During the debate last night Mitt Romney said he would reduce capital gains taxes to ZERO for the middle class. Thoughts on this?
Romney: zero capital gains tax for middle class
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secretwealth
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I have always thought that a small amount of long term capital gains should be tax free. If it was, let say, $20K a year that would allow a retiree to supplement their income by selling appreciated assets. All other long term capital gains would be taxed as regular income. The problem with the current system is that the 1% have found ways to have large amounts of compensation transferred to them as stock that when sold later qualifies as long term capital gains. It is then taxed at 15%. Romney's tax returns showed a low tax rate that was partially because of this technique. Having $20K (indexed for inflation) a year tax free would be no help to the very rich but would help the middle class retiree.
I'm no expert on tax codes, but every year I screw around on TurboTax (or equiv) pretending I am retired... Seems like there are no income taxes on capital gains as long as they're under around $25k (total income).
But I suppose $25k would be considered extreme poverty/barely alive and not middle class by US standards.
But I suppose $25k would be considered extreme poverty/barely alive and not middle class by US standards.
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secretwealth
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There is a minimum threshold for capital gains and it's pretty generous--I don't know the exact figure.
Making it higher wouldn't be a tax break for the middle class. The middle class doesn't earn over $30k annually from capital gains. (I don't consider ERErs part of the middle class--I don't think they fit any of the traditional social classes, actually.)
Making it higher wouldn't be a tax break for the middle class. The middle class doesn't earn over $30k annually from capital gains. (I don't consider ERErs part of the middle class--I don't think they fit any of the traditional social classes, actually.)
Here's my take on the discussion of taxing dividends and capital gains for the middle class. I'll use my situation as an example, and I'll let you decide if the current tax structure is fair to me.
- Single male
- Early 30s
- Live in Chicago
- Income a little above $120,000
- Paid off modest home
- Have adopted a very modest lifestyle, but not quite ERE (saving approximately 75% of my net income.)
Let's look at the taxes I pay on my income. I do not have any dependents and I get no child deductions. I do not have a big mortgage deduction because I made a prudent choice to only buy as much of a home as I need, and I paid it off. The only significant deductions I have on my tax return are: state income taxes (which are 5% of my income, flat rate in Illinois), and property taxes. (Yes, those two other taxes are so high that they, alone, are enough to make me have to itemize.) My top federal tax rate is 28% this year (possibly higher next year.) The Social Security tax on my income is 10.4% this year, but 12.4% in "normal" years without the payroll tax holiday. (This is inclusive of the employer contribution, which I consider would otherwise be my compensation.) Add another 3% for the Medicare payroll tax. Of what is left over, I spend a small fraction of that on living expenses... most of which is taxed at around 10% sales tax in Chicago. After that, I have money left over to invest in dividend paying stocks. Horray. When I get paid a dividend, that is money from a company's earnings that they are paying me. That has been taxed at the corporate tax rate. When it hits my brokerage account, I am taxed on it as well, at my highest marginal federal rate or at 15% depending on how long I've held it. I also owe the state of Illinois 5% on the dividend.
As you can see, any of the amount that I'm able to save and invest, is eaten away, many times over. They want a pound of flesh at every step of the way. The tax code seems to be set up to give incentives for mindless spending, leverage, and consumption.
I hate both candidates, and I think the income tax code is a complete pile of rubbish that should be completely thrown away.
- Single male
- Early 30s
- Live in Chicago
- Income a little above $120,000
- Paid off modest home
- Have adopted a very modest lifestyle, but not quite ERE (saving approximately 75% of my net income.)
Let's look at the taxes I pay on my income. I do not have any dependents and I get no child deductions. I do not have a big mortgage deduction because I made a prudent choice to only buy as much of a home as I need, and I paid it off. The only significant deductions I have on my tax return are: state income taxes (which are 5% of my income, flat rate in Illinois), and property taxes. (Yes, those two other taxes are so high that they, alone, are enough to make me have to itemize.) My top federal tax rate is 28% this year (possibly higher next year.) The Social Security tax on my income is 10.4% this year, but 12.4% in "normal" years without the payroll tax holiday. (This is inclusive of the employer contribution, which I consider would otherwise be my compensation.) Add another 3% for the Medicare payroll tax. Of what is left over, I spend a small fraction of that on living expenses... most of which is taxed at around 10% sales tax in Chicago. After that, I have money left over to invest in dividend paying stocks. Horray. When I get paid a dividend, that is money from a company's earnings that they are paying me. That has been taxed at the corporate tax rate. When it hits my brokerage account, I am taxed on it as well, at my highest marginal federal rate or at 15% depending on how long I've held it. I also owe the state of Illinois 5% on the dividend.
As you can see, any of the amount that I'm able to save and invest, is eaten away, many times over. They want a pound of flesh at every step of the way. The tax code seems to be set up to give incentives for mindless spending, leverage, and consumption.
I hate both candidates, and I think the income tax code is a complete pile of rubbish that should be completely thrown away.
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George the original one
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- Location: Wettest corner of Orygun
I'll clarify that I asked because I'm curious about the (theoretical) impact of this for us ERE types..
Another interesting tax proposal is from the Libertarian candidate (can't recall his name and don't want to look it up on my phone right now). He said in an interview that he wants to eliminate all income tax and create a consumption tax.
Another interesting tax proposal is from the Libertarian candidate (can't recall his name and don't want to look it up on my phone right now). He said in an interview that he wants to eliminate all income tax and create a consumption tax.
I live in a country with zero capital gains tax for everybody, New Zealand
We have elevated property prices as joe average buys 6 properties to "negative gear" and makes money simply by raking in the increased gains.
We also have a high level of personal dept overseas. In our situation previous governments have been fiscally responsible and we have a proportionally low level of government debt, but a ridiculously high level of personal debt,
The properties include farms and residential.
the next generation will be paying for this stupid policy, can't afford to buy a house while their parents often live a life of excess. If children are "lucky" they might be helped from parents, but isn't it better to stand on your own two feet. I digress
During our last election, the opposition campaigned on bringing a capital gains tax. It received very little traction. too many vested interests benefiting from it.
Our reserve bank cannot comment in government policy, but its two main concerns are NZ's high level of private debt and disproportionate investment in property.
Once you go down this road, it is difficult to go back.
I have not get involved in this sort of investing because i believe its morally corrupt, no more than being a beneficiary of the suffering of future generations. And eventually sanity will prevail.
p32
http://www.rbnz.govt.nz/research/bullet ... watson.pdf
and if you want more
http://www.rbnz.govt.nz/research/analyt ... 012_07.pdf
We have elevated property prices as joe average buys 6 properties to "negative gear" and makes money simply by raking in the increased gains.
We also have a high level of personal dept overseas. In our situation previous governments have been fiscally responsible and we have a proportionally low level of government debt, but a ridiculously high level of personal debt,
The properties include farms and residential.
the next generation will be paying for this stupid policy, can't afford to buy a house while their parents often live a life of excess. If children are "lucky" they might be helped from parents, but isn't it better to stand on your own two feet. I digress
During our last election, the opposition campaigned on bringing a capital gains tax. It received very little traction. too many vested interests benefiting from it.
Our reserve bank cannot comment in government policy, but its two main concerns are NZ's high level of private debt and disproportionate investment in property.
Once you go down this road, it is difficult to go back.
I have not get involved in this sort of investing because i believe its morally corrupt, no more than being a beneficiary of the suffering of future generations. And eventually sanity will prevail.
p32
http://www.rbnz.govt.nz/research/bullet ... watson.pdf
and if you want more
http://www.rbnz.govt.nz/research/analyt ... 012_07.pdf
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George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
> I'll clarify that I asked because I'm curious
> about the (theoretical) impact of this for us
> ERE types..
In the end, I think it means very little for ERE types. If you have to save 2 years more expenses or 2 years less expenses to get your number, it is still nearly irrelevant when you're saving 3 years of expenses each year. That amount of money can be won/lost in a single year of investing.
It means much more to people who are only saving 3-6 months of expenses every year. But the slow savers are already saving in tax deferred/exempt accounts.
[edit] Retired folks counting on tax breaks are not in a defensible position. That is, their savings are not robust enough... what will they do should taxes return to prior levels (or go even higher)?
> about the (theoretical) impact of this for us
> ERE types..
In the end, I think it means very little for ERE types. If you have to save 2 years more expenses or 2 years less expenses to get your number, it is still nearly irrelevant when you're saving 3 years of expenses each year. That amount of money can be won/lost in a single year of investing.
It means much more to people who are only saving 3-6 months of expenses every year. But the slow savers are already saving in tax deferred/exempt accounts.
[edit] Retired folks counting on tax breaks are not in a defensible position. That is, their savings are not robust enough... what will they do should taxes return to prior levels (or go even higher)?
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secretwealth
- Posts: 1948
- Joined: Mon Jun 27, 2011 3:31 am
@Chad: While it might not be ideal, how could it be worse than income tax?
My spending would have to be taxed at several hundred percent to outpace my income tax paid.
I live in a state with high income tax (and insanely low "high" brackets) and no sales tax... When I complain about state income tax they always counter with "But there is no sales tax!"
I guess they never figured out they'd have to spend over 100% of their income [which they likely do] to make that a winning trade.
My spending would have to be taxed at several hundred percent to outpace my income tax paid.
I live in a state with high income tax (and insanely low "high" brackets) and no sales tax... When I complain about state income tax they always counter with "But there is no sales tax!"
I guess they never figured out they'd have to spend over 100% of their income [which they likely do] to make that a winning trade.
We have a consumption tax, which i think works well for ERE as we spend a small proportion of "income".
The government said it wouldn't increase and of course it has.
It will have a one off impact on inflation, which eats away at real interest rate returns., but this depends on your view. I'll avoid the detail.
I have a problem with income tax, so many loopholes etc.
This was a tax working party put together by the govt, but they've avoided the recommendations.
http://www.kiwiblog.co.nz/2010/01/tax_w ... eport.html
Anyway one problem with income tax is a large group avoid it and the rest feel the unfairness of the system, leading to an acceptance of under the table payments.
For example a neighbour pays no tax, has a number of under the table sources of income which the inland revenue department wants me to collect information on, His children have schooling, health support etc.
If you receive legit income you're a sitting target.
Personally what about a poll tax, ie a tax on every person for living in a country, that would widen the base. I remember when England did it, so I know its a political no no, but fundamentally......
combined with a consumption tax.
The government said it wouldn't increase and of course it has.
It will have a one off impact on inflation, which eats away at real interest rate returns., but this depends on your view. I'll avoid the detail.
I have a problem with income tax, so many loopholes etc.
This was a tax working party put together by the govt, but they've avoided the recommendations.
http://www.kiwiblog.co.nz/2010/01/tax_w ... eport.html
Anyway one problem with income tax is a large group avoid it and the rest feel the unfairness of the system, leading to an acceptance of under the table payments.
For example a neighbour pays no tax, has a number of under the table sources of income which the inland revenue department wants me to collect information on, His children have schooling, health support etc.
If you receive legit income you're a sitting target.
Personally what about a poll tax, ie a tax on every person for living in a country, that would widen the base. I remember when England did it, so I know its a political no no, but fundamentally......
combined with a consumption tax.
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secretwealth
- Posts: 1948
- Joined: Mon Jun 27, 2011 3:31 am
"Regressive consumption tax sounds great, would really spread the ERE idea."
While punishing poverty and making it harder to save if you're making minimum wage. Doesn't sound great to me.
"Why would consumption tax be so bad? What would happen?"
Without an income tax, sales taxes would have to rise to much higher levels--perhaps 50% or above. (Yes, an arbitrary figure, but probably not that far off.) The poorer you are, the less disposable income you would have to make purchases, making it more difficult to save or invest. Consumption taxes on tuition would also demotivate people from getting an education and improving their lot in life, thus stifling social mobility and retarding the trend of low-wage immigrants using education as a stepping stone to higher pay and greater socioeconomic clout, as has been the case in America since inception.
I think the libertarians who fantasize about no income tax either haven't thought the concept out fully, or they're just really really selfish. Or both.
While punishing poverty and making it harder to save if you're making minimum wage. Doesn't sound great to me.
"Why would consumption tax be so bad? What would happen?"
Without an income tax, sales taxes would have to rise to much higher levels--perhaps 50% or above. (Yes, an arbitrary figure, but probably not that far off.) The poorer you are, the less disposable income you would have to make purchases, making it more difficult to save or invest. Consumption taxes on tuition would also demotivate people from getting an education and improving their lot in life, thus stifling social mobility and retarding the trend of low-wage immigrants using education as a stepping stone to higher pay and greater socioeconomic clout, as has been the case in America since inception.
I think the libertarians who fantasize about no income tax either haven't thought the concept out fully, or they're just really really selfish. Or both.
"the poorer you are, the less disposable income you would have to make purchases" yes... That's the way it works. Is it selfish to think that's how it should be?
The libertarian candidate also explained that the tax rate would not be near 50% (as you can imagine with a libertarian, he'd want significant spending reductions), and that he had a plan for low income citizens - some amount of rebate that they get every year. He explains his plan in an interview that's on YouTube... If I remember I'll find and post it later tonight or tomorrow
The libertarian candidate also explained that the tax rate would not be near 50% (as you can imagine with a libertarian, he'd want significant spending reductions), and that he had a plan for low income citizens - some amount of rebate that they get every year. He explains his plan in an interview that's on YouTube... If I remember I'll find and post it later tonight or tomorrow
Secretwealth is correct the sales tax would have to be very high to replace the income tax. No matter the logic behind it, even if it was sound, the psychology behind the consumer would destroy the economy. The extra money in the check would not offset the sticker shock on all the goods, which would paralyze consumption. Even if this only happened for a few months it would destroy industries and a lot of the economy.
The economic destruction would essentially destroy anyone trying to do ERE, as there wouldn't be anything to invest in. ERE only works because the vast majority of the population barely saves anything.
The consumption tax would also give the 1% a ridiculously small tax and further concentrate income in the 1%. This concentration of wealth was at it's highest...right before both the Great Depression and the Great Recession. Nobles and Lords again I guess. No way for me to become one when my tax is 30 or times what people far wealthier than me have to pay.
The economic destruction would essentially destroy anyone trying to do ERE, as there wouldn't be anything to invest in. ERE only works because the vast majority of the population barely saves anything.
The consumption tax would also give the 1% a ridiculously small tax and further concentrate income in the 1%. This concentration of wealth was at it's highest...right before both the Great Depression and the Great Recession. Nobles and Lords again I guess. No way for me to become one when my tax is 30 or times what people far wealthier than me have to pay.