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Capital Gains Taxes
Creators Syndicate ^ | October 2, 2012 | Thomas Sowell

Posted on 10/01/2012 10:08:44 AM PDT by jazusamo

One of the many false talking points of the Obama administration is that a rich man like Warren Buffett should not be paying a lower tax rate than his secretary. But anyone whose earnings come from capital gains usually pays a lower tax rate.

How are capital gains different from ordinary income?

Ordinary income is usually guaranteed. If you work a certain amount of time, you are legally entitled to the pay that you were offered when you took the job. Capital gains involve risk. They are not guaranteed. You can invest your money and lose it all. Moreover, the year when you receive capital gains may not be the same as the years when they were earned.

Suppose I spend ten years writing a book, making not one cent from it in all that time. Then, in the tenth year, when the book is finished, I may sell it to a publisher who pays me $100,000 in advance royalties.

Am I the same as someone who has a salary of $100,000 that year? Or am I earning $10,000 a year for ten years' work?

It so happens that the government will tax me the same as someone who earns $100,000 that year, because my decade of work on the book cannot be documented. But the point here is that it is really a capital gain, and it illustrates the difference between a capital gain and ordinary income.

Then there is the risk factor. There is no guarantee to me that a publisher will actually accept the book that I have worked on for ten years — and there is no guarantee to the publisher that the public will buy enough copies of the book to repay whatever I might be paid when the contract is signed.

(Excerpt) Read more at creators.com ...


TOPICS: Business/Economy; Editorial; Politics/Elections
KEYWORDS: capitalgains; obama; sowell; thomassowell

1 posted on 10/01/2012 10:08:47 AM PDT by jazusamo
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2 posted on 10/01/2012 10:12:32 AM PDT by jazusamo ("Intellect is not wisdom" -- Thomas Sowell)
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To: jazusamo

The leftist bastards know what they are doing.They take the public for stupid suckers who don’t know the difference between the taxation for capital gains and “ordinary” income.


3 posted on 10/01/2012 10:27:32 AM PDT by I want the USA back (What? democrats lie?)
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To: jazusamo
Business income is different from employees' income in another way. The profit that a business makes is first taxed as profit and the remainder is then taxed again as the incomes of people who receive dividends.

Let's not forget that the money I used to start a business has already been taxed once as wages, Now my corporation finally makes a profit and I have to pay corporate taxes, now I get dividend income on my investment and I have to pay taxes on in again, but at a reduced rate and they call me greedy?

The only greed is by the overpaid government workers and the able bodied who are to lazy to get off the couch.

4 posted on 10/01/2012 10:31:55 AM PDT by oldbrowser (An empty chair attracts a stadium full of empty chairs.)
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To: jazusamo; ding_dong_daddy_from_dumas; DoughtyOne; Gilbo_3; Impy; stephenjohnbanker; NFHale

This is a very good analysis by Sowell on income versus Captital gains, as he usually does, But this right now is a political battle in a very charged political year.

In such a political context of proposing domestic spending cuts the Dems argument is :”They are asking you to sacrifice while they profit” going right for negative human emotions.

This is a battle that Romney is not well suited for, to win, by nature of who he is. For example Cain was more naturally suited for it by who he is, self made black businessman.


5 posted on 10/01/2012 10:38:40 AM PDT by sickoflibs (Romney is still a liberal. Just watch him. (Obama-ney Care ))
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To: oldbrowser
Agreed...Then the politicians need more money to squander and the first place they look to are businesses, Democrats are atrocious for this but some Republicans are just as bad.
6 posted on 10/01/2012 10:39:08 AM PDT by jazusamo ("Intellect is not wisdom" -- Thomas Sowell)
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To: jazusamo
It's a decent article, but makes the issue too complicated.

Special treatment for long-term capital gains is warranted for at least these two reasons:


7 posted on 10/01/2012 10:41:11 AM PDT by justlurking (The only remedy for a bad guy with a gun is a good WOMAN (Sgt. Kimberly Munley) with a gun)
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To: I want the USA back; jazusamo

Well yes the Leftist bastards DO know what they are doing as they created a citizenry of stupid suckers over the years with their shenanigans. A dumbed down America, because they took over of the educational system, and the media, etc. of which we all discuss often.

Our Nation is in the pickle it is in because of years of subtle Leftist design. Today they are subtle no more.

(Maybe that should be “sneaky” Leftist design?)


8 posted on 10/01/2012 10:42:18 AM PDT by rockinqsranch (Dems, Libs, Socialists, call 'em what you will, they ALL have fairies livin' in their trees.)
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Please bump the Freepathon or click above and donate or become a monthly donor!

9 posted on 10/01/2012 10:42:49 AM PDT by jazusamo ("Intellect is not wisdom" -- Thomas Sowell)
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To: jazusamo

Dr. Sowell is fighting dirty again by using facts and logic on libtards. < / sarcasm >


10 posted on 10/01/2012 10:43:31 AM PDT by Vigilanteman (Obama: Fake black man. Fake Messiah. Fake American. How many fakes can you fit in one Zer0?)
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To: I want the USA back; jazusamo

>> The leftist bastards know what they are doing.They take the public for stupid suckers who dont know the difference between the taxation for capital gains and ordinary income.

Damn straight. Sadly, I never see it explained from anyone on the Right when in the public square.


11 posted on 10/01/2012 10:49:54 AM PDT by Gene Eric (Demoralization is a weapon of the enemy. Don't get it, don't spread it!)
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To: jazusamo
This covers a reason why the capital gains taxes exist at a lower rate due to risk.

I would also expand the discussion with respect to Buffet. First an understanding of the different tax treatments for a couple of the various types of businesses:

A sole proprietor will pay taxes based on his net profit ie:
he will subtract his expenses from his gross receipts and pay the payroll taxes (pays both the employer and employee amount)on the net amount as well as the individual income tax on the net amount.

Any money left is available to spend, save, or invest.

If that same person had chosen to set up his business as a Subchapter C Corporation, He would pay the payroll taxes, and corporate income taxes at the corporate rate which is higher than rates paid by most individuals.

In addition, the distributions he takes as dividends are taxed at an additional 15% (if long term capital gains).Hence the term double taxation.

So the person receiving dividends in lieu of salary actually pays more taxes than the individual proprietor, and would have less money available to spend.

Now, suppose that 4 individuals are the owners of the corporation. Instead of each person reporting their share of the corporate taxes, The corporation pays at the corporate rate, and dividends distribution is taxed individually at 15% on their individual returns.

When a C corporation is public, and sold on one of the stock exchanges, people lose sight of the fact that their share of the corporate tax has been paid already. The corporate rate keeps changing, but I think the top rate is currently 35%.

Back to Buffet, I researched his specific case when he made that outrageous claim, and listened several times to one of his interviews with Tom Brokaw.

First of all, he asserts that his secretary pays the full 15% of payroll taxes(employer and employee portions). Hence, he inflated her % of taxes.

His reasoning(liberal often argue this) is that employers would pay the employees 7.5% more if not for payroll taxes highly unlikely in my opinion, and questionable proposition at best.

Second, he is famous for limiting his yearly salary to $100,000 which means he pays a rather modest amount in regular income taxes comparatively speaking.

His corporation based on the most recent year I could find was taxed at 30%. The dividends he was paid-taxed at 15% would be at least 45% tax rate with out considering his income tax.

Third, the so called Buffet rule which applies to INCOME TAX would raise the tax on MILLIONAIRES and BILLIONAIRES defined variously as above $200,000 or $250,000 etc. Hence it would not change his % of taxes compared to his secretary at all.

It's all LIES LIES and more LIES. People living off their investment income are really paying around 45% or more not a mere 15%.

12 posted on 10/01/2012 11:08:13 AM PDT by greeneyes (Moderation in defense of your country is NO virtue. Let Freedom Ring.)
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To: sickoflibs
This is a battle that Romney is not well suited for, to win, by nature of who he is. For example Cain was more naturally suited for it by who he is, self made black businessman.

too bad 95% of the black population will only see Dr Sowell as an uncle tom sellout, and not realize that their freebies cant last forever...

13 posted on 10/01/2012 11:11:22 AM PDT by Gilbo_3 (Gov is not reason; not eloquent; its force.Like fire,a dangerous servant & master. George Washington)
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To: greeneyes
First of all, he asserts that his secretary pays the full 15% of payroll taxes(employer and employee portions). Hence, he inflated her % of taxes.

The employee's taxes do, in fact, include the employer's contribution. The way to look at it is that the employer is paying a given sum of money for a given sum of work from the employee. If that is mandated to be broken into wages, taxes and benefits or whether it is all given as a lump sum makes no difference to the employer. Their cost for the work is the same.

During the last three years, we have had to lay people off and have eliminated employer provided insurance. We have two of our people who have come back on a contract basis. Since that makes them responsible for all the taxes, we are having to pay them a higher rate (but lower total employee cost since we do not pay for benefits) than we did when they were employees for them to get the same net pay.

14 posted on 10/01/2012 11:33:47 AM PDT by r-q-tek86 ("It doesn't matter how smart you are if you don't stop and think" - Dr. Sowell)
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To: jazusamo

Warren Buffet never explains that corporate taxes are directly related to the market value of his stocks.

If we suddenly passed a law that ended ALL corporate taxation, the price of Buffet’s stocks would EXPLODE to the upside.

In reality, the 15% capital gains tax is simply the “LAST” tax that Buffet currently pays.

In reality, his stock has already “paid” billions of dollars in corporate taxes before that money ever gets to his front door.


15 posted on 10/01/2012 12:10:49 PM PDT by zeestephen
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To: r-q-tek86

Well, you can look at it however you wish. I worked in the controller’s department for a large publicly traded corporation.

My paycheck never showed any 15% deduction for payroll taxes. The corporation had the liability to pay. If they didn’t pay, they would be in violation of the law-not me.

Payroll tax is just another type of business expense that rolls into the cost of goods sold. It is necessary to price the products to cover all costs plus a margin.

It still does not change the fact that the employer is paying the expenses out of the business account, and the employee is not paying that particular expense out of their personal checking account, nor is it deducted from their payroll check.

Plus, that’s not the way it is looked at here with sole proprietors nor do the employees here typically look at it that way. They both look at it as the Employer paying a matching amount to the government.

Nor do contracted employees here, typically get more pay to make up for it.

It makes sense to combine all employees expenses in an operating budget for the purpose of pricing and operational trends/costs.

It does not make sense to look at it that way for the purpose of a taxation discussion, for the reasons explained above. The corporation carries the liability, not the employee.


16 posted on 10/01/2012 12:18:46 PM PDT by greeneyes (Moderation in defense of your country is NO virtue. Let Freedom Ring.)
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To: sickoflibs
This is a battle that Romney is not well suited for, to win, by nature of who he is. For example Cain was more naturally suited for it by who he is, self made black businessman.

Like a discussion I had with mu neighbors who put up a Romney sign. I told them I thought Obama is evil, but I had supported Cain, not Romney, in the primaries.

17 posted on 10/01/2012 12:43:02 PM PDT by ding_dong_daddy_from_dumas (Fool me once, shame on you -- twice, shame on me -- 100 times, it's U. S. immigration policy.)
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To: greeneyes
Payroll tax is just another type of business expense that rolls into the cost of goods sold. It is necessary to price the products to cover all costs plus a margin.
. . . only if the business hires the employee. An employer who only considered the paycheck he would cut for the employee when he hired you would find that hiring you was not nearly as profitable as he expected. I doubt that many employers are that naive. So if the employer has to pay a tax of 7.5% of your salary if he hires you, you are burdened with the need to add 7.5% more value in order to be worth keeping on the payroll.
In reality every tax affects everyone. If I hire someone to do a job, and that person has to pay income tax on what I pay him, what that means to me is that the money I have to offer doesn’t buy as much for the employee as it would without the tax. That’s his problem, but also mine, because my money isn’t worth as much as it otherwise would be.

18 posted on 10/02/2012 2:39:38 AM PDT by conservatism_IS_compassion (The idea around which “liberalism" coheres is that NOTHING actually matters except PR.)
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To: jazusamo

An oldie but a goodie. Cartoon from 1948 “Make Mine Freedom”. Talks about capitalism, and investments.

http://www.youtube.com/watch?v=je1-2gxioS8


19 posted on 10/02/2012 2:54:32 AM PDT by 21twelve (So I [God] gave them over to their stubborn hearts to follow their own devices. Psalm 81:12)
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To: conservatism_IS_compassion

Agreed, but that’s irrelevant to the issue we were discussing-Buffet’s lie about his secretary, where he stated that she pays 15% payroll tax thereby including the employer’s portion as part of her tax in order to make his ridiculous claim.


20 posted on 10/02/2012 8:13:50 AM PDT by greeneyes (Moderation in defense of your country is NO virtue. Let Freedom Ring.)
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To: 21twelve
That is a good one. Saw it a couple or so years ago here on FR after someone posted the link. I'm old enough to have seen that when it was released but don't remember seeing it then, guess I'd have to have a really long memory for that. :-)
21 posted on 10/02/2012 9:52:33 AM PDT by jazusamo ("Intellect is not wisdom" -- Thomas Sowell)
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To: sickoflibs

“This is a battle that Romney is not well suited for, to win, by nature of who he is.”

If Romney was good at debating, this would be easy.


22 posted on 10/02/2012 1:50:05 PM PDT by stephenjohnbanker (God, family, country, mom, apple pie, the girl next door and a Ford F250 to pull my boat.)
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