What is more beneficial to society?
1. I stuff my earnings in my mattress, where they earn no interest and do not participate in the economy.
2. I put my earnings into a savings account or invest in a company? In both cases, the money re-enters the economy, but the money is now available to *grow* the economy, which, in turn increases the tax base, there by allowing lower all-around tax rates for all involved in order to generate the same revenue.
In both cases, I've already paid the individual income tax. In scenario #1, no further tax is paid. This narrows the tax base, necessitating higher tax rates. Scenario #2 puts the money back into the system. However, I'm assuming a level of risk in doing so. The bank fails, the company fails, etc. But, I've already paid taxes on the income. And often, I don't get to deduct the loss. Whether the money is in the bank or invested in stocks, bonds, etc, I pay a lower rate. It's incentive to put the money back into the system.
Yes, part of it is that corporations already pay tax on income. In the US, an often quoted tax rate is 20% for the average corporate income tax (it ranges between 15%-35%). Assuming all of a company's profits are returned in the form of dividends, and a capital gains rate of 14%, for ever dollar in gross profit, $.20 goes directly to the Fed (disregarding state/local taxes). Of the remaining $.80, you pay 14%, amounting to another $.112. So, effectively, I've paid $.312 in tax for ever $1 in profit. And this assuming the government only taxes profit, not income (but, shocker, they tax income, not profit). The actual effective tax rate to me, the investor, is going to be much higher than that. You'll quickly get above the top marginal tax rate. So, why should the capital gains rate go any higher? You'll eliminate an incentive to invest.
Slashdot Mirror
What is more beneficial to society? 1. I stuff my earnings in my mattress, where they earn no interest and do not participate in the economy. 2. I put my earnings into a savings account or invest in a company? In both cases, the money re-enters the economy, but the money is now available to *grow* the economy, which, in turn increases the tax base, there by allowing lower all-around tax rates for all involved in order to generate the same revenue. In both cases, I've already paid the individual income tax. In scenario #1, no further tax is paid. This narrows the tax base, necessitating higher tax rates. Scenario #2 puts the money back into the system. However, I'm assuming a level of risk in doing so. The bank fails, the company fails, etc. But, I've already paid taxes on the income. And often, I don't get to deduct the loss. Whether the money is in the bank or invested in stocks, bonds, etc, I pay a lower rate. It's incentive to put the money back into the system. Yes, part of it is that corporations already pay tax on income. In the US, an often quoted tax rate is 20% for the average corporate income tax (it ranges between 15%-35%). Assuming all of a company's profits are returned in the form of dividends, and a capital gains rate of 14%, for ever dollar in gross profit, $.20 goes directly to the Fed (disregarding state/local taxes). Of the remaining $.80, you pay 14%, amounting to another $.112. So, effectively, I've paid $.312 in tax for ever $1 in profit. And this assuming the government only taxes profit, not income (but, shocker, they tax income, not profit). The actual effective tax rate to me, the investor, is going to be much higher than that. You'll quickly get above the top marginal tax rate. So, why should the capital gains rate go any higher? You'll eliminate an incentive to invest.
governments are sociopathic bureaucracies just the same.