Taxes

Why Vanguard Founder John C. Bogle Is Wrong on Taxes

Bogle is calling on Congress to raise capital gains taxes to the rates that apply to ordinary income.

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The founder of the Vanguard group of mutual funds, John C. Bogle, who says he is a lifelong Republican, is calling on Congress to raise capital gains taxes to the rates that apply to ordinary income.

"As a general policy, equalize the taxes, raise the taxes on capital gains," Mr. Bogle said earlier this month in an interview with Bloomberg Television's Betty Liu. "I look at this position as just simply logic, with maybe a touch of concern for our fellow human beings who aren't doing as well as we are all doing."

"There should be no tax rate that is lower than the earned income tax rate that people earn by the sweat of their brow or the burrows of their brain. That should be the regular tax rate," Mr. Bogle said. "I am arguing for a capital gains rate taxed at ordinary income."

Mr. Bogle has a lot of wisdom about investing, which is one reason I originally invested in Vanguard funds back when he was running the company in the 1990s. But on this tax question, I think Mr. Bogle's got it wrong, for the following reasons.

First, it's not entirely accurate to say that the current long-term capital gains rate of 15% is really lower than the 35% top rate on ordinary income. In many cases, the capital gains come on money that's already been taxed at least once, when it was earned as individual income. If the money was then invested in shares of a publicly traded corporation, the corporation also probably paid tax at the corporate level. Any capital gains come on top of those other layers of taxes.

Here's an example: Jack and Jill both earn $100 that is taxed at the ordinary income rate of 35%. They both have $65 left over. Jack spends his $65 on things that aren't subject to sales tax and has paid a total of $35 in taxes. Jill invests her $65 in one share of stock for a year. The company she buys makes a pretax per-share annual profit of $100, on which it pays 35% tax, or $35 a share. The $65 in after-tax profit helps increase the per-share price to $130 a share. Jill sells her share and pays capital gains tax of 15% on the $65 gain, or $9.75. Jill has paid a total of $79.75 in taxes ($35 in income tax, $35 in corporate tax, and $9.75 in capital gains tax)—more than twice as much as the $35 Jack paid.

Second, that distinction Mr. Bogle makes between money "people earn by the sweat of their brow or the burrows of their brain" and money subject to capital gains tax isn't always as neat as he implies. Not all capital gains are made by people lounging on the beach as their money magically creates capital gains for itself. If a person founds a company like Microsoft or Google, the founder's stock is subject to capital gains treatment, even though it is earned by sweat or brain work. Choosing investments that make money over the long term can often require considerable thought.

Third, the American capital gains tax rate doesn't exist in a vacuum. Raising the top rate to 35%, as Mr. Bogle suggests, would immediately put American investors at a competitive disadvantage to those in Singapore and Hong Kong, neither of which tax capital gains at all.

Raising the capital gains rate would encourage spending rather than saving, since no state or local government has a sales tax as high as the top 35% federal capital gains tax rate that Mr. Bogle proposes. It'd make more sense for government to be neutral on the save-or-spend question, or, if it must take sides, to encourage saving and investment rather than spending.

Mr. Bogle, born May 8, 1929, is 82 and, like many of the others now urging higher taxes—Warren Buffett, George Soros—made his money while taxes were low enough to encourage growth.

In Mr. Bogle's case, he seems to have forgotten some of what happened. "Even the great conservative Ronald Reagan made sure in his first tax cut, the numbers were the same for both" income and capital gains tax rates, Mr. Bogle claimed, in a line that Bloomberg excised from the transcript of highlighted excerpts it distributed. In fact, Reagan's first tax cut took the top income tax rate down to 50% and the capital gains rate down to 20%.  The thirty percentage point difference is even wider than the gap that exists today between 15% and 35%. The two rates didn't both go to 28% until 1988, the last year of the Reagan presidency.

Mr. Bogle, however, isn't talking about following Reagan to a rate of 28% on both income and capital gains, or, for that matter, pursuing the "same for both" principle by lowering the ordinary income tax rate to the 15% rate that applies to long-term capital gains. He instead wants to raise taxes.

The implication is that government can somehow use the money more wisely than individual Americans can. That's where Mr. Bogle's line about "maybe a touch of concern for our fellow human beings who aren't doing as well" really grates. What's better for "our fellow human beings who aren't doing as well"? A tax system that sends more money to Washington to be spent on dependence-producing, incentive-reducing welfare programs or wasted on bridges to nowhere? Or one that keeps more money of the hands of those who earned it, and allows those individuals to invest or spend or donate the money carefully themselves in ways that might create even more jobs and growth and widely shared prosperity?

Ira Stoll is editor of FutureOfCapitalism.com and author of Samuel Adams: A Life.

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  1. OT

    In other news, German police get tough with zombies.

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      1. Did the zombie link get the bot’s attention?

        If so, that’s kinda creepy…

  2. Another case of “rich does not equal conservative”. A conservative approach would eliminate capital gains taxes and LOWER income taxes.

    1. The right approach would be to eliminate corporate, income, and capital gains taxes completely.

      1. I was leaving the option of some tax being allowed to exist. Like sales without income, etc.

        1. Once you start taxing poor people out of most of their money, are you still gonna blame them for not being able to be upwardly mobile?

          1. …are you going to realize she’s also your mom?

  3. Major League Baseball, perhaps you should jettison Fed-Ex.

    Commissioner Selig, do you know what Braun can do for you?

  4. What about the carried interest rate? What are your feelings about that?

  5. The “double-taxation” argument doesn’t work for me. This is a tax on capital gains, meaning your basis (what you paid for the stock, presumably out of after-tax money) isn’t taxed.

    Jill pays $35 on her original $100 earnings, and an additional 15% on her profit after selling the stock she bought with her remaining $65. Her taxes are now $43.75, but she still has her original $65 (which was only taxed once), plus her capital gains (which were only taxed once).

    Should we attribute the tax paid by the corporation to her? Why? Its a separate legal entity, isn’t it?

    1. Yeah. You could also make the argument (and be right) that because companies are paying X% in taxes, that is less money they have to give to their employees. But, whose to say that all that money would actually go to their employees and not to other things?

    2. I agree with RC Dean – the “double taxation” argument doesn’t make sense.

    3. The double taxation is imaginary – it’s the loss of earnings on the $35 that she would have otherwise had. I’m all for ending income taxes, or (as a compromise) making invested money tax free for all a la 401K/IRA, but labor income rate and capital income rate should be equal.

    4. The “double-taxation” argument doesn’t work for me. This is a tax on capital gains, meaning your basis (what you paid for the stock, presumably out of after-tax money) isn’t taxed.

      Exactly.

      It also puts way too much emphasis on the payout order. The employer pays the employee first, then pays taxes with the remainder. This does not mean corporate income taxes are irrelevant to employee compensation. Rather, empirically, it’s not the case. I’ve seen estimates that around 50% of the corporate income tax’s incidence is borne by employees. It’s just like how consumers pay the sales tax but it cuts into retailers’ margins.

      1. Here’s an example citing three studies:

        Arulampalam, Wiji, Michael P. Devereux, and Giorgia Maffini “The Incidence of
        Corporate Income Tax on Wages”

        Our central estimate is that 61% of any additional [corporate] tax is passed on
        in lower wages in the short run and around 100% in the long run.

        Felix, R. Alison, “Passing the Burden: Corporate Tax Incidence in Open Economies”

        Using … data from the Luxembourg Income Study, I
        estimate that a ten percentage point increase in the corporate tax rate decreases
        annual gross wages by seven percent. Using U.S. data on corporate tax
        revenues and total wages, these estimates predict that labor’s burden is more
        than four times the magnitude of the corporate tax revenue collected in the
        U.S.

        1. I hate this 900 character count limit.

          Hassett, Kevin A. and Aparna Mathur (2006). “Taxes and Wages”

          The results in this paper suggest that corporate tax rates affect wage levels
          across countries. Higher corporate taxes lead to lower wages. A 1 percent
          increase in corporate tax rates is associated with nearly a 1 percent drop in
          wage rates.

  6. Income is income, whether its earned from digging ditches, pushing paper around, or (another version of pushing paper around) buying and selling stock.

    The reason not to tax long-term capital gains as ordinary income is because inflation will mean you are being taxed, not on your gain, but on the loss of purchasing power. Index your basis to inflation, and tax the resulting gain as ordinary income, says I.

    1. I’d also add a similar markdown on interest income.

      1. I wouldn’t.

        Interest is supposed to be payment for both default risk and inflation risk. Plus, its usually paid at least annually, so you don’t get the years-long lag that you can see with cap gains.

        1. RC Dean said:

          Interest is supposed to be payment for both default risk and inflation risk.

          Not quite – actually, interest is paid because money has a time-value. When someone borrows money from you they are essentially renting your money. Interest is the rent payment. Without interest, no one would have incentive to lend money, and it would be impossible to borrow (provided we ignore “free” loans to banks from the Federal Reserve).

          1. Historically, interest charged to banks is higher than the un-adjusted growth in GDP which is inflation plus real GDP growth. If it is less than that and the central bank is inflating the currency. Our central bank has kept this rate below the un adjusted rate for over ten years now.

            1. Our central bank has kept this rate below the un adjusted rate for over ten years now.

              Yes, and doing so is not only inflationary, but distorts the money market in other ways as well (e.g. the housing bubble, and the current difficulty of finding a decent return from an interest-bearing account).

    2. That’s exactly what I was thinking. Bogle is wrong but not for the reasons stated in the article. A capital gains tax must be indexed to inflation in order to be fair – otherwise it’s a tax on an imaginary gain.

      If it’s feasible, your solution would seem to be the fairest.

      As for the concern about double taxation, this would seem to only apply to dividends which are paid out of corporate income which has already been taxed.

      The article is correct that any tax scheme would have to account for competing foreign tax schemes. A higher tax rate might cause capital to flee to a country with lower tax rates.

      1. As for the concern about double taxation, this would seem to only apply to dividends which are paid out of corporate income which has already been taxed.

        I think dividends are a better case for double taxation. Let them be deductible at the corporate level, taxable as ordinary income to the taxpayer, and its all good.

        1. Over here in Oz, this has been our solution to the double taxation question.

          http://www.stockwatch.com.au/a…..edits.aspx

          Works a treat !

      2. Wrong. Capital gains are already indexed to inflation. Inflation expands earnings – ergo “gains”.

        1. Wrong. Capital gains are already indexed to inflation. Inflation expands earnings – ergo “gains”.

          The basis is not indexed to inflation. Inflation increases the paper gain, which means that people are taxed on nothing.

          The effective real tax rate on bonds right now is over 100% of the real gain. You’re taxed on nominal gain.

          Countries that tax long term capital gains at the ordinary rate generally index the basis.

          The argument for treating dividends at a lower rate is that without it corporations are biased in favor of debt to raise capital instead of equity. Corporations being able to deduct the dividends would be one way of approaching it.

          A progressive consumption tax makes more sense than taxing savings anyway.

          1. How about a flat consumption tax. That makes even more sense.

            1. That is the best. Have to repeal 16A first tho.

        2. Wrong. Any asset I may have will be worth ‘more’ of a continually inflated currency. Most obviously as the fed continues to monetize the dollar value of an oz of gold or barrel of oil or ton of wheat will rise. But that’s not a gain, it’s just the dollar worth less. It’s criminal to tax someone for that.

      3. No, it’s perfectly fair.

        Jack sells $100’s worth of labor and receives $100, he is taxed on 30% of that.

        Jack sells $100’s worth of property and receives $100, he is taxed on 30% of that.

        Jack sells a $100 grand piano and receives $100, he is taxed on 30% of that (if he is very honest on his tax form).

        Jill sells $100 of stock and receives $100, she is taxed on 30% of that.

        Why should selling labor and products be taxed, but not stock?

        When you buy a product (including stock), the product is yours, not the money. You are not being taxed twice any more than someone who buys a grand piano and sells it is being taxed twice.

        If one wants to object to the income tax in general, fine, but as long as we have an income tax, there is no difference between income and capital gains. Either way, you are selling a product and being taxed on it.

    3. While I agree:
      1) Taxes are already difficult and complicated, adding time value of money calculations only exacerbates that issue.
      2) This gives government even greater incentive to rig the official inflation indices even more than they do now
      3) I would much rather reduce the massive spectrum of harm done by government by reducing it’s scope dramatically than tinker around the edges for a more fair way of taking half of my money.

      1. Good points.

        It would complicate the tax code. And inflation indices are already a scam since the “core inflation” measure doesn’t include the cost of essentials such as food and energy.

        Any reform should simplify the tax code.

        Maybe it would be best to just abolish all capital gains taxes since it’s impossible to determine the actual real gain after inflation.

        But the Lefties won’t let that happen.

  7. I can’t imagine this sitting well with folks investing with Vanguard. Why raise any taxes? Cut and lower taxes.

    1. Regardless of where capital gains tax rates go, Vanguard will still be about the best mutual fund investment there is.

  8. That canard that “the money has already been taxes once” is ridiculous. ALL money has been taxed at one point or another.

    I pay income, payroll, unemployment insurance out of every paycheck so that money is TAXED THREE TIMES! Oh, but I also pay state income, so it’s TAXED FOUR TIMES!

    Then I go to a restaurant and buy a meal, paying sales tax. A FIFTH TIME!

    The shareholders (and I own a good bit of stock) are not the corporation, but the owners of the corporation. Taxing the corporation on its financial transactions and then the shareholder on distributions taken out of the corporation are not double taxation.

    For instance, what if a deli owner pays taxes on her business’ profits. Should she not have to pay taxes when she takes that money to buy a new car? DOUBLE TAXATION!

    1. Taxing the corporation on its financial transactions and then the shareholder on distributions taken out of the corporation are not double taxation.

      Sure, but taxing the corporation on profits and then owners on distribution but allowing the corporation to deduction interest payments on bonds biases the corporation toward debt financing instead of equity financing.

      Secondly, taxing a company more to pay a dividend encourages corporations to hoard money (or to purchase other firms) instead of redirecting investment to better uses.

      If you tax one method of operation significantly more than another, you’ll get different behavior.

      You apparently want to encourage heavier use of debt and leverage by corporations.

    2. Sure, all those forms of taxation can be considered when determining an effective tax rate.

      Indeed, the burden of the corporate income tax mostly falls upon the worker, not the shareholder; it results in lower wages.

      1. John Thacker said:

        Indeed, the burden of the corporate income tax mostly falls upon the worker, not the shareholder

        Where did you get that? Corporate income tax is paid on income (revenue minus expenses). Workers are an expense. Corporations exist to maximize shareholder value – not employee wages. Therefore, most well-run corporations are already paying wages at such a level that decreasing wages would decrease income. Because corporate income taxes take a percentage of a corporation’s income, and because corporations typically set wages so as to maximize income, a change in corporate income tax should have little or no affect on wages, but will have an affect on dividends and share price. Therefore, it seems to me that the burden of corporate income tax falls mostly upon the shareholder rather than the worker.

        1. I thought 35% was the top rate, and therefore minimizing expenses, like employee wages and benefits, could increase income, but the tax rate would still be 35% (net income would be greater).

          I thought that was why many large companies (the ones with the knowledge to effectively minimize expenses) were posting healthy profits while shrinking their workforce.

          1. Companies are currently successful in posting healthy profits while shrinking their workforce because:

            1. Worker efficiency is increasing rapidly due to automation, IT improvements, etc.
            2. Current higher than normal unemployment places labor at a relatively weakened bargaining position.

            The fact that companies are currently taking advantage of technology improvements and the unemployment rate to cut pay, eliminate positions and increase profits (as they should, per their fiduciary responsibility to their shareholders) suggests that any decrease in corporate taxes will be passed on to the shareholders, not given to them employees in the form of higher pay.

          2. When I said:

            Therefore, most well-run corporations are already paying wages at such a level that decreasing wages would decrease income.

            I was referring to the companies that have already gone through the process of shrinking wages and workforces.

        2. Therefore, most well-run corporations are already paying wages at such a level that decreasing wages would decrease income.

          I gave some studies above demonstrating tax incidence of corporate income taxes. The bottom line is that prevailing wages are influenced by a nation’s tax scheme. Capital is mobile and a company will be expected to a meet a risk-adjusted rate of return consistent with international peers. The only way to reach this and remain globally competitive is to a) be better than everyone (possible for a company, harder for a nation), b) pay less taxes than your peers (nope) or b) pay less to workers. That’s possible because labor is not very mobile, both for structural reasons like immigration law and unavoidable reasons like home ownership, cultural and language barriers, etc.

          1. continued

            Put another way, if a company were to benefit from a very low corporate tax rate and able to pay out very high returns to investors, employees would quickly demand a part of that. That may not work for a single company with a low tax rate in a highly taxed area, but across an economy with competitive industries, it will.

            1. Yes, I agree that across-the-board reduction of corporate tax rates will result in somewhat increased wages (and vice-versa). However, changes in the corporate tax rate will have a greater affect on the shareholders income than on the employees, for the reasons I described above. That is what I meant when I said

              the burden of corporate income tax falls mostly upon the shareholder rather than the worker

              1. I’m not discussing something purely theoretical. There’s a wide body of literature on tax incidence, and generally the conclusion is that those who are less price-sensitive bear a greater proportion of taxes. You said the magic words above: “labor at a relatively weakened bargaining position.”

                In other words, a lime tax falls on lime producers because consumers can switch to lemons. A gasoline tax falls on motorists because they are unable to alter consumption patterns in the short term.

                Labor is far more inelastic than capital. I think you’re extending something that’s definitely true for one company to the country as a whole…

                1. … If you look at the world, it’s hard to find one country where risk-adjusted returns are ridiculous. Thank liquidity of capital for that. You’ll find plenty of countries, however, where line workers make dramatically different wages. A Vietnamese worker would make boatloads more just being in the US and doing the same thing. But for legal (and often cultural and personal) reasons, he can’t.

                  The consequences of this immobility are that labor has a reduced bargaining power, and thus the burden of a country’s tax laws tend to fall upon its workers rather than its stockholders.

                2. Labor is far more inelastic than capital.
                  You are mistaken that corporations’ labor demand is greatly more elastic than the supply. Remember that elasticity is not constant – and at the current equilibrium point between labor supply and demand, demand is not as elastic as it would at lower levels of unemployment. The reason for this is that companies have cut labor expenditures greatly (due to increased worker efficiency and the oversupply of labor). Companies can (currently) afford to pay more for employees if needed to keep income up (for evidence – look at the record profits posted by many corporations recently) but can scarcely afford to shed workers (as they’ve already reduced headcount as much as possible).

                  Labor is currently at a relatively weakened bargaining position due to high unemployment, not due to the relative elasticity of labor supply and demand.

  9. Mr. Bogle, born May 8, 1929, is 82 and, like many of the others now urging higher taxes?Warren Buffett, George Soros?made his money while taxes were low enough to encourage growth.

    Not convinced of that.

    I suppose it’s true if you are considering only capital gains tax rates, but it seems to me that that eighty-plus-year-old cohort made a lot of its money back in the days of the 90+ percent top income tax bracket.

    1. I doubt anybody actually paid the top rate. People either sheltered their money or stopped working at a certain level of income. This must have distorted the economy and hampered economic growth.

      1. That’s pretty much why JFK started the ball rolling on cutting tax rates. It wasn’t til well into th Johnson Aministration that it actually happened but JFK did have one thing right.

        Interestingly enough, Barry Goldwater was prominent in opposing the Kennedy tax cuts. He demanded that there be spending cuts before tax rates were decreased.

        The point of my comment, though, was that I wasn’t sure the quoted statement was valid. Even with tax simplification, income tax rates are lower now than they were in the 50s.

        1. He demanded that there be spending cuts before tax rates were decreased.

          How sane. Unfortunately, a democratic populace won’t willingly vote away their own benefits, so in order to get around pesky things like democracy, fiscal prudence, and morality, you simply lie to the people about how cutting taxes will actually make money, and that it’s never possible ever to raise them again for some reason, then when debt blows up you have your crisis to serve as your excuse for cutting the programs.

          Well, not really, since people probably never believed the lie about how basic math is suspended in tax policy. That’s why you need minorities to scapegoat in the name of Jesus.

          Or as libertarians must think, means justified by the ends.

          1. What’s insane is thinking raising taxes on only the rich will somehow significantly decrease the massive public debt. What’s more insane is believing the government spends money better than private individuals.

            1. What’s super insane is believing entitlements and other forms of government spending can just go on growing forever with no consequences for the middle class.

            2. I think, if we’re talking about a fiscal problem (which isn’t the same as an economic and employment problems), we should raise all taxes at least to the Clinton levels. That would make a significant dent without really harming anyone. Which would be the case when you start cutting social insurance programs.

              It’s simply fact that, sometimes, government does spend money more efficiently than private individuals. All data on healthcare spending indicates as much for that sector. Not to mention all the things that just can’t be accomplished without a governed pooling of resources, like national defense.

              1. Fuck you Tony. Even a slight increase in my rate would be devestating to my family. And I’m in the middle of the road with regards to household income.

                I guess you DON’T really care about the little guy. Asshole.

            3. I think, if we’re talking about a fiscal problem (which isn’t the same as an economic and employment problems), we should raise all taxes at least to the Clinton levels. That would make a significant dent without really harming anyone. Which would be the case when you start cutting social insurance programs.

              It’s simply fact that, sometimes, government does spend money more efficiently than private individuals. All data on healthcare spending indicates as much for that sector. Not to mention all the things that just can’t be accomplished without a governed pooling of resources, like national defense.

              1. I would argue that fiscal problems very closely relate to economic and employment problems. I believe you do, too, since you believe increased spending would lead to better economic/employment outcomes.

                And you still ignore that current levels of government spending on entitlements like Medicare, Medicaid, SS, and the like are on track to being many times the projected levels of GDP (from any source). Even if we were to tax ALL wealth at 100% of GDP, it would still not cover the benefits promised.

              2. I agree with you on certain areas where government may be most appropriate, like national defense and, perhaps, some kind of social safety net. Nevertheless, I’m more inclined to distrust government (in general, but especially on the federal level), while you seem more inclined to trust it. Which, of course, is why I prefer decreased spending, and you prefer tax increases. I guess that means will be arguing back and forth on what is the “right” amount of spending, and where spending is appropriate, forever and ever.

                1. And that’s a perfectly rational discussion to have–no need to call anyone an evil socialist, for example, for slightly differing on the portion of GDP government should be involved in.

                  I would argue that safety net programs save people money, and cutting them costs them money. Mostly the people who can least afford it. Sure you can save government money, but isn’t it more important to save people money? What you must really be saying is that people need to die faster because it’s too expensive to keep them alive. If that’s the case then why even bother caring about arcane fiscal issues? For what purpose, an increasingly hellish standard of living for most people?

                  The healthcare cost problem (which doesn’t exist primarily because of government subsidies) will be complex to solve, but throwing millions of old people into uninsured emergency room care certainly won’t do it.

                  1. What you must really be saying is that people need to die faster because it’s too expensive to keep them alive.

                    Sigh. It’s gems like these that just frustrate me, Tony. You should know better than to make such an assumption. I don’t assume that you just want to steal from one group – and threaten them with death if they don’t cooperate – to give loot to another. I, and many fellow libertarians, believe our solutions/principles would allow greater wealth for all without needing to rely so heavily on government influence.

                    1. But you just assert it with absolutely no factual basis. It looks very much like a necessary thing to say to make “we hate government” sound a little less pointless. Strong government safety nets and high standard of living correlate enormously. Same with high taxes and low religious participation, in case you’re interested. It seems that confirming your assumption would be the first thing you need to do.

                      My rhetoric about dead grandmothers may sound like hyperbole, but the problem is it isn’t. That’s who you’re sacrificing on the alter of fiscal prudence, which is not really prudent at all since you won’t entertain the idea of increasing revenues, a much less painful option than gutting old people’s healthcare access.

                    2. a much less painful option than gutting old people’s healthcare access.

                      Either you’re being dishonest, or you must not understand Medicare and SS. These are entitlements for everyone, including the wealthy, i.e., people who can afford to pay for their health care. Are you opposed to means-testing these programs? If not, why? Means-testing would not “[gut[ old people’s healthcare access.” What you wrote is hyperbole, and nothing more.

                    3. There is no such thing as a free lunch. Why then, Tony, do liberals like you insist health care is different?

                      Looking at single-payer nations, many patients simply wait so long to see a doctor that they either die or suffer from their illness, unlike what happens in the U.S. The reason is because, despite these countries’ promises that everyone has equal access, there is no magic wand that makes an infinite supply of physicians, nurses, machinery, and medicine necessary to meet the infinite demand for health care. So government rations care, rather than the market. I don’t know if that’s more fair.

                    4. And if you’re going to use average-age-of-death statistics from other countries to bolster your argument, I would argue there are potentially many factors which affect those statistics other than health care access and quality.

                      One which I think is more relevant is obesity and general sedentary lifestyles, which are much higher in the U.S. than in single-payer countries. A generally active population, in fact, may be a good reason why those skinny Nordic folk seem so happy.

                    5. Furthermore, countries like Sweden that seem to exemplify your claim also have some of the highest suicide rates in the world, while the U.S. has one of the lowest.

                      http://healthland.time.com/201…..ide-rates/

                      I don’t see why suicide rates shouldn’t be factored into quality of life standards.

                      Of course, IIRC, these countries also have much lower regulatory burdens and a higher degree of free trade than the U.S. Could these also be reasons why many people do well relatively equally, and therefore have a greater quality of life?

                    6. But you just assert [that libertarian beliefs would produce the best result] with absolutely no factual basis.

                      This is also false, Tony. We have cited many scholarly articles and studies that seem to point in that direction. I’m sure there are studies you could quote that support your worldview, and we could both pick apart one another’s sources and declare that the other is still wrong.

                      So, at the end of the day, we both will remain firm in our convictions, and I guess that’s fine. All I ask is that we tone down the inflammatory language. But if that’s still too much to ask, then don’t worry: I’m not above treating your motivations the way you’ve treated mine.

                  2. The healthcare cost problem (which doesn’t exist primarily because of government subsidies […]

                    I’m sorry, but that is just patently false. Medicare, Medicaid, and other federal programs are the primary health care cost-drivers. At least, they will be in the short future. Also, the massive health care regulatory regime certainly makes health care in this country much more expensive than perhaps necessary.

                  3. […] but throwing millions of old people into uninsured emergency room care certainly won’t do it.

                    More gems. If you want to engage in straw-man arguments and appeals to emotion, I can play along, too. I asked for a cool discussion, but you insist on the above fallacies.

                    1. It’s unreasonable to call me an evil socialist.

                      It’s perfectly reasonable for me to accuse you of wanting people to die faster.

  10. It was Nixon who reduced the tax rate on earned income to 50%, not Reagan.

    1. Ummm, no, the top tax rate for all of the Nixon years was 70%.

      It wasn’t cut to 50% until 1982.

      1. That table is wrong, as the Tax Reform Act of 1969 reduced the rate to 50% in 1972.

  11. Reagan leveled income taxes at 28% (both wages and capital gains).

    In today’s wingnuttery he would be called a “commie” like Obama is.

    The rednecks have taken over the GOP.

    1. Yes calling someone a “commie” for bankrupting the country with commie policies is pure “wingnuttery.”

    2. That’s no leveling them since capital gains are already taxed once as corporate income.

    3. So, is arguing Reagan was wrong – that he should have lowered the capital gains tax further – imply one is a redneck?

      1. No, just a christfag.

    4. ….the rednecks are to stupid to see that Obama is actually a dictionary-defined Fascist.

    5. Reagan was a commie. He supported labor unions and massively increased the debt with no apology. He never dismantled any social programs. He sold weapons to terrorists. What more can be said?

  12. I still say buying and selling miney should be taxed at the same rate as buying and selling canned dog food.

    But we should *lower* the “ordinary income” rate to match cap gains, and not the other way around.

  13. Why is there a picture of the great ass grabber Strom Thurmond?

  14. Doing anything to discourage investment–like raising the capital gains tax–with what’s going on in our economy and elsewhere in the world right now? Would be profoundly stupid.

    Slashing taxes of all kinds would be great. When you’re looking at a tax cut, the question isn’t whether the cut is tax neutral, it’s whether you can get it through Congress.

    If the American people aren’t smart enough to see why taxing actively discouraging investment is a stupid thing to do, then you take whatever lowest rate you can get on things like capital gains.

    If we end up with different rates, and it’s ultimately becasue voters have different ideas about what’s fair based on different sources of revenue, then you take the lowest rate you can get on each of them.

    Minimizing the total level of taxation is much more important than whether any particular rate is tax neutral.

    1. What’s more important: lowering income inequality or giving more tax breaks to the rich?

      1. What’s more important: lowering income inequality or giving more tax breaks to the rich?

        That’s a false choice.

        I’m not convinced lower the tax rate on the rich would increase income equality, and I don’t think lowering income equality necessarily entails taxing the rich.

        The dichotomy between being tax neutral and lowering the level of taxation generally?

        That’s totally real.

        1. If all taxes were low, where would the money come from to pay for social services for the poor, or financial assistance to struggling homeowners?

          1. If all taxes were low, where would the money come from to pay for social services for the poor, or financial assistance to struggling homeowners?

            It would come from the productive use of all that money we put to good use that’s currently being wasted on unproductive government.

            Ever notice that the government never becomes increasingly profitable? It’s always growing, but it never pays a dividend!

            Can you imagine? All those hundreds of billions of dollars currently being wasted on overpaid bureaucrats and their bloated pensions? Put to productive use by investors, managers, employers and, most importantly, employees instead?

            Oh what a wonderful world that would be!

            1. The extra money employers would be allowed to keep would just be kept in their pockets (or their shareholders’ pockets). I doubt any would be given to their employees.

              1. You’ve never seen a business expand before. Believe me, it happens!

                There are companies that are laying people off–as I type–because of their bottom line. Not everybody’s gonna use that money the same way, but they’re all gonna use it as they see fit.

                Oh, and another important point. Businesses wouldn’t just sit on that money–even if they just sat it in an account somewhere, recapitalizing the banks isn’t entirely unwelcome at this point in the economic cycle.

                The better our banks’ bottom lines are, the more they have to count as deposits, the better off the economy is. The problem you’re pointing to, in other words, looks like it might be part of the solution to me!

                1. I still don’t see how the majority of workers would be better off in the long run. Take a strong company, like McDonald’s. It employs hundreds of thousands of people who make minimum wage – not enough to really live a life without undue hardship. Yet, it’s making record profits, none of which are going to employees. I know libertarians like to say, “well, they should get a better job, go to school, or start their own business.” The problem with those solutions is that many of those people who work min. wage jobs just don’t have the talent or connections it requires to start a successful business, nor do they have access to higher ed. without going into severe debt. And a college degree guarantees nothing these days, anyway.

        2. What will convince you?.

          “In 2006, households in the bottom fifth of the income spectrum received tax cuts (averaging $20) that raised their after-tax incomes by an average of 0.3 percent.

          Households in the middle fifth of the income spectrum received tax cuts (averaging $740) that raised their after-tax incomes an average of 2.5 percent.

          But the top one percent of households received tax cuts in 2006 (averaging $44,200) that increased their after-tax income by an average of 5.4 percent.

          Households with incomes exceeding $1 million received an average tax cut of $118,000 in 2006, which represented an increase of 6.0 percent in their after-tax income. That is more than double the percentage increase received by the middle fifth of households.”

          1. Why not cut everyone’s taxes by the same percentage?

          2. But the top one percent of households received tax cuts in 2006 (averaging $44,200) that increased their after-tax income by an average of 5.4 percent.

            Last I checked, people making more than $75,000 a year were paying more than 85% of the income tax payments received by the government.

            So if you cut it evenly across the board, 85% of the benefit is going to be felt by the people who are making the most money.

            How many business owners are in the bottom fifth of the income spectrum? …and how important is it for business owners to have more money if you want them to hire unemployed people? Do you imagine that slashing the income taxes of the poorest Americans will somehow entice them to hire other poor people to work for them?

            1. By the way, I’m actually in favor of eliminating the income tax entirely for people at the bottom of the income spectrum. …in the hope that it will undermine their sense of entitlement.

              They pay such a small share of the income tax anyway–it wouldn’t make that much of a splash.

            2. I don’t have time to dig up all the stats I was looking for, but this is from the Congressional Budget Office…

              The share of taxes paid by the top fifth of the population grew sharply between 1979 and 2007. Almost all of that growth can be attributed to an increase in that group’s share of before-tax income. In 2007, households in the highest quintile earned 55 percent of before-tax income and paid almost 70 percent of federal taxes; for all other quintiles, the share of federal taxes was less than the share of income.

              —CBO, December, 2010

              http://www.cbo.gov/publication/21938

              So, the top 20% pay 70% of the income taxes already. If you cut the tax rate by 5% across the board, the top 20% will get 70% of the benefit, and the people at the bottom of the income scale will get almost none…

              What’d you expect?

              1. Seriously, Tony, tax cuts disproportionately favor people who pay a lot of taxes–is that really a source of outrage for you?!

            3. Do you imagine that slashing the income taxes of the poorest Americans will somehow entice them to hire other poor people to work for them?

              No, and neither do I imagine that’s the case for rich people. Jobs are filled when there is demand for them, not because CEOs have more money in their pockets, which they would be far more likely to spend on stuff for themselves than on charity for the unemployed to fill jobs they apparently don’t need. A job is supposed to be an investment on by the employer, right? There’s plenty of unused capital sitting around now.

              What I quoted says that there was a disparity in after-tax percentage increase in incomes, millionaires compared to the bottom fifth, a disparity of 20 to 1. You’d think the percentages should be higher among lower incomes just by virtue of the smaller denominator.

              1. Jobs are filled when there is demand for them, not because CEOs have more money in their pockets, which they would be far more likely to spend on stuff for themselves than on charity for the unemployed to fill jobs they apparently don’t need.

                Do you know why people go public and float bonds, Tony?

                It’s to raise cash so they can grow or retool or…

                This is absurd. You’re letting your ideology get in the way of common sense. The more money a company has, the less likely they are to lay people off. The more profits a company can keep, the more likely they are to invest in growing their business.

                Have you ever heard of a company that’s losing so much money, management decided to hire more people?

                I wish you’d been around when joe was here. You could have learned a lot from joe. joe was on the left, but I learned a lot from joe! What you’re saying now doesn’t make sense.

                1. Sure capital investments can include hiring new people, but (and I left this part out), there is a conscious lack of a will to grow in this sort of an economy, partly for psychological reasons but largely because of a lack of demand for products to justify expansion. That lack of demand is the same thing as a lack of spending power (obviously not on the part of the rich, but they’re an increasingly exclusive segment and a few extra yachts apiece does not sustained demand growth make).

                  Pay workers more, workers buy stuff, demand increases, hence investment and hiring increase. In high unemployment, the spender of last resort, government, can give a boost. That seems like common sense too.

                  1. More goes into capital investment decisions than just public/private demand. Future burdens placed by the government, like higher taxes to balance spending and a growing regulatory regime, are also important. They may be why many companies invest capital overseas, as much as for the lower wages in foreign countries the left often touts. But inevitably we will disagree over how much this matters relative to demand, so I will just leave it at that.

            4. “How many business owners are in the bottom fifth of the income spectrum? …and how important is it for business owners to have more money if you want them to hire unemployed people?”

              I don’t want business owners to hire unemployed people. I want the government to. And the government can’t hire more people unless they acquire more revenues.

    2. The argument that we must not raise capital gains taxes because if we do, the wealthy will not invest, does not really make sense. Because capital gains taxes tax only the increase in value of the investment, the wealthy will be better off investing their wealth than just sitting on it, even if you increase the capital gains tax from 15% to 35%. Since the rich want to get richer, enlightened self interest will assure that the wealthy will continue to invest even with a 35% capital gains tax.

      Income is income – there is no rational reason to tax a salary-earner at 35% and someone with the same income through investments at 15%.

      1. The argument that we must not raise capital gains taxes because if we do, the wealthy will not invest, does not really make sense.

        DEMAN KURV!

        I’ve raised a gazillion dollars over the past 12 years or so, and I haven’t met a wealthy individual yet who didn’t care about what his return on investment was likely to be.

      2. Because capital gains taxes tax only the increase in value of the investment, the wealthy will be better off investing their wealth than just sitting on it, even if you increase the capital gains tax from 15% to 35%.

        You’re not taking the perception of risk into consideration–and that’s pretty much the whole ball of wax.

        Investors can put money into municipal bond funds or they can buy TIPS, etc. …the interest is low, but then so is the risk!

        The problem with low risk investments like that is they don’t do much to generate economic growth. How many jobs does buying shares in a municipal bond fund generate?

        Contrast that with the risk, potential reward, and contribution to economic growth of an investment in someone’s business, or financing a new office park, or buying part of a secondary offering in a publicly traded growth company…

        It’s no contest.

        1. Anything that decreases an investor’s expected rate of return will discourage an investor from investing.

          Economic growth comes from investment, among a few other things, and increasing the capital gains tax would be really stupid considering that we’re starving for economic growth.

          Think about it.

          Slashing the capital gains tax would be really smart–unless you’re Obama and you don’t care about economic growth so much as you care about pandering to voters in an election year.

          1. DEMAND DEMAND DEMAND DEMAND DEMAND

            It’s all that matters.

            1. When you’re talking about economic policy, it is customary to take economics into consideration.

              And before you criticize something like that, you should probably learn something about it.

              The demand for places to invest money does fall, OTBE, when the rate of return is arbitrarily cropped by raising the capital gains tax.

              Fer sure.

              1. …but please check your sarcasm meter.

                1. I’m not good with that.

                  Never have been.

                  I’m a barrel of laughs that way.

                  Ugh!

                  1. Oh, and in my defense, look at what Tony and WI are always arguing.

                    One man’s sarcasm can look like another’s pearls of wisdom!

          2. He’d be a pretty bad politician not to care about economic growth when he’s up for reelection–that’s an absurd conspiracy theory. To go along with an absurd supply-side economic theory.

            1. Economic growth = too long-term for the majority to comprehend.

              He’d be a bad politician if he quit doling out rent to political supporters.

              1. What value does Limbaugh spew add to any discussion?

                1. ?

                  What value do ad hominems add to any discussion?

                2. So, Tony, every time you mention what could be characterized as left-wing talking points, I’ll just respond: “What value does Olbermann spew add to any discussion?”

                  In the name of fairness.

                  1. While I’m no fan of Olbermann’s histrionics, still quite a bit more valuable than Limbaugh spew, which doesn’t see it necessary to be burdened by facts. (Facts are those things that make people like you into more radical relativists than can be found in English departments.)

                    1. Because I see the world differently, you think I must ignore facts? From my point of view, it is you who ignores the facts in order to support your ideology.

                      Guess what, it’s natural to feel like, if someone disagrees with you, especially on matters that appear self evident, they must be “radical,” “nuts,” “stupid,” “uninformed,” “misanthropic,” etc.

                      BTW, why do you assume I’m just rehashing Limbaugh talking points? I don’t listen to Rush. I don’t listen to talk radio, period, and I rarely watch Fox News or any other conservative-stereotyped news outlet. I’ve put in as many hours into CNN, CBS, and ABC, among others. Remember the old saying about assumptions?

            2. Oh, I was giving Obama the benefit of the doubt!

              My real suspicion is that he’s so incompetent, he doesn’t even know where economic growth comes from! So, like I said, accusing him of demagoguery during an election year is giving him the benefit of the doubt.

              For what it’s worth, I’ve accused Ron Paul of more or less the same thing–just on the other side of the issue. Really, you shouldn’t be offended to see politicians accused of pandering to their constituencies during an election year…

              They’re politicians. That’s what politicians do.

        2. Investors can put money into municipal bond funds or they can buy TIPS, etc.

          The problem with low risk investments like that is they don’t do much to generate economic growth.

          If an investor feels that a bond or other money-market investment is more to his advantage than investing in his business, stocks, etc., then (assuming the investor is rational) it is in the best interest of the overall economy for him to do so. Why? Because the dollars invested in the money market are then available to some other business owner to use, presumably more efficiently than the first business owner. That’s how money markets function in a capitalist economy – interest paid on capital assures that the entity who can most efficiently use the money will use it (although the Federal Reserve’s policy of artificially low interest rates distorts that mechanism somewhat).

          1. Also, taxing capital gains at a lower rate than other forms of income is basically a subsidy to investors at the expense of salary earners and furthermore distorts the free market.

            1. I didn’t say that investing in munis or whatever wasn’t beneficial to anyone.

              Making the investments that really make the economy grow are riskier and hence demand higher returns. When you crimp ireturns by raising the capital gains tax, you are making some investments go without investors.

              I’ve done it myself! Sorry, the returns aren’t high enough to justify the risk. And then the project just doesn’t get done.

              It is inherently more risky to invest in expanding a business than it is to invest in TIPS. In order to attract investment dollars, those businesses need to offer a rate of return high enough to offset the additional risk. But businesses can only offer a return so high!

              If they can’t offer a return high enough, the business just can’t expand. That’s the end of it. Those jobs are never created.

              1. I’ve done it myself! Sorry, the returns aren’t high enough to justify the risk. And then the project just doesn’t get done.

                If the returns aren’t high enough to justify the risk, the project shouldn’t get done – that is basic business/engineering decision making. Biasing the tax code in favor of risky behavior is not in the long-term best interest of the economy. And the idea that large amounts of money are going to sit idle if the tax code doesn’t subsidize capital gains is just wrong – dollars that don’t finance a particular high-risk project will go into the money market where they can finance some other project with a more favorable risk-reward ratio. This is how capitalism works!

                1. “If the returns aren’t high enough to justify the risk, the project shouldn’t get done…”

                  Unless the government gets its cut?

                  Unless the government gets 28% of the investment returns?

                  How many more deals would get done–if only the government weren’t helping itself to 28% of the capital gains in every damn investment?

                  How many people are unemployed because of that? How many people lost their jobs–because the government’s taking its cut made it so the deal couldn’t get done?

                  1. How many more deals would get done–if only the government weren’t helping itself to 28% of the capital gains in every damn investment?

                    I hear you, and do not entirely disagree – I’d like to see all taxes lower (and government spending much lower – deficit spending is a particularly pernicious form of taxation).

                    My problem with your “no capital gains tax” argument is that every thing you just said applies equally to other forms of income tax – income tax raises the cost to hire a person, with the effect that certain business processes/activities may not be cost-affective under high income taxes but would be cost effective under low income taxes. Hence income taxes can effect the financial viability of a project just as capital gains taxes can.

                    1. The other issue I have is that capital gains taxes don’t really stop money from being invested, they just influence which projects/initiatives get the investment. Investors with money are not going to let it sit idle – taxation+risk may make one project unacceptable to investors, but that just frees up their cash for some other project with a more favorable risk/reward ratio (via money markets).

                      So yes, lets lower taxes, but lets not subsidize investors at the cost of salary earners – we need one (low) income tax rate and a balanced budget, and if we must raise capital gains taxes to do it, so be it.

            2. Raising the capital gains tax means the after tax returns to investors are lower–making it harder to justify the additional risk in expanding a business.

              The capital gains tax should be zero. Neutral taxation is a non-issue compared to anemic economic growth.

      3. Income is income – there is no rational reason to tax a salary-earner at 35% and someone with the same income through investments at 15%

        There is if you want to keep the general level of taxation down, and you can’t get the support to lower income taxes from 35% to 15%.

        1. Let’s split the difference – no more subsidies for capital gains and we’ll lower the maximum income tax to 30% (or some other amount TBD).

          I’m all in favor of lowering taxes, I just don’t want to subsidize investors at the expense of salary earners.

          1. Refer to the many references to the loss of value of investments over time due to inflation.

            Any capital gains regime that does not take into account that money depreciates over time imposes an additional tax on investments. Such a tax will eventually discourage thrift.

            How to compute this loss over time might be a matter for discussion but to ignore the fact that such a loss exists constitutes blindness to the facts.

  15. Seriously? Where did Jill buy stock at a P/E ratio of 1? I want in on that shit. Make it realistic with a P/E ratio of 15, the company earns $7/share and pays $2 in tax, not $35. Way way off example.

  16. I think Mr. Bogle’s comments reflect the fact that Republicans are losing the public debate on taxes. Republicans typically only care about upper echelon marginal tax rates. If they truly believed lower taxes were better they would compromise with the left and lower taxes at the lower marginal brackets.

  17. […] John C. Bogle, who says he is a lifelong Republican, [….]

    Being a Republican does not mean one is for liberty, even in the economic realm.

  18. Judging by the very well-thought-out responses here, generally, I hear one tune…this is all far more complicated than is necessary. We’ll never get past all the bickering (…on those OTHER blogs) unless everyone has a clear idea what is paid, and by whom. The thin filament if sanity in this years republican primaries was the notions forwarded by Rick Perry and Herman Cain pertaining (only) to simplifying the tax code itself. I guess the notion of making who pays what clear is simply not palatable to those pesky “powers that be.”
    For my 2 cents, I dont think that companies should pay any taxes. I think they don’t already, their customers do unless the business is losing money. Let the transfer of final goods bear the tax and create a one-to-one relationship between the collecting of taxes and what the government spends.

  19. Bogle endorsed Obama in ’08, saying that Obama was a rational thinker with moderate political leaning.

    Hence: Bogle is retarded.

  20. Mr. Bogle got his money, but now he wants to increase taxes on people who are trying to become rich like him. If he’s so worried about equality of outcome as far as money is concerned, he should simply donate more of his money to charity or even the government and encourage others in the billionaire’s club to do the same.

    Another thing I find particularly galling is that the entire reason we “need” to raise taxes is to pay for benefits that people of Mr. Bogle’s generation promised to themselves at the expense of future generations. Mr. Bogle is not advocating for greater equality. He is advocating for increasing the disparity in wealth between his generation and the generations that follow.

  21. Corporate lobbies are pushing for lower taxes AND the ability to pay less for labor. Sound business practice, in other words.

    The idea that they’re itching to dole out employment charity, if only government would give them back more money, is absurd.

    1. Corporations made that money by offering products and services people value (well, except for the rent-seeking companies, which you know well that libertarians oppose). As far as I’m concerned, that’s their raison d’etre. If the end of an economy is to provide jobs, then why not oppose the collapse of the typewriter industry? The whale oil industry? The man-powered assembly line?

      Taken to the extreme, why not just pay everyone to do absolutely nothing of value? If that’s absurd, then why should some people get to do just that, while others need to be productive?

      1. (well, except for the rent-seeking companies, which you know well that libertarians oppose).

        Tony’s fine with rent-seeking companies. They’re reliable TeamBlue donors.

      2. “Taken to the extreme, why not just pay everyone to do absolutely nothing of value?”

        We do that they are called “Members of Congress” really hard to find any value they have given in many years.

    2. Who’s claiming “they’re itching to dole out employment charity”, Tony?

      The only thing that anyone’s claiming is that if the costs of employing additional people are lowered it’s very likely that additional people will get employed.

      1. You are wrong. Job creation is a myth. You have to create consumer demand for a product or service. Without a consumer why hire someone to meet a non existent desires. You show me additional customers…they’ll regardless the tax implications.

  22. I’m perfectly fine with taxing capital gains as ordinary income, even though I see the point of money at risk as a valid rationale. But if you’re going to call it double taxation, you’re just taking an absurd leap of logic.

    But dividends actually are double taxed, and should be tax-free either on the corporate side or the shareholder side. I’d prefer the corporate side, but either way would be fine.

  23. Sounds like a rock solid plan to me dude.

    http://www.Gone-Anon.tk

  24. IF you’re going to tax capital gains it should be REAL capital gains. Why the hell should someone be taxed for inflation? Someone who didn’t actually get more purchasing power but simply prevented her money from LOSING value shouldn’t be charged because the investment could buy $100 of stuff a year ago and still can now consists of more pieces of green paper.

    1. Does this apply when you lock in a good rate or have a deal that works to your advantage? Should you not be taxed for that good fortune. If you home appreciates should you just say its inflation and not pay taxes? The answer is called historical value its the only firm basis they have. If you let people set inflation as a basis, people would manipulate it and who do you trust? I don’t trust 1 of the 535 Members of Congress. They have the best job in America, never have to do anything right and get a raise every year regardless the quality of they services provided.

  25. The difference between tool is nothing. The difference is those of wealth have rented the Congress to find a constructive argument to tax there method of earning less. Money is a tool no different than a hammer, wrench, pen, or hands. The difference is those with money can rent the Members of Congress’ pen. How you earn is immaterial…the facts are you earned.

    This is not class warfare. If you and 9 others owned an apartment complex (you owned 74% and the other 9 own the rest equally ) and we made 100K this year. You would get 74K and the rest would be divided amongst the other 9. Now comes the need for maintenance on the roof for 100K. Would it be fair for you the 74% owner to only pay 5K and have the rest of the owners split the rest. That is what we have now. Just pay your share and be happy

  26. John Bogle is a great man that has helped thousands of investers with his no load funds. It is evident now that the poor man is suffering from dementia.

  27. Of course thats what he wants. His bread is buttered via tax deferred accounts. Low capital gains taxes hurt his bottom line.

  28. The problem with low risk investments like that is they don’t do much to generate economic growth.

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