Tuesday, March 05, 2013

The State Is "The Executive Committee Of The Bourgeoisie"

Figure 1: 2012 Qualified Dividends and Capital Gain Tax Worksheet

The tax system in the United States favors income from property, while taxing wages more heavily. Property income includes interest, dividends, and capital gains, for instance. This post provides empirical evidence for this claim by documenting such favoritism in current selected Federal income tax forms.

The Federal system already imposes a heavy burden on wages, even prior to the calculation of income tax. Taxes to fund Social Security and Medicare (also known as Federal Insurance Contributions Act (FICA) taxes) are paid out of wages, up to a cap. But FICA taxes are not taken out of property income.

Americans who pay income taxes must file various forms, of which the 1040 form is a master form, in some sense. (The 1040A and 1040EZ forms apply to people with simpler situations.) The instructions for the 1040 form include various tables and methods for calculating taxes, depending on your situation. Figure 1, above, shows the Qualified Dividends and Capital Gain Tax Worksheet for calculating taxes on income earned last year. As I understand it, qualified dividends are dividends on stock held for more than a year. Capital gains are the (nominal) profits made by selling assets previously acquired. That is, they are the difference between the selling price of an asset and the price for which an asset was bought.

Notice that Lines 16 and 18 call out either a table or a Tax Computation worksheet. Figure 2, below, presents this Tax Computation Worksheet.

Figure 1: 2012 Tax Computation Worksheet

One can step through these worksheets and determine marginal tax rates on various forms of income, given certain assumptions. My notes on Figure 1 point out that the marginal tax rate on qualified dividends and capital gains is typically 15%. You can see in Figure 2 that the marginal tax rate on, for example, wages is progressive. The marginal tax rate increases with income, for various filing statuses. But, as I understand it, nowhere is it as low as 15%. So the structure of the Federal income tax, for taxes being paid this year for income earned last year, rewards those earning income from property and punishes labor.


ds said...

The argument that many use here is that capital income is double-taxed. A firm must first pay taxes on its net income before it can distribute that income to its shareholders. The shareholders are then taxed again at the capital gains rate. A firm can deduct both labor and interest income so the idea is that workers and bond holders should pay more since that income is taxed only once.

Anonymous said...

"ds" seems to me amazingly good at misdirection because he cleverly omits several really important "details":

* All capital income sources are very lowly taxed, not just those from company dividends.

* It does not matter how many times an income stream is txed, what matters is the total take and most companies pay very little corporate income tax which is very low anyhow, for a combined take still much lower than that of earned income.

* Earned income is subject to double or treble taxation too, as workers have to pay sales tax and excise taxes on what they buy, because as a rule workers are resident where their income originates.

* It is easy but expensive, and thus only done by the those with very large incomes, to turn ordinary income into steady capital gains via accounting "technology", and then to enjoy those capital gains abroad.

Blissex said...

«The tax system in the United States favors income from property, while taxing wages more heavily.»

In the distant past this was not the case, but a large majority of USA voters love that because they own a small amount of shared or some properties and they want massive tax free capital gains thanks to endless credit bubbles.

Once upon a time most USA voters regarded themselves primarily as working people, now they regard themselves primarily as property speculators.

Grover Norquist put it very well:

«And that is, in 2002, on the investor class stuff … you could have said, just drop $7 trillion in stock market value with the collapse of the bubble … $7 trillion, trillions with a T … Americans had $7 trillion less than they used to have, you can expect them to be very irritated and in trouble.
[ ... ]
They were mad at having lower stock prices and 401(k)s, but they didn’t say Bush did this and that caused this. Secondly, the Democratic solution was to sic the trial lawyers on Enron and finish it off. No no no no no.

We want our market caps to go back up, not low. The 1930s rhetoric was bash business — only a handful of bankers thought that meant them.

Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”. And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher.

And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.

And the same even more so for property prices.

Many if not a mjority of USA voters dream of the plantation economy, with a layer of (mostly lady) rentiers at the top.

Robert Vienneau said...

ds also distances himself from the argument he presents. I think we ought to take him as pointing out the existence of an argument, not advocating it, until he says otherwise.