The Prize Tax

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Ryan Noonan

Ryan Noonan is an economist with a small federal agency. Fields in which he considers himself reasonably well-informed: literature, college athletics, video games, food and beverage, the Supreme Court. Fields in which he considers himself an expert: none. He can be found on the Twitter or reached by email.

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109 Responses

  1. Avatar Morat20
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    says:

    Why not just…tax it as income? I’m open to arguments as to whether windfalls should be taxed at a different rate than ordinary income, but in general I’m of the view that what the US tax code could REALLY use right now is treating income as income, regardless of source.

    Including capital gains. Sure, deduct losses — not against that or most of the ways gains differ from ordinary income.

    Just that 15% part. I think it’s unnecessary and distorting. Income is income, regardless of source.

    I’m open to discusson on windfalls, inheritance, gifts, prizes, gambling — but generally of the mind that if you personally didn’t earn it, the amount should be “as income or higher” not “less” and while I’m not against deductions and sheltering some reasonable amount, my idea of “reasonable” is “reasonable to a middle-class person” not “Reasonable to Bill Gates”.

    But then, I’m a horrible socialist commie liberal. 🙂Report

    • Avatar Ryan Noonan in reply to Morat20
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      says:

      In reality, of course, I agree with you. If our stated goal is to simplify the tax code and broaden the base, which is at least my goal, then taxing all income the same way is the optimal solution.

      But for the purposes of making a sarcastic point, I went the way I did.Report

      • Avatar Morat20 in reply to Ryan Noonan
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        says:

        Oh, I know. 🙂 I figured you just liked serious comments too. 🙂

        It’s funny. 10, 15 years ago I’d have probably been arguing there was a good reason to tax gains lower. These days? It says a lot about my long-term view that I’m not of the mind to tax capital gains higher than regular income.

        America is not in any way lacking investment money. Quite the opposite, in fact.

        I’d probably be quite satisified with taxing gains at the same rate as income, combined with a rather small trading tax. HFT is a pet peeve of mine, and I’m afraid the benefits don’t come anywhere near the costs. (There’s also the fact that it seems pretty obvious that HFTs are basically acting like a Vegas dealer, sucking a massive rake out of transactions that they are in no way actually benefiting. So I suppose you can say I’d prefer that HFT’s not tax trades. If you’re gonna, have the government do it. Their rates would be cheaper).Report

    • Avatar Brandon Berg in reply to Morat20
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      says:

      Just that 15% part. I think it’s unnecessary and distorting. Income is income, regardless of source.

      Indeed it is unnecessary and distorting, but not in the direction you think. Because investment income is already diminshed by the taxation of the principal, you’d need an investment income tax rate of zero in order to have taxes taking the same bite out of both wages and investment income. Landsburg has a detailed explanation here.Report

      • Avatar Rod in reply to Brandon Berg
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        says:

        I thought about that since the last time you brought it up. And my conclusion is that is quite likely the most tortured turn of logic I’ve ever come across.

        I don’t know whether to pity you for believing something so stupid, or be thoroughly disgusted that you would so insult the collective intelligence of your audience.Report

        • Avatar James Hanley in reply to Rod
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          says:

          Rod,

          Respectfully, that’s not exactly a persuasive rebuttal. It doesn’t actually explain where the supposed error comes in.

          I don’t have a dog in this fight, except that I’m not too sharp on tax issues and prefer to see good competing arguments for my own edification. So far I have to give Brandon the edge, because at least he linked to an actual explanation of a position.Report

          • Avatar Rod in reply to James Hanley
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            says:

            Fair enough. The argument Brandon is making is basically that since investments are made from after-tax income, they are already diminished by virtue of the tax on the original pre-tax income. IOW, in the absence of the tax on the (presumably wage) income from which the investment dollars arise, there would be more dollars to invest and therefore more income from the investment. Therefore, in his mind, to tax the investment income at all is double taxation.

            The example he gave in a previous post was particularly ridiculous. It involved someone named Carl (for some reason, I’m not clear whether Carl was real or fictitious) who inherited money from his grandmother and then complained about paying taxes on the proceeds from investing those funds. The claim being that the money had already been taxed when his grandmother earned it, therefore there was less for Carl to inherit, thus less to invest, and therefore the earnings had been diminished, therefore effectively already taxed.

            This fails on several accounts. First, there’s no assurance that Carl’s grandma actually paid taxes on it in the first place. For instance, the money could have been the proceeds from selling a primary residence, the gains of which are non-taxable up to $500,000 (for married couple or widow). Or it could have been from a non-taxable investment like a municipal bond. Or money that was leftover in an IRA or 401K (unless those are taxed at probate, I don’t know for sure). Or she simply may not have been making enough money to pay federal taxes on it (other than SSA, which she probably made out on anyway).

            Second, unless the estate was very large–several millions, depending on what year she met her maker–Carl’s inheritance was a tax-free event.

            But the most egregious error is simple double-counting. Either Granny paid the taxes or Carl paid the taxes. But they only got paid once. Are we also to count the taxes paid by Granny’s employer in diminishing the extent of Carl’s gains? After all, if he hadn’t had to pay taxes he could have perhaps paid her more salary and she could have saved more and yadda yadda blah blah.

            Carl also would have inherited more if Granny hadn’t left that endowment to the Widowed and Orphaned Cats Society. Or if she hadn’t taken that trip to the old country. Or if she hadn’t spent those last few years in that expensive nursing home. Are we also to say that Carl was weirdly generous to anonymous felines? And enjoyed a marvelous trip to Italy? And spent several years drooling in senescence? So how is Granny paying taxes the same as Carl paying taxes?

            The fact is that Carl got a pure gift, up to several million dollars totally tax-free, and now wants to whine that gains from investing that free money aren’t also tax-free. Get over it.Report

            • Avatar Brandon Berg in reply to Rod
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              says:

              Respectfully, that’s not exactly a persuasive rebuttal.

              Carl is a hypothetical brought up by a commenter on Landsburg’s original post because he didn’t see how Landsburg’s argument applies to inherited principal. When I linked to Landsburg’s post, Patrick raised the Carl objection again. People seem to have trouble with this concept for some reason.

              Before I explain it again, I want to stress that inherited wealth is not the norm. Some Googling suggests that only about a fifth of millionaires and a third of billionaires inherited their wealth. Even if you were right about Carl, this wouldn’t justify double-taxing those who didn’t inherit their principal.

              For instance, the money could have been the proceeds from selling a primary residence, the gains of which are non-taxable up to $500,000 (for married couple or widow).

              That would be investment income, and thus already diminished by the taxation of the wages used to buy the house. Sure, maybe she bought the house with investment income, but it can’t be turtles all the way down.

              Or it could have been from a non-taxable investment like a municipal bond.

              Non-taxable bonds are a bit of an accounting fiction. The catch is that because they’re non-taxable, the cities can get away with paying a lower yield, which acts as an implicit tax. Also, investment income.

              Or money that was leftover in an IRA or 401K

              Investment income.

              Or she simply may not have been making enough money to pay federal taxes on it

              I wasn’t aware that it was common for people who never made enough to pay federal income taxes to leave behind large inheritances. Which brings me to the biggest problem with this paragraph: It’s chock full of well-maybes. Yes, you can daisy-chain enough well-maybes together to construct a technically possible hypothetical in which Carl gets away with tax-free murder. But it’s sheer sleight-of-hand to claim that this is anything other than an extreme outlier, or that it’s a reasonable basis for general tax policy.

              But the most egregious error is simple double-counting. Either Granny paid the taxes or Carl paid the taxes. But they only got paid once.

              This is basic accounting. An investment produces an income stream. If you tax the principal, that proportionally reduces every payment coming out of the income stream. Work through the math. It’s not that Carl pays taxes on the principal—that’s only counted once—it’s that the principal reduction shrinks the income stream.

              Are we also to count the taxes paid by Granny’s employer in diminishing the extent of Carl’s gains? After all, if he hadn’t had to pay taxes he could have perhaps paid her more salary…

              Tax incidence is tricky, but I don’t think that’s actually true.

              The fact is that Carl got a pure gift, up to several million dollars totally tax-free, and now wants to whine that gains from investing that free money aren’t also tax-free. Get over it.

              Calm down. Carl’s not even real.

              Anyway, the question of how much the government should tax investment income is entirely distinct from the question of whether it does in fact currently tax investment income more lightly than wage income. Speaking purely positively, the tax-advantaged status of investment income is an accounting fiction.Report

              • Avatar Brandon Berg in reply to Brandon Berg
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                says:

                Rod: Or money that was leftover in an IRA or 401K
                Me: Investment income.

                On second thought, the principal isn’t taxed in a traditional IRA or 401(k). However, distributions are taxed as ordinary income. I’m pretty sure this applies when they’re inherited as well.Report

              • Avatar James Hanley in reply to Brandon Berg
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                says:

                Thank you both, Rod and Brandon, for expanding your arguments.Report

              • Avatar clawback in reply to Brandon Berg
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                says:

                Landsberg’s argument is actually quite clever and has considerable intuitive appeal. Sadly, though, that’s just not how the economy works. We tax all income. Money works its way around the economy, and it is taxed every time it’s someone’s income. We don’t have separate categories of “already taxed” money and “free game for taxation” money, for the simple reason that it would soon all be in the “already taxed” category. The guy who sells me a car still has to pay taxes on his income even though I’ve already paid taxes on the money I used to pay for it. This holds true even though I might have bought a more expensive car, and he would have gotten a bigger commission, had my income not been reduced by taxes.

                Nothing changes when we’re talking about investment income vs. income from work. It’s all been taxed sometime previously. Landsberg certainly knows about “money velocity”; he’s just hoping we don’t.Report

              • Avatar Brandon Berg in reply to clawback
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                says:

                Nothing changes when we’re talking about investment income vs. income from work. It’s all been taxed sometime previously. Landsberg certainly knows about “money velocity”; he’s just hoping we don’t.

                Quite a bit changes. Government taxing and spending don’t, in the general case, have any net effect on the demand for labor. When the government taxes you, that’s less money for you to spend on a car, but there’s that much more money for the government to spend on something else. In fact, leftists usually claim that government taxing and spending raise aggregate demand, increasing employment and wages. Have you changed your mind on that? Do higher taxes and government spending actually make us all poorer?Report

              • Avatar Rod in reply to Brandon Berg
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                says:

                Now you’re inexplicably shifting to an entirely different argument. It still doesn’t work, at least not in the context of the Alice-and-Bob example. With CG taxes, Bob has $1.50 income, pays $.55 taxes and spends $.95. Without CG taxes, he has $1.50 income, pays $.50 taxes and spends $1.00. Since $1.00 + $0.50 = $0.95 + $0.55 = $1.50, the net effect on aggregate demand is the same in either case.

                Fail.Report

              • Avatar clawback in reply to Brandon Berg
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                says:

                leftists usually claim that government taxing and spending raise aggregate demand

                No, government taxing and spending have complicated effects on aggregate demand; the result depends on a number of factors. Generally during recessions, and if the interest rate is at the “zero lower bound,” taxing and spending (in equal amounts) does indeed increase aggregate demand. Under other conditions it may not, and indeed increasing aggregate demand isn’t even desirable under many conditions.

                To answer your last question, higher taxes and government spending do indeed make us, in aggregate, poorer, which is why you only do it to the extent necessary.

                By the way, the specific problem with Landsburg’s example is the assumption that Bob would have saved and invested the entire amount that was taxed. One could just as easily assume he would have spent it all, which would put his tax rate at 33% (50 cents tax / (50 cents immediately spent + $1 spent after investing)), compared to the 50% Alice was taxed. In reality, of course, people spend some percentage of their marginal dollar and save the rest, so the real answer is somewhere between these two scenarios, but closer to mine because people usually consume most of their income. Again, as an economist Landsburg surely knows all this, and his post is just a bad faith attempt to fool us. Worked on you.Report

              • Avatar Rod in reply to Brandon Berg
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                says:

                I have worked through it, and Stillwater’s objection is spot on; Landsberg’s math is dodgy.

                Again: Bob earns $1 and pays $.50 in taxes. Invests the $0.50, it doubles, giving him additional income of $0.50, on which he pays CG tax of $.05. Now, let’s do the sums: Income is $1 + $.50 = $1.50. Taxes are $.50 + $.05 = $.55. Overall effective tax rate = 0.55 / 1.50 = 36.7%.

                Landsburg flunks fourth-grade math, and frankly so do you, for not spotting that obvious error.Report

              • Avatar Rod in reply to Brandon Berg
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                says:

                The biggest problem with this whole line of argument can be seen from this quote from Landsburg taken from the comments section:

                The grandson receives the income from that million, as opposed to the income from two million. The income he’s not receiving, due to the money that was never invested, constitutes a tax on the grandson.

                That’s the rhetorical move that’s utterly indefensible. A tax, regardless of its merits or demerits, is first and foremost a transaction. It’s a payment from one party, the taxpayer, to another party, the government. The “income he’s not receiving, due to the money that was never invested” can’t be counted as a tax for the simple reason that the government doesn’t receive it either. It’s nothing; it never exists.Report

              • Avatar Stillwater in reply to Rod
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                says:

                Agreed. The inheritance tax is imposed on a transaction. The additional money an heir failed to accrue as a result of taxes imposed prior to inheritance isn’t a tax on that transaction, or the heir, in any sense of the word.

                This Landsberg fellow is bordering on insane.Report

              • Avatar Rod in reply to Stillwater
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                says:

                Insane, stupid, or disingenuous?

                I suppose it’s the least charitable interpretation in a sense, but I lean toward the latter. And, frankly, it pisses me off. Professional economists (if that’s actually what he is) should have to abide by some sort of code of ethics, which would include at a minimum not deliberately lying for political reasons.

                This is the sort of pseudo-intellectual clap-trap that’s expressly designed to appeal to those pre-inclined to be convinced. It’s right up there with Alex Jones conspiracy theories.Report

              • Avatar clawback in reply to Rod
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                says:

                He’s the guy who slimed Sandra Fluke in terms rivaling those used by Rush Limbaugh. He’s not deserving of charitable interpretations.Report

      • Avatar Stillwater in reply to Brandon Berg
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        says:

        Brandon, here’s my take on why the linked argument is confused. Tell me what you think.

        What does the tax code cost Alice? Answer: 50% of her consumption (which is down from a dollar to fifty cents). What does the tax code cost Bob? Answer: 52.5% of his consumption (which is down from two dollars to 95 cents).

        So there you have it: A 50% wage tax, together with a 10% capital gains tax, is equivalent to a 52.5% tax on Bob’s income.

        ALice earned a dollar and paid 50 cents in taxes. Bob, on the other hand, earned a dollar, paid fifty cents in taxes, then yielded a return of 50 cents on his 50 cent investment, which was taxed at 5 cents (10% capital gains tax). As Landsberg says, Bob’s income over these transaction was two dollars, and from that Landsberg concludes that Bob’s loss of consumption was over 52.5%, a rate higher than Alice’s.

        But here’s the problem, it seems to me. Bob’s income (for the purposes of the income tax) was $2.00 of two transactions, but his taxable income was only $1.50. Landsberg includes return of investment as increasing Bob’s consumption. If so, then Bob’s consumption is determined not by his return on investment, but how many times he (re)invests the same 50 cents. According to that calculus, if Bob invested his 50 cents four time without making or losing any money, and on the fifth time he made 50 cents, then Landsberg would conclude that Bob had 4 dollars of consumption, but only 95 cents in his pocket, and conclude that Bob’s rate of loss on consumption do to taxes was 76.25%. But clearly, his rate of loss due to taxes cannot be dependent on transactions that both aren’t taxable and don’t produce any gain which is taxable.

        So it’s wrong to say that Bob’s consumption is reduced from two dollars to 95 cents. If we reconsider the thought experiment in terms of taxable income, Bob made paid a 50 cent tax on a dollar earned, and then paid 5 cents on 50 cents of gain from a 50 cent investment. In the scenario, Bob has two dollars of income, but only $1.50 of taxable income (you can’t count return of principal as taxable income, even tho it is income for the purposes of the income tax). So he paid 55 cents on $1.50 of taxable income, or a rate of 37% +/-, which is less than Alice.Report

        • Avatar Brandon Berg in reply to Stillwater
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          says:

          The $2 Landsburg is using for the denominator is the $2 that Bob would have made if there were no taxes at all. In reality, Bob only made $1.50, and he missed out on the opportunity to make another $0.50 due to the fact that he only had $0.50 principal to invest. Bob would have made a total of $2, but due to the combined effects of both taxes he only has $.95.

          Here’s why this is important: With no taxes, Bob has the option to consume $1 worth of goods now and nothing later, or nothing now and $2 later. Delaying consumption allows him to consume twice as much.

          A neutral tax system will preserve this ratio. Whatever the actual rates are, delaying consumption will allow Bob to consume twice as much. This is the case when we have a 50% wage tax and no capital gains tax. He can consume $0.50 now or $1.00 later. But when we add the 10% capital gains tax, the ratio is distorted in favor of consumption now. When Bob chooses to delay his consumption, this allows him to consume only 1.9 times as much in the future, rather than twice as much.Report

          • Avatar Stillwater in reply to Brandon Berg
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            says:

            The $2 Landsburg is using for the denominator is the $2 that Bob would have made if there were no taxes at all.

            If there were no taxes at all, Bob would have received 3 dollars (not 2) according L’s calculus (1 earned, 2 from investment income). The 2 dollars doesn’t add up on any measure. So Landsberg is still wrong, it seems to me.Report

            • Avatar Stillwater in reply to Stillwater
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              says:

              Which is to say: Landsberg is including a return of capital in his analysis of return on capital.Report

              • Avatar Brandon Berg in reply to Stillwater
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                says:

                I’m still not sure where you see Landsburg double-counting anything. If there were no taxes, Bob would be able to consume $2 worth of goods. With only the wage tax, Bob would be able to consume $1. With both taxes, Bob can consume $0.95. I’m not seeing Landsburg saying anything different anywhere.Report

          • Avatar Stillwater in reply to Brandon Berg
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            says:

            But when we add the 10% capital gains tax, the ratio is distorted in favor of consumption now.

            Ahh, NOW I see what you’re getting at. Good.

            I still think it’s wrong. Bob could either invest his earned income and pay only 10% on each investment-income dollar, or he could work harder and pay 50% on each wage-income dollar. The incentive structure for Bob is to invest, if he can do so, and do so successfully. If he invests successfully, his effective tax rate is lower than if he limited himself to earning income. That point still stands, right?Report

            • Avatar Brandon Berg in reply to Stillwater
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              says:

              There’s no trade-off between investing and working, since they consume different resources. Investment takes money, while working takes time, so you can do both without either negatively impacting the other. The real trade-offs are work vs. leisure, and consuming now vs. investing and consuming more later.Report

            • Avatar Brandon Berg in reply to Stillwater
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              says:

              Let me try a different way of explaining this. Suppose that we tweaked our tax system a bit, such that all income is taxed at the same rate. 50%, say. To compensate, we make one tiny adjustment: Every penny you earn goes into a tax-deferred retirement account. To spend money, you need to withdraw it from that account, and the 50% tax is levied on all withdrawals.

              Can we agree that this is a system which taxes wage and investment income equally?Report

              • Avatar Brandon Berg in reply to Brandon Berg
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                says:

                A minor clarification: You can invest money in the retirement account without withdrawing it. Income made on those investments goes straight into the account and is not taxed until withdrawal.Report

              • Avatar Stillwater in reply to Brandon Berg
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                says:

                Thanks for the comments Brandon. All I can say is I’m clearly not getting it. For example, these two statements both seems plainly false:

                1. “Even if capital gains taxes were capped at one percent, income subject to those taxes would be taxed at a higher rate than straight compensation.” (Capital gains are as an observable fact taxed lower than compensation. So he’s either speaking incredibly loosely here, or his analysis includes a bunch of unstated assumptions.)

                2. “That’s because capital gains taxes (like all other taxes on capital income) are surtaxes, assessed over and above the tax on compensation.” (This is, I think, one of the unstated assumptions: that all CGs result from investments made with income derived from compensation, which just isn’t the case except as some sort of residual analysis.)

                All I can conclude from his argument is that if a person earns wage income and makes unearned CG income after investing it, they’re being taxed on two different types of transactions. I can’t see how a person is taxed at a higher rate on their investment income than pure compensation (they aren’t), and I can’t see how CG taxes are necessarily a surtax imposed on compensation taxes (it isn’t).Report

              • Avatar Stillwater in reply to Stillwater
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                says:

                Btw, it should be noted that L’s quotations here appear to be part of a broader argument for eliminating taxes on investment income entirely. From what I gathered, he’s not inclined to go with a “tax both types of income equally” system like you’re advocating.Report

              • Avatar Brandon Berg in reply to Stillwater
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                says:

                So you do agree that the system I described taxes wages and investment income equally?Report

              • Avatar Brandon Berg in reply to Stillwater
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                says:

                By the way, I am going somewhere with this. I just want to make sure you’re on board with the premise.Report

              • Avatar Stillwater in reply to Stillwater
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                says:

                Yes, I’m on board.Report

              • Avatar Brandon Berg in reply to Stillwater
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                says:

                Right, then. The punch line is that the system I described is mathematically equivalent to a system under which there’s a 50% tax on wages and no tax on investment income.

                Consider Bob’s case under this system. He earns $1, it goes into the tax-deferred account, and he invests it. When its value doubles, he withdraws $2, paying a 50% tax, which leaves him with $1 to spend. This is exactly the same as he had under the system with a 50% tax on wages and no tax on investment income.Report

              • Avatar Stillwater in reply to Stillwater
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                says:

                The punch line is that the system I described is mathematically equivalent to a system under which there’s a 50% tax on wages and no tax on investment income.

                Only if investable income for every individual derives only from compensation. Which is false.Report

              • Avatar Stillwater in reply to Stillwater
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                says:

                Here’s another way to say it: Landsberg’s view of these things assume (maybe correctly!) that in the beginning, at the dawn of time, there was only wage income, and it was only in virtue of surplus wage income that investing was ever even possible. But even if that’s correct (I don’t think it is), for any given individualinvestment income need not be derived from their own compensation income.

                L makes a good case for the worker bee who struggles to save. But I hardly thing that generalized – all on its own! – to a critique of the entire tax regime. The great-great-great grandchildren of JDRockefeller didn’t earn any of the money that produces the investments their currently earning income on.Report

              • Avatar Brandon Berg in reply to Stillwater
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                says:

                Sorry for the slow response. The system I described is generalizable to inheritances as well. That is, we could make the accounts inheritable. No taxation at the time of inheritance (maybe you don’t like this part, but more on that later), but you’re taxed at the usual 50% rate on any withdrawals.

                Again, this is mathematically equivalent to taxing the seed money when it’s earned and allowing capital gains tax-free.

                Now, when we’re talking about the Rockefellers, you could object that the seed money was earned before we had an income tax, and therefore never taxed. True, but the money the Rockefellers have now—like any other dynastic fortune that’s been around for 100+ years—has been getting hit by capital gains and estate taxes for generations, so they almost certainly have quite a bit less money than they would have if they’d just taken a one-time 30% hit on the principal.

                But it seems to me that your real objection here is that you think people should be taxed more on unearned money. Again, inheritance is not the norm for the wealthy. From what I’ve been able to find, only about a third of American billionaires and a fifth of American millionaires inherited their money. If you want to tax inheritance, the way to do that is to tax inheritance, not to tax capital gains, which unfairly hits the majority of wealthy individuals who didn’t inherit their money.

                The best thing to do would be to implement a consumption tax (which is basically what I described). This ensures that no matter how you earn your money, the tax takes the same sized bite out of your consumption. Contrary to your earlier speculation, Landsburg is actually on the record as supporting this.Report

              • Avatar Brandon Berg in reply to Brandon Berg
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                says:

                Also, my use of the term “retirement account” may be a bit misleading. I called it that because it’s tax-deferred like an IRA, but under this hypothetical tax system there would be no incentives to defer withdrawals until retirement. You’d pay the 50% tax on all withdrawals, regardless of your age.Report

          • Avatar Rod in reply to Brandon Berg
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            says:

            A neutral tax system will preserve this ratio. Whatever the actual rates are, delaying consumption will allow Bob to consume twice as much.

            Whoever frames the terms, wins the debate, heh? Your definition of a “neutral” tax system seems tailor-made for this argument. I believe most people would look at two people, one who earns her income through labor, and another who earns his income through investment, and ask whether they’re being treated equivalently to arrive at a judgement of neutrality.Report

      • Avatar Morat20 in reply to Brandon Berg
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        says:

        Please, that wasn’t a winning argument back when it was new.

        I pay sales taxes when I buy something — using income I’ve already paid taxes on! THE HORROR! DOUBLE TAXATION!

        Investors, who can deduct losses, can suck it up and pay income taxes on money they make from investments. It’s not like it’s never been done before.

        Double-taxation arguments are BS through-and-through. Bob invests money. Bob makes money on his investment. Bob pays income taxes on his profit. Yay bob. Bob’s just like me.

        I go to work. I earn money. I pay income taxes on my earnings, even though my employer has already paid taxes on it.

        I buy taco with my earnings. I pay sales taxes on taco. Even though I’ve already paid income taxes. Taco Cart owner takes profit from my purchase. Taco Cart owner pays taxes on profit….

        Sorry, I’m not going to exempt ‘investors’ from taxes just because it hurts their feelings. Anyone can make a case that any dollar they have has been taxed a zillion times. Why should investors be treated with kid gloves?Report

        • Avatar Brandon Berg in reply to Morat20
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          says:

          I pay sales taxes when I buy something — using income I’ve already paid taxes on! THE HORROR! DOUBLE TAXATION!

          Well, yes, this is actually an excellent analogy. This is double taxation. Everyone agrees that it’s double taxation. If there’s a 10% income tax and a 10% sales tax, your total effective tax rate is 19%, not 10%. The difference is that investors are taxed three times, whereas wage-earners are taxed only twice.

          I buy taco with my earnings. I pay sales taxes on taco. Even though I’ve already paid income taxes. Taco Cart owner takes profit from my purchase. Taco Cart owner pays taxes on profit….

          As I noted in my response to clawback, taxation doesn’t generally lower aggregate demand. Taxing you doesn’t necessarily mean less profit for the Taco Cart owner, since the government is going to spend that money somewhere.

          Sorry, I’m not going to exempt ‘investors’ from taxes just because it hurts their feelings.

          The grown-ups are talking, pumpkin. Why don’t you go outside and play?Report

          • Avatar Stillwater in reply to Brandon Berg
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            says:

            The difference is that investors are taxed three times, whereas wage-earners are taxed only twice.

            That’s because investors are engaging in an additional type of transaction. I don’t see why that all on it’s own is a problem.Report

            • Avatar Stillwater in reply to Stillwater
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              says:

              Or:

              They’re not being triple taxed. By hypothesis in your scenario, they’re deferring spending for a return on investment. If so, then those investment dollars aren’t being taxed three times, but only twice. The excise tax on investment income is equivalent to the excise taxes born by consumption spending. Twice, that is.Report

          • Avatar Morat20 in reply to Brandon Berg
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            says:

            Oh, sarcasm and insults. You must feel very secure in your position to resort to such arguments.

            So that’s an admission you’re full of it, right?

            Please, you can only make that double or triple taxation by torturing logic to the point of absurdity. Their gains are brand new spanking income they didn’t have before. They can’t possibly be ‘double taxed’ because it’s brand new money to them.

            If I invest 10,000 and make 2000 dollars, when I cash out I have 12000 dollars — and owe taxes on 2000 of it. (My gains). That 2000 I didn’t have before.

            You can insult all you want, dearie, but you’re full of it.Report

            • Avatar Brandon Berg in reply to Morat20
              Ignored
              says:

              The “go outside and play” bit was a response to your childish attempt to frame disagreement with you as whining. Nobody but you said anything about feelings, and both Landsburg and I explicitly stated that this is an argument addressing the positive question of whether investment income is taxed more lightly than wage income, and independent of the question of how much investment income should be taxed.

              Stillwater is the only person in this thread who’s managed to address the argument with any degree of maturity. I’ve been busy today, but I’ll be back to address Stillwater’s objections tomorrow. The rest of you, though, I’m done with.Report

        • Avatar DensityDuck in reply to Morat20
          Ignored
          says:

          “Double-taxation arguments are BS through-and-through. ”

          Unless someone is trying to claim that lower-income people don’t pay Federal income tax, at which point it’s suddenly very very important that things like sales taxes exist.

          ” I pay income taxes on my earnings, even though my employer has already paid taxes on it.”
          I think you need to learn more about how businesses pay taxes before you start making claims about how businesses pay taxes.Report

          • Avatar Rod in reply to DensityDuck
            Ignored
            says:

            Unless someone is trying to claim that lower-income people don’t pay Federal income tax, at which point it’s suddenly very very important that things like sales taxes exist.

            Except that’s never the claim that’s actually made. What you hear is someone saying that 47% of Americans don’t pay any taxes. Not “don’t pay income taxes,” but “don’t pay taxes.” No one is disputing that a lot of people make so little money anymore, after 30 years of Reaganomics, that they owe no Federal Income taxes.Report

  2. Avatar greginak
    Ignored
    says:

    Who ever claimed it was supposed to make economic sense. It’s a gold medal pander.Report

  3. Avatar MikeSchilling
    Ignored
    says:

    Why do you hate America?Report

  4. Avatar Jaybird
    Ignored
    says:

    Maybe we should just tax medals after a certain number of them.

    How many gold medals does one person really need, anyway?Report

  5. Avatar Stillwater
    Ignored
    says:

    Only soft anti-Americanists would accept this tax break.Report

  6. Avatar Kazzy
    Ignored
    says:

    I could understand not taxing medals back when athletes were amateurs. But to offer it now when most of them are wealthy several times over (or, if not currently wealthy, very likely soon to be as a result of their success)? Silliness. Plain and simple.Report

  7. Avatar Mark Thompson
    Ignored
    says:

    I wouldn’t go so far as to call it a “terrible idea” – we’re talking about chump change here, after all. But it’s definitely a dumb idea premised on a fake outrage. I mentioned this at OTB the other day, but there’s nothing meaningfully “overseas” about Olympic prize winnings, which are purely a creature of the US Olympic Committee – neither the IOC nor the host organizing committee has a thing to do with them. It’s the equivalent of being taxed on bonus money from your American employer earned because of a deal you closed on a business trip to Europe, or of a freelance journalist being taxed on a commission received from an American publication for a story written while on assignment in Africa. The medals themselves are obviously “overseas” earnings, but no one actually gets taxed on those medals.Report

    • Avatar Kazzy in reply to Mark Thompson
      Ignored
      says:

      I think it is terrible in terms of what it represents, which is A) a fundamental misunderstanding of the way taxes function and B) a competition to see who can wrap themselves in the flag tighter.Report

      • Avatar Mark Thompson in reply to Kazzy
        Ignored
        says:

        True enough, but as to A, it’s just the latest in a million examples of tax code provisions that make absolutely no sense, and as to B, it’s just the latest in a million examples of competitions to see who can wrap themselves in the flag tighter. So, just a typically bad idea rather than a terrible idea.Report

  8. Nob Akimoto Nob Akimoto
    Ignored
    says:

    Well we can give them a tax break, except for Gabby Davis, whose hair is unAmerican and doesn’t wear a flag pin.Report

  9. Avatar Jason Kuznicki
    Ignored
    says:

    If prize winnings were taxed at 100%, do you suppose that the committee would continue offering cash prizes?Report

    • Avatar Ryan Noonan in reply to Jason Kuznicki
      Ignored
      says:

      Nope, but I don’t believe the Committee is accomplishing much by offering the prizes in the first place, so still no deadweight loss.

      Actually, depending on what the Committee decides to do with the money instead, it could be a net productivity gain.

      Of course, my position is really that they should just be taxed the same way all income is taxed. Carving up the tax code into a million little pieces is counterproductive and stupid.Report

      • Avatar greginak in reply to Ryan Noonan
        Ignored
        says:

        The prizes matter a lot to the athletes in the smaller sports since they have much less of a chance to cash in through endorsments. Lochte, Phelps, the gymnasts, etc will all make piles o’money on their own, but most of the athletes won’t.Report

        • Avatar Ryan Noonan in reply to greginak
          Ignored
          says:

          I don’t know what “matter” means here. I’m sure the athletes like getting money for their medals, but is it a proper incentive that encourages them to become elite athletes in their sports?

          Seems… really unlikely.Report

          • Avatar greginak in reply to Ryan Noonan
            Ignored
            says:

            The prize money might help to offset the immense training costs that go with many sports. The big name athletes and big sports will be well paid or endorsed. The track cyclists not so much. Is the prize money enough incentive to go through all the work to even be an olympic athlete? I really doubt it , it would be much easier to just sell real estate or do LBO’s to make a giant pile.Report

          • Avatar Jason Kuznicki in reply to Ryan Noonan
            Ignored
            says:

            This is congruent with my argument that music won’t suffer much without copyright because musicians generally like what they do.

            Still, if you’re really in favor of simpler taxes, we should maybe talk about Obamacare. Except… I just don’t want to at the moment. There will be other times, no?Report

            • Avatar Don Zeko in reply to Jason Kuznicki
              Ignored
              says:

              Sounds like a short conversation to me. I’m in favor of simple taxes, and in favor of some variety of single payer. In my perfect world we’d have something like France’s health care system funded by a very simple tax code. But seeing as we don’t live in my perfect world and both of those objectives are pretty much completely unachievable, universal health care coverage is much more important to me than simplifying the tax code.

              Now if I wanted to make the conversation longer, I could suggest that a much bigger culprit for the ballooning complexity of the tax code is the politics of the deficit and the tax revolt, which tends to shift social spending to the tax code.Report

            • Avatar Ryan Noonan in reply to Jason Kuznicki
              Ignored
              says:

              I think my definitive position on Obamacare was stated here.Report

          • Avatar Fnord in reply to Ryan Noonan
            Ignored
            says:

            The margin, dear boy, look on the margin.

            And, seriously, athletes in minor sports are often unable to fully support themselves on athletics-related income. Frequently they have day jobs, and financial support is likely to affect not only their willingness to train, but they’re ability to do so.

            None of this is to say that eliminating the tax is a good idea. It’s exactly the sort of garden variety stupid idea that you see all the time, especially in election years. I’d certainly rather people be talking about this than about a gas tax holiday like in 2008.Report

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