Letters to the Editor

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TAXES: Baird’s right on taxing capital gains

Letter by Helmut Kellermann, Puyallup on Feb. 6, 2012 at 2:26 pm with 20 Comments »
February 6, 2012 2:35 pm

Re: “Baird’s naive about tax rates” (letter, 2-4).

The one who “is naive or deliberately misleading” is the letter writer, not Katie Baird (column, 2-1). What he fails to understand, or purposely distorts, is the fact that it is the gain on his investment which is taxed, not the after-tax money he originally invested. Hence the name, capital gains tax, which is not double taxation as he states.

Gain on investments is the same as putting money into the credit union and earning interest which is taxed as ordinary income while the investment income receives a favorable tax treatment, typically enjoyed by those in the higher income brackets.

A lower-income person, holding an identical investment in a 401(k) plan, will not enjoy the lower capital gains tax but instead will have pay taxes at the ordinary income levels upon withdrawal.

The letter writer propagates the fallacy that it is the investors who are the job creators, and they should enjoy the lower rate. It is demand that creates job, and no factory, no matter how low the taxes, would manufacture a single extra item if it did not expect demand for that product.

By the way, investors incurring a loss from investments, would expect to be able to deduct that loss at ordinary income level.

I don’t like to pay taxes any more than the next guy but I agree with Warren Buffett that it makes little sense to give capital gains a favorable tax treatment.

Leave a comment Comments → 20
  1. sandblower says:

    Good for you Mr. Kellerman for making a correct argument. 50% is a good place to start for anyone in the top bracket; it should apply to anything over 200K of taxable income.

  2. David1964 says:

    I agree with the OP and Sandblower! A person who WORKS for their income should not have to pay a higher tax rate than someone who is fortunate enough to be able to park so much money as to be able to live off the gains.

  3. writnstuff says:

    Bravo to you Helmut, for that clarification. Nothing more need be said.

  4. chile74 says:

    Nice try, Helmut. The 401K investor is given a tax break by investing a portion of his income tax free. The account accumulates tax free until you retire which at that point for most people, they are taxed at a lower rate – 15% – because they no longer have a salary (earned income) and are living off their 401K and social security. That 15% is the same as the capital gains tax of 15%.

    The investor in stocks has to pay his taxes up front leaving him less money to invest. He is investing with after tax dollars. Profit is taxed at 15% but the corporation already paid taxes on profits before they handed out dividends. That my friend is double taxation.

  5. sandblower says:

    chile74, nice try. Corp. profits have nothing to do directly with the increase in the price of a stock. It is not double taxation. If it were, it still would be the corp. first and the individual second. That’s too is OK.

  6. concernedtacoma7 says:

    It’s not corp profits, but already taxes income being invested.

    There are more middle Americans living off of investment income than billionaires living off dividends. This call for higher taxes is just going to screw the middle class. Why? Because the liberals are jealous of a few rich guys.

    Pathetic. End of the day you just bigger govt paid for with someone else’s money. No pride on the left side of the aisle.

  7. conccer — spewing nonsense is your trademark; but do YOU even know what you are trying to say? who exactly is proposing to raise taxes on people making under 250k? oh thats right, paul ryan, and mitt romney, and herman cain, and newt… not democrats. As usual, you have no facts, nothing to substantiate or support your ridiculous statements; only limbaugh-isms and beck-itudes.

  8. chile says:
    “The 401K investor is given a tax break by investing a portion of his income tax free. The account accumulates tax free until you retire which at that point for most people, they are taxed at a lower rate – 15% – because they no longer have a salary… (earned income) That 15% is the same as the capital gains tax of 15%.”

    So then, a wage-earner could slide down into a 15% tax rate when the earner’s income drops to a poverty level, but the wealthy individual who receives his income from capital gains gets a 15% tax rate at any income level.

    Whats fair is fair.

  9. chile74 says:

    Nice try, cirrus. You have to be hugely successful like Romney or Buffett to live on investments. Most of us are not in that category. Most seniors don’t “slide down to poverty level” when they retire so you argument is nonsense. Most seniors live on less than around 66,000 for a couple which is in the 15% tax bracket.

    Sand – corporate profits don’t have anything to do with stock prices? You have to be kidding. If a corporation is making big profits, the stock price goes up. Your qualifying dividends are taxed at 15%. However, from 2008-2012 if you are in the 10% or 15% tax bracket, you pay 0% on qualified dividends. In 2013, it goes back up to 15%.

    I stand by my comment that corporations pay taxes on their profits then we pay taxes on qualifying dividends at 15% – double taxation.
    I stand corrected – those in the 10% and 15% tax brackets pay 0% on their qualifying dividends through 2012 (Wiki).

  10. Belatrix says:

    Some pretty good points have been made. Let us not forget that millions of average income Americans own stocks, mutual funds, etc., who are not gazillionaires.

  11. Back to Taxing Capital Gains.
    If one buys the logic that capital gains should not be taxed at the individual level because they have already been taxed at the corporate lever you must also accept that all wages SHOULD NOT be taxed at the individual level because the employer has already paid taxes on it.

  12. sandblower says:

    chile74, we are talking about capital gains not dividends. Sometimes a stock goes up for no apparent reason and sometimes it falls too. A stock’s price does not reflect day by day how profitable it is. The price does reflect what the expectations are.

  13. beerBoy says:

    The “taxed-twice” mantra is absurd and could be employed in every situation:

    A business pays B&O and sales taxes on items and then pays taxes on wages to employees who pay taxes on income and then pay sales taxes on items they purchase from businesses that pay B&O taxes and payroll taxes on wages they pay to employees who pay income taxes and sales taxes on items they purchase…etc, etc, etc.

  14. concernedtacoma7 says:

    Good, so we all agree that everything is taxed too much. Now, shrink govt and introduce a flat tax. Perhaps a 1% sales tax to make up for cash only, off the book deals (i.e. illegal activity/drugs).

  15. muckibr says:

    con7, “Now, shrink govt…”

    And, President Obama is trying to do that very thing by a Reduction In Force in the military, and also proposing that some cabinet level agencies be consolidated to reduce duplication of effort and cost.

    So, now you can vote FOR President Obama right con7?

  16. concernedtacoma7 says:

    Nope, he is shrinking the primary role of the fed govt, not all crap added by libs over the last 100 years.

  17. MadTaxpayer says:

    It is not the Govt’s money! It is my money! I don’t care how it is earned, it does not belong to the Govt. Leave it alone!

  18. When they lowered the tax rate on capital gains from 28% to 15% the government saw an increase in capital gain tax revenue. Why? If I make $1000 on some stock and I have to pay 28% I only have $720 to reinvest. I need a 38% increase to get back to $1000. I have to think long and hard about selling the stock and taking the gain against holding on to it and seeing if it won’t go up more. At 15% i still need a 17.6% increase to get back to $1000 but that is easier to do.
    People that invest in stock, land or real estate take a gamble on whether or not they will make money. They can deduct their losses but only against their gains except for the first $3000. If people and business didn’t invest in stocks there would be no business because there would be no capital to fund them.
    We focus on the rich and berate them because they are successful. I tend to think it is more jealousy that they did better than we did and we want to see them penalized. Should the tax rate go up as incomes do? Yes. Should they be onerous? No.
    The whole tax code needs to be rewritten. Why should a couple with 1 child that makes $35,000 a year and has $2000 withheld get a $4500 refund. When did the tax code become a social program. Give them their $2000 back and let other government programs determine what other assistance they need.

  19. sandblower says:

    And swmpr, why does anyone need an after tax income of $20,000,000 if all it is is income used to support their lifestyle?

  20. Sandblower. How many people do you think make $20,000,000 after tax? And you propose taxing any income over $200,000 at a 50% rate. And how much are you willing to pay? Are you willing to pay your fair share? The 45% of the households that don’t pay any income taxes don’t pay their fair share for the services the government provides for them. I am tired of listening to people rail against the 55% of the households that cover all of the costs for the government.

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