Thursday, March 17, 2011

Capital Gains Taxes - A Rich Man's Poison

As of this month in 2011 (just before Libya and the Japanese earthquake) the stock market had doubled in just 2 short years. When was the last time in history - EVER - have we seen stocks increase in value by so much, and in so little time? (Like the housing bubble, is another stock bubble on the way and waiting to burst?)

But in that same period of time we've also had the highest and most sustained rate of unemployment since the Great Depression, along with record setting government deficits. But why? Because of too low capital gains taxes.

Federal and State budgets are going broke as millions of Americans remain jobless and reduced to poverty, while the big corporate officers and bankers have been raking in record bonuses and paychecks. But why? Because of too low capital gains taxes.

All the money those uber-wealthy INDIVIDUALS were saving by paying less in capital gains taxes weren't being INVESTED (to grow companies and hire people, something "corporate treasuries" usually fund), their money was just being HOARDED...depriving the federal and State governments billions of dollars in vital revenues.

There's a fine line, a balance is needed to "encourage investment" and also to being fiscally responsible when funding tax revenues that are needed to run any kind of government. Too much of one is bad for the middle-class and poor people, and too much of the other...well, let's just say the rich would rather not pay ANY taxes at all.

Let's look at the last 30 years of capital gains taxes...from Reagan to Obama.

1981 to 1989
- President Reagan's Economic Recovery Tax Act of 1981 reduced the capital gains tax rate to 20% and lowered the oil windfall profits tax. Next year the annual unemployment rate's high was 9.7% in 1982 - and the following year in 1983 the annual unemployment rate's high was of 9.6% (about the average all throughout 2009 and 2010). This tax act slashed estate taxes and trimmed taxes paid by business corporations by $150 billion over a five year period.

As a result, in 1986, the annual revenue of the federal government had been cut by $200 billion a year (which ended up being well over $1 trillion in lost government revenues in 5 short years).

Two years later in 1988 President Reagan had also completely ended the oil windfall profits tax before leaving office (now think of the taxpayer-paid oil subsidies). But with a growing budget deficit, Reagan had also been forced to raise the capital gains tax rate back to 28%. The net job growth that's always been boasted during Reagan's entire two terms in office was only that of the natural rate of population growth (which would also include immigrants). And Reagan’s administration is the only one not to ever have raised the minimum wage for poor working people. (Gee, thanks Uncle Ronnie!)

"Unemployment insurance is a pre-paid vacation for freeloaders."
~ Ronald Reagan in the Sacrament­o Bee while running for Governor of California (28 April 1966)

1989 to 1993 - The first George Bush - Early in his term, Bush faced the problem of what to do with leftover deficits spawned by the Reagan years. At $220 billion in 1990, the deficit had grown to three times its size since 1980. Then, just like today, the Republicans believed that the best way was to cut government spending, and Democrats were convinced that the only way would be to raise taxes.

In the wake of a struggle with Congress, Bush was forced by the Democratic majority to raise tax revenues; as a result, many Republicans felt betrayed because Bush had promised, "Read my lips, no new taxes" in his 1988 campaign. Perceiving a means of revenge, Republicans defeated Bush's proposal which would enact spending cuts AND tax increases that would reduce the deficit by $500 billion over five years. (Despite demands by the Republicans for a reduction in the capital gains tax, Bush relented on this issue as well.)

1993 to 2001
- Bill Clinton - The capital gains tax rate, which used to be 28% since Reagan left office, was lowered back down to 20% in 1997 by Clinton.

Washington Post - July 15, 1999 - "The economy is booming, and Americans are no longer clamoring for tax relief. Congress passed a modest tax cut two years ago; most state and local governments have slashed taxes as well. And President Clinton has apparently mastered the art of making Republican tax cutters look like Medicare-busters, Social Security-destroyers and debt-expanders."

Brookings Institute - October 1999 - "After decades of deficits, the recent emergence of federal budget surpluses and the expectation of even larger surpluses over the next decade or more have dramatically altered debates regarding tax and spending policy. The most recent Congressional Budget Office estimates, released in July 1999, project a unified budget surplus of $ 2.9 trillion for 2000-2009. This is divided between off-budget (social security) surpluses of $ 1.9 trillion and on-budget surpluses of $ 1 trillion."

2001 to 2008 - The Second George Bush and HIS tax cuts: After inheriting a budget surplus two years earlier, in 2003 President Bush lowered the capital gains tax rate even more, to 15%. Five years later in 2008 the economy collapsed, tax revenues fell further, mass layoffs occurred, and we saw record unemployment. Now in 2011 the Republicans are pushing for even lower corporate taxes, eliminating the estate taxes altogether and also lowering the capital gains tax to a whopping 0% (That's ZERO, nada, nothing, none at all. No taxes at all on the uber-rich! OMG!!!)

American corporations can pay less for labor in China, and less in capital gains taxes than many other countries - and because of tax loop holes, even though the corporate income tax is higher in the U.S. than it is in China, less as a percentage of total revenue is also paid in American corporate taxes too. So big American corporations can escape paying taxes in very many ways.

2009 to the Present: Obama and the Democrats were blamed for the deficits and too much government spending, but whether the Republicans admit it or not, it was THEY who insisted we under-fund the tax revenues (with lower capital gains taxes) needed to run our ever increasing size of government because of natural population growth (100 million more people since 1970, making a "bigger government"), allowed the outsourcing of our jobs (more tax revenues not being collected), helped kept wages down with union-busting (even more tax revenues that can't be collected), and increased the size of our deficits (because of all the taxes that aren't being collected!)

In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income, but the tax rate for individuals is lower on "long-term capital gains" (at 15%) which are gains on assets that had been held for over one year before being sold (stocks, bonds, stock-options, mansions, yachts, etc). Short-term capital gains (held less than a year) are taxed at a higher rate: the ordinary income tax rate (but minus all their accounting loopholes such as depreciation, deductions, etc).

Capital gains taxes in the U.S. should be raised to their earlier levels (20% under Clinton, or even as high as 25% as they were in the 1950s. But 28% may be too high) to balance the federal and all State budgets...NOT ZERO PERCENT as the GOP now wants!

* * The applicable tax rate for capital gains in China depends upon the nature of the taxpayer (i.e. whether the taxpayer is a person or company) and whether the taxpayer is resident or non-resident for tax purposes. Tax-resident enterprises will be taxed at 25% in accordance with the Enterprise Income Tax Law. Non-resident enterprises will be taxed at 10% on capital gains in accordance with the Implementing Regulations to the Enterprise Income Tax Law.

* An individual may exclude $250,000 ($500,000 for a married couple filing jointly) of capital gains on the ONE TIME sale of the individual's primary residence, subject to certain conditions and limitations.

* * Business entities treated as partnerships are not subject to income tax at the entity level. Instead, their members include their shares of income, deductions, and credits in computing their own tax. The character of the partner's share of income (such as capital gains) is determined at the partnership level. Many types of business entities, including limited liability companies (LLCs), may elect to be treated as a corporation or as a partnership. Distributions from partnerships are not taxed as dividends. Every year the CEOs and bankers can rake in capital gains, not just once like you.

Selected sources:
Google "Laffer curve"

1 comment:

  1. CEOs only “earn” bonuses when their company “performs.” One measure of that performance: “earnings per share,” or company income divided by outstanding shares of stock. Execs have figured out they don't have to boost earnings to hit their per-share targets. They simply reduce the number of company shares — by having their companies “buy back” shares of their own stock off the open market. U.S. corporations overall have so far this year authorized $445 billion worth of buybacks.