What It Takes to Be in the 1% Around the World

[letsgetsailing3]

Originally Posted by GordMay

America’s Top 15 Earners and What They Reveal About the U.S. Tax System

What does this tell us, really?

How much have these folks collectively paid in taxes? And how much have they contributed to charitable causes? Have they made the world a better place?

Is the tax code fair? Probably not. Neither is life. But collectively, the folks on this list have done quite a bit for the world.

One place I think ProPublica's reporting is eye-opening, however, is on the REAL crime, which is a stepped up tax basis on inherited wealth. Which means the folks on this list can leave ridiculous sums of wealth to others, and then nobody has to pay taxes on those capital gains. That should be fixed, but there are enough rich people paying off Congress to stop that from ever happening.

The other major crime is where political leadership siphons public wealth or influence towards personal gain, but that's a whole different can of worms. I'm looking at you, Vlad.

[GordMay]

Originally Posted by dannc

How much did the people pay in capital gains tax?
Later,
Dan

If you’d bother to follow the links provided, you’d know that:

Their income mostly stems from stock sales taxed at the lower rate. Since 2013, that long-term capital gains rate has been 20%, about half the top rate on ordinary income (37% in 2018).
This pattern is especially true of tech billionaires like Bill Gates, whose income came predominantly from sales of Microsoft stock during this period. Every penny of Gates’ taxable income was eligible for the lower rate. That was generally true of the other tech billionaires as well.
Taxing long-term capital gains at lower rates than income is not new. The U.S. has done so for most of the past century. But in 2003, under President George W. Bush, that special rate was extended to most stock dividends, or money paid out to owners of a company’s stock, for the first time in U.S. history.
That change particularly benefited the wealthy. Together, the top 400 saved an average of $1.9 billion in taxes each year — due solely to the lower rate on dividends. These five benefited the most.
Estimated Average Annual Taxes Saved Due to Lower Rate on Dividends, 2013-2018
Bill Gates Co-founder of Microsoft $125 million
Larry Ellison Co-founder of Oracle $106 million
Fayez Sarofim Heir, investor $93 million
Alice Walton Descendant of Walmart founder $86 million
Sheldon Adelson Deceased casino magnate $62 million
The Walton and DeVos heirs especially benefited from the lower dividend tax rates. Collectively, the 11 Walton descendants in the top 400 saved $371 million a year due to this tax change.

And a whole lot more.

[Mike OReilly]

Yes indeed Gord.

If all income was taxed at the same rate, whether it is generated by an investment in personal labour (wages), or via an investment in personal capital (capital gains, stock dividends, interest on savings, etc.), it would make the system more equitable -- more 'fair'*.

* I hesitate to use "fair" -- it's a pretty waffley term.

[markpierce]

I'd welcome taxing capital gains at normal rates, but only if the cost basis is adjusted for inflation. The way it is now, the real tax rate is much higher, including taxes on economic losses when inflation exceeds the nominal gain.

[letsgetsailing3]

Originally Posted by Mike OReilly

Yes indeed Gord.

If all income was taxed at the same rate, whether it is generated by an investment in personal labour (wages), or via an investment in personal capital (capital gains, stock dividends, interest on savings, etc.), it would make the system more equitable -- more 'fair'*.

* I hesitate to use "fair" -- it's a pretty waffley term.

How so? What constitutes "fair" in a tax system? Shall we tax everyone at the same flat rate?

[Mike OReilly]

Originally Posted by letsgetsailing3

How so? What constitutes "fair" in a tax system? Shall we tax everyone at the same flat rate?

You used the term first. What did you mean?

... As I said, I hesitated to use the term, and only did so because of your use. Equitable is my preferred term. If we treat all income the same, regardless of how it is generated, that would be more equitable. "Fair" is a vague term.

[valhalla360]

Originally Posted by Mike OReilly

Yes indeed Gord.

If all income was taxed at the same rate, whether it is generated by an investment in personal labour (wages), or via an investment in personal capital (capital gains, stock dividends, interest on savings, etc.), it would make the system more equitable -- more 'fair'*.

* I hesitate to use "fair" -- it's a pretty waffley term.

If we want fair, it makes no sense to tax people generating income and investment returns which is an indication they are doing something positive for the economy and others.

Far better would be to set aside food & medicine, maybe even a limited allotment for housing and simply apply a sales tax to the rest(vat, gst, whatever you want to call it) and drop the income tax.

Poor people will pay a much lower percentage as they have little spending outside those protected categories. Rich people buying yachts and such will pay a much higher percentage as there is only so much they can spend at the grocery store.

Since it's much simpler, it's also more difficult to game the system, particularly for big dollar purchases. It would also allow us to repurpose a large percentage of accountants (not all but many) to more meaningful work rather than trying to game the increasingly complex tax code.

Of course, the politicians have too much vested interest in a tax system they can manipulate for political gain (this applies to all politicians not a particular party regardless of country), so I'm not expecting it to happen any time soon.

Also doesn't matter if it's passed on to the next generation because those who come by their money easily typically blow thru it...thus creating taxable events.

[letsgetsailing3]

Originally Posted by Mike OReilly

You used the term first. What did you mean?

... As I said, I hesitated to use the term, and only did so because of your use. Equitable is my preferred term. If we treat all income the same, regardless of how it is generated, that would be more equitable. "Fair" is a vague term.

Fair and equitable are synonyms from my perspective, and my point was that "there is no fair" where taxes are concerned. It's an arbitrary concept.

So when someone says "it would be more fair" or "it would be more equitable", I'm not sure what they really mean, as it's not feasible to have everyone pay the same percentage or fixed amount of income taxes. There are many who pay no taxes at all.

Seems to me that it is equitable to have everyone pay the same percentage of capital gains as taxes. The same rate is equitably applied.

We could do the same with income tax. People have proposed a flat tax. But people who like government control don't like that, as it gives government fewer control levers over individual behavior.

[letsgetsailing3]

Originally Posted by valhalla360

Also doesn't matter if it's passed on to the next generation because those who come by their money easily typically blow thru it...thus creating taxable events.

I agree with most of what you said, but I disagree about inheritances. For me, that's fair game for the tax authorities. To offer a stepped up cost basis on any capital gains means the wealthiest people can sidestep those capital gains taxes simply by never realizing their gains before they die. I see that as a major loophole in our tax system. I don't blame the wealthy for not wanting that addressed, or even talked about.

[Mike OReilly]

Originally Posted by letsgetsailing3

Fair and equitable are synonyms from my perspective, and my point was that "there is no fair" where taxes are concerned. It's an arbitrary concept.

So when someone says "it would be more fair" or "it would be more equitable", I'm not sure what they really mean, as it's not feasible to have everyone pay the same percentage or fixed amount of income taxes. There are many who pay no taxes at all.

Seems to me that it is equitable to have everyone pay the same percentage of capital gains as taxes. The same rate is equitably applied.

We could do the same with income tax. People have proposed a flat tax. But people who like government control don't like that, as it gives government fewer control levers over individual behavior.

It's not useful to play semantic games with terms. The only thing I said is that we should treat all income the same; treat it equitably. Whether that is more fair is up to each of us to decide (which is why I hesitate to use the term at all).

If you want to broaden the discussion and try and build a more equitable tax system from the ground up, fill your boots. I think my suggestion (which is certainly not original to me) is far more doable.

[AKA-None]

Hmmmm you know some people think that if stock prices go up the company has more money but actually the company only gets the money when the stock is first sold. After that any increase in the price of the stock does not increase the money the company has

[dannc]

Originally Posted by GordMay

If you’d bother to follow the links provided, you’d know that:

And a whole lot more.

Yes, but YOUR post was telling only one side of the story, it is only fair for YOU to provide more information to balance out YOUR post.

Only mentioning income taxes is biased, at best, when one is talking about taxation.

Later,
Dan

[valhalla360]

Originally Posted by letsgetsailing3

I agree with most of what you said, but I disagree about inheritances. For me, that's fair game for the tax authorities. To offer a stepped up cost basis on any capital gains means the wealthiest people can sidestep those capital gains taxes simply by never realizing their gains before they die. I see that as a major loophole in our tax system. I don't blame the wealthy for not wanting that addressed, or even talked about.

You missed the point. If we go to a sales tax based system, your earnings or investment returns are irrelevant, since they are never taxed.

In this scenario, there is no income tax or capital gains tax. If you don't want to pay taxes, don't spend money but of course, what's the point of making money if you don't spend it...and even if one generation doesn't spend it, almost always the next generation does, so it all gets taxed in the long run.

Estate taxes often kill off moderately prosperous family farms and businesses because there is enough "capital gain" that gets heavily taxed at the original owners death that the kids can't come up with the cash to pay the taxes without liquidating. So don't forget the unintended consequences.

[valhalla360]

Originally Posted by Mike OReilly

It's not useful to play semantic games with terms. The only thing I said is that we should treat all income the same; treat it equitably. Whether that is more fair is up to each of us to decide (which is why I hesitate to use the term at all).

If you want to broaden the discussion and try and build a more equitable tax system from the ground up, fill your boots. I think my suggestion (which is certainly not original to me) is far more doable.

But is it equitable or fair:
- With regular hourly earnings, you put in an hour of effort and you get your hourly wage exactly as agreed to. Short of bankruptcy or illegal activity on the companies end, it's pretty much a given, you will get your expected pay.
- With investments and starting a business, there is a very real risk, you wind up losing some or all of your money. A large percentage of new business fail.

Investment returns are not the same as "income" as defined by tax codes, so its disingenuous to say they are the same.

[Mike OReilly]

Originally Posted by valhalla360

But is it equitable or fair:
- With regular hourly earnings, you put in an hour of effort and you get your hourly wage exactly as agreed to. Short of bankruptcy or illegal activity on the companies end, it's pretty much a given, you will get your expected pay.
- With investments and starting a business, there is a very real risk, you wind up losing some or all of your money. A large percentage of new business fail.

Investment returns are not the same as "income" as defined by tax codes, so its disingenuous to say they are the same.

Lots of workers loose their wage income for various reasons not under their control -- like when the business goes bankrupt. THEY are also taking a risk, but it is not one they have much control over. At least the business owner has some control.

The tax code is created by us. Its definitions are created by us. We can change them. Again, it's just semantics. It's all income. Treat it the same (i.e. equal).

Consumption taxes are considered the most regressive form. It puts the weight of taxation even more on the lower-income earner because low-income people spend all they have. They don't have the luxury of saving, so all their money is taxed, unlike the wealthy who can afford not to spend it all.

I think flat-tax systems have some merit. You'd still need some level of exemption for the very poor, but they have been shown to work quite well in other developed countries. And they greatly simplify the system, and reduce complexity, which is where most of the legal tax avoidance hides.