Yes, for those who live on unearned income, these are flush times. Thank you, George Bush and the Republican Party.
Cash Flow in '04 Found Its Way Into Dividends
By FLOYD NORRIS…
"A sinister cabal of superior writers."
Aren't you glad most of your income comes from investments? - Comments Page 2
Article comments
26 - P6
Then it should be taxed at the same rate as other earned income, right?
27 - Mike Kole
I'm going back to the original post on this. I want to see a defense of the assertion that dividend income is unearned.
The mentality that the only kind of work that is respectable is the kind that requires you to throw your back into the job is about as backward as it gets. Why is brain work such as wise investing so loathsome to so many?
28 - bhw
Maybe better terms are employment income vs. investment income?
I think the "unearned" part does probably come from the notion that the Kennedys and Bushes and Rockefellers aren't generating most of their income from their salaries. I doubt that someone like Ted Kennedy works as hard at managing his many investments as the average person does managing his/her relatively few investments. Kennedy pays someone to do it for him. He's not earning the income by even so much as using his brain.
I'm curious to know how long the term has been used in this context. It wasn't always true that the average man or woman invested in the stock market; for a loooong time, the stock market was a very exclusive "place." So the term "unearned income" has a class context for me.
29 - P6
Hey, Eric, watch this.
Okay.
In the United States Tax Code, they divide income into two broad categories. Income from wages, tips and such is called "earned income." Income from dividends, capital gains and such is called "unearned income."
That's why I call it "unearned income." Because that's it's official name from time immemorial.
I'm not making an assertion. I'm pointing out that unearned income is taxed at a lesser rate than earned income. The favorable tax treatment of dividends is mentioned in the quote from the NY Times and I spelled out what I was talking about in my first comment to make sure we knew what the topic is.
I'm saying, no matter what you call it, businesses get to keep more of each dollar they earn than a person supporting a family does.
And I've pointed out how people are going to keep reacting to that word "unearned." Publicly. And you will keep doing it.
30 - P6
bhw:
You are exactly right aboutthe class context. The highest mark of success, from feudal times until, oh, fifteen minutes ago, is you do nothing and have everything.
31 - JR
Al Barger: Objecting to government robbing you is "whining." Complaining about the government not taking enough of other people's money at gunpoint, however, is just trying to show civic concern.
Hey, has anybody here ever actually had a gun pointed at them?
32 - Shark
Al Barger: "...Objecting to government robbing you is "whining." Complaining about the government not taking enough of other people's money at gunpoint, however, is just trying to show civic concern..."
The Bad News: pinko socialist liberals will continue to take as much of your hard-earned and 'unearned' money as they possibly can.
The Good News: they're also going to try and outlaw guns -- so it won't be at gunpoint.
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"Eat the Rich!" -- Shark
33 - P6
Shark:
C'mon, man. They already see socialists in every shadow and around every corner. You really want to feed into that?
34 - Aaman
Don't mail me any more proxies, please.
Tell me, incorporated tease,
Why don't you save the stamps and send,
Once in a while, a dividend?"
-- Margaret Fishback
The best-performing stocks in Russell 3000 don't pay dividends.
Company Symbol YTD Return DivYield
Travelzoo TZOO 920% 0%
W.R. Grace GRA 424% 0%
Cheniere Energy LNG 356% 0%
Jupitermedia JUPM 338% 0%
Kmart Holding KMRT 330% 0%
Danielson Holding DHC 309% 0%
Taser Intl TASR 297% 0%
Hansen Natural HANS 294% 0%
PalmOne PLMO 279% 0%
Overstock.com OSTK 277% 0%
(Realmoney/Bloomberg)
Of course, most of these are pure volatility plays, not mom-and-pop or widow-friendly investments.
35 - P6
True. The income is capital gain, long or short term...also classified as unearned income and therefore taxed at a rate lower than a working person's salary.
36 - P6
Be clear, people. I'm not arguing one shouldn't invest, nor that there's no work involved in it.
I'm saying there's no real justification for taxing unearned income on a different schedule than earned income. You can list all the market statistics you like. You can talk about who owns what. But it's a fact.
Meanwhile, we've learned a few other things as well:
1- People think changing a thing's name changes it's nature. It doesn't.
2- People want to defend the special treatment their unearned income receives but can't find a way to just SAY it without sounding bad.
37 - Aaman
There are differences between taxation models between both forms of income all over the world. The reasons would fill a book, but hearken back to British parliamentary reform after the Domesday Book, Oliver Cromwell's reforms and then the Puritans carrying over distrust of 'unearned income' and landowners' privileges
In India, for example, another country that built it's business lawa upon British models, the duration for long term capital gains is 3 years. Long-term capital gains are taxed at a flat rate of 20 per cent for individuals and foreign companies, and 30 per cent for domestic companies. Short Term is taxed at normal interest rates (about 33.33 percent).
Dividend from shares and equity-based mutual funds is exempt in the hands of the recipient. Corporates are taxed for dividends. This avoids double taxation.
Also, in other 'nice' aspects of taxation in India, there is a high standard deduction, additional deduction for women, deduction for insurance premiums, government bond purchases, etc., thus encouraging basic saving and somewhat leveling the playing field between high net worth individuals and PLUs (People Like Us)
38 - Aaman
'Interest rates' in paragraph 2 above should be replaced with 'income tax rates'
39 - P6
Two books, in fact. I linked them to the post.
So what would be the reason that here, in the USofA, unearned income is taxed at a lower rate than earned income?
Can you justify it at all?
40 - Big Time Patriot
Here is a way of looking at what is "unearned income" and "earned income". If all taxes are cut from so-called "unearned income" then the sole support of the tax system will be on people who actually work and receive a salary or wages.
In a country that professes to want to reward hard work, how come we are working so hard to shift the tax burden directly onto hard workers. I am frankly mystified that America should be developing a tax system optimized for the gentry of old times England, where it was sometimes unfashionable for rich people to actually have jobs.
If a person is rich now, should they invest in a company and become its CEO and pay taxes on his own salary? Or should they invest in someone elses country and laze around the country club? If George Bush gets his way, the tax system will be set up to discourage actual work.
I don't think "earned" income is such a hard thing to figure out. If you perform services and labor you "earn" income. If you inherit wealth, you don't "earn" it. There are some grey areas about the savings income you recieve from money you earned through work, but other areas, such as the "free money for being born to rich parents" tax break now in place have no justification in promoting productivity in any way..
41 - Aaman
So what would be the reason that here, in the USofA, unearned income is taxed at a lower rate than earned income?Can you justify it at all?
Possible reasons, IANAE (I am not an economist):
Currently, in the US, dividends are taxed twice - once in the hands of the corporates and once in the hands of the recipients. Lowering the tax rate on dividends minimizes this double taxation
Also, from the University of Toledo,
There are many objections to the above model, of course, the most significant revolve around the 'elasticity' of changes in the tax rate and tax revenue collections.
The bigger question is the graduated or progressive taxation system - a single tax rate would make it simpler to levy the same rate on all kinds of income, dividend, earned, etc.
In practice the actual tax treatment of capital gains in industrial countries varies widely. Most countries tax capital gains much more lightly than the United States.
42 - P6
Marvelous theory Aaman. Now, in practice there's a far more powerful stimulus at work. I quote a source I'm sure you trust implicitly:
It's often said capitalism is the ideal economic system because ittakes advantage of human greed. And incorporation is the only way to become wealthy in this economy other than by accident (like gee, you lucked into the Amazon.com initial offering).
You need to understand humans are not point particles moving frictionlessly in Euclidean space. Wikipedia has a nice layman's introduction to Behavioral Economics that will give you an idea why the predictions of in your extensive quotation have never quite panned out.
43 - Dave Nalle
>>Then it should be taxed at the same rate as other earned income, right?<<
As I read my tax form there are two ways I make money from investments, dividends and any profit I make on the sale of stock which has increased in value. Dividends are already taxed at the same rate as other earned income. Profit from the increase in value of the stock is taxed at the Capital Gains rate which is indeed lower than my general tax rate. But those capital gains are after taxes already paid by the coroporation whose stock I sold, and in addition, if I take a loss I don't get to take full loss value on the stock beyond a limit of $3000, so I have a lot more at risk if I lose money on my investments. In addition, since I'm self-employed the stock in question was bought with money that I kept after paying the most rapacious of all taxes the self-employment tax, so I deserve any breaks I can get.
That being said, I'd still be willing to have my entire income taxed at the capital gains rate. That would be just fine with me.
Dave
44 - P6
Meanwhile, I still question the morality of letting something that isn't even human keep more of every dollar it earns than a hard-working (or even a stank, lazy-ass faking) person with everyday responsibilities can keep.
45 - Al Barger
Meanwhile, I still question the morality of presuming to take people's money at gunpoint. And make no mistakes, corporations are just a bunch of people.
Of course, the truly moral thing would be to do away with income taxes and repeal the 16th Amendment.
46 - P6
Here comes the Libertarian delusion.
47 - P6
Etc.
And the tax I pay on shoes is paid with money I paid taxes on already, and on up the line.
If you want single taxation, then those who create the wealth must pay enough taxes to support the society...and no one else would pay any taxes at all.
48 - P6
That's what I call the Libertarian delusion, by the way...that if you got your way you'd wind up paying ALL the taxes.
49 - Al Barger
You seem to be a little slow on the uptake of what Libertarians propose. It's that there would be far less taxes to be paid by anyone. We propose to eliminate the income tax, and replace it with NOTHING.
P6, you're arguing about who to screw how hard. I'm saying we shouldn't be screwing anybody.
50 - Steve S
We propose to eliminate the income tax, and replace it with NOTHING.
America is the most generous nation on the planet. If we scaled the gov. back so much, imagine if a tsunami hit us. Who would be there for us?
While I don't care for the 78% tax rate of European nations, at the same time, I take comfort in the fact that we as a nation have made our government capable of being the one to step in, during such times of crisis. Some point in the middle.
It's like insurance, we pay premiums with the hope of never having to use the money, but it's there when we need it. Should something as big as that tsunami hit, our insurance companies couldn't handle it all. Most could be wiped out themselves. I take comfort in knowing the scope of our government right now, and can only hope the rest of the country does too.
P6, you're arguing about who to screw how hard. I'm saying we shouldn't be screwing anybody.
one tsunami, one earthquake, one hurricane, one terrorist attack of nuclear proportions and we'd all be screwed.
51 - P6
I know.
No, I'm arguing about being fair since we must pay our bills and can't repudiate our international debt. You're saying we should do something that will leave us in no position to do anythng else for anyone, including ourselves, ever again.
No serious economist takes it seriously.
I don't take it seriously. It would only work is EVERYONE bought in, and given that capital-L Libertarians are a small enough fraction of the population to be written off as a statistical anomaly, that ain't gonna happen.
We're sitting on the a HUGE disaster in Asia, HUGH outpourings of good will from around the world...and mother fuckers get up in there and sell children.
Humans are an unstable mixture of great good and great evil. Your politics and "economics" requires everyone to be unalloyed good. It's proof capital-L Libertarians have NO understanding of human nature and the history and development of societies, no interest in participating in them, …or their bullshitting. In no case to I see any need to hear them out anymore.
52 - Shark
P6: "..C'mon, man. They already see socialists in every shadow and around every corner. You really want to feed into that?"
P6, despite the futility of your garrulous pissing in the wind, I do admire your efforts to illuminate right-wing blowhards with your 'golden shower' of words and essays.
I love you, maaaaan. (ditto, BigTimePatriot!)
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Just for the record, Shark (being anti-delusional) lives by the following rule when it comes to logic and debate:
"Philosophy is the question: from which side shall we look at life, God, the idea or other phenomena. Everything one looks at is false. I do not consider the relative result more important than the choice between cake and cherries after dinner. The system of quickly looking at the other side of a thing in order to impose your opinion indirectly is called dialectics, in other words, haggling over the spirit of french fries while dancing the method around it." --Tzara
=======
Oh, and did I mention: "Storm the Gated Communities & EAT THE RICH!"--?
53 - Maurice
First I want to say how fun this site is. Second I want to say to those that just discovered the term 'Unearned' - why don't you do your own taxes this year and learn a little about what your government thinks about you? Third I think it is important to have a balanced point of view. In this case the complaint is about the Unearned income tax rate. If we allow that this is a valid bitch then we must also be upset about its mirror image which is the 'Earned Income Credit'. The EIC is a tax break for the 'poor'. At the rish of boring everyone here is a quote:
A single filer's adjusted gross income must be less than $11,490 if he or she has no children; $30,338 with one child; and $34,458 with two or more kids.
Here is the website:http://www.bankrate.com/brm/itax/tips/20010130a.asp
This is worse than the Unearned tax rate because it gives people money they never earned.
Wealth redistribution is Socialism!
54 - Eric Olsen
thanks Maurice, from a "conservative" perspective, the EIC could be viewed as a really hardcore form of tax reduction
55 - P6
Why?
Frankly, the EIC is not a mirror image. It's a necessary component of the American economy...otherwise all the people (waitstaff, migrant workers, the upcoming visiting workers) that work at below surviavl rates to keep prices where you like them would starve to death.
56 - Maurice
"Frankly, the EIC is not a mirror image"
They are not a perfect mirror image. One is a tax break for the rich (over 30K) the other is a wealth redistribution scheme for the poor (less than 30K). Both manipulate the tax code for the benefit of a select group of society. Both are wrong. Which is more wrong depends on your point of view.
57 - Steve S
In regards to comment 53, about the mirror image of unearned income (and the link provided):
The link points out that to take advantage of the EIC is difficult and usually requires a tax accountant. I cannot imagine someone who lives below poverty affording a trip to H&R Block.
While it might give a 'refund' to someone who payed no taxes, just by reading the link, it's pretty obvious that it would be on a MUCH smaller scale than the 'unearned income' is, only a handful of people would even know how to use it.
for the benefit of a select group of society
This is another thread that is using key phrases like 'redistribution of wealth', 'socialism', etc. What is ultimately the key point in these debates is exactly how much help do we want the government to give the poor. I mean if someone earned 10k in one year and paid NO taxes but got a refund, how much could that refund be? Worth one trip to the grocery store? And we are bitching about a redistribution of wealth? Geez.
People on the conservative/libertarian side just need to come out and say it, 'we don't want to help just anybody who needs it, except only voluntarily (by private donation, no goverment). We should get to choose who we help and if that means millions will suffer and go hungry, so be it. That's the American Dream.'
58 - Maurice
"Frankly, the EIC is not a mirror image. It's a necessary component of the American economy"
This is wrong. It does not help the American economy. I am not saying that helping the poor is wrong. I am saying if you complain about tax code that benefits one group you have to acknowledge the tax breaks/benefits to another group. To sum it up, Welfare should take care of poor people not the tax code.
59 - P6
The only group I've complained about is corporations, because they are not human. Other than that, I'm saying unearn income is taxed at a different rate than earned income, which privileges it in the tax code. The privilege is unearned.
Go back, read what I'm saying.
60 - JR
Still waiting for gunpoint stories. I'm really disappointed; we've all paid taxes, right? So who's had a gun pulled on them? Do tell.
61 - Eric Olsen
I think Willie Nelson got roughed up a bit
62 - Big Time Patriot
I pay income tax on my income. Then if I buy something in Washington State I pay sales tax. So my income is being "double taxed". Why should dividend owners NOT get double taxed? Money gets taxed all around the economy, it's pretty much a question of semantics at what points the money gets double or triple taxed.
The biggest thing I have trouble with is the loss of the estate tax. Which American value are we saving by allowing wealth to accumulate over generations? It just seems more like a feudal value system. After all, this is America, if someone only inherits half of the 100 Million dollars their parents owned, surely they could pick up their shattered lives and create a new fortune with their money? (This reminds me of the story of how George Bush, Sr. became a millionaire in the Texas Oil Business, his parents started him out with an 800,000 dollar investment, that helps.)
Particularly this irks me because George Bush has such an obvious conflict of interest in his own situation. George is willing to bust the budget to make this inheritance tax break permanent that will pay HIMSELF a bundle when his folks die. But there is just not enough money available to fully fund home security, and college grants have to be cut. Now George Bush sure knows what HIS values are, doesn't he?
63 - bhw
While I think we should retain some form of an inheritance tax, I think that the current exemption should be raised even higher. Right now, only the first $1.5 million is tax exempt. Believe it or not, that's not that much money when you're talking about an entire estate that was "grown" over a lifetime: house, insurance policies, savings/investments, autos, and other typical assets. Middle class families -- not mine, mind you -- can accumulate that amount of value in their estates fairly easily without inheriting a dime, particularly if the parents die and their life insurance policies are cashed in. Why should a hard working family be taxed on money that was a) already taxed a few times and b) that was saved and invested expressly for the purpose of providing security for the family down the road and/or in case of a tragedy?
Right now, the inheritance tax hurts working families more than it hurts people like George Bush.
64 - Big Time Patriot
"Right now, the inheritance tax hurts working families more than it hurts people like George Bush."
I think that the rates on which inheritance are taxed might be ready to be adjusted, inflation affects all set rates after all. I would argue that if George Bush paid 25% taxes on a 50 million dollar inheritance (minus the first 1.5 million or so), that would add up to a lot more money than a 25% tax on a 1.75 million dollar house (probably not even as much as the value of a waterfront house in the Seattle area) after you take out the 1.5 million. I have read (sorry I can't find the reference right off) that the Republicans have a had a hard time actually finding a single family that had to sell their farm due to the inheritance tax. But anecdotes sure beat statistics any day. And the fact that George Bush, Jr. is pushing at the top of his domestic agenda some tax issues that will put money in his OWN pocket, and letting other things like Head Start and college grants slide, I think that says pretty loudly just what values George has.
If Bill Clinton had pushed such self serving policies, it would all be pretty obvious wouldn't it?
65 - bhw
would argue that if George Bush paid 25% taxes on a 50 million dollar inheritance (minus the first 1.5 million or so), that would add up to a lot more money than a 25% tax on a 1.75 million dollar house (probably not even as much as the value of a waterfront house in the Seattle area) after you take out the 1.5 million.
I think what you're saying is that George would pay more in total tax dollars than the family with the house. That's true. But since that family has less money to play with, it hurts them far more. George could live quite well on the $35 million he'd have left over in your scenario.
I don't disagree that Bush's priorities are mixed up. He's spending money at a breakneck pace while giving tax breaks that largely benefit more wealthy people. But I still think the inheritance tax exemption needed to be increased, which it has, and that it should continue to be increased. Let Bush leave his kids $5 or $6 million tax-free, and then tax the rest of his estate at a reasonable rate. In 2002, the highest estate tax rate was 50%. It's been decreasing and will decrease to 45% in a few years until it's phased out in 2010 [if that actually happens].
I don't think 45-50% is a reasonable rate, no matter how valuable the estate.
66 - JR
If Bill Clinton had pushed such self serving policies, it would all be pretty obvious wouldn't it?
That's because we all expected him to understand the consequences of his policies. Bush can plead ignorance and he will always get away with it.