On 10/16/2012 11:07 PM, Jed Rothwell wrote:
Gates himself, along with many other self-made wealthy people,
including Buffet and me, are in favor of modest redistribution tax
policy. We think it is not fair that people like Buffet pay lower
taxes than a secretary or a bus driver. We are not socialists or
communists. We have a right to our opinions.
If you keep bringing up politics, then I have to keep challenging you on it.
'People like Buffet' pay lower income tax rates because their income is
generally based on capital gains. This is not the same kind of an income
as that of a bus driver, for these reasons:
1) A bus driver's income is consistent from year to year. A person who
lives on capital gains, does not have a stable income. Frequently, years
go by when he loses money.
2) Capital gains is not indexed for inflation. So, say there is a 7.2%
inflation rate. If a piece of capital is held for ten years, and if it
doubles in value over those ten years, then there is no increase in
wealth over the increase created from the inflation rate. Yet, if the
capital is sold, then it will incur a 15% tax rate on the difference in
value from the purchase price and the sale price. So, in effect, the
capital will be sold for the same price as that for which it was paid,
and yet the owner will still pay a 15% tax on the difference in price.
This is an effective loss, for which the owner is taxed.
The two forms of income cannot be compared, and yet people still want to
try. Sometimes, people will say that some of the wealthiest people pay
no taxes, but what they are referring to is the special case that occurs
when some people actually lose money over the course of a year. The US
government has never had a wealth tax, and if wealth is lost during a
year, then no tax is owed. The wealthiest Americans will frequently lose
wealth during bad years, and pay no income tax. This is correct and
expected.
Buffet does not pay lower taxes. Rather, his tax rate cannot be compared
to other forms of income in an honest fashion.
Craig
