Obama's State of the Union speech - wealthiest seniors

[Alan]

No doubt -- I think it would be more like sales taxes where food is exempt, and probably medicine as well. Though I would expect some social engineering over which foods are exempt, with those perceived as "unhealthy" being hit with a VAT.

There was a bit of fuss a year or 2 back when Pringles had VAT added to them in the UK. The government decided that the amount of potato in a Pringle had fallen below the threshold to class it as a food item (Pringles are now classed the same as potato crisps and lose some price advantage)

This table below is an example of what we would get to over here if VAT came to be, and food was excluded.

VFOOD8160 - Excepted items: snack products: examples of the VAT liability of common snack products

from the table, Pringles are subject to VAT, but Tortilla chips are not

 

[Jay_Gatsby]

No doubt -- I think it would be more like sales taxes where food is exempt, and probably medicine as well. Though I would expect some social engineering over which foods are exempt, with those perceived as "unhealthy" being hit with a VAT.

That is within the Government's power. Social engineering through tax policy has been a common practice for decades. There may be an issue where Federal VAT intersects with state food stamp policy - i.e., if you use food stamps to pay for items that are ordinarily subject to VAT, they would be exempt because you used food stamps.

 

[explanade]

I've been saying here for years that this may be prudent financial planning whether it happens or not: to "engineer" your assets in a way that allows you to live comfortably on a lower AGI. (Until they start "means testing" net worth, anyway.)

For now, it's much more likely that they start with means testing using AGI. We already see it in terms of marginal tax brackets, in terms of the level of taxation on dividends, how much of your SS benefit is subject to taxation, and soon in terms of health insurance subsidies through PPACA. I personally expect (at age 47 now) my future SS and Medicare benefits to be heavily means-tested along the lines of AGI.

I don't like that, but I think prudence requires me to move assets around defensively to help keep AGI below a certain threshold in any given year makes sense.

So for those already retired, does that mean you start withdrawing less per year for a number of years before applying for SS or becoming eligible for Medicare?

Seems like if you're retirement income is entirely from withdraws in retirement accounts, it's easy to set your AGI to whatever it needs to be.

So when they craft the means-testing legislation, they have to be aware of that. Whether a retiree has $500k or $5 million in assets, one can withdraw just enough to stay below whatever threshold, whether it be for ACA subsidies or for SS/Medicare means testing?

 

[MichaelB]

So when they craft the means-testing legislation, they have to be aware of that. Whether a retiree has $500k or $5 million in assets, one can withdraw just enough to stay below whatever threshold, whether it be for ACA subsidies or for SS/Medicare means testing?

Once you reach age 70 1/2 your retirement withdrawals are subject to RMDs. It becomes much more difficult to manage income to a certain level.

 

[marko]

As I've posted before, I honestly believe that the debt/spending is so extreme that there is no other solution than for this country to eventually declare bankruptcy. It may take a decade for that to happen, but I just don't see how we can balance the books. (hope I'm wrong of course!) I really don't.

This is like the guy with a $20K a year job who got to be $1M in debt, and he's thinking that if he cuts back on cigarettes and gets a second job, he can dig his way out. (my proportions may be off)

Having said that, why 'sacrifice' when the ultimate goal is not realistically achievable? What do we pay in interest every day?

I'm all for throwing my pail of water on a kitchen fire, but if you look closely, the house is fully engulfed...

Instead of wasting time demonizing the 'rich' we should be planning for a different future for this country. The old country is gone folks and it ain't coming back, now let's figure what to do post bankruptcy.

 

[donheff]

even if you could do this despite taxable RMDs, is there anyone out there with a $5M portfolio who would really crimp their lifestyle to a point beyond comfort simply to avoid a few bucks in tax?

 

[donheff]

As I've posted before, I honestly believe that the debt/spending is so extreme that there is no other solution than for this country to eventually declare bankruptcy. It may take a decade for that to happen, but I just don't see how we can balance the books. (hope I'm wrong of course!) I really don't.

i hope you are wrong too and am glad that no economists of any stripe think anything of the sort is in store.

 

[explanade]

RMDs are only for 401ks and IRAs right?

Don't most people here have far more assets in taxable accounts? Those are the ones you control, although, capital gains distributions and dividends from them do raise your AGI, so it may be very difficult to stay below $60k for ACA subsidies.

 

[ziggy29]

Once you reach age 70 1/2 your retirement withdrawals are subject to RMDs. It becomes much more difficult to manage income to a certain level.

Of course, once you are required to take RMDs, you're already on Medicare so the song and dance about health insurance exchanges and subsidies doesn't really apply to you under current law. For sure there is a very real chance that Medicare will become much more heavily means-tested at some point in the future, though, so strategies to reduce RMDs (such as Roth conversions and taking distributions to use up lower tax brackets) are still in play.

 

[Alan]

Of course, once you are required to take RMDs, you're already on Medicare so the song and dance about health insurance exchanges and subsidies doesn't really apply to you under current law. For sure there is a very real chance that Medicare will become much more heavily means-tested at some point in the future, though, so strategies to reduce RMDs (such as Roth conversions and taking distributions to use up lower tax brackets) are still in play.

Isn't Medicare already means tested in that the premiums are higher once you are above a certain income level?

Medicare costs at a glance | Medicare.gov

 

[ziggy29]

Isn't Medicare already means tested in that the premiums are higher once you are above a certain income

Yes, but IMO not nearly as much as it will likely be for me and those younger than me.

 

[Alan]

Yes, but IMO not nearly as much as it will likely be for me and those younger than me.

True. Currently an extra $42/mo doesn't seem much for an AGI over $170k/year for MFJ.

 

[Stanley]

The only problem was that the income limits for taxation were not indexed for inflation. They remain at 1983 levels.

I wonder how many of these tax proposals are indexed for inflation?

Can we count on the financial press to raise this question?

 

[ziggy29]

I wonder how many of these tax proposals are indexed for inflation?

I know the threshold for taxing "Cadillac" health plans (scheduled to start in 2018) is not indexed for inflation, so in a few years it may become the next AMT, ensnaring many people with even modest, higher-deductible plans.

 

[Lazarus]

I know the threshold for taxing "Cadillac" health plans (scheduled to start in 2018) is not indexed for inflation, so in a few years it may become the next AMT, ensnaring many people with even modest, higher-deductible plans.

As intended I am sure.

 

[jimnjana]

We can look at European countries that are destitute like Greece and Spain, where an entire young generation is wiped out by high unemployment to see where we do not want to go. Entitlements have to be cut, so that the young can survive.

.

Much of the unemployment in Europe has little to do with excess government spending. Old guild rules/organized labor rules keep new enterprises from starting in the first place. Protectionism is rampant. The excess government spending is just the norm over there to begin with. The unemployed are the first ones protesting cuts in government spending.

 

[youbet]

RMDs are only for 401ks and IRAs right?

Don't most people here have far more assets in taxable accounts? .

Can't speak for "most people," but more than half of my FIRE portfolio is in 401k's and TIRA's. RMD's, just around the corner for me (I'm 65), will be a huge tax issue and a significant factor in not being able to look poor while living middle class.

 

[youbet]

True. Currently an extra $42/mo doesn't seem much for an AGI over $170k/year for MFJ.

Spoken like a man who is not paying it...........

 

[ziggy29]

Spoken like a man who is not paying it...........

$42 per month on $170k of income is less than 0.3% of income. You may not like paying it and you may resent having to pay it, and I'm not saying I support a steeper means testing component to Medicare, but I think an extra 0.3% of income to secure reasonably low-cost, secure health insurance is definitely *not* much, IMO.

 

[youbet]

$42 per month on $170k of income is less than 0.3% of income. You may not like paying it and you may resent having to pay it, and I'm not saying I support a steeper means testing component to Medicare, but I think an extra 0.3% of income to secure reasonably low-cost, secure health insurance is definitely *not* much, IMO.

Of course!

Everyone has at least one group they don't belong to that they feel should be taxed at higher rates, have penalties imposed or pay surcharges. It's the American way!

One of mine is DINK couples with earned income. I think they need to pay at higher rates vs. other folks. Just my opinion. The other group would be people with FIRE portfolios. Money held at an institution (bank, credit union, S&L, brokerage, etc.) should be taxed just for being there and whether it earns income or not.

Our country needs more revenue. And I think other folks should pay more. I, of course, am already paying enough.

Edit: BTW Zig, your math is incorrect on the percentage. Remember, the $170k is for a couple. You either have to double the $42/mo to account for two people or use the $85k AGI point which applies to a single. Not a big deal. But it does seem silly to quote the higher MAGI number for a MFJ return but then only account for the Part B increase for one member of the couple. It's 0.593%.

 

[Alan]

Spoken like a man who is not paying it...........

I would love to have an MAGI >$170k while on Medicare.

Edited to change AGI to MAGI

 

[ziggy29]

Edit: BTW Zig, your math is incorrect on the percentage. Remember, the $170k is for a couple. You either have to double the $42/mo to account for two people or use the $85k AGI point which applies to a single. Not a big deal. But it does seem silly to quote the higher MAGI number for a MFJ return but then only account for the Part B increase for one member of the couple. It's 0.593%.

It wasn't silly, it was an oversight. Fair enough. But I suspect folks my age (and younger) will have to pay a lot more than an extra 0.6% for a couple unless we are living with a very low income. Again, I'm not saying whether I think it's right or wrong to do this, but 0.6% is no hardship for a couple making $170K.

 

[youbet]

I would love to have an AGI >$170k while on Medicare.

So would I!

Let's face it, we all need to pay more. From your posts, you and your family seem to be enjoying a nice retirement lifestyle. Certainly you should be paying more. You can afford it. And you would still have a superior lifestyle to most.

My real bottom line in all this Alan is simply that most everyone wants others who have more to pay a higher percentage in taxes. That is, to have a more steeply graduated tax system. That is, of course, as long as the steeper graduations start just above oneself!

We all feel that way. I try not to and I try to pay my own way not counting on the "wealthy" to cover for us. Still, it's a hard part of human nature to overcome and I understand.

Edit: BTW Alan, I think the Medicare surcharges are based on MAGI, not AGI. Not a big deal.

 

[Texas Proud]

Much of the unemployment in Europe has little to do with excess government spending. Old guild rules/organized labor rules keep new enterprises from starting in the first place. Protectionism is rampant. The excess government spending is just the norm over there to begin with. The unemployed are the first ones protesting cuts in government spending.

I do not know if this stmt is true or not... but, if it is true then I would bet that the young folks would be the loudest in changing those old guild rules/organized labor rules IF they were not getting some kind of gvmt assistance...

Just a thought....

 

[ziggy29]

My real bottom line in all this Alan is simply that most everyone wants others who have more to pay a higher percentage in taxes. That is, to have a more steeply graduated tax system. That is, of course, as long as the steeper graduations start just above oneself!

I think we all know darned well that most folks support making tough choices about taxes and spending.... until it's their taxes or spending programs that are on the block. Then the screaming of bloody murder starts.

It feels like almost everyone thinks they should be a sacred cow and spared the pain that everyone else has to share. And as long as we continue that mindset which creates an "us against them" dynamic, nothing's gonna change there...