Why is investment income taxed less than wages?

[dipsydoodle]

WASHINGTON (AP) -- Why do Mitt Romney and other wealthy investors pay lower taxes on the income they make from investments than they would if they earned their millions from wages? Because Congress, through the tax code, has long treated investment more favorably than labor, seeing it as an engine for economic growth that benefits everyone.

President Barack Obama and the Occupy Wall Street movement are challenging that value system, raising volatile election-year issues of equity, fairness - and Romney's tax returns.

Romney, who released his 2010 and 2011 tax returns this week, has been forced to defend the fact that he paid a tax rate of about 15 percent on an annual income of $21 million. His tax rate is comparable to the one paid by most middle-income families. His income, however, is 420 times higher than the typical U.S. household.

The Republican presidential candidate's taxes were so low because the vast majority of his income came from investments. The U.S. has long had a progressive income tax, in which people who make more money pay taxes at a higher rate than those who make less. But for almost as long, the U.S. has taxed capital gains - the profit from selling an investment - at a lower rate than wages.

Associated Press http://hosted.ap.org/dynamic/stories/U/US_TAXING_INVESTMENTS?SITE=ILMOL&SECTION=HOME&TEMPLATE=DEFAULT

[gateley]

1. I don't believe Congress ever saw this as "an engine for economic growth that benefits

everyone". I think they did it so they themselves and others of their ilk could pay lower taxes on their interest income.

And my question remains, WHY put the money in overseas banks instead of American? Do they pay higher interest?

[unblock]

2. "an engine for economic growth"? WRONG! they it as an engine for campaign campaign contributions!

the simple matter is that investment profits are much more readily disposable income than labor income, which most of us need to actually live on.

rich people bribed their congresscritters fair and square for those tax dodges.

[bemildred]

3. Because people that don't work deserve to have their income taxed less.

[Scuba]

4. Because idling is valued higher than hard work.

[Demoiselle]

5. I THINK the theory is that lower taxes encourage investor risk taking.

Which might have made some sense when investors were investing in actual start-up businesses which could grow the economy. I'm not sure how it makes any sense today with all the games people play with credit default swaps and other dead end on-paper-only "investments."
(Please feel free to disagree!)

[unblock]

7. the FRAUD is that lower taxes encourage risk taking, but in fact it's the exact opposite

the bigger the taxes on investment profits (and the credit for investment losses), the bigger the government's share of the investment risk.

so a lower taxes rate on investment income actually makes investing riskier, encouraging them to do LESS of it.



what actually influences the investment decisions is the DIFFERENCE in tax rates depending on the type of income or the year investments are cashed in, etc. given that investment income is taxed lower, there's an incentive to take call your income investment income rather than labor income. where there are tax-deferred retirement accounts, there's an incentive to stuff as much profit as possible in them as opposed to getting it outside such an account. and if there's a tax break for keeping your money in the caymans, well, that's where you're inclined to leave it.

and of course, if you think taxes will go up in the future, you have an incentive to take your profits now and hold on to your losses; if you think taxes will go down in the future, you have an incentive to cash out your losses and hold on to your profits.

those differences are what has the most effect on financial activity. this is why all income should be taxed the same, with any differences being limited and VERY carefully thought out. for instance, rmoney having more than $20,000,000 tax deferred in an ira is ridiculous. the government shouldn't be giving him a tax break on his 20th million just because he put it in a special account.

[Demoiselle]

28. Thank you! This is why I stick with DU...

[kestrel91316]

6. Because people who make all or most of their money from interest and investments write our tax laws.

They are at the top of the heap and they wish to ensure that workers can never get up there with them.

[Doctor_J]

17. Ding!

Exactly what I thought when I read the subject line

[DocMac]

8. I'm not sure.

But, from my point of view 15% is high. If I make $100k/yr from working, i'll pay about $25k in fed taxes. Now, say I want to invest $10k of that $75k I have left, Should I pay 15% tax on money I make with money that has been taxed at 25%?

My view is different on money pushers. Those huge investors that never paid 25% in the first place.

I don't do stocks anymore due to regular beatings. So, it's actually moot for me now. But that was my take on it.

[Warren Stupidity]

10. So you don't think you should pay sales taxes, property taxes, or any other taxes either?

After all everytime you buy something with your post tax cash, the sales tax is on 'already taxed' money.

Income is income. Tax it all the same.

p.s. the example is a little bit bogus. Romeny and the rest of the 0.01% don't take the crumbs left over from their salary income and invest that, they live off the huge interest income from vast piles of accumulated wealth. In Romney's case he must be sitting on at least 500M, unless he is a huge risk taker. Don't you think he ought to pay at the same rate as a regular working stiff? Seriously? Come on, you know its the right thing.

[DocMac]

13. Romney is a money pusher.

My view is different for people in that bracket.

And yeah, some taxes are crazy. How can you justify sales tax on a car that gets sold many times, or a house for that matter?

[U4ikLefty]

15. If you make $100K you should feel fortunate & pay your damn taxes.

This kind of priviliged reasoning really bugs me.

15% is too high??? You've GOT to be kidding me!!!

[DocMac]

16. I pay my damn taxes!!

And $100k does not put me in a priviliged class.

A couple people on this thread have some problem with reading comprehension.

Maybe you should read my post again before I have to defend it.

[U4ikLefty]

20. Did you NOT say 15% was too much???

Also, your statement that "$100k does not put me in a priviliged class" is a joke to anyone who actually is working from paycheck to paycheck.

YOU are the one who needs comprehension...reality comprehension.

We had a banned poster named OMC that tried to push this bullshit line. Good luck (not really).

[DocMac]

22. Good luck banning me.

You assume that I have no compassion for people who work paycheck to paycheck. That would be wrong!

The $100k I mentioned was an arbitrary number...I could make less or more in reality.

And the distinction between me and the money pushers, as I described, is that their tax returns only show capital gains. I'm talking about people who want to invest money that has been taxed already. If you can't wrap your head around that than try working on it a while longer.

If you wish to harass me on my opinions without compromise, you're welcome to be a part of my ignore list.

I hope we are clear.

[U4ikLefty]

23. I don't give a shit how you arrived at your $100K per year...pay your fair share!!!

The distinction between you & your "money pusher" boogey-man is nil. Both of you should be paying the 28% if you make $100K per year..

You want to defend a (less than) 15% tax rate for your greedy-ass & I laugh at your logic.

If you want to "invest" "your money" then pay a fucking fair tax-rate...and it isn’t less-than 15% (like you want).

Your "invest money that has been taxed already" line is right-wing garbage. Get over your privilege & wake up.

Ignore me...I welcome it from the greedy RW jerks who troll this

[DocMac]

24. This is not a discussion board

if your going to act like this. You're being stubborn and i'm trying to make what sense of the situation, as I see it.

I don't even trade stocks anymore. It didn't work out for me. The only point i'm trying to make is that it is crazy to expect people to invest taxed money when there are people who are on a strict diet of 15%.

We may have more in common than you realize. And I don't know about the banned person, but you can ask Skinner or other admins if I am one and the same.

I won't entertain any of your other bullshit, but I will say this:

I don't agree on all the taxes put on me for the war on drugs or oil. I don't agree that a muslim is hiding under my bed and therefore should support DHS/TSA. I don't agree that my taxes should pay for wars that this country started and promoted.

However, if you can convince the government to push taxes for clean water, clean air, food, good healthcare, eduaction, then maybe we are getting somewhere.

I didn't know what a radical left wing ever meant. Saving the environment, people, animals, is that the radical left or is it you? Attacking people who have VERY minimal tax differences? I don't know, I have yet to find the elusive radical left...you tell me.

[U4ikLefty]

25. Still pushing the 15% meme & now you are playing the victim?

never seen THAT tactic on DU before.

BTW, the difference between 15% & 28% is NOT a "minimal" one. Especially at the level of privilege that enables one to invest their monies to any significant degree.

You (as an "investor&quot should pay the same as any working man...sorry you disagree

[DocMac]

26. Who is investing money to a significant degree?

If you think that $10k investment is a lot, well your just wrong. When I did try (for 4 years) I just wanted to increase my income by $300/month.

But you seem to think i'm some troll, slug dragging, tombstoned rethug. That isn't true. And I donate my time and money more than you could imagine.

Nice of you to inflate that difference! I said 25% and you drag it to 28%. Don't worry, if legislation comes to me, i'll support a raise on capital gains for those that use that system for earned income.

You see, I would never make enough on investments to warrant anymore than 15%. How could I?

Meanwhile, those people that have a few thousand and want to invest can just forget about it....I did!

[U4ikLefty]

27. Poor baby. 15% on your Captial Gains was too much for you?

[DocMac]

29. It is good to see some humor.

But your not a comedien or funny.

So let me just end this bullshit. You are so far out there that you're unreasonable.

Put this to a jury...your an asshole, ok!
,
Good enough for me that I never have to see your dumb posts again.

The jury can say what it will. They won't consider all the crap you posted. They have no clue who I am, but i'm not about to give you any history!

Welcome to ignore. You earned it!

[rucky]

30. The "double taxation" bs doesn't work here.

You're being taxed on what you make above your basis. If you're not comfortable with that, then don't gamble with your take-home pay.

[DocMac]

31. Why do people like you

continue to reply to something you must not have read?

I typed in there that I don't participate in stocks anymore.

And thanks for letting me know what is BS at DU.

[Travis_0004]

9. Here is what was said in my tax class.

The reason behind the lower tax rate on capital gains is due to the fact that a lot of the gain is due to inflation, so it is a nominal gain, not a real gain. If inflation goes up 3% a year, and a you gain 7%, your only true profit is 4%. Lets say you have some bonds, that earn 3% a year, the same as inflation. You have 1,000 in today's dollars. 20 or so years from now you sell it, and now have 2,000. In real terms, you have no gain, since you only kept up with inflation, but due to a nominal gain you will pay taxes.

The lower rate is also supposed to encourage long term investing, which is good for the economy. A lower rate also allows investors to more easily move money from one investment to another one, which provides more liquidity to the market, and since capital gains are not paid until the gain is realized, the government can get its tax payments sooner, since with a higher capital gain rate an investor would be a bit more likely to hold on to the investment (and wouldn't pay taxes on it yet, since if a gain is not realized, it is not tax.

Also, dividends (or retained earnings which contribute to the value of a stock) are taxed on a corporate level, then taxed again when the investor takes the money out. An employees salary is not taxed at the corporate level, since its a writeoff against net income.

[Warren Stupidity]

11. The excuses why the over-lords should get all the breaks are endless.

[jody]

12. You obviously learned from your tax class. Excellent summary and far better than I expected. nt

[Kellerfeller]

21. Well stated

And that makes sense

[hack89]

14. One reason is to make tax free investments less attractive to investors.

I know that if capital gains went up I would investigate shifting funds into tax free munis - I am not rich and need to maximize my return.

[GeorgeGist]

18. Because investment income is welfare.

[tinrobot]

19. Because investments used to be about making things, not gambling

When you invest in the stock of a factory or some other concern that actually makes something, you create jobs that are taxed, pay employer taxes on wages, pay taxes on transportation, sales tax, property tax, etc.

The gains on the investment are lower because, theoretically, you've already paid a lot of tax before you see profit. A tax on the profits is one more tax to add to the pile, so they cut investors a break. Not sure if I fully agree with it, but it makes some sense.

Nowadays, however, it seems as though people buy stock more as a form of gambling. If not that, then people buy factories in order to shut them down and reap profits at a low tax rate. Both of these business models need to be taxed at a rate higher than pure labor, because they destroy economies with their greed.

[MindMover]

32. This question should be, "why is our tax code 7 (seven) times longer

than the bible.......