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View Diary: Eliminate corporate tax, seriously (422 comments)

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  •  Let's be clear on that point. (5+ / 0-)

    Pensions and retirement accounts (excepting Roth IRAs) are tax-deferred accounts.  When they are drawn on or inherited, they are taxed at ordinary income rates, not capital gains rates.  

    It would make great sense to exempt retirement accounts from a financial transaction tax.

    "Get over it...and get out of the way." -- Gov. Steve Beshear (D-KY)

    by mspicata on Mon Aug 25, 2014 at 01:13:41 PM PDT

    [ Parent ]

    •  I was addressing the additional taxes (0+ / 0-)

      owing due to the funds' activities.  If the pensions and retirement accounts are taxed at a higher rate for their trading activities (capital gains), that would reflect an additional cost to the beneficiaries.  If pensions and retirement accounts are exempted, the pool of taxpayers would be reduced to over-the-counter and personal investment accounts.  I keep hearing that trickling sound, but I haven't quite found the exact source yet.  

      •  Pensions and retirement accounts are exempt now. (2+ / 0-)
        Recommended by:
        orestes1963, ozsea1

        Neither pays capital gains. An FTT would be a drag on growth and makes little sense for either, IMHO, although the added expense is very small to accounts that already experience very small expenses if they are properly managed.

        I'm making an assumption here that may not be correct. Forgive me if I am wrong. I sense a knee jerk reaction to what looks to be a give away to business in general and big corporations in particular. (I'm also not sure thatyou have a solid an understanding of the elements of taxation, investment, and economic inter-workings but, again, I may be wrong.) That was my initial reaction to the post. Eliminating corporate income taxes alone would be a huge windfall to big business but this has the FTT to not only offset but increase tax revenue. It is a give and take that I think is a winner that might even be politically doable.

        Robert Reich generally has good ideas although I am skeptical that his loyalties lie with the ordinary citizen. He does seem to strike a balance which I think this works. That is why I paused after reading this to think through how his proposal would work. My closer reading and initial analysis of it is that it is almost certainly far better for us all than the current system of corporate taxation.

        It does several things. Repatriation of foreign earned income will likely have a considerable impact on economic growth in the US. An added benefit is it lowers the benefit large corporations have for offshoring. I don't know how much but it is probably just enough to reduce the incentives to offshore to a level where it is more cost effective for most companies to stay in the US. kos has already shown one estimate of the tax revenue benefits to a transfer to capital gains taxation instead of corporate income taxes. I think they are accurate although I'd like to see further analysis by trusted economists. There are certainly economic and tax revenue benefits to increased economic growth in the US. I think these two proposals, together, will make that possible.

        Two points:
        1. Both elements of the proposal must happen for this to work. The loss of either makes this a non starter economically. Politically I doubt there is any chance of getting an FTT without eliminating corporate income taxes and without the FTT the tax revenue loss is unmanageable.
        2. This proposal needs more study and further comment by all parties.

        Time makes more converts than reason. Thomas Paine, Common Sense

        by VTCC73 on Mon Aug 25, 2014 at 02:17:42 PM PDT

        [ Parent ]

        •  I think Orestes has a different issue (2+ / 0-)
          Recommended by:
          orestes1963, Odysseus

          If my 401(k) and IRA consist of individual stocks, what you're saying is largely true. I am going to mostly be buying and holding, and the transaction fees won't bite into me much at all.  Then I pay (again a small amount) when I actually draw down the funds.

          But suppose I don't want the tsouris of picking individual stocks. I invest my retirement accounts in some managed fund - an index or a sector fund. That fund is going to be actively managed, doing very frequent trades. Now my annual returns - even though I pay nothing on them until I actually withdraw funds - stand a good chance of being decimated by transaction fees. (I am using "decimated" here in the original sense of taking a 10% haircut.)  

          To guard against that, some sort of exception would have to be carved out. What percentage of trades on any given day are carried out by pension and retirement fund managers?

          The real USA Patriot Act was written in 1789. It's called the Bill of Rights.

          by nicteis on Mon Aug 25, 2014 at 02:45:09 PM PDT

          [ Parent ]

          •  Thanks (0+ / 0-)

            That is the point I was trying to address- the additional taxes incurred by funds in which one is invested from investment activities.  If the funds' activities are taxed at a higher rate, that cost is ultimately borne by the investor.  If I understand VTCC73 correctly, these activities are not presently taxed, so the assumption is they would remain exempt (which makes sense).  

            Of course, the issue extends further if, for example, a pension fund invests in a PE fund and that PE fund's capital gains are taxed at a higher rate, but I didn't want to complicate the point.  

          •  We are saying the same thing here. (2+ / 0-)
            Recommended by:
            ozsea1, delver

            The elimination of corporate taxes is dependent on a transfer to capital gains (and I strongly support an increase of capital gains rate to marginal tax rate) and implementing a FTT. Package deal or nothing.

            I strongly support, and don't see any sane politician (OK I may have found a flaw) not supporting, an exemption to the FTT for retirement funds. That is pensions and 401k accounts. I do not really have any problem with the FTT applying to Roth IRAs but in fairness maybe they should be exempted.

            For clarity, there are no capital gains involved in pensions and 401k funds. All of these retirement funds grow tax free until withdrawn. Pensions are taxed as ordinary (considered deferred compensation) income. Traditional IRAs are taxed as ordinary income. Roth IRAs are not taxed at all. (There are some other forms of retirement savings/accounts with which I am only passingly familiar and I can't address them.) Perhaps this is the misunderstanding, I don't know.

            The FTT proposed is .25% of the value of the transaction. The math question of the day is how many transactions do you have to make to reduce the value of you position by, say, a 10% threshold of "decimated" that you mention? I sincerely hope the answer doesn't start a helmet fire for anyone.

            This is a very complex subject full of misconceptions and misunderstandings. I sincerely think that is why this part of the thread has grown so long. Is it possible that the thought of someone getting something at my expense an issue because they do not fully understand the elements of the subject? I do. And I fully understand why and how this could be so.

            Time makes more converts than reason. Thomas Paine, Common Sense

            by VTCC73 on Mon Aug 25, 2014 at 03:33:31 PM PDT

            [ Parent ]

        •  Thanks (0+ / 0-)

          I was not sure whether pension funds and retirement accounts pay capital gains on their investment activities.  That is helpful information.  Are there data to show that eliminating corporate taxes in favor of increased capital gains tax would yield higher revenues for the government?  I understand it's your position that this would have to be done in tandem with an FTT to work, but I am curious to know whether CGT alone would work.  

          I am not a tax expert by any means (dropped the subject in law school after three very tedious classes).  

          I do oppose this proposal because I think it is foolhardy.  Better to correct the inequities in the current system than to dismantle it entirely in the vain hope that this proposal would not ultimately result in the same mess we have today re corporate taxation.  Note that no mention is made of fixing the system as a solution.  No, the only option is to dismantle the system and hope we can create something that works more effectively.  Nothing in this diary or Reich's proposal convinces me this is a wise move.  I'd liken the underlying rationale to arguing that there is fraud in the welfare system, so let's scrap it and have the government give funds to charities to provide for the poor.  

          •  I think we have a breakthrough. YAY! (0+ / 0-)

            As I stated just now above:

            For clarity, there are no capital gains involved in pensions and 401k funds. All of these retirement funds grow tax free until withdrawn. Pensions are taxed as ordinary (considered deferred compensation) income. Traditional IRAs are taxed as ordinary income. Roth IRAs are not taxed at all. (There are some other forms of retirement savings/accounts with which I am only passingly familiar and I can't address them.) Perhaps this is the misunderstanding, I don't know.
            Again I think this thing is only workable as a package deal. Capital gains alone, even with the rate indexed to marginal tax rate, is insufficient to make up the revenue loss due to the elimination of a corporate income tax. I'm almost positive someone has or will study this if the proposal gets traction.

            The FTT is a good idea for several reasons not the least of which is increased tax revenue. One, off the top of my head, has to do with high speed trading and the often claimed rigging of the market. Front running trades of their customers by large financial institutions has been claimed (with strong evidence of accuracy to the charge) in HST systems. I support an FTT because of the complaints of HST traders whenever an FTT discussion breaks out. They claim their margins are so thin that the FTT would eliminate any profit from HST. I see decreased opportunities for shinanigans and increased market stability as a valid reasons for an FTT all by themselves. Let me put it this way I'll gladly pay the tax as proposed.

            Time makes more converts than reason. Thomas Paine, Common Sense

            by VTCC73 on Mon Aug 25, 2014 at 03:48:09 PM PDT

            [ Parent ]

        •  An FTT is silly (0+ / 0-)

          All it will do is dramatically reduce transaction volume by eliminating high frequency trading.  But why is that a benefit?

          The way to offset the elimination of corporate income taxes is to tax dividends and capital gains like ordinary income.  That would be justified because they would no longer be double taxed.

    •  Absolutely. (0+ / 0-)

      Roth IRAs are tax exempt. They are purchased with after tax money subject to annual limits. Regardless, pensions and traditional IRAs should be exempt from the FTT to further encourage retirement saving. I can see a counterargument that a lower rate FTT on Roth IRAs to both encourage retirement investment and to dampen excessive trading. The proposed rates are so low as to be insignificant in the larger scheme of things either way.

      Time makes more converts than reason. Thomas Paine, Common Sense

      by VTCC73 on Mon Aug 25, 2014 at 01:41:18 PM PDT

      [ Parent ]

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