entity at a disadvantage for business expansion.

          "let's talk about that"

          by VClib on Sat Dec 14, 2013 at 07:23:00 PM PST

          [ Parent ]

          •  VCLib, saying a simple tax reversion won't work is (0+ / 0-)

            not at all the same thing as saying that we can't design a better tax system. The reason why people want to go back to that older tax scale is because the CEOs were "only" making 50x the pay of their workers, not 450x like today. They were not buying politicians quite so openly, nor creating astroturf organizations to manipulate voters. (Though given the campaign to keep smokers from thinking that cancer was real, they did their own share of astroturf.)
            I understand that you were (are?) in the corporate management world, and that you absorbed the mindset. I understand you think that executives somehow "deserve" to make a boatload of cash. You've said it before. Now can you agree that the current system is failing 99.9% of the country, that it is unsustainable, and that a repair must include a higher tax rates for the wealthy? Will you agree to provide constructive ideas on how to accomplish those goals instead of just shooting down what you think will not work?  I'm pretty sure that a person here at DailyKos has a point of view that CEOs are not royalty, right? There is no "divine right of compensation". The Upton Sinclair quote "It is difficult to get a man to understand something when his salary depends upon his not understanding it." applies to you, but I hope that this does not blind you to the urgent need for reform.

            •  Jerry - I don't think I mentioned executive comp (0+ / 0-)

              in this comment in this diary. I was just answering the question of do higher tax rates encourage more investment? They don't under the current code. I was just giving some history when on an individual basis higher tax rates, combined with the IRS code at the time, did in fact encourage investments.

              The issue of executive compensation is a complex one. I have mentioned that the correct public policy to deal with excessive comp is higher marginal tax rates. I am on record here writing that more than 100 times. I do not think there is a legitimate role for government to limit executive compensation. Corporations are owned by their shareholders, not governments, and government shouldn't step into the shoes of the owners. The good news is that all of the compensation for the senior executives of the Fortune 1000 is taxed at the top marginal rate (including stock options)  which is good for both state (for those states who have an income tax) and the federal government.

              "let's talk about that"

              by VClib on Sun Dec 15, 2013 at 04:58:28 PM PST

              [ Parent ]

              •  Corps need more regulation b/c shareholders aren't (0+ / 0-)

                running the companies any more.  Yes, the Boards of Directors are made up of shareholders, but they're a minority of all shareholders.  Other shareholders are shut out of the process entirely, with no ability to introduce new rules for the companies, influence the direction of the company, or even force true negotiation with management. As a shareholder, I get to vote Yes or Abstain, in many cases with no true No vote allowed, counted, or heard. When a CEO is overruled by shareholder owners of Fortune 2000 companies, it makes news because it is so rare. The government has to step in just to return ownership of companies to owners instead of glorified grossly overpaid managers.
                As far as tax rates, I think top tax rates are too low. I also disagree with you in with your assumption that current tax rates encourage investments. That's just another corollary of "supply-side" voodoo. The Congressional Research Service report from Sept 2012 showed that lowering tax rates did not improve the economy, and in fact over the last 25 years there was a negative correlation. Low tax rates encourage speculation, maybe, but not long term investment in growing companies. Too often, CEO managers are short-timers who want to grab as much as they can for themselves without consideration of the health of the companies they are running past the next quarter's stock dividends and options. If anything, capital gains tax rates should go back to matching higher income tax rates.

                •  Jerry - I have NEVER wriiten that current rates (0+ / 0-)

                  encourage investments. What i have written, and it's true, is that higher rates do not encourage investment. The decision by corporations about where to invest their capital, operating, and research budgets is a complex one. Tax rates are one of many variables. Higher rates penalize projects, but strategic and other business reasons often overwhelm tax rates.

                  Boards of public companies pay close attention to proxy votes. I have been a public company director since 1988 and have been the compensation chairman of numerous public companies. I have the distinction that every CEO has tried to have me removed from every board where I have been comp chairman. Institutional shareholders, who often own significant numbers of shares, clearly have their voices heard at the board and senior management level. How big a voice should an individual who owns 100 shares really have in a company that has 30 million shares outstanding? Why should government empower small shareholders over those shareholders who actually have significant ownership positions?

                  In the entire US history of taxing long term capital gains the rates have only been the same for a short period after the Tax Reform Act of 1986 when both the earned income, and long term capital gains rates were capped at 28%. In every other period long term capital gains have been taxed at a much lower rate than earned income. For most of the time the long term capital gains rate was one half your individual marginal rate. The manner of calculating that was that half your long term capital gains income wasn't taxed and you would add the other half to your earned income when determining your tax. So your comment that we "should go back to matching higher income tax rates" is nonsensical. Capital gains rates have always been lower except for when they were both maxed at 28%. No country in the G20 taxes earned income and long term capital gains at the same rate. All of them tax capital gains at a lower rate than earned income. I wouldn't want the US to be the outlier as it would run the risk of capital flight.  

                  "let's talk about that"

                  by VClib on Sun Dec 15, 2013 at 09:53:23 PM PST

                  [ Parent ]

                  •  Thank you for the lesson, VClib. :) (1+ / 0-)
                    Recommended by:
                    VClib

                    As far as low vs. high tax rates & investments, I misread something you wrote above.
                    .
                    In re smaller shareholders, granted they should not run the company, but they should not be totally shut out by people who own just 10-20% of the company, either.  There has to be a balance, and right now I'm not seeing it.
                    .
                    What research has been done that shows capital gains should be taxed at a lower rate?  Anything?  Or is this just an article of faith that must not be questioned by mere wage earners?  Joking aside, seriously, has any research been done by modern economists that shows capital gains deserve to be treated differently?  Does the economy really suffer, anywhere, ever?

                    •  Jerry - I think it's a good and legitimate (0+ / 0-)

                      question regarding capital gains tax rates. I think the problem is that it is so difficult to keep all the other variables constant and every developed country has a lower rate for capital gains. I am not sure how you would do real world research.

                      However, there a few things we do know. One is that higher capital gains tax rates do NOT result in higher capital gains tax revenues to the Treasury. When capital gains tax rates are lower people are much more inclined to sell appreciated capital assets, pay the tax, and move on to a new investment or spend the proceeds. When they are high people keep the appreciated assets and borrow against them, which is not a taxable event. That's not how it is scored by the CBO, but that is the real historical data. President Obama, who favors taxing earned, investment, and capital gains at the same rate, has acknowledged in Q&A that higher capital gains rates don't produce more income for the Treasury. We do have a few interesting nuggets in the US. A few years ago Congress passed legislation that if you invested in a startup, that met certain criteria, and held the stock for five years, the capital gains tax would be zero. And it was a real zero, no AltMin recapture (which was a gotcha the first time this was done some years ago) no funny offsets, a real zero tax rate on the gain. It started as a one year deal and there was a surge of investing, mostly toward the end of the first year and then was extended one more year and another surge happened toward the end of the final year. That's what I saw personally and the aggregate data is probably available somewhere.  

                      One of the other issues with taxing long term capital gains and earned income at the same rate is that capital losses can only be used at a minimum level to offset earned income. There is a $3,000 a year limit. So if you lose $21,000 on an investment you can deduct $3,000 a year for seven years against your earned income. If they were taxed the same you could make a case that to be equitable whenever you had a realized capital loss (you sold your shares or the company went bankrupt) you should be able to deduct the entire amount of your loss against your earned income in the year the loss was recognized.

                      "let's talk about that"

                      by VClib on Mon Dec 16, 2013 at 08:39:45 AM PST

                      [ Parent ]

                    •  Jerry - one other data point (0+ / 0-)

                      Nearly all developing countries have a zero or single digit tax rate on capital gains because they want to attract capital.

                      "let's talk about that"

                      by VClib on Mon Dec 16, 2013 at 08:41:58 AM PST

                      [ Parent ]

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