Taxing wealth a way to tax Roth IRAs?

[marko]

I'll be anxiously awaiting all the comments and strategies from those on this forum with a net worth of >$50M on how they plan to protect their nest egg.

A better question might be how many people over AND under $50MM actually think this will ever become a reality?

This is fun discussion but I just don't see these election season proposals ever going anywhere.

 

[Senator]

They’re going to have a hard time passing any kind of tax increases.

Polls show people want the rich to pay more but the rich just buy off the politicians.

The most recent tax cuts were very unpopular.

They went through with it anyways.

Actually, I 100% liked the tax cuts.

If you do an analysis on it, the 'rich' did not get many benefits of it. The SALT cap only affected upper income individuals, and corporate taxes were lowered, which should make the USA more competitive. Tax rates were lowered for most people. The personal exemption was raised.

A much better solution than an income tax would be a sales tax, or VAT, much like the rest of the world. It would capture ROTH IRA money and treat all people equally. That is the OPs initial question.

Of course people want the rich people to pay more, they want someone else to pay, not themselves. Who wouldn't. The best tax affects someone else.

“When the people find that they can vote themselves money that will herald the end of the republic.” Benjamin Franklin

 

[MichaelB]

This is fun discussion but I just don't see these election season proposals ever going anywhere.

I think calling it a proposal is too much. It's more like campaign idea (aka rhetoric). There really isn't a executable proposal.

 

[JoeWras]

I think calling it a proposal is too much. It's more like campaign idea (aka rhetoric). There really isn't a executable proposal.

Agree. Any action on this will be more a function of the ultimate composition of both the presidency and congress after the election. It isn't a proposal, it is an idea that gives a direction that certain camps want to move to.

I think the subject of net worth will continue to come up in various contexts. It is something I am keeping a very keen eye on.

 

[Sunset]

Actually, I 100% liked the tax cuts.

If you do an analysis on it, the 'rich' did not get many benefits of it. The SALT cap only affected upper income individuals, and corporate taxes were lowered, which should make the USA more competitive. Tax rates were lowered for most people. The personal exemption was raised.

A much better solution than an income tax would be a sales tax, or VAT, much like the rest of the world. It would capture ROTH IRA money and treat all people equally. That is the OPs initial question.

Of course people want the rich people to pay more, they want someone else to pay, not themselves. Who wouldn't. The best tax affects someone else.

“When the people find that they can vote themselves money that will herald the end of the republic.” Benjamin Franklin

While a VAT tax would capture Roth and all other money from average Joe, the very rich can simply buy their yacht in another country that has zero sales tax.

 

[Chuckanut]

While a VAT tax would capture Roth and all other money from average Joe, the very rich can simply buy their yacht in another country that has zero sales tax.

What? Rich people will move their assets out of the country to avoid a wealth tax? I never imagined such a thing could happen.

IMHO, any 'wealth tax' will work its way down to the Middle Class in time.
Given that in the last 12 months the Feds just spent $1,000,000,000,000 (One Trillion Dollars) more than they took in, I doubt if it will take much time to hit the Middle Class.

 

[sengsational]

Switching away from an income tax to a VAT scares me more than a net worth tax, even if the latter ratchets down. The reason: really unfair to Roth holders. They, essentially pre paid their taxes, and under a VAT system, would be asked to pay again. If a VAT idea ever got steam, I'd be sure to press for a credit/ rebate on purchases made with Roth withdrawals. But just imagine what setting the levels in that rebate calculation would be like..."oh, the humanity!"

 

[NW-Bound]

Even if the wealth tax is passed and proved successful to reduce the wealth of the ultra rich, can anyone be sure that it would result in raising the net worth of the poor?

Remember the story about Denmark college students not wanting to graduate because they have free tuition and even spending money? It's far better to have good jobs waiting for them as a carrot.

I don't like to see large income and wealth disparity, but if a lot of taxes can bring prosperity to the people, then why do some of the other countries still have high unemployment and lower standard of living?

Nobody seems to know what to do other than to tax more. Not just in the US, but elsewhere too.

 

[Senator]

Even if the wealth tax is passed and proved successful to reduce the wealth of the ultra rich, can anyone be sure that it would result in raising the net worth of the poor?

100% correct. There are a lot of reasons why people are poor, and taxing the 'rich' to help them doesn't really help. It only reduces the incentive to be rich, or even work at all. Taxes are one of the reasons I retired early. I assumed that taxes would go up in the long run. And I suspect that I will be right.

While a VAT tax would capture Roth and all other money from average Joe, the very rich can simply buy their yacht in another country that has zero sales tax.

Actually, the 'rich' would be many of the posters here. I doubt that many will be buying yachts anytime soon. The sales tax on a few yachts doesn't really amount to a whole lot anyway. Most of the yacht building in the USA went away when they tried to tax them a few years ago.

When you realize how little it takes to get into the upper 10%, the connotation of 'rich' takes a new meaning.

Even if you took 100% of all the money from the 'rich', it would not be enough to balance the federal budget.

 

[HFWR]

The rich would hide assets to avoid taxation? Why that’s not very patriotic...

 

[GrayHare]

Nobody seems to know what to do other than to tax more. Not just in the US, but elsewhere too.

+1

Reducing spending gets only crickets.

 

[Marc]

Sorry to take this on a tangent....

sengsational made an interesting point regarding implementation of a VAT (sometime in the future, maybe even distant future) may mitigate the advantages of Roth conversions now; this makes sense.

I am planning on my first Roth conversion to the max of the 22% bracket this year and next (around $20K each year). For the following six or seven years Roth conversions would be subject to the COLA's IRMAA levels; I think I could still make small conversions for those years prior to SS at 70.

After SS and RMDs will definitely be in the 22 or 24 or 28 (or higher) tax brackets depending on what congress does in the intervening years. Main reason I am planning on these relatively small conversions (probably max of 100K) is that my wife or I will be in a much higher single tax bracket at some time.

My question: with a non-zero possibility of a VAT in next 20 years am I foolish to pay 22% taxes now?

thanks,

Marc

 

[GenXguy]

Switching away from an income tax to a VAT scares me more than a net worth tax, even if the latter ratchets down. The reason: really unfair to Roth holders. They, essentially pre paid their taxes, and under a VAT system, would be asked to pay again.

The VAT or national sales tax would not only double-tax the Roth principal, but it would be double taxation on all other non-retirement account savings, so my regular brokerage principal, my CDs, my savings, which I have already paid high income taxes on, I would be taxed again as I spend it, which I am already to some degree with about 10% state sales tax, federal and state gas taxes, etc. VAT or national sales tax would just be piling on. It's also regressive and is generally a terrible idea.

On the other hand, I would have no problem with paying higher FICA taxes to help prop up Medicare and Social Security so that seniors don't have to take a hair cut.

 

[JoeWras]

I doubt VAT would be implemented as a replacement. It would be just an addition. So, I'm not going to change my Roth strategy based on that guess.

 

[Marc]

I doubt VAT would be implemented as a replacement. It would be just an addition. So, I'm not going to change my Roth strategy based on that guess.

Concur that it would be an addition instead of a replacement; however, they could choose to leave tax brackets where they are now or even lower if there were also a VAT.

Marc

 

[ncbill]

The limits will have to be drastically lower to affect me... [emoji41]

"soak the rich" schemes do end up hitting the middle class.

the best example is probably the Alternative Minimum Tax (AMT)

originally designed to affect less than 200 families, its lack of inflation indexing meant by the 1990s pretty much every professional middle class family had to run the calculation...the unfortunate ones got to pay a flat 28% federal tax.

recent law changes have finally exempted most from paying the AMT.

https://en.wikipedia.org/wiki/Alternative_minimum_tax

"The Tax Cut and Jobs Act of 2017 (TCJA) reduced the fraction of taxpayers who owed the AMT from 3% in 2017 to 0.1% in 2018, including from 27% to 0.4% of those earning $200,000 to $500,000, from 61.9% to 2% of those earning $500,000 and $1,000,000."

 

[marko]

+1
Bad choice of word on my part

I think calling it a proposal is too much. It's more like campaign idea (aka rhetoric). There really isn't a executable proposal.

 

[Montecfo]

Not sure how easily one's wealth can be measured by the gov't.

Feds can tax income but not wealth

 

[gerntz]

A better question might be how many people over AND under $50MM actually think this will ever become a reality?

This is fun discussion but I just don't see these election season proposals ever going anywhere.

When SS can't pay all its benefits requirements in 15 years or so, where they going to get it if not this way?

 

[gerntz]

Switching away from an income tax to a VAT scares me more than a net worth tax, even if the latter ratchets down. The reason: really unfair to Roth holders. They, essentially pre paid their taxes, and under a VAT system, would be asked to pay again. If a VAT idea ever got steam, I'd be sure to press for a credit/ rebate on purchases made with Roth withdrawals. But just imagine what setting the levels in that rebate calculation would be like..."oh, the humanity!"

Doesn't VAT only apply to those that spend? If so, it would just reduce spending. As they say, tax what you don't want much of: food, clothes, income, wealth, etc.

 

[Montecfo]

When SS can't pay all its benefits requirements in 15 years or so, where they going to get it if not this way?

Increasing the payroll tax as before.

 

[NW-Bound]

Cut SS for people who do not need it?

All the people who say they have zero WR from their 401k/IRA? If that's not rich, then I don't know who is.

 

[JoeWras]

Cut SS for people who do not need it?

First step: have recipients report NW so it is known who needs it or not.

 

[NW-Bound]

Robbieb has the right idea all along.


PS. Come to think of it, the government does not yet know if you have hidden gold coins or valuable collectibles. But they can easily know about your 401k, IRA, brokerage accounts etc... Investable assets such as stocks and bonds are so easily tracked, they do not have to ask you to 'fess up. You cannot hide these. If they ask you about these at all, it's only to see if you are trying to cheat.

The next things are planes, boats, RVs, lands, etc... It takes a bit more work with the state governments to get it, but they can do that too. Where are you going to hide? Rare stamps or Greek antiquities?

 

[HFWR]

If I didn’t have to pay taxes, I’d spend most of it on drinking and carousing, then waste the rest...

I consider my tax burden to be the HOA fee for living in the USA. Overall, it’s a pretty good bargain, IMHO, of course.