Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 06-20-2010, 01:05 PM   #41
Moderator Emeritus
 
Join Date: Oct 2007
Posts: 4,929
Quote:
Originally Posted by dex View Post
What do you mean by 'effective'?
I assume he meant 'effective tax rate', the actual income tax paid divided by net taxable income before taxes.

The Tax Reform Reconciliation Act of 2001 and it's followups had minimal effect on my effective tax rate (29.1% to 28.6%; I was still working then, and in a high bracket.) The real savings didn't start to show up until you got to a very high six figure/low seven figure income, where the top bracket changes covered a significant part of one's income, or at the other end of the range, if one had a 'barely taxable' income and suddenly dropped to an effective rate of zero.

It would be pretty easy to make the argument that the folks who slid from an effective federal tax rate of 1-2% to zero benefited the most in terms of improving their economic condition. I remember from my youth when bringing in an extra 60 or 70 dollars in a month made a huge difference for our little family. The break at the high end was a bit of a gift.
__________________

__________________
M Paquette is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-20-2010, 01:15 PM   #42
Full time employment: Posting here.
Delawaredave5's Avatar
 
Join Date: Dec 2004
Posts: 606
Quote:
Originally Posted by jebmke View Post
and what, kill themselves to avoid the tax increase?
Agree. I see a lot of "house is burning" and "taxes-are-going-up" articles (which I agree with) - but I do not see a whole lot of actionable advice. Yea, the usual "time your bonus" suggestions...

Is anyone making material changes to their asset allocations, taxable / tax-advantaged mix, or accumulation / withdrawal strategies as a result of these believed tax changes ??
__________________

__________________
Delawaredave5 is offline   Reply With Quote
Old 06-20-2010, 01:22 PM   #43
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by Delawaredave5 View Post
Is anyone making material changes to their asset allocations, taxable / tax-advantaged mix, or accumulation / withdrawal strategies as a result of these believed tax changes ??
I'm not doing anything yet, other than increasing my emphasis on financial planning for "cost avoidance" or "income avoidance" and putting less emphasis on working more years to increase my retirement income which may largely be offset by higher taxes and lost subsidies and means-tested goodies. The other thing I'm doing is trying to diversify my investments between traditional deferred, Roth and taxable vehicles so I'm more likely to be able to "engineer" taxable income in any given year to be just below the next higher tax bracket.

One thing seems fairly likely to me: In the future there will be increasingly "diminishing returns" on working more years to increase income, a higher income which, after factoring in higher taxes, less health insurance subsidy and perhaps means-tested Social Security is not nearly "higher enough" to justify the extra years in the w*rk force earning and saving it.

I'm glad this shift is clearly visible now and not 10 years from now, because I still have time to adjust my retirement planning and perhaps save even more aggressively today to pull the plug earlier in a few years.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 06-20-2010, 01:57 PM   #44
Full time employment: Posting here.
Ronnieboy's Avatar
 
Join Date: Feb 2008
Posts: 646
Quote:
Originally Posted by jebmke View Post
and what, kill themselves to avoid the tax increase?

No, b/c then you'd be taxed at 45%, unless you do it quickly.
__________________
I don't want to spend my entire life at work. I deserve more. - Want2retire aka W2R
Ronnieboy is offline   Reply With Quote
Old 06-20-2010, 01:59 PM   #45
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,032
Quote:
Originally Posted by Delawaredave5 View Post
Is anyone making material changes to their asset allocations, taxable / tax-advantaged mix, or accumulation / withdrawal strategies as a result of these believed tax changes ??
Absolutely. I thought that the article gave some good actionable advice and I had already started implementing a lot of it before even reading that article. For example, I used the latest dip in the market to sell some dividend-paying equities (preferred dividends) in taxable and move them to our IRAs. In the meantime, I sold some taxable bonds in the IRAs and bought munis in our taxable account.

"Believed tax changes"? Do you think there is a chance that Congress will block the upcoming tax increases?
__________________
FIREd is offline   Reply With Quote
Old 06-20-2010, 02:43 PM   #46
Recycles dryer sheets
 
Join Date: May 2010
Posts: 95
I have also been buying munis in light of the new taxes the Health Care bill will impose in 2013.

Also, I'm sure there are alot of smart financial planner/accountant types on this board. I'm hoping they can answer the following question:

Will the increase in medicare payroll taxes that takes place in 2013 (1.45% to 2.35%) apply ONLY to wages or to a small firms entire Net Income?

For example, right now my wife and I only pay medicare and social security on the salaries we pay ourselves. We are an S-Corp. The additional shareholder distributions the corporation makes to us throughout the year (essentially the additional net income of the firm) are not subject to these taxes.

Thanks,
__________________
Hiredgun is offline   Reply With Quote
Old 06-20-2010, 02:43 PM   #47
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Quote:
Originally Posted by Delawaredave5 View Post
Is anyone making material changes to their asset allocations, taxable / tax-advantaged mix, or accumulation / withdrawal strategies as a result of these believed tax changes ??
Not us. We have already been investing extremely tax efficiently for the past several years. Our income is less than $200K and we have a few hundred thousand in carryover capital losses to obviate any cap gains tax increases. Our kids are about to enter college, so we will get tax credits for paying education costs for the next 8 years. I would not be surprised if our federal income taxes went to zero.

I think only the folks who deserve to pay income tax will have substantial changes. Of course, if they were not investing tax efficiently already, they should get their act together.
__________________
LOL! is offline   Reply With Quote
Old 06-20-2010, 03:00 PM   #48
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by Hiredgun View Post
No one is asking for sympathy.
I don't want sympathy.
But please understand that when small business people leave the workforce it means "less revenue" for all the rest, not more.
I wasn't asking for a lecture, either, but maybe if you put more words in uppercase then I'll be able to understand them better.

As for "please understand", how 'bout a little credit here? I've never had to make a profit but I've spent a few years making myself quite familiar with small-business taxation and Ayn Rand, too. I spend a significant portion of my free time with people who are starting their own small businesses. What you see as a throttling "boot heel" of over-regulation, others see as a competitive opportunity. They hire tax consultants to figure out more tax-efficient ways to do business.

Quote:
Originally Posted by Rustic23 View Post
Nords you are right, but then it is hard for the person making $20,000 a year to relate to your lifestyle, and that is the problem, imho, with the 'tax the rich more' solution rather than 'spend less' solution.
I just think that there's a lack of fairness when Warren Buffett's tax bracket is lower than his secretary's tax bracket. But I agree that it's better to keep the revenue out of the govt's hands in the first place... perhaps by first lowering the taxes at the lower end of the bell curve rather than rewarding those who have plenty of money to spend on lowering their taxes at the higher end of the bell curve.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 06-20-2010, 03:10 PM   #49
Recycles dryer sheets
 
Join Date: May 2010
Posts: 95
"Deserve to pay" more taxes? "Windfall" due to the government letting me keep my own money?

Boy the mainstream media has done its job and class-warfare is alive and well on these boards. Please stop drinking the cool aid. I'm kind of surprised since most here seem to be frugal savers and all working toward a financial goal, ER. I would think everyone would be rooting for each other to make the finish line. Instead, I see alot of class envy, (i.e. those who deserve to pay more, I don't feel sympathy for those who make alot of money and get socked with more taxes).

Even when I was not in the 1% (only 2 or 3 years ago) I didn't begrudge those that were. I thought, good for them, they worked hard and deserve it. I didn't think, boy they are more successful than me, I hope the government punishes them (through higher taxes). Hey they are a big corp, they can afford to pay more, let's stick it to them.

I see way too much of that already on this board. I'm surprised. I guess people don't realize that my making money (or anyone else making a ton of money) has ABSOLUTELY NO effect on their ability to make a ton of money.

The economy is not a pie where the pieces are limited and if I get a bigger piece, you get a smaller piece. If you work hard, have a great idea, run a good business, your potential gains are unlimited. My making a ton of dough does not affect your ability to go out and make a ton of dough.

Also, the studies show that increases in corporate taxes result in a decrease in the tax revenues the government collects. This is a fact. So raising taxes (especially in a recession) will result in more job losses, more unemployment and less revenue for the Federal Government to give to the State Government workers (i.e. unions).

I will gladly pay my higher tax rate until I too become part of the subsidized middle class in 5 years (through careful tax planning). I won't like the increase, but it will be temporary for me. What I really don't like is the huge impact it will have on the country and my son's future. I doubt he and his generations will have the same opportunities many of us had.
__________________
Hiredgun is offline   Reply With Quote
Old 06-20-2010, 03:13 PM   #50
Thinks s/he gets paid by the post
Rustic23's Avatar
 
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 3,624
You can not compare Tax Rates in the past with Rates today. The tax laws have changed along with the rates. Many things that were deductions in the past are not today. It is not as simple as saying we had higher rates in the past, because it does not reflect the actual percentage of income paid to taxes. I have not seen a comparison of this. You also can't use hard numbers like $1,000,000 because of the time value of money.

People that use the argument of it was higher in the past either don't understand this or are conveniently ignoring it.
__________________
If it is after 5:00 when I post I reserve the right to disavow anything I posted.
Rustic23 is offline   Reply With Quote
Old 06-20-2010, 03:18 PM   #51
Recycles dryer sheets
 
Join Date: May 2010
Posts: 95
Sorry Nords, I didn't mean to lecture you and it wasn't intended as a personal attack. I read your post late last night and was a bit heated. I watch too much political tv and I really am distressed with what I've seen in the last 18 months.

I think the increase in personal and corporate taxation is going to hurt our economy at a time when it can least afford it. I see taxes going up when we just spent 800 billion to send money to State Governments which did not create the "shovel ready" projects that we were told were going to be there. We saw unemployment go to 10% (real unemployment about 17%) when we were told we needed to spend the 800 billion so unemployment would stay below 8%.

While unemployment was high (and still is) we were told the priority was a health care bill that is a bureaucratic nightmare. And they are still spending (i.e. we need another stimulus package and really, really, this time it will work).

Why don't we stop the spending and these tax increases will not be necessary. We are spending the country into oblivion and I agree that the VAT tax will be the next step.

The new taxes are inevitable. And I'm not so much worried what it will mean to me (I'll come out fine and be done in 5 years). I'm more worried about my kid's future. I think we are another Greece in the making.

But I appreciate your input Nords, finding it both intelligent and well thought out. So I apologize if it came out wrong. Thanks,
__________________
Hiredgun is offline   Reply With Quote
Old 06-20-2010, 03:23 PM   #52
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Quote:
Originally Posted by Hiredgun View Post
....
Instead, I see alot of class envy, (i.e. those who deserve to pay more, I don't feel sympathy for those who make alot of money and get socked with more taxes).
I'm sorry I should have been more clear about "deserve to pay". Here it is bluntly:

If you are too stupid to not figure out how to pay less taxes, you deserve to pay more taxes. No "class" envy involved as I used to make quite a lot of money.
__________________
LOL! is offline   Reply With Quote
Old 06-20-2010, 03:24 PM   #53
Recycles dryer sheets
 
Join Date: May 2010
Posts: 95
Thanks LOL! that's much clearer.
__________________
Hiredgun is offline   Reply With Quote
Old 06-20-2010, 03:47 PM   #54
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by Hiredgun View Post
Sorry Nords, I didn't mean to lecture you and it wasn't intended as a personal attack. I read your post late last night and was a bit heated. I watch too much political tv and I really am distressed with what I've seen in the last 18 months.
But I appreciate your input Nords, finding it both intelligent and well thought out. So I apologize if it came out wrong. Thanks,
No offense taken; I approached the issue as a tax question and not a political question.

One of the good things about ER is that almost everyone drops down one tax bracket, sometimes more. Plenty of opportunities there to address future taxation issues.

Some topics, especially those with political aspects, have been repetitively discussed on this board. Members with over 1000 posts are likely to have a more cynical attitude toward the topic and a shorthand response that summarizes their participation in the previous threads. But broadly speaking, this board is not generally a good forum for political discussions. It makes many of the posters (and quite a few of the moderators) grumpy.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 06-20-2010, 07:11 PM   #55
Thinks s/he gets paid by the post
IndependentlyPoor's Avatar
 
Join Date: Jul 2009
Location: Austin
Posts: 1,142
Boy am I gonna regret this, but what the hey...

I think one of the reasons that folks are so riled-up about taxes now is that individuals are paying a bigger share, and that is more visible to us than corporate taxes. I am not making a political comment here, or even a comment on the merits of corporate income tax. Just sayin' that there might be a good reason for folks to be upset about taxes, even though the total government revenue as a percentage of GDP hasn't changed all that much.


What are the federal government's sources of revenue?

Individual, corporate, and payroll taxes as percent of GDP
taxes.gif
Government Taxes and Revenue Chart in United States 1950-2010 - Federal

Total revenue as percent of GDP

Government Taxes and Revenue Chart in United States 1950-2010 - Federal

What, me cause trouble?
__________________
Start by admitting
from cradle to tomb
it isn't that long a stay.
IndependentlyPoor is offline   Reply With Quote
Old 06-20-2010, 07:22 PM   #56
Thinks s/he gets paid by the post
 
Join Date: Jan 2004
Posts: 2,049
Quote:
Originally Posted by Hiredgun View Post
No one is asking for sympathy. I'm just pointing out that if you keep taxing and taxing and taxing those that are productive, smart & hardworking, we will simply stop.
Ayn, is that you?
__________________
eridanus is offline   Reply With Quote
Old 06-20-2010, 07:28 PM   #57
Thinks s/he gets paid by the post
 
Join Date: Jan 2004
Posts: 2,049
Quote:
Originally Posted by Hiredgun View Post
Also, the studies show that increases in corporate taxes result in a decrease in the tax revenues the government collects. This is a fact. So raising taxes (especially in a recession) will result in more job losses, more unemployment and less revenue for the Federal Government to give to the State Government workers (i.e. unions).
Link to the studies, please. There's an entire thread on the Laffer curve and the "facts" are, well, lacking. The sweet spot is somewhere and every economist has their own idea where it is.
__________________
eridanus is offline   Reply With Quote
Old 06-20-2010, 08:54 PM   #58
Full time employment: Posting here.
ESRwannabe's Avatar
 
Join Date: Mar 2010
Posts: 629
For all of you buying munis, don't be too surprised when states stop issuing them in the future. I don't think the "build america bonds" will be a one time thing. Institutional and foreign buyers greatly prefer build america bonds over munis. Who do you think states prefer as clients for their debts, small time retail investors (that includes you 1% income ppl) or institutional and foreign government investors?

If you want to avoid taxes your best bet is probably Berkshire Hatheway stock.
__________________
ESRwannabe is offline   Reply With Quote
Old 06-20-2010, 09:22 PM   #59
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by IndependentlyPoor View Post
Total revenue as percent of GDP
The chart seems to imply that GDP growth has boomed despite attempts to throttle business (and individuals) with taxes. Either that or tax rates are the lowest in 60 years.

I'm trying to see the problem here...

Quote:
Originally Posted by ESRwannabe View Post
For all of you buying munis, don't be too surprised when states stop issuing them in the future.
It'll be interesting to see what happens to muni default rates over the next five years. Maybe they'll stop being issued because the issuers can no longer collect enough tax to pay for the debt.

Quote:
Originally Posted by ESRwannabe View Post
If you want to avoid taxes your best bet is probably Berkshire Hatheway stock.
Worked quite well for us. However in the next 10-15 years (or about an hour after Buffett gives up the job) there will probably be a dividend. It's going to take a long time to persuade investors that Buffett's successor(s) are any good at allocating capital.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 06-20-2010, 09:43 PM   #60
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
dex's Avatar
 
Join Date: Oct 2003
Posts: 5,105
Quote:
Originally Posted by Nords View Post
The chart seems to imply that GDP growth has boomed despite attempts to throttle business (and individuals) with taxes. Either that or tax rates are the lowest in 60 years.
Change the data range to FY2015 and it goes back up.
__________________

__________________
Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral
dex is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Home prices rising in certain areas? xtradoe Other topics 9 04-27-2010 07:33 PM
Bonds and rising rates bobbee25 FIRE and Money 4 09-24-2009 03:18 PM
Rising Rate Fund RockOn FIRE and Money 8 03-25-2008 07:25 PM
bamboo rising lazygood4nothinbum Other topics 24 12-08-2007 06:31 PM
Who's to blame for rising insurance costs? wildcat Other topics 18 12-23-2005 09:26 AM

 

 
All times are GMT -6. The time now is 07:01 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.