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Old 11-09-2008, 01:52 PM   #21
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I think you have to understand how Obama and the democrats think. Someone with a $24,000 per year pension is poor. Someone with $600,000 and no pension is rich. Savers beware, their coming to get you.
Our tax code has always focused on income and ignored wealth. But as the tax code stands today, the person who gets $24K in pension income will pay higher taxes than the person who gets $24K from qualified dividends.
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Old 11-09-2008, 01:54 PM   #22
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Having said that, it is not completely clear to me why we should have a tax code that favors capital over labor, as ours currently does...... If that were your objective, you'd want all sources of income to be treated the same.
This sounds appealing, but it's not the way the world works. Many folks are in jobs where they have almost zero chance of being let go (e.g. government workers). Or they have secure pensions. Those of us who rely on investment income have gotten a pretty good taste this past year of just how insecure investment income can be. Furthermore, without a lower rate on LT capital gains, inflation would likely severely distort the real after-tax return.
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Old 11-09-2008, 01:56 PM   #23
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Yup, this is what he said. Higher dividend & cap rates wouldn't apply to those lower income earners. That was his plan. But remember, he was elected president, not anointed King. There is a House & a Senate that will have some say in whatever policy is ultimately passed.
I understand, but we should stick to facts and so far there is no reason to work ourselves up based on mere speculations about what congress will or will not do. Based on Obama's campaign promises, the only people who should be worked up right now are the people making more than $200K/$250K.
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Old 11-09-2008, 01:58 PM   #24
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So in other words, he would roll back the Bush tax cuts only for those folks making $200K+ for singles and $250K+ for married couples, If I understand correctly. People making less should see their taxes stay the same or go down according to this:

Barack Obama and Joe Biden: The Change We Need | Taxes

How many of you FIREes make above the $200K/$250K a year
This is a good example of why we should discuss this now. The professor did not reference Obama's plan. But Obama is not for the extension of the 2001, '03 changes - he would allow them to expire. The professor wants them changed before they expire.

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Bloomberg.com: Worldwide

"Stiglitz said Obama, who's argued against cutting taxes for upper-income Americans, should also consider rolling back outgoing President George W. Bush's 2001 to 2003 tax cuts as well as taxing dividends and capital gains as ordinary income."

(this is a tax issue; not a political issue - that is why I didn't put it in the soapbox)
This is what the 2001 & 2003 changes did:
Tax Cut Pays Big Dividends

Lower taxes on dividends and capital gains
  • The long-term capital gains rate is now 15 percent for sales on or after May 6, 2003. The old rate was 20 percent.
  • Dividends are now taxed at the new long-term capital gain rates instead of at your ordinary income tax rate, retroactive to Jan. 1, 2003.
  • For people in or below the 15 percent ordinary income tax bracket, the new long-term capital gains rate is 5 percent and goes to zero after 2007.
________
As you can see by eliminating these changes, the poor (15%) are hurt - I would be hurt.
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Old 11-09-2008, 02:04 PM   #25
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I would also like to point out a potential "wrinkle" with what Obama is saying. If he is raising rates on married couples who earn 250K and singles who earn 200K (instead of 125K), won't this automatically re-introduce the "marriage penalty" back into our tax system?
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Old 11-09-2008, 02:09 PM   #26
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Originally Posted by . . . Yrs to Go View Post
Yup, this is what he said. Higher dividend & cap rates wouldn't apply to those lower income earners. That was his plan. But remember, he was elected president, not anointed King. There is a House & a Senate that will have some say in whatever policy is ultimately passed.
Ah! He has an out. He can be just like Bush and blame it on that rascally dem congress.
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Old 11-09-2008, 02:15 PM   #27
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Our tax code has always focused on income and ignored wealth. But as the tax code stands today, the person who gets $24K in pension income will pay higher taxes than the person who gets $24K from qualified dividends.

If all were equal (deductions) I would say both would currently be in the 15% bracket.
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Old 11-09-2008, 02:53 PM   #28
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This is a good example of why we should discuss this now. The professor did not reference Obama's plan. But Obama is not for the extension of the 2001, '03 changes - he would allow them to expire. The professor wants them changed before they expire.



This is what the 2001 & 2003 changes did:
Tax Cut Pays Big Dividends

Lower taxes on dividends and capital gains
  • The long-term capital gains rate is now 15 percent for sales on or after May 6, 2003. The old rate was 20 percent.
  • Dividends are now taxed at the new long-term capital gain rates instead of at your ordinary income tax rate, retroactive to Jan. 1, 2003.
  • For people in or below the 15 percent ordinary income tax bracket, the new long-term capital gains rate is 5 percent and goes to zero after 2007.
________
As you can see by eliminating these changes, the poor (15%) are hurt - I would be hurt.
My understanding is that if you are in the 15% tax bracket now, the 2001-2003 changes would stand: qualified dividends taxed at 15% (is there also a 5% tax bracket for dividends) and LTCG taxed either at 5 or 15%. If I am misunderstanding something then we get into an interesting situation: Dividends would be taxed at your ordinary income tax rate (which is 15% too), so no change there. Now if the LTCG tax goes to 20%, you should probably do some selling now to benefit from the currently lower rate and reorganize your portfolio. In that case, you would actually benefit from putting taxable bonds in your taxable account (almost no growth, mostly dividends taxed at 15%) and keep assets like stocks in your tax-deferred accounts (where the gains would be taxed at 15% when you take the money out and not the 20% on LTCG). Your income would only get noticeably hurt if the majority of your income came from LTCG and not from dividends. If there is currently a 5% tax bracket for dividends, then it could be a much bigger hit.
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Old 11-09-2008, 03:01 PM   #29
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Yup. You're doubly screwed if you don't have kids. Not only do you get to pay extra income taxes to subsidize all those child care & dependent deductions, but you also get to pay school taxes even though you don't have any kids in school. What a bunch of socialists all those parents are.
If you want to renounce any of the products and services that other people's kids will be making available to you, go right ahead and refuse to pay taxes that benefit children. And when you are old, be sure that you go to doctors and dentists who are aliens and hence have not used any services paid for by you. And ditto the trash collectors, the people who turn you over in the nursing home to avoid your bedsores, and .....

People who raise children, especially intelligent well educated children, are giving those who don't a massive free ride.

Ha
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Old 11-09-2008, 03:16 PM   #30
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- us single guys are really getting screwed.

And that seems unfair to married guys who only got married to get screwed. You single guys don't have to pay all the marriage penalities and still get it anyway. Booooo...... Unfair.......
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Old 11-09-2008, 03:18 PM   #31
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won't this automatically re-introduce the "marriage penalty" back into our tax system?
Re-introduce? It's still there for the most part. This will simply expand it.
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Old 11-09-2008, 03:23 PM   #32
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Having said that, it is not completely clear to me why we should have a tax code that favors capital over labor, as ours currently does.
The tax code favors capital over labor to encourage people to put their capital at risk by investing it. A lower tax rate on capital gains = increased interest by the public in investing. And that's good for growth and the economy.

At least that's the theory.
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Old 11-09-2008, 03:26 PM   #33
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The tax code favors capital over labor to encourage people to put their capital at risk by investing it. A lower tax rate on capital gains = increased interest by the public in investing. And that's good for growth and the economy.

At least that's the theory.
Another aspect is that labor income is closed out year by year. Capital gains may go back many years. Treasury has always refused to idex CG to inflation. Hence the absolute need for "favored" CG tax rates.

Ha
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Old 11-09-2008, 03:35 PM   #34
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Another aspect is that labor income is closed out year by year. Capital gains may go back many years. Treasury has always refused to idex CG to inflation. Hence the absolute need for "favored" CG tax rates.

Ha
Thanks..... Forgot the "to compensate for inflation" part which is absolutely correct.
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Old 11-09-2008, 03:49 PM   #35
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The tax code favors capital over labor to encourage people to put their capital at risk by investing it. A lower tax rate on capital gains = increased interest by the public in investing. And that's good for growth and the economy.

At least that's the theory.
There is a saying and I forget by who, but it goes like this: "I was never offered a job by a poor person".
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Old 11-09-2008, 04:25 PM   #36
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I am trying to introduce a double meaning of levity.

Got a reminder in my email to renew my Turbo Tax.

heh heh heh -
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Tax exemption for sale of home
Old 11-09-2008, 04:51 PM   #37
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Tax exemption for sale of home

What concerns me is that I can't seem to get anyone that can say convincingly that there will still be a one time exemption of profit made on the sale of a home up to $500,000. Can anyone out there comment?
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Old 11-09-2008, 05:09 PM   #38
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If all were equal (deductions) I would say both would currently be in the 15% bracket.
Pretty sure if you are in a tax bracket lower than 25% your qualified dividends are taxed at 5%.

Dividends - Tax Glossary
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Old 11-09-2008, 05:10 PM   #39
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If you want to renounce any of the products and services that other people's kids will be making available to you, go right ahead and refuse to pay taxes that benefit children. And when you are old, be sure that you go to doctors and dentists who are aliens and hence have not used any services paid for by you. And ditto the trash collectors, the people who turn you over in the nursing home to avoid your bedsores, and .....

People who raise children, especially intelligent well educated children, are giving those who don't a massive free ride.

Ha
I fully expect to pay for every service I consume (that includes an assumption of no Social Security, Medicare, etc. as these programs are all essentially insolvent). . . I hardly see how paying cash for each and every service is a free ride.

Meanwhile, the point was, the people who complain about "income redistribution" and "socialism" might want to consider the subsidies they receive before complaining too loudly.
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Old 11-09-2008, 05:20 PM   #40
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The tax code favors capital over labor to encourage people to put their capital at risk by investing it. A lower tax rate on capital gains = increased interest by the public in investing. And that's good for growth and the economy.

At least that's the theory.
An economy needs both capital and labor. Capital alone won't grow an economy. Isn't the argument for a low marginal rate to encourage and reward work?

And with respect to inflation I agree that gains should be indexed (notwithstanding the administrative nightmare this would entail).
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