- Nov 9, 2004
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Ok, so I thought about everyone's thoughts on the capital gains tax idea, and I might have a plan I'd propose for a capital gains tax that I think could catch on.
I had thought about the idea of a lower capital gains tax from both sides of the aisle. I see where a lower tax can encourage investing, but at the same time how that same lower tax can leave us working members at a distinct disadvantage. What I'd want to do is to encourage more people into the markets but at the same time increase the amount of money we can make via the taxes, and since a small % (I'm guessing single digits) of anyone making less than the median are invested in anything or have any capital gains at all, I think adding more investors to the market and spurring the economy.
I'm going to give out my plan and before I actually call it concrete, I need people from both sides try to prod holes in it and I'll try to plug it up with an idea. If it looks to weary, I'll just trash it.
I thank chaz345 in advance for spurring this idea into my brain btw.
1. We determine the base rate at which the capital gains are taxed by adding the capital gains you make that year into your taxable income. All capital gains will be taxed at that top tax rate.
2. The capital gains will be taxed as follows:
0% => Capital gains $0 - half the standard deduction
Half the tax rate => 1/2 Standard deduction - standard deduction
3/4 the tax rate => standard deduction - 5 standard deductions
Tax rate => 5 standard deductions + higher
This applies to someone filing as a single person. A person filing joint would receive double the cap.
For example, the 2011 rate would be:
Single
0% => $0-$2,900
Half rate=> $2,900-5,800
3/4 rate=> $5,800-14,500
Full rate=> $14,500+
Married
0% => $0-$5,800
Half rate=> $5,800-11,600
3/4 rate=> $11,600-$29,000
Full Rate=> $29,000+
3. Increase the capital loss deduction to the standard deduction (from $3,000 now to $5,800).
Example 1. A family makes $68,000 a year and files jointly. They also have capital gains of $2,000 that year. That family would pay no taxes on the $2,000.
Total taxes: $0 (0% capital gains tax)
Example 2. A family makes $68,000 a year and files jointly. They have capital gains of $12,000 that year.
That family would not pay taxes on the first $5,800.
On the next $5,800, they would look at the tax bracket.
15% - 17,000-69,000
25% - 69,000-139,350
Their top tax rate with the gains increases from 15% to 25%. They would pay 12.5% for the next $5,800.
On the final $400, they would pay 3/4 the rate of the 25% tax, or 18.25%.
Total taxes: (5800 * 12.5%) + (400 * 18.25%) = $798 [6.65% capital gains tax]
Example 3. A married daytrader gets lucky and makes $300,000 in capital gains.
Would not pay taxes on the first $5,800.
At $300,000 and married, his tax rate is 33%. He would pay half the rate on the next $5,800, or 16.5%.
He would pay 3/4 the rate for the next eight deductions, or 24.75%.
For the remaining $242,000 he made. He is taxed at the full rate of 33%.
Total taxes: (5800 * 16.5%) + (46400 * 24.75%) + (242000 * 33%) = $92,301 [30.77% capital gains tax]
What It Does
Incentive to working-class/middle-class investors. It offers an incentive to the working/middle class to start investing into the economy.
Decrease deficit. While it would only be a few billion, every little bit helps in this end.
Increase marginal tax rate on upper class. Some might see this as a bad idea. Warren Buffett has disagreed many times.
Rewards risk. Doesn't reward risk as much as Bush's plan, much less Paul Ryan's or Herman Cain's, but it still rewards risk because you are still receiving a deduction whether you gain or lose in the market.
Discourages adding too much into the stock market. With a higher tax rate on capital gains, if you put TOO much of your money into capital gains, ALL the money, not just anything above a bracket level would be taxed at the highest rate.
Thoughts? Time to prod some holes in this baby and see if it sticks.
I had thought about the idea of a lower capital gains tax from both sides of the aisle. I see where a lower tax can encourage investing, but at the same time how that same lower tax can leave us working members at a distinct disadvantage. What I'd want to do is to encourage more people into the markets but at the same time increase the amount of money we can make via the taxes, and since a small % (I'm guessing single digits) of anyone making less than the median are invested in anything or have any capital gains at all, I think adding more investors to the market and spurring the economy.
I'm going to give out my plan and before I actually call it concrete, I need people from both sides try to prod holes in it and I'll try to plug it up with an idea. If it looks to weary, I'll just trash it.
I thank chaz345 in advance for spurring this idea into my brain btw.
1. We determine the base rate at which the capital gains are taxed by adding the capital gains you make that year into your taxable income. All capital gains will be taxed at that top tax rate.
2. The capital gains will be taxed as follows:
0% => Capital gains $0 - half the standard deduction
Half the tax rate => 1/2 Standard deduction - standard deduction
3/4 the tax rate => standard deduction - 5 standard deductions
Tax rate => 5 standard deductions + higher
This applies to someone filing as a single person. A person filing joint would receive double the cap.
For example, the 2011 rate would be:
Single
0% => $0-$2,900
Half rate=> $2,900-5,800
3/4 rate=> $5,800-14,500
Full rate=> $14,500+
Married
0% => $0-$5,800
Half rate=> $5,800-11,600
3/4 rate=> $11,600-$29,000
Full Rate=> $29,000+
3. Increase the capital loss deduction to the standard deduction (from $3,000 now to $5,800).
Example 1. A family makes $68,000 a year and files jointly. They also have capital gains of $2,000 that year. That family would pay no taxes on the $2,000.
Total taxes: $0 (0% capital gains tax)
Example 2. A family makes $68,000 a year and files jointly. They have capital gains of $12,000 that year.
That family would not pay taxes on the first $5,800.
On the next $5,800, they would look at the tax bracket.
15% - 17,000-69,000
25% - 69,000-139,350
Their top tax rate with the gains increases from 15% to 25%. They would pay 12.5% for the next $5,800.
On the final $400, they would pay 3/4 the rate of the 25% tax, or 18.25%.
Total taxes: (5800 * 12.5%) + (400 * 18.25%) = $798 [6.65% capital gains tax]
Example 3. A married daytrader gets lucky and makes $300,000 in capital gains.
Would not pay taxes on the first $5,800.
At $300,000 and married, his tax rate is 33%. He would pay half the rate on the next $5,800, or 16.5%.
He would pay 3/4 the rate for the next eight deductions, or 24.75%.
For the remaining $242,000 he made. He is taxed at the full rate of 33%.
Total taxes: (5800 * 16.5%) + (46400 * 24.75%) + (242000 * 33%) = $92,301 [30.77% capital gains tax]
What It Does
Incentive to working-class/middle-class investors. It offers an incentive to the working/middle class to start investing into the economy.
Decrease deficit. While it would only be a few billion, every little bit helps in this end.
Increase marginal tax rate on upper class. Some might see this as a bad idea. Warren Buffett has disagreed many times.
Rewards risk. Doesn't reward risk as much as Bush's plan, much less Paul Ryan's or Herman Cain's, but it still rewards risk because you are still receiving a deduction whether you gain or lose in the market.
Discourages adding too much into the stock market. With a higher tax rate on capital gains, if you put TOO much of your money into capital gains, ALL the money, not just anything above a bracket level would be taxed at the highest rate.
Thoughts? Time to prod some holes in this baby and see if it sticks.
