Now I have a Flat Tax Plan, Ho Ho Ho

[Uthrecht]

So, Rick Perry has a flat tax plan to counter Herman Cain's. I'd heard that he'd put one together, but this CNN article mentions some of the details.

Where I get confused is this:

Rick Perry said Tuesday his plan of giving Americans a choice between their current income tax rate or a 20% flat-tax would "set our people free" from burdensome tax law.

I don't immediately see further mention, but that makes it sound like his flat tax plan would be optional. Which doesn't sound like a flat tax plan, it sounds like a tax cut for the higher brackets. So perhaps I'm misunderstanding that part.

Flat tax... flat tax... I've heard that before somewhere...

Businessman Steve Forbes, who himself proposed a flat-tax when he was running for president in 1996 and 2000, told CNN Tuesday the Perry plan was superior to Herman Cain's "9-9-9" tax plan, which proposes levying a flat 9% tax on income.

Oh, hello Mr. Forbes. So nice to see you again.

Flat tax plans seem to be a boomerang that just keep coming back. It's like some folks decide to trot it out every now and again in the hopes that the public will buy it this time. At least Cain is tossing out a new spin on it.

[eleanorigby]

Yes, the Perry plan is an opt-in plan. What is not mentioned is that at 20%, the ones who will be opting-in are the wealthy who are now taxed at 28% and on up etc-this being essentially a tax break for them.


There's more to his plan, but my brain pan can only hold so much at one time. He's polling at 6% so I'm not fussed about his "plans".

I know this solely because I listened to the radio while running errands.

[SmartAleq]

Yeah, he also thinks we should completely eliminate all taxes on long term capital gains because apparently hedge fund managers are simply not making enough money paying only 15%.

It says a lot about the Republican base that their presidential front runners can trot out such arrogantly preferential plans to even further lick the round brown of the rich (which includes the majority of members of Congress, BTW) at the expense of, well, everyone else and nobody will ever call them on it. Are they really that stupid?

[Lungfish]

No, they are not stupid. The people who vote for them are.

[SmartAleq]

'At's what I meant--referring to their base! Seriously, I have a hard time even imagining the kind of thinking that would lead someone to believe that a person making millions a year should pay a lower percentage in taxes than someone making a few thousand. Are they just impressed by the big numbers? Do they just get lost in thinking about someone who makes 25 million a year paying six million in taxes (assuming an arbitrary 25% tax rate) and figure since they themselves would be lost trying to wrap their brains around the very idea of that much money that it must therefore be an unfair and exorbitant amount? Can they really not see that the millionaire paying six mill in taxes is affected much less than the person making 25 thousand a year paying six thousand? It simply boggles my mind--I suppose I'm glad that I can't see the world through that lens on account of it would probably make me stupid too, but it sure does make things frustrating out there on Facebook...

[Wolf Larsen]

Ah, but a low or zero rate for true long term capital gains is the correct rate. Why?

True long term capital gains means that you invested money in a productive enterprise that did well. And you left the money in long enough for it to do some good. Since economic growth depends on forgoing consumption now for more consumption later, we want to encourage this deferred consumption that we call investment.

It sometimes seems to me like some progressives would rather have everyone equally poor rather than have economic inequality with a higher standard of living for all.

[Tuckerfan]

Don't forget that the first $12K of income won't be taxed, so there's no point in earning more than that!

[Glazer]

Originally Posted by Wolf Larsen

Ah, but a low or zero rate for true long term capital gains is the correct rate. Why?

True long term capital gains means that you invested money in a productive enterprise that did well. And you left the money in long enough for it to do some good. Since economic growth depends on forgoing consumption now for more consumption later, we want to encourage this deferred consumption that we call investment.

It sometimes seems to me like some progressives would rather have everyone equally poor rather than have economic inequality with a higher standard of living for all.

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded--here and there, now and then--are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.” Lazarus Long

[McNutty]

Originally Posted by Wolf Larsen

True long term capital gains means that you invested money in a productive enterprise that did well. And you left the money in long enough for it to do some good. Since economic growth depends on forgoing consumption now for more consumption later, we want to encourage this deferred consumption that we call investment.

Doesn't capital gain encourage investment on its own? I don't see how you get from the general idea that "investment should be encouraged" to the very specific figure of "capital gains tax should be 0."

[THespos]

Originally Posted by Wolf Larsen

Ah, but a low or zero rate for true long term capital gains is the correct rate. Why?

What's your definition of "true long term capital gains" and how does it differ from the current accepted definition?

[Wolf Larsen]

Originally Posted by McNutty

Doesn't capital gain encourage investment on its own? I don't see how you get from the general idea that "investment should be encouraged" to the very specific figure of "capital gains tax should be 0."

In this thread

These two specific posts are post1 and post2.

[Wolf Larsen]

Originally Posted by THespos

What's your definition of "true long term capital gains" and how does it differ from the current accepted definition?

Longer than a year and invested in an enterprise. This would leave out hedge fund's carried interest exclusion (which should be taxed as ordinary income) and houses. It would probably be best to have a stepped tax rate where cap gains under a year are regular income, and for each additional year held it steps down to the final low rate at five years. This encourages people to invest for the long term rather than speculating.

"Invested in an enterprise" would mean the money was invested in a sole proprietorship, partnership (either regular or LLP) or corporation , which may or may not be publicly traded.

Bond interest should be taxed as ordinary income and stock dividends should get a better rate than ordinary income.

The whole point is capital formation. We want people to take money not currently needed and put it to work growing the economy. We want it to be profitable to do so and we want them to leave the money at work rather than jump around with it.

[THespos]

Originally Posted by Wolf Larsen

Longer than a year and invested in an enterprise. This would leave out hedge fund's carried interest exclusion (which should be taxed as ordinary income) and houses. It would probably be best to have a stepped tax rate where cap gains under a year are regular income, and for each additional year held it steps down to the final low rate at five years. This encourages people to invest for the long term rather than speculating.

I think I'd agree with that.

"Invested in an enterprise" would mean the money was invested in a sole proprietorship, partnership (either regular or LLP) or corporation , which may or may not be publicly traded.

Wouldn't there have to be a qualification that the enterprise actually produce something? Else, wouldn't that just encourage the Goldman Sachses of the world to invent investment vehicles like ownership in an LLP (or similar) that simply gambles on stocks? Sort of a mutual fund wrapped in the guise of a company? Forgive me if I'm missing something obvious - economics classes scared me during undergrad.

Bond interest should be taxed as ordinary income and stock dividends should get a better rate than ordinary income.

The whole point is capital formation. We want people to take money not currently needed and put it to work growing the economy. We want it to be profitable to do so and we want them to leave the money at work rather than jump around with it.

The only issue I have with this (after thinking about it for only a few minutes, mind you) is that if dividends aren't taxed as ordinary income, wouldn't that become a primary means for the 1% to have their cake and eat it, too? If they didn't reinvest dividends, they're still getting the benefit of an ownership stake in a company, which is (hopefully) growing in value, while also pulling profits out without it being taxed like other income. Why do you think dividends should get a break?

[Wolf Larsen]

Originally Posted by THespos

The only issue I have with this (after thinking about it for only a few minutes, mind you) is that if dividends aren't taxed as ordinary income, wouldn't that become a primary means for the 1% to have their cake and eat it, too? If they didn't reinvest dividends, they're still getting the benefit of an ownership stake in a company, which is (hopefully) growing in value, while also pulling profits out without it being taxed like other income. Why do you think dividends should get a break?

You have to figure out what you want: Do you want a strong growing economy, or do you want to punish the rich? Dividends are the reward for having your money invested in a strong company. We want to encourage people to put their money into strong companies. If you make only cap gains on stock sale advantaged, this encourages people to put money into speculative enterprises like dot com companies, which is a perverse incentive that puts investment into the wrong sorts of enterprises.

[THespos]

Originally Posted by Wolf Larsen

You have to figure out what you want: Do you want a strong growing economy, or do you want to punish the rich? Dividends are the reward for having your money invested in a strong company. We want to encourage people to put their money into strong companies. If you make only cap gains on stock sale advantaged, this encourages people to put money into speculative enterprises like dot com companies, which is a perverse incentive that puts investment into the wrong sorts of enterprises.

I don't want to punish the rich for the sake of punishing the rich. Philosophically, though, I think there needs to be a mechanism for mobility. The people who crashed the economy have escaped with their ill-gotten gains - I don't think it's fair for them to remain in control of a vast percentage of the country's wealth simply by getting a computer to predict minute upticks and downticks in the stock market.

That said, let me address your point on dividends. Dividends are a reward for putting money into strong companies, but so is having an investment in a strong company. If I invest in AT&T and the stock grows in value, I can cash that in at a low tax rate in five years according to your plan. Along the way, I'm also taking money out in the form of dividends. That's profit that could grow AT&T further that's instead being taken out and buried in jars or burned in the driveway (to borrow from your posts in the other thread).

As for the dot com crack - I was front and center for that one. And although a tremendous amount of market cap simply evaporated, there was some quality innovation that came about as a result. As someone who gained on dozens of dot com stocks and lost money on only one, I can say that if you had the proper resources for due diligence, it was easy to separate the companies with substance from the ones selling vapor.

[McNutty]

Originally Posted by Wolf Larsen

In this thread

These two specific posts are post1 and post2.

I'm still not seeing the 0 argument. In that other thread, you've come to the conclusion that capital gains taxes should be lower than income taxes (although even that is just an assertion -- an argument remains to be made about how the two numbers are even related as far as I can tell), but not zero.