I am writing this partly as a response to a post by
Eschaton from earlier this week.One of the problems with the semantics of Class Warfare is the curious fact that it is mainly used to cow others(ie, dems) by the ones who are waging it. (Freud had a name for the neurotic trait of accusing others of possessing the fault that you in fact have, but I can't remember what it was. Projection, I think. Anyway, I digress.) For my part, I would like to see all dividend and capital gains taxed as straight income for distributions taken, say, in under 2 years from date of purchase, with a sliding scale reducing by 10 per cent a year the tax on long term investments. (90% of your tax rate on capital gains/dividends taken in more than 2 years but less than 3 years, 80 per cent for capital gains/dividends held for more than 3 but less than 4 years, up to 50 per cent. In other words, keeping the tax on dividends, the same as regular income unless they're reinvested. Applied to options as well, this sort of thing could also be touted as a way to make varmint CEOs (somewhat) more accountable.
1.distribution taken in less 2 years: 100%
2." "more than 2 years- less than 3 years- 90%
3."""" more than 3 years--less than 4 years-80%
4."" "" more than 4 years--less than 5 years-70%
5."" "" more than 5years--less than 6 years-60%
6."" "" more than 6 years---> 50%
Such a scheme might seem radical, given that it essentially does away with our current way of figuring capital gains taxes, but it would do two useful things: 1. Reward "buy-and-hold", low-turnover, long-term investment stategies, and
2. Address the inflation penalty built into the capital gains tax on equities sold being held for many years.
The latter, under the guise of "inflation-indexing" of capital gains, has been a preoccupation of the right for some years now. Finding some mechanism to at least partially address this should be a legitimate area of concern for the democrats, who have an unfortunate habit of dealing with tax policy republican issues by avoiding them, like the passivity the dems have shown in addressing the shoring up of social security, counting on the current miserable performance of the stock market to save them from the burden of aggresively refuting social security privatization, as if the issue has magically gone away for good. Now democrats have an opportunity to
refute another, more spurious preoccupation of the right, the "double-taxation" supposedly inherent in individuals having to pay taxes
on dividends, because the money was already taxed when General Electric or whoever paid their corporate income taxes.
My understanding is that self-employed small business owners who are incorporated may be taxed twice per se, but they represent a very small number of people who can legitimately say they are being taxed twice, as contrasted with the legions of well-heeled stock-holders who have been conditioned by years of self-righteous right-wing blather to fume at how they shouldn't have to pay taxes on their capital gains and dividends-- "taxed twice" is a canard for this group, who are in the majority. It would behoove the democrats to draw this distinction, and not be so fearful that they will be accused of waging class warfare if they do. Besides, for those afore mentioned self-employed and incorporated folks, you mustn't forget that when they pay corporate taxes they can deduct their salaries as business expenses. And although they generally can't deduct 100% against the tax, there are numerous other deductions that they can take, like depreciation of assets, which they otherwise wouldn't be able to take as mere employees for hire. Also, if you are your own boss you have a vested interest in keeping your "employee's" tax burden low you can "pay" yourself an absurdly low salary for tax purposes, especially if the corporate side of your ledger says that you won't get much of a deduction for the grand salary You Know You Deserve. The president is touting abolishing the dividend tax as a boon for seniors, even though the majority of dividend collecting seniors who are currently paying taxes on their divdends are earning over $70,000/year in retirement. Or to put it another way--this particular tax gimmie, which accounts for around 300 billion of Bush's stimulus package won't help the old people who perrenially make the mortality statistics when found frozen in their apartments one whit, although it might increase the strain on social services from which they might benefit, at least through one more republican winter.