James_GAF

More than a decade ago I worked in a regional hospital systems IT department. As part of a project I wrote an audit system for the Chargemaster which set billing markups for materials. The minimum markup I saw from the database in that process was approximately 500% for joint replacement parts that brought billed prices into the $15k+ range.

If you might explain something -- as I understand it, invested money is typically from savings on income. Should we not be encouraging people to save?

Tax rates aren't punitive against savings in a progressive tax system. They actually allow lower income individuals an opportunity to generate enough wealth to invest. In Professor/Secretary Reich example the federal tax exemption is in the 50K region, plus EITC for lower incomes. This has the effect of raising people out of poverty, while allowing more choice between investment and utilization of income as disposable.

Savings most typically takes a form which ends up subject to the progressive marginal rates for personal income. Interest incomes are taxed at like rates to wages/salaries. Short term capital gains of less than 1 year are taxed at like rates to wages/salaries. A Roth IRA is taxed at the time of investment typically as wages/salaries as up to ~$2k annually is allowed to grow in a tax free investment until the age of 59.5 at which time all gains are realized tax free. Other IRA and pension benefits are again taxed the same as wages/salaries.

Capital gains of 1 year or longer are given preferential treatment. This isn't an inducement to save and build wealth, but rather an institutional establishment of first class citizenship based upon wealth leveraged in the very particular methods of primarily stock or property. These are benefits bestowed dispropriationately upon those with the most assets to either invest in this way or to utilize access within corporations to channel compensation through stock options, carried interest, etc. It is incredibly unfair to the vast majority of people that work for a living, but who cannot profit from ownership and access.

Wouldn't a higher-tax be less conducive to this purpose?

Look at the methods by which one is exposed to the capital gains rate. These aren't typically choices made at the margins by those who fail to be frugal, but rather only concerning particular methods of wealth based income which one is only subject to upon realization of the capital gain and in no way prevents the accumulation of asset wealth. A return of capital gains rates to parity with wages/salaries is not going to impact in either direction the vast majority of individuals behavior as these aren't choices most are even faced with. A primary residence is the source of most peoples capital gains exposure, which is carried from property to property.

The few that it does impact are likely to tighten their willingness to take risk and do greater diligence while investing. In my view we've gone through a series of periods exhibiting irrational exuberance which facilitated the systemic failures since 2008. We need greater restraint and I think this is only beneficial when applied over a period of years by gradually increasing the top rates and lowering the bottom. This gives industry and individuals time to adjust and reallocate.

Let's be realistic here too. The intent and likely effect of high marginal rates is not for those monies to filter through government, but rather for the capital to flow into other hands as the market comes to grip with the reality. This should raise wages/salaries and benefits for the vast majority as resources are allocated differently. Some will certainly find international loopholes to shield some assets/profits(I think a phased in renegotiation of trade agreements would be required to compensate). Others I'm sure will jump ship, though I have to say there's some degree of brain drain occurring in the international direction as the opposite race to the bottom takes hold. In the end, the details of implementation are critically important but I think on net if done well a positive social impact would occur as the degree of inequality is improved.

Furthermore, by equating income and capital gains, would we not make people indifferent between long-term and short-term investments, leading to broader instability in the market?

How in the world do you imagine this would happen? The 1 year window is effectively a short term investment, honestly it's ridiculous to me that such a small fraction of ones life would be considered 'long term'. If anything, I think the current situation encourages the short term thinking and instability you're worried about by granting such favorable rates.

Maybe if investment income is the primary or only source of income, we should ask those individuals to pay the same as they would in an occupation. But I think twenty percent of earnings on income you've already paid taxes on is probably not an unreasonably low percentage.

Why should specific forms of wealth granted favored status over work and labor? Why are capital gains favored over interest, dividends, etc? It's in place because of those with access are of a class with access to those gains. It's preference to ownership over work, which is certainly unfair.

I'll leave it at that for now as I too have written a short paper on less than 1 paragraph of your post and though I feel as if I've only scratched the surface.

Considering they represent ~13 million worldwide at the moment, that's not exactly a big spend over 2 decades. A few plutocrats spent that in the 2012 election cycle.

What do the numbers look like for skilled trades versus those with degrees? Unionized skilled trades vs degrees? I'd presume the gap is far less severe if not near parity.

Further, I'm curious how the numbers look when the top 1% of each group are excluded from the data. Once the debt cost of education is accounted for I'm sure the gap closes further still and for some degrees probably sees unionized skilled trades surpass net wealth over a lifetime.

Exactly how much do you think it would cost to gain a controlling interest sufficient to accomplish this in even one of the major corporations the ALF-CIO represents members?