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[wierd]

Fixing capital gains taxation, as a consequence of the Double Irish tax avoidance scheme, seems apt though, in the modern age.

That money was never taxed, otherwise. I could see it being added to the tax code for capital gains held in corporations that make use of such tax avoidance methods, as an end-run of such avoidance.  The investor cannot abuse a tax haven like the corporation itself can, and the downward pressure against the investor would naturally discourage the use of tax havens.

[Reelya]

What do you mean "not properly compensating people for the risk of investing?"  Isn't the expected rate of return of an investment already supposed to have the cost of risk built in? 

That's why it's lower. Capital gains tax applies in the situation where you won. It is in fact lower because of the chance of losing.

If i work for 1 hour, i have a ~100% chance of getting my 1 hour worth of wages.

If I invest my 1 hours worth of savings, i have less than 100% chance of earning money on that, so the tax is lower to compensate for the uncertainty.

[Maximum Spin]

the downward pressure against the investor would naturally discourage the use of tax havens.

I would really prefer that you not apply "downward pressure against" me to stop CEOs from doing something completely legal that you dislike.

[nenjin]

Yeah, dont ruin tax havens for everyone just because the largest corporations and billionaires do it avoid paying taxes.

Wait.

[Iduno]

Because when you invest money in something there's a chance you'll lose your money. If you tax the gains as pure income then that's actually unfair because you're not properly compensating people for the risk they took by investing in the cases where they lose. If you work for 1 hour you just gain the money, there's little to no risk of losing the 1 hour of wages.

That would make more sense if they didn't get a tax break for losing money.

Anyone know the history behind why capital gains are taxed at a lower rate than wages?  I mean, this is one of those systematic structural issues that permeates society.

Lawmakers tend to have enough money to make more money through investments, so they write the laws in a way that benefits them personally.

>Inflation is built into the wage system by increasing wages over time
>NOPE, NOT HERE AT LEAST.

Yeah, I think there's been one year in the last 15 that I've received a pay raise that was as high as inflation or higher.

[Reelya]

Because when you invest money in something there's a chance you'll lose your money. If you tax the gains as pure income then that's actually unfair because you're not properly compensating people for the risk they took by investing in the cases where they lose. If you work for 1 hour you just gain the money, there's little to no risk of losing the 1 hour of wages.

That would make more sense if they didn't get a tax break for losing money.

But you can't claim all that much back on that.

https://www.investopedia.com/articles/investing/062713/capital-losses-and-tax.asp

Any loss can be netted against any capital gain realized in the same tax year, but only $3,000 of capital loss can be deducted against earned or other types of income in the year. Remaining capital losses can then be deducted in future years up to $3,000 a year, or a capital gain can be used to offset the remaining carry-forward amount.

So yes, if capital losses were fully recognized it would make less sense to tax capital gains any less than regular income, but since there are very strict limits on how much capital loss you can claim back, then it is still asymmetric in terms of risk/reward. There are good reason to limit the tax break on losses however, since that would be more open to fraud, and because of that part of the risk of losses is built into the rate of tax for capital gains instead.

[Maximum Spin]

Yeah, dont ruin tax havens for everyone just because the largest corporations and billionaires do it avoid paying taxes.

Wait.

Everyone should be equally allowed to stop paying taxes, yes.

[Zangi]

Yeah, dont ruin tax havens for everyone just because the largest corporations and billionaires do it avoid paying taxes.

Wait.

Everyone should be equally allowed to stop paying taxes, yes.

Allow them to reinvest that money into cheap briberylobbying.

[Maximum Spin]

I mean, a wild idea might be to tax the CEOs who make the decision instead of the mostly middle-class people who get one tenmillionth of a vote.

[wierd]

the downward pressure against the investor would naturally discourage the use of tax havens.

I would really prefer that you not apply "downward pressure against" me to stop CEOs from doing something completely legal that you dislike.

The intent is that there is nothing stopping you from investing in corporations that properly file their taxes, instead of spending countless man-hours planning how to very precisely allocate intellectual properties within a corporate structure to make their tax burdens as close to 0 as possible, through aggressive use of tax havens.

EG,  They could just operate, and have IP assigned where it was actually invented-- and pay proper taxes-- and your capital gains would not get the special tax code---

OR

They can do the double irish bullshit, and their investors get the tax burden instead, depressing the market value of their stock, such that their tax avoidance has no real value to them.

Either way, the state gets its money, the value of the tax haven evaporates etc.


Taxes are not a bad thing. They pay for essential social services, and are one of the ways we get to have nice things as an advanced society. There are real negative consequences to wholesale tax avoidance, no matter how "Legal" the system claims it to be.  This is why it should be discouraged.  Special tax code for capital gains held by tax avoiding corporations seems a reasonable checkvalve.


As you yourself pointed out, the different tax structure of capital gains is intended to capture this "normal corporate profit taxation" value, such that ordinary investors are not double-taxed.

However, taxing the individual investors a small pittance for assets held in consumate tax avoiding entities, results in the EXACT SAME reduction in value. (EG, the elimination of the value added by the tax haven), so either way, the investor makes the same return.  It just eliminates the value of the tax haven.

[nenjin]

I mean, a wild idea might be to tax the CEOs who make the decision instead of the mostly middle-class people who get one tenmillionth of a vote.

Or change the laws to make dodging taxes and avoiding contributing to the public good illegal. Like it always should have been.

[Maximum Spin]

I mean, a wild idea might be to tax the CEOs who make the decision instead of the mostly middle-class people who get one tenmillionth of a vote.

Or change the laws to make dodging taxes and avoiding contributing to the public good illegal. Like it always should have been.

Well, the core problem is that the corporations doing things like the "Double Irish" (which is actually gone now) are not actually dodging taxes in the strict sense, they are headquartering themselves in other countries with different (lower) tax rates and keeping their assets there for the most part. There are things that can be done, including switching to a national tax regime from our current worldwide one, but actually outlawing "being from other countries" would seriously harm relations with those countries.

[wierd]

More reasonable rules would be along the lines of:

*ACTUAL* location of invention > Where you file/who you sell it to for tax reasons

(EG, if you develop it in the US, leveraging US social advantages to facilitate that development, then just immediately turn around and sell it to your subsidiary in Elbonia to avoid paying taxes, you get the special tax rules. IF-- however-- you actually develop it in Elbonia, and pay elbonians to develop it, then sure-- keep it in Elbonia. No special rules.)


The vast majority of tax avoidance is the former, and not the latter--- this is because the R&D is much harder to do in those countries, BECAUSE they have the lower tax, and thus have lower social service availability to utilize.

The use of tax avoidance to get this double advantage is a blatant example of the tragedy of the commons, and why it should not be permitted.  It is not so much "You cant be irish."  It is "You cant develop something in the US, then pretend it was developed in Ireland, just because you will pay less taxes that way."

[McTraveller]

But that's not how investments work.  You have a pool of money that you invest in things, say 10 things. You expect 9 of them to lose all the investment but one of them to have, say, a 50x return.  You just don't know which one.  If you invest say $2 in each of them ($20 invested) and the expected value is $100.  This is not a loss.  So why do you need a tax break to cover the risk of losing on those individual investments?  I mean the tax rate from 15% vs 20% means you'd pocket $68 instead of $64 gain on the initial $20.  Is that really going to make you invest any differently (assuming all investments are taxed equally, it should not).

I just can't buy the "lower taxes to offset risk" part.

I am aware of the arguments for "don't double tax" but just about all money is taxed multiple times anyway (I get income tax, then I get sales tax when I buy something, then I get property tax on the things I bought, too!) so that argument is...weak.

Anyway I can't think of a society-level benefit to capital gains taxes lower than income (wage) taxes.  My hypothesis is that we'd do just as well if not better if all income was treated equally for tax purposes.

[Lord Shonus]

The society-level benefit is that more people invest. In theory, this raises the capital available to businesses, which allows them to pay more out in jobs and material purchases. Simultaneously, more of this money winds up in the pockets of the people who initially invested, giving lower income people an incentive to tie themselves to and benefit from the business cycle. This allows everybody to be lifted.


In practice, this is not so effective.


EDIT: Shotgunning investements in the hope of getting one huge win is not the only investment strategy. More common is "invest in lots of stable stocks for steady income while you throw some money at things you think might go boom".