The Top 0.1% Of The Nation Earn Half Of All Capital Gains

[Texas Contrarian]

Originally Posted by CuteOldGuy

Except it's not FAIR! Dammit! It's not FAIR!

Speaking of claims that it isn't fair, do you remember this exchange from the 2008 Democratic primary debate?

http://www.youtube.com/watch?v=WpSDBu35K-8

Watch Obama strain to try to change the subject!

[dilbert firestorm]

Originally Posted by CaptainMidnight

Fans of boosting cap gains tax rates to high levels (35% or higher) should take a look at the history of the period (from about 1970-78) when rates were that high, and consider the rather obvious adverse consequences of imposing high rates on capital gains. There is obviously disagreement over the degree to which "lock-in" effect occurs in the real world, and the extent to which the rate affects capital formation over the long term, but few analysts believe these factors to be insignificant.

This CBO report from 2002 covers a few of the key points:

http://www.cbo.gov/doc.cfm?index=3856&type=0

The top tax rate on capital gains was 25% for many years prior to about 1968, even though the top bracket rate on ordinary income was as high as 91% (although hardly anyone actually paid tax at that rate).

Europe's social democracies also tax capital gains at significantly lower rates than ordinary income.

There are very good reasons for that.

how much tax on ordinary income was if they didn't actually pay 91% on it?

[joe bloe]

Originally Posted by CaptainMidnight

Speaking of claims that it isn't fair, do you remember this exchange from the 2008 Democratic primary debate?

http://www.youtube.com/watch?v=WpSDBu35K-8

Watch Obama strain to try to change the subject!

Obama actually admits he wants to raise the capital gains tax just to be fair. This is pure class warfare. He knows that his base voter simply envies those who have more than themselves. Its not just about redistribution. Its pure jealousy. If I can't be rich then no one should be rich.

They say if you put crabs in a bucket and one crab tries to crawl out, the other crabs will pull him back down. The Democrats should change their party symbol from the donkey to the crab.

There's a reason the only emotion forbidden in the ten commandments is coveting.

[dilbert firestorm]

Originally Posted by joe bloe

They say if you put crabs in a bucket and one crab tries to crawl out, the other crabs will pull him back down.

I never heard that expression with the crabs. you learn something new.

[WTF]

Originally Posted by dilbert firestorm

I never heard that expression with the crabs. you learn something new.

He was talking about the one's crawling out from his underware

[Texas Contrarian]

Originally Posted by dilbert firestorm

how much tax on ordinary income was if they didn't actually pay 91% on it?

There are a couple of reasons that very few people paid tax at anywhere near a 91% rate.

The top-bracket rate applied only to those with very high incomes, several times that needed today (about $380K) to land you in the top bracket. Most such individuals, of course, had the means by which to begin sheltering much or most of their income.

Prior to the tax reform act of 1986 (which dropped the rate in return for doing away with most deductions and exclusions) it was ridiculously easy to shelter ordinary income (salaries, fees, commissions, etc.) with things such as accelerated depreciation on highly leveraged investment assets such as income-producing real estate. The tax shelter industry flourished in the 1970s, as many professionals such as doctors and lawyers saw inflation shove them into tax brackets meant for the wealthy. Some of their CPAs and other advisors urged them to get into limited partnerships designed largely to reduce their tax burdens. Although some of these involved decent investments in good assets, a lot did not. Some made no sense other than that they saved their investors big money on their tax returns, and many were simply outright frauds.

I've long believed that part of the problem with the economy of the 1970s was that the tax shelter industry funneled hundreds of billions of dollars into malinvestment.

[CuteOldGuy]

Originally Posted by WTF

He was talking about the one's crawling out from his underware

Uh, it's spelled "underwear", genius.

[dilbert firestorm]

Originally Posted by CuteOldGuy

Uh, it's spelled "underwear", genius.

good catch

[TexTushHog]

Originally Posted by blue3122

Is the point of the post to complain that someone else has something you don't? Or that someone else is smarter, better looking, and has a bigger schong? It seems the poster is whining because his life is unfair or someone's life is unfair. Kind of like "Occupy" crap. Boo hoo. Someone is better off than me. Boo hoo.

My guess is that their complaint is that the dramatically declining capital gains tax rates over the past 30 years is a primary driver (accounting for 80%, according to one study I read) of the increasing GINI index in the United States. The GINI index is the most widely used econometric measure of income inequality.

In short, the dramatically increasing income inequality that we have seen in the U.S. over the past 30 years has been driven not by real gains in productivity, but by changes in government tax policy. A society cannot prosper when the top hand full of people have a disproportionate share of the money. But driving so much of the money in our society into so few hands, the government all but insures a lack of prosperity for the entire society.

I think that jealousy, particularly about penis size, has little if anything to do with it.

[Texas Contrarian]

Originally Posted by TexTushHog

...My guess is that their complaint is that the dramatically declining capital gains tax rates over the past 30 years is a primary driver (accounting for 80%, according to one study I read) of the increasing GINI index in the United States..In short, the dramatically increasing income inequality that we have seen in the U.S. over the past 30 years has been driven not by real gains in productivity, but by changes in government tax policy...

Cuts in capital gains and other tax rates have virtually nothing to do with rising income inequality in the U.S. Did you not pay any attention at all to the links I posted in this thread, and to the discussions we've had in the past on this issue? Please note that the tax burden on those in the bottom two or three quintiles of the income strata has been lessened, not increased, over the last 30 years. Also note that taxes on the wealthy have not been cut by nearly as much as most people think. (Notice that I said taxes, not tax rates. There's a very large difference.)

It is true that certain government policy (or,as it were, lack of policy) has enabled increasing inequality, but this has nothing to do with statutory tax rates. That's simply a pervasive myth.

Here are just a couple of the real reasons for rising inequality:

The U.S. has rapidly deindustrialized over the last few decades. Free-trade globalism began to be pushed by intellectuals and opinion writers of all political persuasions in the 1970s. Under GATT and its successor the WTO, tariffs and trade barriers came down and more and more goods consumed by Americans began being manufactured overseas. The rapid growth of China's industrial base over the last decade dramatically widened trade and balance-of-payments deficits. Subsequently, many well-paying American manufacturing jobs were replaced by less well-paying service sector jobs. While there are certainly advantages associated with free trade, both theoretically and in practice, you simply can't get around the fact that forcing American workers to compete head-to-head with people willing to work for a few bucks per day is going to worsen income inequality.

Giving low-income households a chance to save money on cheap stuff they can buy at Wal-Mart may be good for the budgets of some households, but I think we would all be better off if we paid more for this stuff and needed fewer resources to fund unemployment benefits. In my opinion, if we don't start producing and exporting more goods, we're sunk. In the decades immediately following World War II, we were a manufacturing and exporting colossus. Now look at us. It's pathetic.

Compared with their counterparts in most northern European and Scandinavian countries, for example, a large percentage of Americans in the bottom quartile are criminals, addicts, and produce kids out of wedlock who have disastrous home environments and little chance to succeed. Additionally, they and many others often end up being victimized by our failing educational system. This societal breakdown extends back to the 1970s or even before. The result is that inequality at the bottom end has worsened over the last generation.

At the top end, most of the skewage occurs in the top fraction of one percent -- and some of it, of course, arises from shenanigans conducted by a few thousand people at the very top end of the food chain in the financial sector. A few of these people make many, many times more money than their counterparts did a few years ago, while producing nothing of any value to anyone else.

CEO pay has also risen to stratospheric proportions in recent years. Forty years ago, a typical CEO might have pulled down a salary 20 or 30 times that of an average workers. Now it's typically at least ten times that.

You see the same trend in entertainment and professional sports. I remember reading that Joe Namath signed a 5-year contract for $400,000 in 1965. That's worth about $3 million in 2011 dollars. Nowadays, the bidding for a superstar quarterback might start st something like 25 times that amount.

Dramatically widening income inequalty has been pervasive throughout society and the economy for years.

It has nothing to do with tax rate changes, either on capital gains or ordinary income.

[Marshall]

Originally Posted by CaptainMidnight

Cuts in capital gains and other tax rates have virtually nothing to do with rising income inequality in the U.S. Did you not pay any attention at all to the links I posted in this thread, and to the discussions we've had in the past on this issue? Please note that the tax burden on those in the bottom two or three quintiles of the income strata has been lessened, not increased, over the last 30 years. Also note that taxes on the wealthy have not been cut by nearly as much as most people think. (Notice that I said taxes, not tax rates. There's a very large difference.)

It is true that certain government policy (or,as it were, lack of policy) has enabled increasing inequality, but this has nothing to do with statutory tax rates. That's simply a pervasive myth.

Here are just a couple of the real reasons for rising inequality:

The U.S. has rapidly deindustrialized over the last few decades. Free-trade globalism began to be pushed by intellectuals and opinion writers of all political persuasions in the 1970s. Under GATT and its successor the WTO, tariffs and trade barriers came down and more and more goods consumed by Americans began being manufactured overseas. The rapid growth of China's industrial base over the last decade dramatically widened trade and balance-of-payments deficits. Subsequently, many well-paying American manufacturing jobs were replaced by less well-paying service sector jobs. While there are certainly advantages associated with free trade, both theoretically and in practice, you simply can't get around the fact that forcing American workers to compete head-to-head with people willing to work for a few bucks per day is going to worsen income inequality.

Giving low-income households a chance to save money on cheap stuff they can buy at Wal-Mart may be good for the budgets of some households, but I think we would all be better off if we paid more for this stuff and needed fewer resources to fund unemployment benefits. In my opinion, if we don't start producing and exporting more goods, we're sunk. In the decades immediately following World War II, we were a manufacturing and exporting colossus. Now look at us. It's pathetic.

Compared with their counterparts in most northern European and Scandinavian countries, for example, a large percentage of Americans in the bottom quartile are criminals, addicts, and produce kids out of wedlock who have disastrous home environments and little chance to succeed. Additionally, they and many others often end up being victimized by our failing educational system. This societal breakdown extends back to the 1970s or even before. The result is that inequality at the bottom end has worsened over the last generation.

At the top end, most of the skewage occurs in the top fraction of one percent -- and some of it, of course, arises from shenanigans conducted by a few thousand people at the very top end of the food chain in the financial sector. A few of these people make many, many times more money than their counterparts did a few years ago, while producing nothing of any value to anyone else.

CEO pay has also risen to stratospheric proportions in recent years. Forty years ago, a typical CEO might have pulled down a salary 20 or 30 times that of an average workers. Now it's typically at least ten times that.

You see the same trend in entertainment and professional sports. I remember reading that Joe Namath signed a 5-year contract for $400,000 in 1965. That's worth about $3 million in 2011 dollars. Nowadays, the bidding for a superstar quarterback might start st something like 25 times that amount.

Dramatically widening income inequalty has been pervasive throughout society and the economy for years.

It has nothing to do with tax rate changes, either on capital gains or ordinary income.

YOU WOULD THINK TEXHOMOHOG WOULD NOT LIKE PEOPLE LAUGHING AT HIM......I DON'T UNDERSTAND WHY HE REPEATEDLY GETS SCHOOLED....DOESN'T HE KNOW THE OLD SAYING: IT'S BETTER TO REMAIN SILENT AND HAVE PEOPLE THINK YOU A MORON THAN OPEN YOUR MOUTH AND CONFIRM FOR EVERYONE THAT YOU ARE A MORON.....

[TexTushHog]

Ago didn't pay attention, either, CaptainMidnight. Their economists said it accounted for 80% of the increase in GINI in the past 31 years. So who do I believe? A trained PhD economist, or some anonymous guy on a silly whore board who can't cite a single economic study and repeats the same warmed over Austrian School drivel over and over that was already discredited when I got my Econ degree in the late 1970's? Let me think for a trillionth of a second before I decide!!

[Texas Contrarian]

Originally Posted by TexTushHog

Their economists said it accounted for 80% of the increase in GINI in the past 31 years...

Whose economists said that?

You'd have to search far and wide to find a credentialed economist who wouldn't be embarrassed beyond comprehension to have his name associated with a statement like that! It sounds more like something that might have been said by some left-wing sociology professor with little desire to actually examine any facts.

Facts sometimes seem to be rather inconvenient things for people like that, but here are a few:

In the mid-1970s, the top 1% of the income strata earned about 9% of all personal income. In recent years, it's been widely reported that their share is around 20%. In a Vanity Fair article last year, I recall that Joe Stiglitz even said that it's now "almost one-quarter" of all income. For the sake of argument, let's say it is "only" 20% and not closer to "one-quarter."

Note that aggregate income flowing to the top 1% was about $1.7 trillion in 2008 and dropped to about $1.3 trillion in 2009, the year most affected by recession. I don't think the newest numbers are available yet, but it's reasonable to say that somewhere around $1.5 trillion, give or take a few percentage points, would be a fair estimate.

What this obviously means is that if other factors remained constant, and if the income distribution were the same as it was in the 1970s, the top 1 percent would receive quite a few hundred billion dollars less annual income than is now the case. If the aforementioned Stiglitz estimate is correct, the gap could be significantly closer to $1 trillion. In any event, it's a very big number even in these days when people seem numbed by such large numbers, since government is squandering money right and left by the hundreds of billions of dollars.

All of the above relates to ordinary income, not capital gains, and was not affected in any way by the capital gains tax rate.

But speaking of the capital gains tax rate, please take a look at this:

http://www.taxpolicycenter.org/taxfa....cfm?Docid=161

If you look at realizations, statutory cap gains tax rates, actual taxes paid, and the average effective tax rate (which is what you should focus on) you are likely to notice a number of interesting things. For one thing, you will notice that in the 1970s, when capital gains tax rates were pushed to record levels in the 36-40% range, the average effective tax rate (the only thing that really matters) was considerably less than one-half the statutory top rate. Contrast this with the last few years, when the average effective rate was very close to the 15% statutory rate. You will also notice a trend to which I alluded in an earlier post, and backed up by the CBO piece I linked: Namely, that there's a significant inverse correlation between capital gains realizations and the top cap gains tax rate.

I know that some of this seems mysterious to people who are not investors and do not have to worry about capital gains tax issues. But capital gains income is not like income from salaries, fees, or commissions. Investors can decide whether and when to sell an asset and realize a gain. When rates are high, they can choose not to sell, or to sell only when they are able to effectively offset the gain with something on which they can take a loss in the same tax year, reducing the tax burden. Investors also may choose to borrow against an appreciated asset rather than sell it if they want to avoid or delay the tax, but of course they are far less incentivized to do that when tax rates are relatively low.

On the other hand, people who derive their income from salaries, commissions, or fees cannot make such determinations. They must decide to receive income, or not receive income. The latter is rarely an appealing choice.

If you look at the historical amount of capital gains tax actually paid, and realize that the average effective tax rate would decline precipitously if rates were raised to levels approximating those on ordinary income, you will see that the amount of money involved is a tiny fraction of the income disparity resulting from other factors.

Originally Posted by TexTushHog

...I got my Econ degree in the late 1970's...

The late 1970s, eh?

Well, that explains a lot, doesn't it!

Originally Posted by TexTushHog

...drivel over and over...

True to form!

This is a standard TTH "debate" tactic. When he is afraid that he's made a fatuous statement that makes no sense, or that he cannot effectively explain, he accuses someone who disputes it of continually posting "drivel."

By the way, I am not a dogmatic adherent of any school of economic thought -- not Austrian, Keynesian, or anything else. In fact, by way of educational background I am a mathematician, not an economist. That's why I tend to have a "show-me" attitude about things. I enjoy a rigorous proof and I'm not much of a fan of the sort of faith-based economics pushed by people like Mark Zandi, who claimed a fiscal multplier of 1.73 for food stamp dispensation. I tend to agree more with Harvard's Robert Barro, whose work demonstrates that "multipliers" for such spending tend to be in the 0.6-0.8 range, and are often significantly closer to zero. This is why the $860 billion "stimulus package" of 2009 did not work as well as its supporters thought it would.

In other words, I am interested in discovering what works and what does not work regarding government policy, and how it is likely to affect the economy and the investment outlook. I do markets and investments, not macroeconomic modeling.

Unfortunately, many people who do the latter have been steeped in dogma characteristic of decades gone by, and have learned nothing about how the real world actually works. For this, we are paying a very high price and will continue to do so for years to come.

[The_Waco_Kid]

Originally Posted by WTF

The same rate that people pay in normal taxes.

I don't know shit about economics except for ECON 101 and 102 in College. I got a B both times. And had to study hard to get that. Big Whoop.

Dammit Jim, I'm an Engineer not an Economist!

The reason the Capital Gains tax rate is lower is to promote investments that otherwise would not be made. The Return on Investment wouldn't justify it. By definition, Capital Gains are long term investments that can take years to be realized. This is why you aren't taxed until you realize the return, then it's taxed.

If you really want to stop growth of the economy then bump up the Capital Gains tax rate. That will put a screeching halt on new investments. Big Time.

Originally Posted by CuteOldGuy

Except it's not FAIR! Dammit! It's not FAIR!

Welcome to the Real World COG.

[joe bloe]

Get ten "trained PhD economists" in a room and they won't agree on anything. The fact that one "PhD economist" states that something is true doesn't prove anything.

There are Keynesian economists and Austrian school economists. FDR and Baboona are believers in the Keynesian notion that government spending is the key to stimuating economic growth. It didn't work for FDR and its not working for Baboona, or Europe for that matter.

Ronald Reagan was a believer in The Austrian school of economics (or at least Art Laffer's version of it) which stresses a market economy with reduced government interference, it worked for Reagan and it can work again if we get the socialists out of power.