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Old 01-09-2014, 09:12 PM   #21
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The thread has been relocated to the FIRE Related Political Topics forum. Please keep in mind the posting guidelines, which can be found in the forum sticky

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Old 01-09-2014, 10:01 PM   #22
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There used to be a group of friends who met shortly after college graduation for dinner each month. They all met at a diner religiously each month. When the bill came, they all split it evenly. Some years past.

Two members of the group became more successful than the others. Some more time past and it was suggested that those two pay a little more than the others. They had no issue with that and paid as requested. They were all still friends.

Some more time past and it was suggested that they go each month to an expensive steak house and that the two more successful fellows pay the increased cost. Again they agreed because they enjoyed being together each month.

After a few more years someone in the group suggested that the two wealthy fellows should pay for the entire dinner. They did so for a few months. The remainder of the group started ordering additional meals to take home.

Finally the two wealthy guys stopped going to dinner and the group fell apart.

Some of the guys now meet at McDonalds every few months, however, the number is dwindling.
So did this mean anything?
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replies should focus on the effect that the most recently enacted higher tax rates have on one's decision to retire.
or did you just want to bitch about taxes?
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Old 01-09-2014, 10:19 PM   #23
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I can't say the tax rates had any direct influence over my decision to ER back in 2008. At the time, I was working only part-time so my tax bill was not huge. However, when I first switched from working full-time to part-time back in 2001 I did realize that there was a decent tax benefit to reducing the portion of my earnings which were taxed at the highest combined marginal rates (which for me at the time was nearly 43% using federal, state, and FICA rates). What this meant in practical terms was that even though I reduced my total gross pay by 47% my after-tax net pay dropped by only about 40%, making my revised part-time budget better than I had first anticipated.

When I did ER 5 years ago, I saw that the elimination of FICA taxes and commutation expenses was roughly the same as having to pay for 100% of my health insurance. (That has changed with the ACA now in place.) There was a slight reduction in income taxes initially but in the last 5 years I have been able to adjust the types of income I have to make more of it in categories which are taxed at 0% (QD and LTCG) to the point that for 2013 I will for the first time pay more in state income taxes than in federal income taxes.
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Old 01-10-2014, 08:33 AM   #24
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Taxes were only a small factor in my decision to retire. I'll admit to being frustrated with paying more in taxes than most families earn, but OTOH I recognized that it was a nice problem to have.

I can see where once more than half of the fruits of your efforts is being absconded by the government that one can wonder if it is really worth the effort, especially given the sacrifices that high earners make (stress, long hours, constantly on call) but that most in society don't recognize or appreciate (and would be unwilling to make in many cases).

When I was planning for my retirement I took my tax return prior to retiring and then took our my earnings and made other adjustments for changes in retirement, I was pleasantly surprised at how low my tax burden was.
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Old 01-10-2014, 10:31 AM   #25
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We were high income workers before we ER'ed but taxes had nothing to do with why we wanted to ER. In fact I wish we were able to make voluntary FICA contributions to SS to get to 30 years instead of the 23 years I have. This would increase future base payments a little, but more importantly would eliminate WEP which will cost me the full amount (Currently ~$408/month reduction in SS).
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Old 01-10-2014, 10:53 AM   #26
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At least many of the retirees here seem to be able to manage their incomes to minimize their taxes (and presumably did what they could while working to do the same or to defer taxes). DH and I have almost everything in an IRA so anything paid to us from that, including dividends and capital gains which we now receive rather than reinvest, is taxed as ordinary income.

Hmm, what's that old saying about death and taxes ?
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Old 01-10-2014, 12:19 PM   #27
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...did you just want to bitch about taxes?
Whiskey Rebellion - Wikipedia, the free encyclopedia

A time-honored American tradition...

I have two tax "concerns", inasmuch as they affect me and my circumstances the most: nearly all my savings are tax deferred, so no reduced rates for cap gains or divvies, and RMDs. Not much I can do about the former, but some ROTH transfers may slightly improve the latter.
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Old 01-10-2014, 02:02 PM   #28
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Since this topic was moved to the political forum I guess I can be somewhat more political. So I will shift the focus of the original post. Twenty-five years ago I quit my megajob and found and own my own business (1 shareholder and 1 officer) currently with 30 employees. I have been FI for years but planned on working until 60-65 (now 54). I will now RE in large measure due to the increase in taxes. Simply stated the most recent changes were the straw that broke the camels back.

In the next two years I will try and transition the business to my senior people who will pay for their stock from available cash flow (i.e. long term capital gains). Hopefully they can continue the business for their own benefit and the benefit of the other employees. I will make myself available to help them.

The political point (that I am now making) is that the change in tax law has caused me to make this decision early which will have an effect on the employees that work at my small company. One can argue that this decision (for whatever reason) is the right decision for me personally anyway. One is only on the earth for so long........

The decisions in Washington to hammer the successful do have a real life effect on everyone. Most of the people they are hammering are not Warren Buffets, Bill Gates or Jamie Dimons but small successful business owners---whose decisions have an effect on millions of wage earners. There are thousands and thousands of us. I am sure others on this Board and thousands elsewhere are confronting similar decisions.

I think I feel a little better now.
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Old 01-10-2014, 02:07 PM   #29
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The political point (that I am now making) is that the change in tax law has caused me to make this decision early which will have an effect on the employees that work at my small company. One can argue that this decision (for whatever reason) is the right decision for me personally anyway. One is only on the earth for so long........
Or perhaps your former employees will take the business in a new and vastly more successful direction now that you have finally gotten out of the way. Who knows?
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Old 01-10-2014, 02:26 PM   #30
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The decisions in Washington to hammer the successful do have a real life effect on everyone. Most of the people they are hammering are not Warren Buffets, Bill Gates or Jamie Dimons but small successful business owners---whose decisions have an effect on millions of wage earners.
Of course! At the risk of sounding cynical, please remember that it is socialism for the very rich and capitalism for everybody else.
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Old 01-10-2014, 03:09 PM   #31
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Or perhaps your former employees will take the business in a new and vastly more successful direction now that you have finally gotten out of the way. Who knows?
For their sake, I sincerely hope you are right.
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Old 01-10-2014, 03:14 PM   #32
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The political point (that I am now making) is that the change in tax law has caused me to make this decision early which will have an effect on the employees that work at my small company. One can argue that this decision (for whatever reason) is the right decision for me personally anyway.
Which also frees up the jobs for people who need them more. Who knew it was a "jobs" program?
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Old 01-10-2014, 05:29 PM   #33
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I guess I'm just not seeing OP's point. He's had enough and is ready to turn the reins over to competent replacement. What's different between him and any other retiree on this forum?

I think what OP is experiencing is not so much excessive tax rates, but lowered marginal utililty. He doesn't think the financiall rewards are worth the effort, but obviously his soon-to-be former employees feel differently, or they wouldn't be willing to take over the business. The extra dollars aren't worth as much to OP because he already has enough. His employees still need the extra money, so the dollars mean more to them.

Typical retirement scenario, cloaked in gripe about taxes.
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Old 01-10-2014, 07:28 PM   #34
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22 years ago, with a new baby, both DW and I worked full time. I looked at Federal tax, state tax, FICA, on DW's income and decided right there that the system made it not worth it to keep the second job. So glad for that because I'm sure we were much happier, and our kids better adjusted.
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Old 01-10-2014, 07:47 PM   #35
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I have signed up for the Class of 2015. My decision was further confirmed when I met with my accountant and I saw with hard figures the pain of the most recent increase in tax rates. I am paying income tax at the rate of 39.6 federal, 4.1 State (which is relatively low. i.e. had I remained a NJ resident I would be paying 11.0% State tax), 3.0% Obamacare tax, real estate tax, sales tax, capital gains tax etc...

With all of this, MORE than 50% of my income goes to pay taxes. When you are in the highest bracket most of your deductions phase out so there is not much one can do. Mortgage interest, state and local taxes all phase out.

Simply stated, working and paying tax on W-2 income is not worth it. The founders never contemplated that it would be "One for you and One for me".

The point of my post is that the most recent higher tax rates have strongly effected my decision to retire. I would request that this post does not turn into a discussion of "how lucky I am to be in the 39.6% bracket" but that replies should focus on the effect that the most recently enacted higher tax rates have on one's decision to retire.
Wow. I never would have guessed US rates could be so high. I see your point. I pay less in Canada.
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Old 01-10-2014, 07:51 PM   #36
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I guess I'm just not seeing OP's point. He's had enough and is ready to turn the reins over to competent replacement. What's different between him and any other retiree on this forum?
Apparently he is special because he makes a lot of money.
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Old 01-11-2014, 10:52 AM   #37
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Just a gentle reminder that it is okay to disagree and still be civil. Moderators have received two complaints about this thread.
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Old 01-11-2014, 08:46 PM   #38
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Wow. I never would have guessed US rates could be so high. I see your point. I pay less in Canada.

Note that the federal rate he is quoting is the marginal tax rate, the rate charged on his 'last dollar earned'. My marginal tax rate hits at the 25% tax bracket. I do not, however, pay 25% of my income in Federal taxes. The effective tax rate, the total federal taxes paid divided by adjusted gross income, is below the marginal tax rate for all taxpayers. Effective rate only approaches the marginal rate as income rises to infinity. Note that this never happens.

In my case, while the marginal tax rate is 25%, the effective tax rate after I get done with Schedule A, D, and assorted other forms that produce a net tax credit, is a whopping 0%. The tax code is a marvel of complexity, producing ample opportunity to both justify screams of outrage and the gleeful tenting of fingers while muttering "Excellent!".
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Old 01-11-2014, 09:05 PM   #39
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In the next two years I will try and transition the business to my senior people who will pay for their stock from available cash flow (i.e. long term capital gains). Hopefully they can continue the business for their own benefit and the benefit of the other employees. I will make myself available to help them. ...
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Or perhaps your former employees will take the business in a new and vastly more successful direction now that you have finally gotten out of the way. Who knows?
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For their sake, I sincerely hope you are right.
I hope so too, but in my limited experience as an observer, the people who take over a business from the founder(s) seldom have the same combination of drive and/or skill set to succeed in the same way.

But there are exceptions, maybe this will be one.

Regarding the earlier posts about the difference between marginal and effective tax rates, it would be interesting for reference if the OP would calculate their effective tax rate. But still, the marginal tax rates do set the measure for any marginal income.

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Old 01-11-2014, 09:53 PM   #40
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Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman

Should five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman

If you drive a car, I'll tax the street,
If you try to sit, I'll tax your seat.
If you get too cold I'll tax the heat,
If you take a walk, I'll tax your feet.

Don't ask me what I want it for
If you don't want to pay some more
'Cause I'm the taxman, yeah, I'm the taxman

Now my advice for those who die
Declare the pennies on your eyes
'Cause I'm the taxman, yeah, I'm the taxman
And you're working for no one but me.
Growing up I didn't pay too much attention to the lyrics of the Beatles tax man. I later learned that UK top tax bracket back in the 60s was actually 95% and Harrison was right 19 for you and one for me. I started my first real job in 1981 before the Reagan tax cuts had taken place and marginal rates were 70%. I did find out that many of my coworkers (mostly engineers) were well in the 50% range and near 60 with state income tax. So I guess the point is it could be worse.

Anecdotally, it seems to me that 50% really is the tipping point where people are really disincentive to work and devote their attention to reducing taxes or simply quitting the rat race.
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