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06-30-2019, 11:33 AM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Posts: 5,350
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Cut capital gains tax?
Looks like President Trump is planning to cut the capital gains tax by executive order. Not sure if that is even legal to do but lets assume that it is. Is this a good thing for the majority of the people or only the wealthy? I would think that many people on here would actually want to pay the tax because it gives them income to qualify for ACA. Thoughts?
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06-30-2019, 01:26 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
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The idea seems to be to inflation index the cost basis, rather than cutting the rate, correct?
I don't get the impression there are that many here who are struggling to get above Medicaid and into the ACA, and are doing it by taking cap gains. I didn't say none, but I'm guessing very few.
Clearly it's a boon for those wealthy enough to invest in the stock market outside of their retirement accounts. That is not the majority of people, though I don't have statistics to back it up.
As far as the economy goes, long term it hurts tax revenue, though probably a lot gets step-up basis anyway. Mostly people will probably just sell medium gainers and reinvest in other things, so it's just money shifting. Maybe a small spending boost. The high gainers might stay put, as stocks like AAPL far outgrew inflation so there would still be a lot of tax due.
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06-30-2019, 02:03 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,901
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Good thing depends on how much money one has with gains pending. This might bring in more tax revenue, but only temporarily and at the detriment of future revenue. Such a change makes retirement accounts less attractive since there cap gains become treated as higher-taxed ordinary income.
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06-30-2019, 02:07 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2011
Posts: 8,410
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Quote:
Originally Posted by aaronc879
I would think that many people on here would actually want to pay the tax because it gives them income to qualify for ACA.
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Can you explain this comment? How does paying tax give you income?
__________________
Living well is the best revenge!
Retired @ 52 in 2005
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06-30-2019, 02:16 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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Quote:
Originally Posted by RunningBum
The idea seems to be to inflation index the cost basis, rather than cutting the rate, correct?
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I did not know about this. Just looked it up, and indeed it was about taxing only the excess portion of capital gain over inflation.
If this comes to pass, then there's an even higher disparity between the treatments of capital gain and interest, if tax on the latter is not also corrected for inflation.
About the legality, are tax laws not passed by Congress, and not in the jurisdiction of the executive branch?
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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06-30-2019, 02:17 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
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Quote:
Originally Posted by marko
Can you explain this comment? How does paying tax give you income?
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I think what he means is, if you are below the ACA minimum, you would have to go on Medicaid (maybe only some states?). So people find ways to generate a little more income to make the ACA minimum. Capital gains is one way. You can only raise your MAGI if you make a gain on the sale. As I said, my understanding is that the proposal is to inflation adjust your basis.
So, at one point you might have sold $5000 worth of stock with a $4000 basis to get the extra $1000 in income you might need to reach the ACA minimum. If they inflation adjust your basis to $5000, your gain would be 0 and it wouldn't help raise your MAGI.
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06-30-2019, 02:19 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2011
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Quote:
Originally Posted by RunningBum
I think what he means is, if you are below the ACA minimum, you would have to go on Medicaid (maybe only some states?). So people find ways to generate a little more income to make the ACA minimum. Capital gains is one way. You can only raise your MAGI if you make a gain on the sale. As I said, my understanding is that the proposal is to inflation adjust your basis.
So, at one point you might have sold $5000 worth of stock with a $4000 basis to get the extra $1000 in income you might need to reach the ACA minimum. If they inflation adjust your basis to $5000, your gain would be 0 and it wouldn't help raise your MAGI.
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Ah! Thanks. I was just thinking of CGs via MFs at year's end. Sorry, half-way through my Manhattan....
__________________
Living well is the best revenge!
Retired @ 52 in 2005
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06-30-2019, 02:23 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Posts: 5,350
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Quote:
Originally Posted by RunningBum
I think what he means is, if you are below the ACA minimum, you would have to go on Medicaid (maybe only some states?). So people find ways to generate a little more income to make the ACA minimum. Capital gains is one way. You can only raise your MAGI if you make a gain on the sale. As I said, my understanding is that the proposal is to inflation adjust your basis.
So, at one point you might have sold $5000 worth of stock with a $4000 basis to get the extra $1000 in income you might need to reach the ACA minimum. If they inflation adjust your basis to $5000, your gain would be 0 and it wouldn't help raise your MAGI.
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Yes, that is what I meant. I forgot that most on this forum are very well off and don't need to 'find' extra income to qualify for ACA, they need to figure out how to limit income to qualify for ACA. If I FIREd I would be struggling to qualify on the low end so extra capital gains income could be helpful to me.
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06-30-2019, 02:30 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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One way to help with the above problem is to not buy index funds, but individual stocks or sector funds that together resemble the index.
Due to sector rotation, very often some sectors would go hot, and others cool down. Looking at the whole market, it may be flat, but you can find the hot sectors and sell them to realize some gain, then buy them back immediately. The wash sale rule does not apply here, because you sell with a gain, not a loss.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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06-30-2019, 02:30 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Location: Northern IL
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Is the idea to apply this to losses too? That could be big write off for some, say an asset purchased for $10,000 in 1999 was sold for $9,000 this year. Instead of a $1,000 loss, would you adjust the cost basis to inflation, and use $15,371.67 - $9,000 for a $6,371.67 loss?
https://www.usinflationcalculator.com/
We have discussed this before, and I do think adjusting cap gains to inflation is the right thing to do. Currently, for the same purchase and sell numbers, someone who owned something for 1 year and a day is taxed the same as someone who held for 30 years. Obviously, inflation changed the actual value of that over 30 years.
-ERD50
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06-30-2019, 02:36 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by ERD50
Is the idea to apply this to losses too? That could be big write off for some, say an asset purchased for $10,000 in 1999 was sold for $9,000 this year. Instead of a $1,000 loss, would you adjust the cost basis to inflation, and use $15,371.67 - $9,000 for a $6,371.67 loss?
https://www.usinflationcalculator.com/
We have discussed this before, and I do think adjusting cap gains to inflation is the right thing to do. Currently, for the same purchase and sell numbers, someone who owned something for 1 year and a day is taxed the same as someone who held for 30 years. Obviously, inflation changed the actual value of that over 30 years.
-ERD50
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Inflation indexing makes sense to me too, but perhaps this could be accompanied with taxing capital gains at regular income tax rates.
Else, investment income has such a high advantage over earned income.
Again, something like this should be passed by Congress, not an executive order.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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06-30-2019, 03:22 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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This reduces taxes for a small slice of Americans:
Quote:
As of 2013,
the top 1% of households owned 38% of stock market wealth.
...
the top 10% own 81% of stock wealth,
the next 10% (80th to 90th percentile) own 11% and
the bottom 80% own 8%.
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But, I'm pretty confident the tax impact is even more skewed than the ownership. As we look down the pyramid, we'll find that higher percents of the stocks that individuals own are inside tax qualified plans. The capital gains treatment isn't relevant for them.
Furthermore, the numbers above sort families based on income, not wealth. If we sorted by wealth we'd get even more concentration at the top.
Yes, some people on this board have enough wealth to hold some of it outside qualified plans. But, they have trivial amounts compared to the small slice at the top.
https://en.wikipedia.org/wiki/Wealth...p_distribution
And, we already have a $1 trillion annual deficit.
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06-30-2019, 03:51 PM
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#13
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,901
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Taxing only the real cap gain is an interesting idea, though it adds another level of complexity to the cost basis calculation. Someone who has held a MF on reinvest would have to apply a different inflation index for each reinvestment, at least for ones old enough to not have been tracked by a brokerage.
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06-30-2019, 03:51 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by NW-Bound
Inflation indexing makes sense to me too, but perhaps this could be accompanied with taxing capital gains at regular income tax rates.
Else, investment income has such a high advantage over earned income.
Again, something like this should be passed by Congress, not an executive order.
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I agree. I am okay with indexing as long whatever income remains gets taxed as ordinary income. But given that, I favor only a somewhat complicated partial indexing.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.
"I want my money working for me instead of me working for my money!"
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06-30-2019, 04:47 PM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by NW-Bound
Inflation indexing makes sense to me too, but perhaps this could be accompanied with taxing capital gains at regular income tax rates.
Else, investment income has such a high advantage over earned income.
Again, something like this should be passed by Congress, not an executive order.
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Yes, but supposedly the current LTCG rates are to encourage investment. I'm not saying that's right/wrong/good/bad, but if we want to encourage investment with a preferential rate for a 1.1 year investment where inflation had a minimal effect, it seems that should apply for someone who invested years ago.
Agree it should go through Congress.
Quote:
Originally Posted by GrayHare
Taxing only the real cap gain is an interesting idea, though it adds another level of complexity to the cost basis calculation. Someone who has held a MF on reinvest would have to apply a different inflation index for each reinvestment, at least for ones old enough to not have been tracked by a brokerage.
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That seems tricky, but you would need to know all of these dollar amounts (at least, maybe shares and price as well if you did any selling along the way?) to track your cost basis now, so assuming you'd also have the dates, the computer can do it easily.
-ERD50
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06-30-2019, 04:57 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,901
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Quote:
Originally Posted by ERD50
That seems tricky, but you would need to know all of these dollar amounts (at least, maybe shares and price as well if you did any selling along the way?) to track your cost basis now, so assuming you'd also have the dates, the computer can do it easily.
-ERD50
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Sure, if the tax software automatically implements it, and for that I don't have a lot of hope. Witness Turbotax's handling of US gov't obligations within MFs. As you may know, VG annually sends a table listing each fund's percentage of such income. Turbotax surely knows VG does this, yet it stubbornly refuses to allow you to enter the % so it can compute the dollar amount for you. Nope, it makes you separately calculate it by hand and feed it that $ number.
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06-30-2019, 05:35 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Dec 2014
Location: St. Charles
Posts: 3,919
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Quote:
Originally Posted by aaronc879
Looks like President Trump is planning to cut the capital gains tax by executive order. Not sure if that is even legal to do but lets assume that it is. Is this a good thing for the majority of the people or only the wealthy? I would think that many people on here would actually want to pay the tax because it gives them income to qualify for ACA. Thoughts?
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Is there a link to an article about this? I have seen nothing about it.
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Never slow down, never grow old!
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06-30-2019, 06:21 PM
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#19
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Thinks s/he gets paid by the post
Join Date: Dec 2014
Location: St. Charles
Posts: 3,919
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Quote:
Originally Posted by Aerides
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Thanks for the link.
So this is something some people say might happen, maybe. Wake me when there is news.
__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
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06-30-2019, 06:35 PM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2009
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__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.
"I want my money working for me instead of me working for my money!"
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