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Old 12-03-2012, 11:55 PM   #21
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This will end ugly any way you look at it.........
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Old 12-04-2012, 07:10 AM   #22
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I expect the Medicare age will go up (undoubtedly with some grandfathering for 60+ers or so). They will probably compromise on top rates and get some sort of symbolic change (e.g. only tap $1M+ incomes, or split the difference on the rate). 50/50% that we will go over the cliff before they get it done.

I wish they would not make the lower rates for the rest of us permanent. If they instead puts ours on a gradual slope restoring them to the 2000 levels in 4-8 years it would help whack the deficit. No way we will see spending cuts sufficient to get the job done. They should also get rid of the debt ceiling process. No way Congress critters should be able to make a deal on taxes and spending and then threaten default 6 months later to get what they agreed to forgo.
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Old 12-04-2012, 07:26 AM   #23
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This will end ugly any way you look at it.........
Yup. You got that right FinanceDude.
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Old 12-04-2012, 07:26 AM   #24
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They should also get rid of the debt ceiling process.
You think there is a snowball's chance in Texas that Congress will cede that power to the President?
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Old 12-04-2012, 07:50 AM   #25
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With so many of the personal bankrupties due to an unforseen medical crisis, by raising the age to 67 (without allowing a buy-in as a prior post mentioned), there will be more bankruptcies - - - unless, perhaps ObmaCare's mandate to cover pre-exisitng condx allow for fair priced plans.
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Old 12-04-2012, 07:51 AM   #26
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I wish they would not make the lower rates for the rest of us permanent. If they instead puts ours on a gradual slope restoring them to the 2000 levels in 4-8 years it would help whack the deficit. No way we will see spending cuts sufficient to get the job done. They should also get rid of the debt ceiling process. No way Congress critters should be able to make a deal on taxes and spending and then threaten default 6 months later to get what they agreed to forgo.
I agree. Let them all (tax rates) expire but phase them out over a few years, maybe a point or two a year. The 2003 tax cuts on dividends and cap gains had bigger and somewhat variable rate reductions so it could not be as gradual.
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Old 12-04-2012, 08:20 AM   #27
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.....As a married homeowner (and new father), I am getting an incredibly sweet deal tax-wise. We pay lower tax rates than many people I know that make half as much. That doesn't make sense to me.
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I don't get that - can you explain what you are talking about? Since tax rates vary with income if you make twice as much as someone else your tax rate should be higher.
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Not exactly--Tax rates vary by the filer's taxable income. It's entirely possible for a single taxpayer taking the standard deduction to pay a higher marginal tax rate than a married couple with a child and a lot of mortgage interest plus other deductions who are earning twice as much. And that's before we get into cap gains and dividend income treatment. ....
Chill out and think (or read). I didn't say it wasn't possible, I just asked Hamlet for an explanation so I could understand. Perhaps I should have been more specific that tax rates vary with taxable income and not income.
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Old 12-04-2012, 08:23 AM   #28
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On one hand it would seem to make sense to link the SS and Medicare eligibility ages. On the other hand, it's possible to be able to retire without SS if you didn't have to buy private health insurance, and if you make it even harder to retire until you're 67, I hope these people have a workable plan to make it easier to keep your job (or get hired at all) until you're 67.

I guess my concern is that age discrimination is already bad enough, and unemployment high enough, that all this will do is increase the dependence of 65-66 year olds on unemployment, food stamps and Medicaid instead of SS and/or Medicare. And *poof*, there goes a decent chunk of the cost savings...
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Old 12-04-2012, 08:24 AM   #29
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The problem with raising the Medicare age is that it really doesn't save much money. All things being equal, the younger someone is, the cheaper it is to provide them health care. Raising the retirement age just removes younger, cheaper seniors from the rolls.

In order to get real savings from Medicare, you have to talk about what it will cover and what it won't cover. However, that is a grown-up conversation and the country has not shown any willingness to have it intelligently.

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I would be okay with raising the Medicare age to 67 IF there was a method for an early buy-in the same way someone can begin taking SS at an age less than the FRA and agree to a reduction in benefits. Medicare would then be slightly costlier for someone who chooses to begin receiving benefits at, say, 65 (or less, perhaps down to 62, the minimum age to begin claiming SS benefits).

Not sure how this would interact with the PPACA whose exchanges would enable someone to buy HI although there are pretty high multipliers by age. There might be some adverse selection issues with those who do an early buy-in.
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Old 12-04-2012, 08:39 AM   #30
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Basically, my wife and I get the following deductions--

$34k for 401k\403b\457 (actually a little more because my wife can use a 403b and a 457 plan, and she's allowed 17k for each)

mortgage interest deduction
state income tax deduction
state property tax deduction
child deduction
child care deduction
HSA deduction
charitable giving deduction

In addition, we get low 15% rates on dividends and capital gains. That's assuming that we pay anything on them, since we take advantage of our 401k and Roth IRAs to shield about two thirds of our portfolio from current taxation.

In contrast, my single friend rents his house. He's a lot closer to the edge, so he doesn't save much. He ends up taking the standard deduction. Almost all of his income is actually taxed, while a large chunk of my income is shielded from taxation.

Our current tax system is designed to benefit homeowners, parents, savers, and people who get their money from investments rather than work.

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Chill out and think (or read). I didn't say it wasn't possible, I just asked Hamlet for an explanation so I could understand. Perhaps I should have been more specific that tax rates vary with taxable income and not income.
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Old 12-04-2012, 08:40 AM   #31
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In order to get real savings from Medicare, you have to talk about what it will cover and what it won't cover. However, that is a grown-up conversation and the country has not shown any willingness to have it intelligently.
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Old 12-04-2012, 08:41 AM   #32
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On one hand it would seem to make sense to link the SS and Medicare eligibility ages. On the other hand, it's possible to be able to retire without SS if you didn't have to buy private health insurance, and if you make it even harder to retire until you're 67, I hope these people have a workable plan to make it easier to keep your job (or get hired at all) until you're 67.

I guess my concern is that age discrimination is already bad enough, and unemployment high enough, that all this will do is increase the dependence of 65-66 year olds on unemployment, food stamps and Medicaid instead of SS and/or Medicare. And *poof*, there goes a decent chunk of the cost savings...
Isn't your concern a bit moot beginning in 2014 if Obamacare health insurance subsidies start? The person who would be able to retire without SS would likely be at an income level that they would get a pretty good subsidy.
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Old 12-04-2012, 08:45 AM   #33
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The problem with raising the Medicare age is that it really doesn't save much money. All things being equal, the younger someone is, the cheaper it is to provide them health care. Raising the retirement age just removes younger, cheaper seniors from the rolls.

In order to get real savings from Medicare, you have to talk about what it will cover and what it won't cover. However, that is a grown-up conversation and the country has not shown any willingness to have it intelligently.
The money Medicare would save by raising its age is from the less healthy seniors in the 65-67 age range, the ones who would have the most trouble finding affordable insurance elsewhere and need Medicare the most. The younger, healthier seniors may or may not be enrolling in Medicare but the younger, less healthy seniors will surely be enrolling in it. This is the anti-selection bias I referred to in my other post. Raising the premium for an early buy-in would address this anti-selection bias.

I do agree with your second point (about costs).
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Old 12-04-2012, 08:45 AM   #34
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Isn't your concern a bit moot beginning in 2014 if Obamacare health insurance subsidies start? The person who would be able to retire without SS would likely be at an income level that they would get a pretty good subsidy.
It becomes "mooter" but not entirely a non-factor. Yeah, they probably wouldn't be paying the full freight (and if they did, they probably had an income level which would have allowed them to save adequately for earlier retirement), but we really don't know yet what the difference would be for (say) a retired 65-year-old couple with $40-50K in income between buying insurance on an exchange (net of subsidy) and being on Medicare in terms of premiums, copays and deductibles.
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Old 12-04-2012, 08:55 AM   #35
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Basically, my wife and I get the following deductions--

$34k for 401k\403b\457 (actually a little more because my wife can use a 403b and a 457 plan, and she's allowed 17k for each)

mortgage interest deduction
state income tax deduction
state property tax deduction
child deduction
child care deduction
HSA deduction
charitable giving deduction

In addition, we get low 15% rates on dividends and capital gains. That's assuming that we pay anything on them, since we take advantage of our 401k and Roth IRAs to shield about two thirds of our portfolio from current taxation.

In contrast, my single friend rents his house. He's a lot closer to the edge, so he doesn't save much. He ends up taking the standard deduction. Almost all of his income is actually taxed, while a large chunk of my income is shielded from taxation.

Our current tax system is designed to benefit homeowners, parents, savers, and people who get their money from investments rather than work.
I understand now, but I suspect that a young couple saving the way you do is unusual, and your single friend would be in a lower tax bracket if he saved as much as you do (as a percent of his income).

I would actually like to see them get rid of all deductions other than those for retirement/HSA savings that encourage people to become self sufficient and not be a burden on society.

While I think that tax advantages are a small factor in people wanting to own their own home and have children and donate to charity, I think many people would continue to do so without the tax incentives.
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Old 12-04-2012, 08:57 AM   #36
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While I think that tax advantages are a small factor in people wanting to own their own home and have children and donate to charity, I think many people would continue to do so without the tax incentives.
I would claim that the main thing the mortgage interest deduction has done is inflate the cost of housing. Let's face it, most people determine housing "affordability" by the effective monthly payment, not the purchase price. The mortgage interest deduction simply reduces the effective monthly payment, allowing the buyers to chase higher and higher purchase prices.
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Old 12-04-2012, 09:01 AM   #37
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It becomes "mooter" but not entirely a non-factor. Yeah, they probably wouldn't be paying the full freight (and if they did, they probably had an income level which would have allowed them to save adequately for earlier retirement), but we really don't know yet what the difference would be for (say) a retired 65-year-old couple with $40-50K in income between buying insurance on an exchange (net of subsidy) and being on Medicare in terms of premiums, copays and deductibles.
The Berkeley calculator suggests that a 65 yo couple with $50k of income would have a net cost of $396/month and a maximum annual out-of-pocket of $8,067, so I think it would be more expensive than Medicare but not out of reach.
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Old 12-04-2012, 09:06 AM   #38
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Chill out and think (or read). I didn't say it wasn't possible, I just asked Hamlet for an explanation so I could understand. Perhaps I should have been more specific that tax rates vary with taxable income and not income.
I prepare my ladyfriend's tax returns, so I noticed when I did her 2010 taxes that her income (taxable and AGI, our itemized deductions were pretty close, too) was about the same as mine that year. We were both at the top end of the 15% bracket.

But her income was all wages while mine was a mixture of dividends and cap gains, much of it taxable and some of it not. Even though my TI was a few thousand dollars higher than hers, my taxes due were several hundred dollars less than hers, mainly due to about $7,000 of dividends and LTCG in the 0% bracket. And if you recall in 2010, the Making Work Pay tax credit was applied as a partial tax payment, not a reduction in taxes due. Even if it had been applied as a tax credit, her taxes due still would have been a few hundred dollars higher than mine.

All of this was very surprising to me, but it gave me a first-hand demonstration of how the tax code rewards the investor class at the expense of the working class.
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Old 12-04-2012, 09:10 AM   #39
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All of this was very surprising to me, but it gave me a first-hand demonstration of how the tax code rewards the investor class at the expense of the working class.
To use another example I've used here in the past, it also rewards the married over the single. I always knew that but I didn't realize how much until a few years ago. My dad passed away in 2005 and I did my mom's tax returns for 2005 (and ever since). In 2006 she had to file single, and though her income dropped by about $9K (the loss of her own SS benefit), her federal income tax roughly doubled. Part of this was the shifting of the bracket (from the 15% into the 25%), and part was having 85% of SS income taxable instead of 50% as in 2005.

Talk about a punitive "death tax"...
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Old 12-04-2012, 09:17 AM   #40
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...All of this was very surprising to me, but it gave me a first-hand demonstration of how the tax code rewards the investor class at the expense of the working class.
While what you say is true, I think you need to think beyond you and your friend to see the whole picture. The dividends you have are the result of corporate income being distributed and corporate income retained is reflected in the value of the company to an extent that is part of your LTCG. Since both represent after-tax corporate income, each has already been taxed once. While the statutory corporate rate is 35%, many corps don't pay that, but 20-30% is not uncommon.
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