An open letter to President Obama

[tigertoy]

Dear President Obama,

In the aftermath of your reelection, all of the talk is turning to the so-called fiscal cliff, and almost all politicians are saying we need to reach a compromise. Please, as you again try to get the Republican house to be slightly reasonable, keep the important things in mind. Our fiscal problems are not primarily that government is too big and doing things it should be doing; they are primarily caused because we're not collecting enough taxes to pay for them. The money has to come from the people who have it, and we are in the hole we're in now because the Republicans somehow mesmerized the rest of Congress into accepting the idea that the rich shouldn't pay taxes. We can't fix the budget without ending the favorable treatment of dividends and capital gains. Additionally, much of the social division tearing our country apart is caused by growing inequality of wealth, which flows directly from the fact that people with less money pay higher tax rates than people with more money.

Yes, talk to the Republicans. Keep trying to bring them to a sane compromise. But don't agree to anything that taxes divdends and capital gains -- also known as rich people's money -- significantly less than wages. Going over the fiscal cliff now may make things a little tougher for a couple of years, but making the tax holiday for the rich permanent will make sure that things continue getting worse for ordinary people forever.

Comments

[quasiskunk.livejournal.com]

How about this one:
Dear President:

The Republicans came up with a budget in the Senate. Please make sure the House looks at it, and start negotiating compromises. It has been 3 years since there was a Constitutionally mandated budget.

While neither side can believe that their budget proposal is end-all, at least there was a proposal from the Senate, and none came from your House.

Also, please have the government get out of "saving and investing" in businesses. Too many businesses went under without getting millions in loan guarantees; if you save one, save them all. Let the Free market dictate how companies grow or fail. But, by taxing the businesses to fund these monies, you will automatically generate failure from smaller companies. Companies that can use their money do invest in others or themselves are inherently stronger than those dependent on government cash and subsidies.

[billroper]

That's slightly backwards, actually. The Republicans in the House passed a budget; the Democratic-controlled Senate has passed none.

[quasiskunk.livejournal.com]

Hehee...oops. Forgot who had which part.

[bedlamhouse]

The problem with taxing capital gains at the same rate as ordinary income is that there is no incentive to leave investments for the long term. We WANT people to invest for long term, not just until the stock goes up a couple of points. I'd say rather to increase the holding requirements for capital investments to be treated favorably.

Dividends also are already double taxed (they are taxed as part of corporate income, they aren't deducted as an expense, and are then taxed again when the individual receives them). Dividends aren't considered capital gains and don't get special treatment in and of themselves, but I actually think dividends and interest income SHOULD get favorable treatment. This would be an incentive for savings.

[billroper]

I poked around a little looking at historical tax rates and it appears that capital gains have always gotten favorable tax treatment.

The other note on capital gains is that there's no inflation protection built in. As a result, when you sell an investment, you may have a "real" loss (in terms of purchasing power), but pay a tax on your "income".

[tigertoy.livejournal.com]

I would be fine with genuinely long term capital gains getting favorable treatment, but the great majority of "capital gains" income these days is profit on short term trades, which should at the very least be taxed at the highest rate of any kind of income. Such as, for each full year you hold an asset you get to shield 5% of the gain (or the rate of inflation for that year) from tax.