Why isnt interest earnings taxes the same as income?

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6 years ago 02/26/2019 10:21pm EST

I think the subject says it all. The democrats are interesting in taxing the rich more and the poor less. So why not have interest earnings subject to the same tax structure as if it were straight income?

Where is the downside? Are they afraid it will discourage investment? That seems unlikely, nobody who is currently living off the investment income from a few million or more is going to suddenly decide it isnt worth investing.

With the extra tax income from this change, they could just reduce the tax rates at every bracket slightly to balance it out so the expected total tax income for the country is the same. So Republicans get to claim a tax cut for all Americans who work for a living while still balancing the budget, both of which they failed to do with the most recent tax code.

If there really was any lost investment from this strategy, it should be made up for by more people having money in their pocket at the end of the year to invest.

Am I missing something?

6 years ago 02/26/2019 10:48pm EST

re: Theoniongoat

Theoniongoat wrote:
I think the subject says it all. The democrats are interesting in taxing the rich more and the poor less. So why not have interest earnings subject to the same tax structure as if it were straight income?
Where is the downside? Are they afraid it will discourage investment? That seems unlikely, nobody who is currently living off the investment income from a few million or more is going to suddenly decide it isnt worth investing.
With the extra tax income from this change, they could just reduce the tax rates at every bracket slightly to balance it out so the expected total tax income for the country is the same. So Republicans get to claim a tax cut for all Americans who work for a living while still balancing the budget, both of which they failed to do with the most recent tax code.
If there really was any lost investment from this strategy, it should be made up for by more people having money in their pocket at the end of the year to invest.
Am I missing something?

You are missing the fact that interest income is, in fact, taxed as ordinary income.

6 years ago 02/26/2019 10:51pm EST

re: Do your homework

Yes - it is capital gains that are taxed at lower rate (generally 15%).

Now there’s the 199 small business 20% deduction that’s pretty cool

6 years ago 02/26/2019 11:08pm EST

re: Theoniongoat

Theoniongoat wrote:
I think the subject says it all. The democrats are interesting in taxing the rich more and the poor less. So why not have interest earnings subject to the same tax structure as if it were straight income?
Where is the downside? Are they afraid it will discourage investment? That seems unlikely, nobody who is currently living off the investment income from a few million or more is going to suddenly decide it isnt worth investing.
With the extra tax income from this change, they could just reduce the tax rates at every bracket slightly to balance it out so the expected total tax income for the country is the same. So Republicans get to claim a tax cut for all Americans who work for a living while still balancing the budget, both of which they failed to do with the most recent tax code.
If there really was any lost investment from this strategy, it should be made up for by more people having money in their pocket at the end of the year to invest.
Am I missing something?

You might be thinking of what’s called “carried interest”, which is a loophole that hedge fund and private equity guys are able to take advantage of. It often gets tossed out as an opportunity by presidential candidates but nothing ever happens. I assume it’s because Wall Street donates a lot of money to candidates and a lot of the top hedgies and PE guys are democrats.

6 years ago 02/26/2019 11:21pm EST

re: Do your homework

Do your homework wrote:
Theoniongoat wrote:
I think the subject says it all. The democrats are interesting in taxing the rich more and the poor less. So why not have interest earnings subject to the same tax structure as if it were straight income?
Where is the downside? Are they afraid it will discourage investment? That seems unlikely, nobody who is currently living off the investment income from a few million or more is going to suddenly decide it isnt worth investing.
With the extra tax income from this change, they could just reduce the tax rates at every bracket slightly to balance it out so the expected total tax income for the country is the same. So Republicans get to claim a tax cut for all Americans who work for a living while still balancing the budget, both of which they failed to do with the most recent tax code.
If there really was any lost investment from this strategy, it should be made up for by more people having money in their pocket at the end of the year to invest.
Am I missing something?
You are missing the fact that interest income is, in fact, taxed as ordinary income.

This ^

Perfect response.

6 years ago 02/26/2019 11:48pm EST

re: Theoniongoat

Capital gains tax are taxed at a lowe rate since it’s income you’ve already earned. You take home x income after tax. Then you invest a portion of it. Doesn’t seem fair to a lot of people to tax it at the same rate you already paid the first time through.

6 years ago 02/27/2019 12:15am EST

re: Double dip

Double dip wrote:
Capital gains tax are taxed at a lowe rate since it’s income you’ve already earned. You take home x income after tax. Then you invest a portion of it. Doesn’t seem fair to a lot of people to tax it at the same rate you already paid the first time through.

No, you really haven’t already paid tax on it. Say you invest $100 in a stock....you pay for it with money you did indeed get taxed on at the full rate when you earned it at your job. However, if it appreciates in value to $120 and you sell it, you are taxed on the $20 gain only, and at the lower rate. This is the first and only time the $20 gain is taxed.

6 years ago 02/27/2019 12:16am EST

re: Double dip

First, the last time capital gains tax was lowered it generated more tax revenue which is why they did it. So one downside of raising the capital gains tax is you would raise less money as people move their money into other assets. Second, things like stock values are based on corporate profits and dividends which are already taxed so it's basically a double tax. There's no need to tax both which is why many civilized countries like the Netherlands don't, but if you try that here Democrats will say you're a wealthy shill for billionaire elite corporations bluh bluh bluh.

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