Posted on 05/29/2025 1:42:24 PM PDT by Jonty30
Just a question of curiosity. If people were allowed to forego paying their taxes on their personal incomes, but paid taxes on their investment incomes created by the personal income that they aren't paying taxes on, would it be a net positive for the government over the long-term or a net negative in taxes paid for the government over the long-term?
The question is too confusing to answer. I would love to see the income tax and capital gains tax fall by the wayside, but those kinds of taxes would have to be replaced by something, and that kind of change stirs up a hornet’s nest.
Be careful. Do you want to see Democrats take the House and veto-proof control of the Senate?
Sixty-two percent of Americans are invested in stocks. But if you don’t sell it, it isn’t income. You could invest for income, but then you’d pay taxes on that income which means you won’t get the compounding effect.
The reason billionaires don’t pay income taxes is they use their stocks as collateral and take out a loan to fund their purchases. That way they don’t have income to tax and their investments keep growing.
If I was given the option to not pay taxes monthly from my income, but pay it later once per year in April, I'd have more left over. But I'm very systemic with my money (always put X amount each month into investments, and always spread out among many mutual funds in many asset classes).
So by April when it's time to pull money out of investments to pay the tax, even if my overall portfolio balance is down because of a market downturn, there's always at least a few funds that are up. Of course, the average across many years would be my overall balance is up too (the market goes up more than it goes down).
But I could see some people not saving up throughout the year to pay the tax. So those people might be in trouble. From what I hear, though, from 1099 gig workers who make that mistake, the punishment is ugly and teaches them to save up the next time.
I don’t think it’s confusing at all. It’s a transfer of time when I pay the taxes from yearly on my income to yearly what the income from my investments earn instead.
In other words, assuming I could do this, 0% tax on my income but reasonable taxes on my investment income instead. In a way, not declaring my personal income as income but the money earned from investments.
Regards,
It’s really asking the question as to whether government could realize more income if they allowed people to invest their otherwise taxed income and tax the income earned from investments.
It’s a variation of what the government already does when it allows you to tax deduct your expenses from your business because they can tax more money from you on the other side from the higher income that is yielded from you being able to invest in your business.
It’s really an academic question as to when government should be taxing income to obtain the greatest amount of taxes, while minimizing the effect of taxes upon the economy.
Many forms of investment do not produce “income” as such, but price appreciation that goes unrealized until sold.
Wage earners must use a large portion of their earnings to live on (rent food, clothes, health, everything else), so they can’t invest the total earnings that the current system is based upon.
High income stocks, REITs, etc. return 4-5%. Higher than that indicates high risk and gimmicks (everyone can’t make money off selling puts and calls); such investments often suffer value erosion. Let’s go nuts and say the income produced an average of 10% annual returns consistently. Under your scenario, the government would be taxing far less than 10% of the amount it taxes (mostly) employment plus investment earnings now. That won’t pencil, even if the rate was 100%. If the tax rate for this new regimen was brutally people will have no incentive to invest at all. This concept would not work.
You’re right that it wouldn’t work, because Democrats think all money belongs to them and they’d institute tax laws, unrealized gains to take the money before it matures or just take your investment when you can’t pay the unrealized gains or your gains don’t work out. Yeah, I realize that.
What may work theoretically doesn’t always work in real life, due to liberal corruption. At least, in my mind, the government can wait for whatever investment you have to mature and then take the tax from your gains. I don’t think time is relevant on that point, whether it’s a year from now or 50 years from now. Tax is tax.
However, I was just wonder from an economic point as to whether it is more theoretically optimal, as opposed to practical, to forgo income tax and tax investment instead if it would work in the long-term.
Wrong question.
The right question is why do you think the government is entitled to anything from your income?
We still need taxes to run society, so the question is at what point when income is generated can the most tax revenue be raised that is also least destructive to the income being generated.
If we went to eliminating income tax and just put reasonable taxes on investment income instead, would it overtime end up generating more revenue, because at least in theory, if left alone investment income just grows.
Yes, I recognize the impossibility of this on this side of eternity, because of liberal corruption. I know that liberals would work towards taxing investment income to 100%,
If they are safe good investments, I’d go with investments.
Yup
Actually we probably dont. The govt allows banks to create money out of nothing, multiple times when it transfers from bank to bank via fractional reserve lending
So if this is considered acceptable and real money, whcpich it is, on the books,
They dont.
Plus former heads of the fed reserve admitted that us tax policy is not about revenue but controlling people and for punitive reasons, not for any legit financial reasons.
That’s right. A taxation system that is NOT confiscatory is the only means to prevent financial corruption.
The Greeks, the Romans, even the Chinese found that once the people can vote money from the treasury the nation is doomed.
Yes.
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