Taxing Investment Income to fund

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Farm_or
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Taxing Investment Income to fund

Post by Farm_or »

Obamacare.

It's a proposal being considered.

What do you think about that?

halfmoon
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Re: Taxing Investment Income to fund

Post by halfmoon »

I found this confusing until I added the first sentence to the title. :P Aren't we doing this now under Obamacare? Do you mean continuing it is being considered?

I'm enough of a socialist to think that single-payer health care is critical and enough of a bleeding liberal to accept that a lot of my stock dividends and capital gains are achieved on the backs of under-compensated workers. On the other hand: I'm enough of a greedy capitalist to dread the effect personally when we sell some real estate (otherwise not an issue for us).

Of course, it all depends on the use of the funds. If it's just going to benefit insurance companies in some twisted mockery of single-payer, I'm not thrilled.

ebast
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Re: Taxing Investment Income to fund

Post by ebast »

Already de juris in fact:

https://www.irs.gov/uac/newsroom/net-in ... e-tax-faqs

and quite revenue-enhancing.

which at current thresholds I consider an "annoying problem but nice to have" but given existing gubmintal on- and off-balance obligations I think prudent retirement forecasting would have to allow some probability to higher taxes on capital income in the future.

It's a good point on retirement forecasting, though, and one more nice-to-know issue I see many overlook with the Trinity study: besides backtesting over a period encompassing long backwinds of multiple expansion that are not likely to repeat, your Safe Withdrawal Rates of 3% or 4% are pre-tax withdrawals, not post-tax budgets. The argument is that taxes are not much of an impact under the current benign US tax code on investment income but of course that is subject to change.

ThisDinosaur
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Re: Taxing Investment Income to fund

Post by ThisDinosaur »

Bernie's campaign website had a study showing tax funded single payer doesnt negatively impact investment returns because employers arent buying healthcare anymore. Probably cherry picked the study, but it could conceivably work that way IFF implementation was done competently.

With Obamacare as is i.e, the mandate, the exchanges, the medical device tax....who knows.

IlliniDave
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Re: Taxing Investment Income to fund

Post by IlliniDave »

In the interest of fairness I'd ask why is it the responsibility of only those who put their resources at risk to fund healthcare? One of my pet peeves is when people look at investors like they are getting money for nothing and so they don't really "deserve" it.

Seems reasonable part of it could come from interest/dividend and capital gains taxes, but I'd be in favor of a more widespread mechanism to raise revenue if we wind up down that path. It wouldn't take a heck of a lot of surtax on investment income for me to just put all my taxable assets in tax-exempt accounts or settle for a MM (I don't think we'll be seeing sustained periods of much above token returns in the intermediate future). You'd also have to factor in what would happen to healthcare during a healthy bear market where gains could turn negative and dividends shrivel for a time.

An add-on to the current SS tax with the add-on carried into interest, CG, and div income might be reasonable though. That's not all that different than my understanding of the current situation except it would extend the surtax down so that we all pay it rather than just the ~$200K (whatever the exact figure is) and up earners.

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Chris
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Re: Taxing Investment Income to fund

Post by Chris »

There's a reason why the NII tax only applies to income levels north of ~$200k: because it would otherwise hit a lot of retired senior citizens. And seniors are the strongest voting bloc.

This is why I like qualified dividends, because the likelihood of a tax change is low thanks to a horde of angry old people (-:

IlliniDave
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Re: Taxing Investment Income to fund

Post by IlliniDave »

Chris wrote:
Thu Jul 06, 2017 10:48 pm
There's a reason why the NII tax only applies to income levels north of ~$200k: because it would otherwise hit a lot of retired senior citizens. And seniors are the strongest voting bloc.

This is why I like qualified dividends, because the likelihood of a tax change is low thanks to a horde of angry old people (-:
I'm close to being one of them! :) AARP starts recruiting you when you hit 50. There's also some vilification of the wealthy at play in that taxing strategy. A large swath of voters like seeing things that "stick it to the rich guy", especially when they benefit from it.

There are differing philosophies. Seems younger people tend to look at medical insurance (including Medicare) as, "I paid X this year but I got less than X out this year so bad deal." Older people look at it like, "I dutifully paid into "the system" for decades and now it is time for me to get the benefit I paid for". Throw in a new tax to fund medical and most everyone will be unhappy. But if we collectively want to pay for most of everyone's medical expenses, we collectively have to open up our wallets to do so. There is too much money in question for it to be a purely "Yes! But make someone else pay for it," solution.

Chad
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Re: Taxing Investment Income to fund

Post by Chad »

IlliniDave wrote:
Fri Jul 07, 2017 5:38 am
Older people look at it like, "I dutifully paid into "the system" for decades and now it is time for me to get the benefit I paid for". Throw in a new tax to fund medical and most everyone will be unhappy.
Except, they didn't pay enough, which is basically the problem with all these programs (medicare, soc security, etc.). Of course, they knew they weren't paying enough and did nothing about it. This is a slightly different thread topic, so I won't hijack it any further.

ThisDinosaur
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Re: Taxing Investment Income to fund

Post by ThisDinosaur »

Too late. Thread hijacked.

If I save for years, I'm intending to give my older self that savings to spend. If my parents don't save, I end up spending the savings on THEIR older selves. Social security and medicare are the same thing at the national level. Either young people are being forced to save for their own future, or they are being forced to pay for their present-day elders. You can't have both or you overstress the savers and you can't have either if their are more elders than savers.

Its us vs. them. Elders from the future vs. elders from the present.

IlliniDave
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Re: Taxing Investment Income to fund

Post by IlliniDave »

Chad wrote:
Fri Jul 07, 2017 5:54 am
IlliniDave wrote:
Fri Jul 07, 2017 5:38 am
Older people look at it like, "I dutifully paid into "the system" for decades and now it is time for me to get the benefit I paid for". Throw in a new tax to fund medical and most everyone will be unhappy.
Except, they didn't pay enough, which is basically the problem with all these programs (medicare, soc security, etc.). Of course, they knew they weren't paying enough and did nothing about it. This is a slightly different thread topic, so I won't hijack it any further.
No argument there, except in their defense they paid (involuntarily) what the law required, and I'd hazard that the vast majority weren't really conscious and aren't now about the deficit (arguably that's culpable ignorance, but it is what can happen when people trust our government to take care of them rather than being proactive and taking measures on their own). What we are discussing here goes well beyond "fixing" Medicare (which should be done, but it is separate from ACA). As it applies to "seniors", in taking money from everyone for ACA we'd be forcing them to pay into a relatively new system that they likely never in the past, essentially by law can't now, nor in the future, benefit from directly, so it's understandably a bitter pill to ask them to swallow at that stage in their lives. But if taxpayer-funded medical care is how we want to go, then taxpayers have to fund it, so there will be plenty of bitter pills to go around.

Chad
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Re: Taxing Investment Income to fund

Post by Chad »

I don't mind paying and, to be completely honest, I don't care if old people have to swallow a bitter pill. Be nice for the Boomers to shoulder a little of the burden for once in their lives. Of course, how is it bitter when they would essentially just be paying what they already should have paid over the years for their own care? That's rhetorical. You don't have to answer. Again, I'm getting off topic.

On topic...I'm definitely fine with raising taxes on high earners a little and on extremely high earners more. Essentially, the tax argument Buffett always makes.
http://money.cnn.com/2013/03/04/news/ec ... index.html

IlliniDave
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Re: Taxing Investment Income to fund

Post by IlliniDave »

Chad wrote:
Fri Jul 07, 2017 6:52 am
... Of course, how is it bitter when they would essentially just be paying what they already should have paid over the years for their own care? That's rhetorical. You don't have to answer. Again, I'm getting off topic.
I'll answer because in my mind it is a simple answer and not terribly off-topic. We're basically talking about two different hypothetical tax increases, one to fund ACA (the very poorest/Medicaid recipients aside, current seniors bought/earned their own insurance and/or paid their bills as they went) and one to "fix" Medicare. It's hard to argue they should have paid more in the past for the former, a program they are explicitly/permanently excluded from by age and that didn't even exist for most/all of their pre-senior lives. To me that's a different scenario than a measure intended solely for Medicare, which seniors are receiving and we younger people have reasonable expectation of participation in the the future. I'm not saying taxing everyone (seniors included) for ACA isn't the answer, but I don't think we can make a blanket argument that seniors today as a class owe a debt to the ACA program for past underpayment. Of course, as time goes on that changes, and 40-50 years from now future seniors will have had an entire working life where ACA was at minimum an option/fallback for them.

Chad
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Re: Taxing Investment Income to fund

Post by Chad »

IlliniDave wrote:
Fri Jul 07, 2017 8:28 am
...but I don't think we can make a blanket argument that seniors today as a class owe a debt to the ACA program for past underpayment.
Our differences really can be simplified. The boomers owe younger generations a debt. This is the blanket statement. How or what this debt goes against can be discussed (repaid through ACA, straight cash...lol, fully funding social security, etc.), but it needs to be repaid. I'm fine with it going against some version of ACA, single payer, etc. Part of this repayment could be some type of high income/investment tax increase. Of course, I don't think we will ever be repaid.

IlliniDave
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Re: Taxing Investment Income to fund

Post by IlliniDave »

Chad wrote:
Fri Jul 07, 2017 9:20 am
IlliniDave wrote:
Fri Jul 07, 2017 8:28 am
...but I don't think we can make a blanket argument that seniors today as a class owe a debt to the ACA program for past underpayment.
Our differences really can be simplified. The boomers owe younger generations a debt. This is the blanket statement. How or what this debt goes against can be discussed (repaid through ACA, straight cash...lol, fully funding social security, etc.), but it needs to be repaid. I'm fine with it going against some version of ACA, single payer, etc. Part of this repayment could be some type of high income/investment tax increase. Of course, I don't think we will ever be repaid.
Okay, I see what you are saying. I wouldn't assign the blame solely to the boomers as a demographic. It's on a whole swath of our culture that spans many generations. If we just fix (really fix) the medical stuff (Medicaid, Medicare, and whatever stands in place of ACA) a huge chunk of projected future liabilities that are unfunded goes away (SS is really only a small fraction, and should be fixed to). But no generation appears to have the collective political will to be financially responsible. The subset of people who politic for it are generally vilified for being too far right (or maybe too far left in a few cases). Americans want more from the gov't and someone else to pay the taxes. But that is definitely getting far off topic, so I'll bow out of this one. As I said before, if we want taxpayer-funded medical, taxpayers have to pay for it. Few of us will like it. Some of it could come from a moderate bump in dividend, interest, and capital gains taxes.

Dragline
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Re: Taxing Investment Income to fund

Post by Dragline »

Yeah, OP scenario is the law already. Maybe hearkens back to the original income tax concept, that was only supposed to be paid by the top 1% of income earners. ACA has a hodge-podge of revenue sources, though, that was clearly cobbled together to meet revenue projections.

I think how things are paid for and what is being paid for are not necessarily related questions. Could be, but don't have to be.

Sometimes I wonder if we shouldn't pool all broad-based entitlements like social security and medicare and then give people a boost or subtraction to the social security side depending on how much is actually spent on the medical side. I wonder if old people would form their own death panel committees to recommend or hasten the demise of their peers who use a lot of medical care. I bet opposition to euthanasia/assisted suicide would drop substantially, especially as the boomer generation hits full retirement. :twisted:

Chad
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Re: Taxing Investment Income to fund

Post by Chad »

Yeah, specific taxes don't have to be designated for specific things. Though, without doing that it would probably be harder to make sure something is paid for.

I kind of like your entitlement pool idea. Especially, putting the old geezers in their own version of the Hunger Games. :)

vexed87
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Re: Taxing Investment Income to fund

Post by vexed87 »

ThisDinosaur wrote:
Fri Jul 07, 2017 6:24 am
Either young people are being forced to save for their own future, or they are being forced to pay for their present-day elders. You can't have both or you overstress the savers and you can't have either if their are more elders than savers.
I'm 29, and this is exactly why I stopped paying into the UK's ludicrous government backed, but unfunded NHS public pension 'scheme'. Note the word scheme, not fund! Retirement age will inevtibly get pushed back as the scheme falters, my gut says at least to 70, possibly later. It's already at 65, you can go early, but expect to take a massive haircut in payments. The way I see it, I may well be dead by that age. If there's no stomach for increasing retirement age, the only way to maintain the funds is raise taxes, or drop the link to inflation by fudging the figures. In reality, I think we will see see a combination of all three stratergies in a long term crisis. We all know politicians prefer the latter option though, and that's a real killer.

I have no doubt taxes will go up to shore up this plus all other government backed 'schemes' in the event of a crisis. Perhaps we will even witness day-light raids on private invested wealth, which I hazard a guess will be much more likely if we see a left wing government come to the reigns during a crisis. However I'm hopeful this could only go so far before the general public lose their nerve and there's a backlash against percieved higher taxes. I do worry taxes it might come under the rouse of taxing the 'rich' but hitting small time inversters like us ERE's. After all, only the rich invest in the markets, right? Still, I can't see generous public sector pensions being protected long term whilst younger generations struggle to make ends meet. That can only go on so long before something snaps in the public consiousness. Public sector pay in the UK is taking a hammering right now, and hasn't risen with inflation since 07'. This is why I doubt very much that pensions will get better treatment.

Conventional wisdom dictates this (ponzi- my words) scheme is one of the best UK pensions going, and a financial advisor pal of mine has pleaded with me to stick with it, thanks to the generous 14% contribution my employer makes. I had to point out to my pal that really my employer is contributing to an unfunded scheme, i.e. paying towards some older generations cushy retirement. There's no account with my name on it, and the scheme is liable to change drastically over time. Who knows what it will look like when I reach 70 years of age. The scheme benefits have changed considerably since the last recession, there's not telling how much worse it could get.

I see where my pal is coming from regarding missing out on the employer contributions. Right now, I'm not getting tax relief on my savings as investments are after tax, but there's no facility to take a lump some later to manage it myself, and even if there was, it would certainly be taxed then anyway. However right now, I get tax free captial gains in the UK ISA saivings accounts. My big concern is that this dissapears in the future, so I need to save more for that possible outcome.

As far as my views on the future go, they are extreme and my pals advice stems from rose-specticals techno-utopia future, the way I see it, if I truly believe there's going to be a pension crisis, I'm going to have to put my money where my mouth is and invest privately for my own future, rather the invest in the government ponzi pension scheme, despite the conventional wisdom. It might pay off to stick with it, but I don't think it's going to last long term, particuarly if low-growth, post-industrial future comes to pass. Even if that future means higher taxes on my private invested wealth/income at least it's my money to take when I please, and I don't have to yeild to the wimbs of policy makers about a suitable retirement age. I'll shield myself from outcomes of higher taxation and raids on wealth by living simply, and not really needing the money. By retaining skills, and mainting productive hobbies, it won't matter if every last penny dissapears in the name of taxes, I'll still be able to generate an income. Though, even with my extreme views, I don't see any government getting ever last penny in the name of justice for the retired. And if I'm wrong about the post-growth, decline, well, my wealth won't be taxed either!

Lemon
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Re: Taxing Investment Income to fund

Post by Lemon »

@Vexed87 Actually for your (and my) age the age for full NHS pension is 68

I still pay in to mine though as a hedge. It is 'only' ~10% of my pre tax income so seems with the gamble to build in another line of income that in addition to whatever my SP might be I would be able to fully fund living off just that (which given the years I am likely to contribute assuming ERE and leaving numbers work out).
I think it is less likely to be catastrophically cut than you given the fact the NHS is a huge employer and not many people are paid that much in it. The average NHS pension is pretty small and it would be a big political issue to take it all away. I think possibly making contributions more and extending the age are the most likely. Reducing the inflation link maybe too. But it is a relatively small amount of my income to give up on a bit of a gamble. Relying on it would be madness I agree.
I think the other thing is hammering the wealthy contributors as they did in the last reform. Consultants and Hospital Drs got burned (not they they realised it) by the move to CAE from Final Salary.

More on topic there are some calls here for a NHS/social care tax. They have already more than halved dividend allowances and capped tax free saving in pensions so we are already on the route here! But at ERE levels of spending most of these don't seem to be much of a problem, just wealthy people complaining £1,000,000 isn't enough to live on in retirement. So many people just think £10k or less a year to live off is impossible and the government seems to think so too. Less than that in income I don't think is going to have tax implications particularly likely. I can as you mention see them going after ISA 'millionaires' which has some cause for concern.

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