Paying Their Fair Share - The Myth

[DrewEckhardt 0]

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It is a travesty that capital gains get more favorable treatment than the fruits of working.

Just ponder this for a little while. Every single American in this country with a retirement acct will eventually be paying capital gains tax someday.

Hardly any Americans in this country will pay capital gains due to their retirement accounts.

401K withdrawals are taxed as ordinary income.

Defined benefit plan payments are taxed as ordinary income.

Traditional IRA withdrawals are taxed as ordinary income except for the basis from non-deductible contributions wihch is not taxed again.

Roth and Roth 401K withdrawals are not taxed.

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I make roughly 90,000 a year. With all my deductions I pay around 10-15% federal rate (rough guess), assuming I was going to retire now, off of a little less income, and the kids are grown and house paid off, I'm going to be collecting about 75% of my income at 15% tax rate. Manageable, but if we decide to stick it to the capital gainers, the possibility of me retiring before I die, is decreasing rapidly depending on how crazy we get with the rates in the name of fairness.

Capital gains aren't going to be an issue for you unless

1) You sell your home for $500,000 (assuming you're married) or $250,000 (single or widowed) above your basis (purchase price and improvements).

2) You've been investing outside tax advantaged accounts.

3) You start a business or join one early in its life cycle and make up for the reduced salary and/or increased work with a liquidity event.

The third one is the significant one since most people getting "wealthy" from business do so after years of hard work culminating in an overnight liquidity event. I put "wealthy" in quotes since in a long retirement you can only withdraw 4% of the principal each year and I can't consider middle class people retaining their income in retirement "wealthy." A married couple drawing retirement payments matching the $72,743 2008 median income among married couples can only do so indefinitely (Half my grand parents made it past 90, and with improvements in medical care somewhere past 100 is likely) when that's under 4% of their assets which implies non-housing assets must total $1.8M or more in case Social Security becomes more (people who saved already have their benefits taxed) means tested than it is today.

[Gravitymaster 0]

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It is a travesty that capital gains get more favorable treatment than the fruits of working.

Just ponder this for a little while. Every single American in this country with a retirement acct will eventually be paying capital gains tax someday. Raising capital gains is going to make it more difficult for that middle class guy that busted his ass his whole life to make ends meet with what he's managed to scrape up by age 65. Raising capital gains will effect everyone. Not to mention it "could" discourage investing and saving which could cause a whole other slough of problems.

I make roughly 90,000 a year. With all my deductions I pay around 10-15% federal rate (rough guess), assuming I was going to retire now, off of a little less income, and the kids are grown and house paid off, I'm going to be collecting about 75% of my income at 15% tax rate. Manageable, but if we decide to stick it to the capital gainers, the possibility of me retiring before I die, is decreasing rapidly depending on how crazy we get with the rates in the name of fairness.

Everything you attempt to do will have collateral damage on the middle class. Attacking 1% of the population at the cost of everyone with a retirement acct on the basis of them not paying their fair share when those 1% already pay 40% of the taxes, just seems like a path we don't want to go down.

I honestly think we both want the middle class to succeed Kallend, but don't punish me in an attempt to bring down someone that's done better than me.

Now if the country decides to treat capital gains as a regular income tax below age 55 or something along those lines, I've got no problem with that. But even that will have a negative effect on investing. If we want growth, we need investors. That incentive to paying less taxes by investing your money is probably a big part of what will ensure that my acct has grown to a "retireable" figure by the time I hit that age. We all benefit from that. But just jacking up capital gains tax under the premise of the "rich need to pay more" is going to hurt a lot of people.

Really not relevant. Working for a living should not be "penalized" (to use your and gravitymaster's silly concept.) There is absolutely no reason that clipping coupons should get more favorable treatment than working.

Neither is punishing people who saved their money and invested it instead of pissing it away on the latest toy.

[wmw999 2,122]

I'm sorry, it sounds like you're trying to inject actual facts into an ongoing discussion. That's not how we do it here.

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[GeorgiaDon 340]

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Capital gains aren't going to be an issue for you unless ...

Thank you for introducing some actual facts into this discussion, and countering some of the distortions and hysteria.

Don

_____________________________________
Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996)
“Education is not filling a bucket, but lighting a fire.” (Yeats)

[GeorgiaDon 340]

That's kind of funny, two posts 1 minute apart, both referring to "actual facts". Some kind of harmonic convergence I guess.

Don

_____________________________________
Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996)
“Education is not filling a bucket, but lighting a fire.” (Yeats)

[wmw999 2,122]

Great minds think alike

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[GeorgiaDon 340]

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Neither is punishing people who saved their money and invested it instead of pissing it away on the latest toy.

Money used to buy the "latest toy" is tax exempt? I did not know that. So all I have to do is spend all my money on toys and I'll never have to pay taxes? What a country!

Don

_____________________________________
Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996)
“Education is not filling a bucket, but lighting a fire.” (Yeats)

[kallend 1,623]

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It is a travesty that capital gains get more favorable treatment than the fruits of working.

Just ponder this for a little while. Every single American in this country with a retirement acct will eventually be paying capital gains tax someday. Raising capital gains is going to make it more difficult for that middle class guy that busted his ass his whole life to make ends meet with what he's managed to scrape up by age 65. Raising capital gains will effect everyone. Not to mention it "could" discourage investing and saving which could cause a whole other slough of problems.

I make roughly 90,000 a year. With all my deductions I pay around 10-15% federal rate (rough guess), assuming I was going to retire now, off of a little less income, and the kids are grown and house paid off, I'm going to be collecting about 75% of my income at 15% tax rate. Manageable, but if we decide to stick it to the capital gainers, the possibility of me retiring before I die, is decreasing rapidly depending on how crazy we get with the rates in the name of fairness.

Everything you attempt to do will have collateral damage on the middle class. Attacking 1% of the population at the cost of everyone with a retirement acct on the basis of them not paying their fair share when those 1% already pay 40% of the taxes, just seems like a path we don't want to go down.

I honestly think we both want the middle class to succeed Kallend, but don't punish me in an attempt to bring down someone that's done better than me.

Now if the country decides to treat capital gains as a regular income tax below age 55 or something along those lines, I've got no problem with that. But even that will have a negative effect on investing. If we want growth, we need investors. That incentive to paying less taxes by investing your money is probably a big part of what will ensure that my acct has grown to a "retireable" figure by the time I hit that age. We all benefit from that. But just jacking up capital gains tax under the premise of the "rich need to pay more" is going to hurt a lot of people.

Really not relevant. Working for a living should not be "penalized" (to use your and gravitymaster's silly concept.) There is absolutely no reason that clipping coupons should get more favorable treatment than working.

Neither is punishing people who saved their money and invested it instead of pissing it away on the latest toy.

1. Taxes aren't punishment.

2. I'm glad you agree then that all sources should be taxed the same way and that income from WORK should not be treated less favorably.

...

The only sure way to survive a canopy collision is not to have one.

[Gravitymaster 0]

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Neither is punishing people who saved their money and invested it instead of pissing it away on the latest toy.

Money used to buy the "latest toy" is tax exempt? I did not know that. So all I have to do is spend all my money on toys and I'll never have to pay taxes? What a country!

Don

Funny, considering your rant from earlier today.

[Gravitymaster 0]

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It is a travesty that capital gains get more favorable treatment than the fruits of working.

Just ponder this for a little while. Every single American in this country with a retirement acct will eventually be paying capital gains tax someday. Raising capital gains is going to make it more difficult for that middle class guy that busted his ass his whole life to make ends meet with what he's managed to scrape up by age 65. Raising capital gains will effect everyone. Not to mention it "could" discourage investing and saving which could cause a whole other slough of problems.

I make roughly 90,000 a year. With all my deductions I pay around 10-15% federal rate (rough guess), assuming I was going to retire now, off of a little less income, and the kids are grown and house paid off, I'm going to be collecting about 75% of my income at 15% tax rate. Manageable, but if we decide to stick it to the capital gainers, the possibility of me retiring before I die, is decreasing rapidly depending on how crazy we get with the rates in the name of fairness.

Everything you attempt to do will have collateral damage on the middle class. Attacking 1% of the population at the cost of everyone with a retirement acct on the basis of them not paying their fair share when those 1% already pay 40% of the taxes, just seems like a path we don't want to go down.

I honestly think we both want the middle class to succeed Kallend, but don't punish me in an attempt to bring down someone that's done better than me.

Now if the country decides to treat capital gains as a regular income tax below age 55 or something along those lines, I've got no problem with that. But even that will have a negative effect on investing. If we want growth, we need investors. That incentive to paying less taxes by investing your money is probably a big part of what will ensure that my acct has grown to a "retireable" figure by the time I hit that age. We all benefit from that. But just jacking up capital gains tax under the premise of the "rich need to pay more" is going to hurt a lot of people.

Really not relevant. Working for a living should not be "penalized" (to use your and gravitymaster's silly concept.) There is absolutely no reason that clipping coupons should get more favorable treatment than working.

Neither is punishing people who saved their money and invested it instead of pissing it away on the latest toy.

1. Taxes aren't punishment.

2. I'm glad you agree then that all sources should be taxed the same way and that income from WORK should not be treated less favorably.

Yes, a flat tax or national sales tax would not punish those who work hard. It would also do away with exemptions that allow some to get away with paying no federal income tax. Eliminate all exemptions including mortgage deductions and then cut government spending way back.

[diverborg 0]

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401K withdrawals are taxed as ordinary income.

Defined benefit plan payments are taxed as ordinary income.

Traditional IRA withdrawals are taxed as ordinary income except for the basis from non-deductible contributions wihch is not taxed again.

Roth and Roth 401K withdrawals are not taxed.

Was not aware of this, thanks for clarifying. Makes me feel a little better. Pretty much makes my point pointless then, aside from the market consequences of perhaps discouraging investing.

[GeorgiaDon 340]

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Since you'll have:

1- no savings interest income
2- no dividend income
3- no annuity income
4- no capital gains from any stock or mutual fund sale

Than yes, you won't pay any taxes

Some of us work for a paycheck. We can't all be trust fund babies or day traders.

Don

_____________________________________
Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996)
“Education is not filling a bucket, but lighting a fire.” (Yeats)

[kelpdiver 2]

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401K withdrawals are taxed as ordinary income.

Defined benefit plan payments are taxed as ordinary income.

Traditional IRA withdrawals are taxed as ordinary income except for the basis from non-deductible contributions wihch is not taxed again.

Roth and Roth 401K withdrawals are not taxed.

Was not aware of this, thanks for clarifying. Makes me feel a little better. Pretty much makes my point pointless then, aside from the market consequences of perhaps discouraging investing.

probably shouldn't make you feel better - this is another case where the tax code favors those with more capital - capital gains currently get taxed at 15% if you hold for 12+ months. It may go up to 23.9% on Jan 1, but that's still lower than the marginal rate (but not blended) that people will pay when they draw from their 401k/ira balances.

[kelpdiver 2]

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Not completely pointless since you'll need more than just 401k and IRA savings to retire. Those contributions are capped. Even if you socked away 16k a year in your 401k (which I believe is close to the max) that will be 560k in contributions over 35 years.

someone that maxes out their 401k contribution for 35 years will be doing just fine. I got that as resulting in 1.9M. (at 4%, 76k per year) But that max contribution trends up with inflation so it will be up to 30k max contribution in 35 years. And you can still contribute to an IRA if you choose, though if you can't make it or convert it to a roth, you'd be better off with a broad index ETF in a taxable account.

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To reach Drew's 'magic number' (using today's dollars) of 1.8M you'd need a 6% average annual return after inflation. There's talk among the 'powers that be' of forcing 401ks and pensions funds into low return government debt instruments which would be devastating down the road as you just wouldn't be able to get there on 401k alone.

there is all sorts of talk that have as much relevance to reality as a Ron Paul rally. Doesn't pass any sort of examination since already pension funds are underfunded and lowering the expected rate of return will explode the numbers.

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Anyone who can should be socking away in the Roth portion as it is obvious that over the years taxes are only going to go UP!

How do you know they won't change the rules? You pay your maximum marginal tax rate on your roth contributions. For me, that's roughly 35%. Even with rates going up, the lower brackets aren't going to be higher than that. A mix of taxable, traditional retirement, and roth money + home equity gives you the ability to minimize taxable income in retirement years, regardless of how laws and rates change.

[kelpdiver 2]

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Great. So we can put you down as supporting a flat tax and eliminating all deductions? Or would you favor a national sales tax?

Oh wait, that's right. You are against anything that doesn't punish successful people.

Taxes are not punishment. They are the dues we pay to belong to an advanced society. It is a travesty that capital gains get more favorable treatment than the fruits of working.

If you really believed that, you would want everyone taxed at the same rate.

Your grasp of basic logic, or English (or both) is remarkably poor.

sorry for not cutting as I usual would, but it's important to keep this exchange together.

Kallend, you started this sub thread with a posting about how the tax code is unfair to labor. Or put another way, punishes labor. Unequal tax policy is punishment for some, rewards for others. GM replied with a suggestion of a flat tax for fairness, exactly what it would seem you would want. How is his logic poor?

Point to Gravitymaster, here. You dug your own grave and in just a few postings time.

[davjohns 1]

I'm going to drop back in.

Andy hasn't had time to define 'equivalent burden' for me. I wish he had.

Meanwhile, is there any room for agreement?

What if there were a per capita exclusion, after which a flat tax applied? The basics of life would be covered by the exclusion. I could go for it being variable depending on geography. Some places cost more to live than others. Although, I tend to think that if you can't live someplace, you should try to move. I would also balk at having an exclusion that took into account such voluntary issues as marital status, children and the like. I would prefer government stay out of the family.

So, what if the first $30,000USD or so was tax exempt, and everything over that amount was...17% or so? Play with the numbers any way you want. It's just a concept.

I know it just wouldnt be right to kill all the stupid people that we meet..

But do you think it would be appropriate to just remove all of the warning labels and let nature take its course.

[weekender 0]

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Since you'll have:

1- no savings interest income
2- no dividend income
3- no annuity income
4- no capital gains from any stock or mutual fund sale

Than yes, you won't pay any taxes

Some of us work for a paycheck. We can't all be trust fund babies or day traders.

Don

day traders pay short term capital gains which is taxed as ordinary income,fyi. its clearly in the name, "day". im not an accountant but pretty sure if you buy and sell intra day, that is not considered long term. You might find it easier to insult a profession if you know what your talking about.

i would suggest next time, "Some of us work for a paycheck. We can't all be trust fund babies or portfolio traders."

"The point is, I'm weird, but I never felt weird."
John Frusciante

[kallend 1,623]

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Great. So we can put you down as supporting a flat tax and eliminating all deductions? Or would you favor a national sales tax?

Oh wait, that's right. You are against anything that doesn't punish successful people.

Taxes are not punishment. They are the dues we pay to belong to an advanced society. It is a travesty that capital gains get more favorable treatment than the fruits of working.

If you really believed that, you would want everyone taxed at the same rate.

Your grasp of basic logic, or English (or both) is remarkably poor.

sorry for not cutting as I usual would, but it's important to keep this exchange together.

Kallend, you started this sub thread with a posting about how the tax code is unfair to labor. Or put another way, punishes labor. Unequal tax policy is punishment for some, rewards for others. GM replied with a suggestion of a flat tax for fairness, exactly what it would seem you would want. How is his logic poor?

Point to Gravitymaster, here. You dug your own grave and in just a few postings time.

"Fair" is meaningless as I have written many times previously.

All sources of income should be treated identically. Doesn't mean the rate structure can't be progressive. FICA, for example, is regressive, which is bad.

...

The only sure way to survive a canopy collision is not to have one.

[champu 1]

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probably shouldn't make you feel better - this is another case where the tax code favors those with more capital - capital gains currently get taxed at 15% if you hold for 12+ months. It may go up to 23.9% on Jan 1, but that's still lower than the marginal rate (but not blended) that people will pay when they draw from their 401k/ira balances.

So... stupid concept to throw darts at... a separate progressive tax structure for long-term capital gains and qualified dividends... ...what might the brackets look like?

Combined with, and the devil is in the details here, a reform of how you're allowed to calculate your basis for long-term capital gains to stop people from pretending their salary was actually a return on an investment.

[champu 1]

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...as I have written many times previously...

...FICA, for example, is regressive, which is bad...

And the merry-go-round does another lap...

[normiss 622]

The clown music is getting old.

[davjohns 1]

I find it interesting that I threw out an idea to try to move toward a concensus and nobody mentioned it. I'm pretty well convinced the point of this forum is argument. Not debate. The full-on, pointless type of argument Monty Python satirized in one of their skits.

I know it just wouldnt be right to kill all the stupid people that we meet..

But do you think it would be appropriate to just remove all of the warning labels and let nature take its course.

[wmw999 2,122]

That, particularly with the geographic exclusion (it can be hard to move when you're poor, particularly if you have a family, or family support), goes a fair way towards making a fair tax more palatable.

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[wmw999 2,122]

You wrote your post while I was composing mine. All hope is not lost.

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[davjohns 1]

I can always count on you to be reasonable.

I know it just wouldnt be right to kill all the stupid people that we meet..

But do you think it would be appropriate to just remove all of the warning labels and let nature take its course.