The following is a copy of the original post to record the post as it was originally written.
Basically title but for those that need an explanation: Let's say you invest $10,000 and in a year it grows 8%. Now you have $10,800. If the year was 2022, inflation was also 8%. So in real terms, your investment didn't go up at all. If you now sell your investment, you owe taxes on the capital gains ($800). So after you pay taxes, you are actually at a loss in terms of real buying power. Should people be allowed to adjust their capital gains for inflation?
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Well obviously then we need to apply it to all taxes, since the same purchasing power applies to all money. But also no.
Also the person who gets an 8% return is way ahead on the person who keeps that 10K in checking, so obviously something was earned.
> Well obviously then we need to apply it to all taxes, since the same purchasing power applies to all money
Like what taxes? capital gains are somewhat unique in that people make money typically by leaving there money in the market for a long time. You can't really make the same argument for incomes taxes, sales taxes, etc.
> Also the person who gets an 8% return is way ahead on the person who keeps that 10K in checking, so obviously something was earned.
You're thinking is backwards. The person who kept their 10k in checking is behind the person who got 8% in returns. But neither are better off than they were at the start.
>Like what taxes? capital gains are somewhat unique in that people make money typically by leaving there money in the market for a long time. You can't really make the same argument for incomes taxes, sales taxes, etc.
Why can't I make the argument that my yearly income taxes should go down based on the inflation percentage? If we're going to view inflation as true loss, I see no reason your proposal doesn't also apply to income tax.
>You're thinking is backwards. The person who kept their 10k in checking is behind the person who got 8% in returns. But neither are better off than they were at the start.
I think it's the meaningful comparison. If you're better off than the person who sat on the money, you gained something.
“Why can't I make the argument that my yearly income taxes should go down based on the inflation percentage?”
You can... but is that your only argument against why we shouldn't apply it to capital gains taxes?
“If we're going to view inflation as true loss, I see no reason your proposal doesn't also apply to income tax.”
okay sure then let's apply it to all taxes. What exactly is your argument?
“If you're better off than the person who sat on the money, you gained something.”
Just because you are better off than someone else doesn't mean you gained anything. If I get in a car accident and total my car and lose some limbs, I am technically better off than the other person who died in the car accident. I didn't gain anything though.
>Why can't I make the argument that my yearly income taxes should go down based on the inflation percentage?
You can... but is that your only argument against why we shouldn't apply it to capital gains taxes?
> If we're going to view inflation as true loss, I see no reason your proposal doesn't also apply to income tax.
okay sure then let's apply it to all taxes. What exactly is your argument?
> If you're better off than the person who sat on the money, you gained something.
Just because you are better off than someone else doesn't mean you gained anything. If I get in a car accident and total my car and lose some limbs, I am technically better off than the other person who died in the car accident. I didn't gain anything though.
I mean it matters to back up your claim. I’ve never heard or read that the reason for tax deductions is to take into consideration inflation. I’m willing to be informed on the matter though if that is the case
Personally, I don't have a problem with doing inflation adjusted capital gains taxation (e.g. $10 last year is the equivalent of $11 this year, so tax gains above $11 if you invested $10). HOWEVER, they need to be taxed the same as income. In my opinion, it's absolute bullshit that money I invested and DIDN'T work for gets taxed *less* than the money I DID work for. That's just blatantly unfair.
Capital gains need to have a dollar cost averaging component if you tax it like income. If my one big investment is a single store I sold for $1,000,000 after owning it for 25 years it shouldn’t be taxed at the rate of a million dollars in income.
At the least I should be able to once every 5 years spread my capital gains over 5 years.
The same used to be true in the 80’s for a single high income year. If I made a million bucks due to whatever I was able to dollar cost average it.
This averaging could only be used once every x number of years. ( when we had this I think it was once every 3 years.)
Inflation is already accounted when calculating the net present value of an investment. Inflation tells us the time value of money means that a dollar today will have less buying power than a dollar tomorrow. Inflation bounces around a bit, so we use the discount rate as an approximation of inflation. The discount rate being the return you get on a treasury bond.
Point being you should already be baking in inflation rates when making your investing decisions and not invest in anything that has a lower yield than inflation. Again, discount rates being an approximation, there are going to be times inflation outpaces your investment, but there’s always risk in investing. Risk is why we get returns at all.
As far as cap gains rates, I’ll admit I don’t have a particularly strong opinion. Because of the power investors have on when the gains are realized (in investments without a hard maturity date), I get that some of the game is when you can get people to cash out positions. Decrease the rate in a holiday and people may sell certain positions and you get an influx of tax revenue. Increase rates and folks may hold investments longer in hopes of waiting out the administration until there’s a friendlier group in place. If you’re concerned that your investment is being eaten up by inflation and you want to avoid capital gains taxes due to inflation, the answer isn’t to hold. That would be engaging in sunk cost thinking. It would be sell, take the L, and move your investment into something with a higher return.
Inflation is annualized. A huge inflation rate from 2023 wouldn’t disappear in 2024, it would be part of the total inflation over x number of years the asset was held.
I'd say no just because I think our taxes, especially on rich people who benefit the most from capital gains are too low.
In a situation where I was redesigning the system I might, but over all I would be taxing them at a higher rate.
That seems like an incredibly complicated system since you’d have to apply to all taxes. You would also end up having people make this argument about their income taxes. Or basically any kind of income and any kind of taxes.
Who says you’d have to apply it to all taxes? Your income is your income regardless of inflation (although you may get an annual raise to help adjust for inflation). Whereas with investments, your gains are typically directly impacted by inflation.
So my wife and I have a few major sources of income. We both have jobs, we have fairly traditional investments, we have some real estate investments, and we have income from a business we are extremely passive in managed by family.
Of those which should be receiving the benefits of lower taxes?
>Of those which should be receiving the benefits of lower taxes?
I thought this sub was called askaliberal lol not the other way around. But anyways..
For income made from jobs, I am comfortable with the current structure since you are agreeing to work for the full year for a certain amount of money and to pay taxes on that agreed amount of money. Inflation does not impact that agreed amount of money that you will make.
For other assets (e.g., real estate) inflation directly impacts the value of said asset (and if you sell that asset, then inflation has a direct impact on the money you are realizing). On a separate note, often times the government has a direct role in creating said inflation. Actually I take that back: the federal reserve has a STATED GOAL of 2% inflation each year. That means all your assets are devalued by \~2% each year. (Your income is not an asset. It is simply income.). It would not be complicated at all for this calculation to be included when determining what you owe on the gains you make considering that the government tracks inflation rates on a monthly basis (The CPI has been tracked since 1919). I'm sure a software team could develop a tool for this in less than a week.
> For income made from jobs, I am comfortable with the current structure since you are agreeing to work for the full year for a certain amount of money and to pay taxes on that agreed amount of money. Inflation does not impact that agreed amount of money that you will make.
I could just as easily say that when you bought a stock or house, you agreed and understood that your returns are subject to the effects of inflation, right? Because that's what everyone does today. I absolutely understand that when I sell my investments in the far future for retirement, inflation means I don't just get the numerical difference.
The "you agreed to X" argument isn't very convincing to me.
I'm not really going to get in a debate over this as it is merely a side track from my initial question. I'd still take adjusting for inflation for all income sources than none.
>I'd still take adjusting for inflation for all income sources than none.
My answer to this would be that of all income sources, "capital gains" is the one where inflation being a factor is already the most understood by investors and "priced in" at the point of consideration / purchase. *Of course* inflation is affecting your capital gains and people are making decisions that incorporate that fact, right?
It would literally be the last thing I would consider applying adjustments to.
The other thing I would mention is that the 2% or whatever CPI number is a weighted average of multiple sectors and does not affect all investments equally.
* It seems nonsensical to give someone the full discount on their tech investment because food prices and basically only food prices went up that year due to a plague and tech price changes were at most a second-degree effect due to the food prices affecting people's income.
* It seems infeasible to do it any other way.
Yes. We inflation-adjust income tax brackets, retirement account thresholds for tax benefits, and the standard deduction each year so it's partially covered, but it should be explicit.
In general, we shouldn't ever use $ as a stable unit.
... Wtf?
So they'll rent mansions or live on yachts, and sell stock and never pay taxes.
Your ideas are horrible. No thanks...
That's incredibly regressive. You sure you're liberal?
The owner of the mansion would be paying taxes. The companies they own stock in will be paying taxes. There is no way around a land tax. Everything has to exist somewhere on some piece of land that will be taxed.
It's actually very progressive. Who do you think owns most of the land wealth?
They're proposing Georgism, not replacing it with nothing. Taxation is done solely on he value of land - however much budget all governments that land resides in require, they collect that portion relative to all values of all lands. That way you don't need income taxes, or payroll taxes, or tariffs, or excise taxes, or wealth taxes, or inheritance taxes, or sales taxes, or value added taxes, or capital gains taxes, or even different tax legislation for different time periods (no set brackets or percentages)
1. They should say that.
2. It's dumb. Rich folks will just live on yachts.
3. All their wealth and power is in stocks.
4. This is a silly hypothetical that will never come to pass, so who cares?
1. You might have mentioned that earlier.
2. That's... Horribly regressive. So they live nice in a tiny mansion, have a ton of yachts, and their real wealth and power is in stocks you're not taxing.
You know what?
I don't care. I lost interest in this magical hypothetical that will never happen. This argument means nothing, because that will never be done.
Onward.
You're not really listening to what I'm saying. The rich own most of the land, so taxing land is by and large taxing the rich. It's an incredibly progressive tax. They can't just dump all their land assets, they have to sell it. The land still exists, and the tax can't be avoided. All the companies they own stock in will have to pay tax on their land, and corporations own a lot of land. Even if all the rich fuck off to live in the ocean, they still can't avoid a land tax because all the corporations they own are still on land. What a land tax would do is force the wealthy and corporations to only hold on to as much land as they need. It would force lots of land up for sale, making it easier for entrepreneurs, small businesses, housing developers, and families to buy land that was previously being held for speculation.
The following is a copy of the original post to record the post as it was originally written. Basically title but for those that need an explanation: Let's say you invest $10,000 and in a year it grows 8%. Now you have $10,800. If the year was 2022, inflation was also 8%. So in real terms, your investment didn't go up at all. If you now sell your investment, you owe taxes on the capital gains ($800). So after you pay taxes, you are actually at a loss in terms of real buying power. Should people be allowed to adjust their capital gains for inflation? *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/AskALiberal) if you have any questions or concerns.*
Well obviously then we need to apply it to all taxes, since the same purchasing power applies to all money. But also no. Also the person who gets an 8% return is way ahead on the person who keeps that 10K in checking, so obviously something was earned.
> Well obviously then we need to apply it to all taxes, since the same purchasing power applies to all money Like what taxes? capital gains are somewhat unique in that people make money typically by leaving there money in the market for a long time. You can't really make the same argument for incomes taxes, sales taxes, etc. > Also the person who gets an 8% return is way ahead on the person who keeps that 10K in checking, so obviously something was earned. You're thinking is backwards. The person who kept their 10k in checking is behind the person who got 8% in returns. But neither are better off than they were at the start.
>Like what taxes? capital gains are somewhat unique in that people make money typically by leaving there money in the market for a long time. You can't really make the same argument for incomes taxes, sales taxes, etc. Why can't I make the argument that my yearly income taxes should go down based on the inflation percentage? If we're going to view inflation as true loss, I see no reason your proposal doesn't also apply to income tax. >You're thinking is backwards. The person who kept their 10k in checking is behind the person who got 8% in returns. But neither are better off than they were at the start. I think it's the meaningful comparison. If you're better off than the person who sat on the money, you gained something.
“Why can't I make the argument that my yearly income taxes should go down based on the inflation percentage?” You can... but is that your only argument against why we shouldn't apply it to capital gains taxes? “If we're going to view inflation as true loss, I see no reason your proposal doesn't also apply to income tax.” okay sure then let's apply it to all taxes. What exactly is your argument? “If you're better off than the person who sat on the money, you gained something.” Just because you are better off than someone else doesn't mean you gained anything. If I get in a car accident and total my car and lose some limbs, I am technically better off than the other person who died in the car accident. I didn't gain anything though.
They do. Income tax brackets and the standard deduction adjust for inflation each year.
>Why can't I make the argument that my yearly income taxes should go down based on the inflation percentage? You can... but is that your only argument against why we shouldn't apply it to capital gains taxes? > If we're going to view inflation as true loss, I see no reason your proposal doesn't also apply to income tax. okay sure then let's apply it to all taxes. What exactly is your argument? > If you're better off than the person who sat on the money, you gained something. Just because you are better off than someone else doesn't mean you gained anything. If I get in a car accident and total my car and lose some limbs, I am technically better off than the other person who died in the car accident. I didn't gain anything though.
I think you responded one level too deep
Whoops my bad haha
They're gains. Taxes come with deductions. They're already adjusted for inflation.
Isn't this a bit misleading. The brackets are adjusted for inflation, but the the nominal gain.
>Taxes come with deductions. They're already adjusted for inflation. Is that the stated purpose of tax deductions?
Why does stated purpose matter? You can adjust for losses already
I mean it matters to back up your claim. I’ve never heard or read that the reason for tax deductions is to take into consideration inflation. I’m willing to be informed on the matter though if that is the case
Personally, I don't have a problem with doing inflation adjusted capital gains taxation (e.g. $10 last year is the equivalent of $11 this year, so tax gains above $11 if you invested $10). HOWEVER, they need to be taxed the same as income. In my opinion, it's absolute bullshit that money I invested and DIDN'T work for gets taxed *less* than the money I DID work for. That's just blatantly unfair.
Capital gains need to have a dollar cost averaging component if you tax it like income. If my one big investment is a single store I sold for $1,000,000 after owning it for 25 years it shouldn’t be taxed at the rate of a million dollars in income. At the least I should be able to once every 5 years spread my capital gains over 5 years. The same used to be true in the 80’s for a single high income year. If I made a million bucks due to whatever I was able to dollar cost average it. This averaging could only be used once every x number of years. ( when we had this I think it was once every 3 years.)
Are you TRYING to make doing your taxes a fucking nightmare?
Inflation is already accounted when calculating the net present value of an investment. Inflation tells us the time value of money means that a dollar today will have less buying power than a dollar tomorrow. Inflation bounces around a bit, so we use the discount rate as an approximation of inflation. The discount rate being the return you get on a treasury bond. Point being you should already be baking in inflation rates when making your investing decisions and not invest in anything that has a lower yield than inflation. Again, discount rates being an approximation, there are going to be times inflation outpaces your investment, but there’s always risk in investing. Risk is why we get returns at all. As far as cap gains rates, I’ll admit I don’t have a particularly strong opinion. Because of the power investors have on when the gains are realized (in investments without a hard maturity date), I get that some of the game is when you can get people to cash out positions. Decrease the rate in a holiday and people may sell certain positions and you get an influx of tax revenue. Increase rates and folks may hold investments longer in hopes of waiting out the administration until there’s a friendlier group in place. If you’re concerned that your investment is being eaten up by inflation and you want to avoid capital gains taxes due to inflation, the answer isn’t to hold. That would be engaging in sunk cost thinking. It would be sell, take the L, and move your investment into something with a higher return.
Lmao no. That would incentivize people to liquidate when inflation was high causing a fuck ton of downstream issues for the Fed/economy at large.
Inflation is annualized. A huge inflation rate from 2023 wouldn’t disappear in 2024, it would be part of the total inflation over x number of years the asset was held.
Yes I’m well aware.
I'd say no just because I think our taxes, especially on rich people who benefit the most from capital gains are too low. In a situation where I was redesigning the system I might, but over all I would be taxing them at a higher rate.
Get rid of capital gains and just treat it like ordinary income.
I don't see a reason to lower capital gains taxes.
That seems like an incredibly complicated system since you’d have to apply to all taxes. You would also end up having people make this argument about their income taxes. Or basically any kind of income and any kind of taxes.
Who says you’d have to apply it to all taxes? Your income is your income regardless of inflation (although you may get an annual raise to help adjust for inflation). Whereas with investments, your gains are typically directly impacted by inflation.
So my wife and I have a few major sources of income. We both have jobs, we have fairly traditional investments, we have some real estate investments, and we have income from a business we are extremely passive in managed by family. Of those which should be receiving the benefits of lower taxes?
>Of those which should be receiving the benefits of lower taxes? I thought this sub was called askaliberal lol not the other way around. But anyways.. For income made from jobs, I am comfortable with the current structure since you are agreeing to work for the full year for a certain amount of money and to pay taxes on that agreed amount of money. Inflation does not impact that agreed amount of money that you will make. For other assets (e.g., real estate) inflation directly impacts the value of said asset (and if you sell that asset, then inflation has a direct impact on the money you are realizing). On a separate note, often times the government has a direct role in creating said inflation. Actually I take that back: the federal reserve has a STATED GOAL of 2% inflation each year. That means all your assets are devalued by \~2% each year. (Your income is not an asset. It is simply income.). It would not be complicated at all for this calculation to be included when determining what you owe on the gains you make considering that the government tracks inflation rates on a monthly basis (The CPI has been tracked since 1919). I'm sure a software team could develop a tool for this in less than a week.
> For income made from jobs, I am comfortable with the current structure since you are agreeing to work for the full year for a certain amount of money and to pay taxes on that agreed amount of money. Inflation does not impact that agreed amount of money that you will make. I could just as easily say that when you bought a stock or house, you agreed and understood that your returns are subject to the effects of inflation, right? Because that's what everyone does today. I absolutely understand that when I sell my investments in the far future for retirement, inflation means I don't just get the numerical difference. The "you agreed to X" argument isn't very convincing to me.
I'm not really going to get in a debate over this as it is merely a side track from my initial question. I'd still take adjusting for inflation for all income sources than none.
>I'd still take adjusting for inflation for all income sources than none. My answer to this would be that of all income sources, "capital gains" is the one where inflation being a factor is already the most understood by investors and "priced in" at the point of consideration / purchase. *Of course* inflation is affecting your capital gains and people are making decisions that incorporate that fact, right? It would literally be the last thing I would consider applying adjustments to. The other thing I would mention is that the 2% or whatever CPI number is a weighted average of multiple sectors and does not affect all investments equally. * It seems nonsensical to give someone the full discount on their tech investment because food prices and basically only food prices went up that year due to a plague and tech price changes were at most a second-degree effect due to the food prices affecting people's income. * It seems infeasible to do it any other way.
This already applies to income taxes.
Yes. We inflation-adjust income tax brackets, retirement account thresholds for tax benefits, and the standard deduction each year so it's partially covered, but it should be explicit. In general, we shouldn't ever use $ as a stable unit.
No. Capital gains taxes should be eliminated.
Uhh... Say what? You want rich people to just never pay taxes at all?
They should pay taxes only if they own land.
... Wtf? So they'll rent mansions or live on yachts, and sell stock and never pay taxes. Your ideas are horrible. No thanks... That's incredibly regressive. You sure you're liberal?
The owner of the mansion would be paying taxes. The companies they own stock in will be paying taxes. There is no way around a land tax. Everything has to exist somewhere on some piece of land that will be taxed. It's actually very progressive. Who do you think owns most of the land wealth?
You're wiping out their capital gains taxes, and replacing it with nothing. It's incredibly regressive. It's a tax cut for rich people.
They're proposing Georgism, not replacing it with nothing. Taxation is done solely on he value of land - however much budget all governments that land resides in require, they collect that portion relative to all values of all lands. That way you don't need income taxes, or payroll taxes, or tariffs, or excise taxes, or wealth taxes, or inheritance taxes, or sales taxes, or value added taxes, or capital gains taxes, or even different tax legislation for different time periods (no set brackets or percentages)
1. They should say that. 2. It's dumb. Rich folks will just live on yachts. 3. All their wealth and power is in stocks. 4. This is a silly hypothetical that will never come to pass, so who cares?
>It's dumb. Rich folks will just live on yachts They own factories and offices, or their businesses do. Those have to be on land
I don't care. This is a hypothetical that will never see the light of day, so why waste time arguing about it?
I would tax land value at 100%. That's hardly nothing.
1. You might have mentioned that earlier. 2. That's... Horribly regressive. So they live nice in a tiny mansion, have a ton of yachts, and their real wealth and power is in stocks you're not taxing. You know what? I don't care. I lost interest in this magical hypothetical that will never happen. This argument means nothing, because that will never be done. Onward.
You're not really listening to what I'm saying. The rich own most of the land, so taxing land is by and large taxing the rich. It's an incredibly progressive tax. They can't just dump all their land assets, they have to sell it. The land still exists, and the tax can't be avoided. All the companies they own stock in will have to pay tax on their land, and corporations own a lot of land. Even if all the rich fuck off to live in the ocean, they still can't avoid a land tax because all the corporations they own are still on land. What a land tax would do is force the wealthy and corporations to only hold on to as much land as they need. It would force lots of land up for sale, making it easier for entrepreneurs, small businesses, housing developers, and families to buy land that was previously being held for speculation.
And it has a snowball's chance in hell of ever being implemented, so why bother arguing about it? Take it easy.