Need to contact your reps if proposed - change dividend/cap taxes

[2B]

Yup, this is what he said. Higher dividend & cap rates wouldn't apply to those lower income earners. That was his plan. But remember, he was elected president, not anointed King. There is a House & a Senate that will have some say in whatever policy is ultimately passed.

Ah! He has an out. He can be just like Bush and blame it on that rascally dem congress.

 

[Bikerdude]

Our tax code has always focused on income and ignored wealth. But as the tax code stands today, the person who gets $24K in pension income will pay higher taxes than the person who gets $24K from qualified dividends.

If all were equal (deductions) I would say both would currently be in the 15% bracket.

 

[FIREd]

This is a good example of why we should discuss this now. The professor did not reference Obama's plan. But Obama is not for the extension of the 2001, '03 changes - he would allow them to expire. The professor wants them changed before they expire.



This is what the 2001 & 2003 changes did:
Tax Cut Pays Big Dividends

Lower taxes on dividends and capital gains

• The long-term capital gains rate is now 15 percent for sales on or after May 6, 2003. The old rate was 20 percent.
• Dividends are now taxed at the new long-term capital gain rates instead of at your ordinary income tax rate, retroactive to Jan. 1, 2003.
• For people in or below the 15 percent ordinary income tax bracket, the new long-term capital gains rate is 5 percent and goes to zero after 2007.

________
As you can see by eliminating these changes, the poor (15%) are hurt - I would be hurt.

My understanding is that if you are in the 15% tax bracket now, the 2001-2003 changes would stand: qualified dividends taxed at 15% (is there also a 5% tax bracket for dividends) and LTCG taxed either at 5 or 15%. If I am misunderstanding something then we get into an interesting situation: Dividends would be taxed at your ordinary income tax rate (which is 15% too), so no change there. Now if the LTCG tax goes to 20%, you should probably do some selling now to benefit from the currently lower rate and reorganize your portfolio. In that case, you would actually benefit from putting taxable bonds in your taxable account (almost no growth, mostly dividends taxed at 15%) and keep assets like stocks in your tax-deferred accounts (where the gains would be taxed at 15% when you take the money out and not the 20% on LTCG). Your income would only get noticeably hurt if the majority of your income came from LTCG and not from dividends. If there is currently a 5% tax bracket for dividends, then it could be a much bigger hit.

 

[haha]

Yup. You're doubly screwed if you don't have kids. Not only do you get to pay extra income taxes to subsidize all those child care & dependent deductions, but you also get to pay school taxes even though you don't have any kids in school. What a bunch of socialists all those parents are.

If you want to renounce any of the products and services that other people's kids will be making available to you, go right ahead and refuse to pay taxes that benefit children. And when you are old, be sure that you go to doctors and dentists who are aliens and hence have not used any services paid for by you. And ditto the trash collectors, the people who turn you over in the nursing home to avoid your bedsores, and .....

People who raise children, especially intelligent well educated children, are giving those who don't a massive free ride.

Ha

 

[youbet]

- us single guys are really getting screwed.

And that seems unfair to married guys who only got married to get screwed. You single guys don't have to pay all the marriage penalities and still get it anyway. Booooo...... Unfair.......

 

[youbet]

won't this automatically re-introduce the "marriage penalty" back into our tax system?

Re-introduce? It's still there for the most part. This will simply expand it.

 

[youbet]

Having said that, it is not completely clear to me why we should have a tax code that favors capital over labor, as ours currently does.

The tax code favors capital over labor to encourage people to put their capital at risk by investing it. A lower tax rate on capital gains = increased interest by the public in investing. And that's good for growth and the economy.

At least that's the theory.

 

[haha]

The tax code favors capital over labor to encourage people to put their capital at risk by investing it. A lower tax rate on capital gains = increased interest by the public in investing. And that's good for growth and the economy.

At least that's the theory.

Another aspect is that labor income is closed out year by year. Capital gains may go back many years. Treasury has always refused to idex CG to inflation. Hence the absolute need for "favored" CG tax rates.

Ha

 

[youbet]

Another aspect is that labor income is closed out year by year. Capital gains may go back many years. Treasury has always refused to idex CG to inflation. Hence the absolute need for "favored" CG tax rates.

Ha

Thanks..... Forgot the "to compensate for inflation" part which is absolutely correct.

 

[Bikerdude]

The tax code favors capital over labor to encourage people to put their capital at risk by investing it. A lower tax rate on capital gains = increased interest by the public in investing. And that's good for growth and the economy.

At least that's the theory.

There is a saying and I forget by who, but it goes like this: "I was never offered a job by a poor person".

 

[unclemick]

I am trying to introduce a double meaning of levity.

Got a reminder in my email to renew my Turbo Tax.

heh heh heh -

 

[msully76]

Tax exemption for sale of home

What concerns me is that I can't seem to get anyone that can say convincingly that there will still be a one time exemption of profit made on the sale of a home up to $500,000. Can anyone out there comment?

 

[Gone4Good]

If all were equal (deductions) I would say both would currently be in the 15% bracket.

Pretty sure if you are in a tax bracket lower than 25% your qualified dividends are taxed at 5%.

Dividends - Tax Glossary

 

[Gone4Good]

If you want to renounce any of the products and services that other people's kids will be making available to you, go right ahead and refuse to pay taxes that benefit children. And when you are old, be sure that you go to doctors and dentists who are aliens and hence have not used any services paid for by you. And ditto the trash collectors, the people who turn you over in the nursing home to avoid your bedsores, and .....

People who raise children, especially intelligent well educated children, are giving those who don't a massive free ride.

Ha

I fully expect to pay for every service I consume (that includes an assumption of no Social Security, Medicare, etc. as these programs are all essentially insolvent). . . I hardly see how paying cash for each and every service is a free ride.

Meanwhile, the point was, the people who complain about "income redistribution" and "socialism" might want to consider the subsidies they receive before complaining too loudly.

 

[Gone4Good]

The tax code favors capital over labor to encourage people to put their capital at risk by investing it. A lower tax rate on capital gains = increased interest by the public in investing. And that's good for growth and the economy.

At least that's the theory.

An economy needs both capital and labor. Capital alone won't grow an economy. Isn't the argument for a low marginal rate to encourage and reward work?

And with respect to inflation I agree that gains should be indexed (notwithstanding the administrative nightmare this would entail).

 

[Bikerdude]

Pretty sure if you are in a tax bracket lower than 25% your qualified dividends are taxed at 5%.

Dividends - Tax Glossary

OK. At least the guy gets a little break on taxes now that his portfolio is only worth $420,000 YTD. I doubt most retiree's would be 100% equities in any case.

 

[FIRE'd@51]

Pretty sure if you are in a tax bracket lower than 25% your qualified dividends are taxed at 5%.

Actually, starting in 2008, they are taxed at 0% - see Dex's post #24.

 

[FinanceDude]

Is it annuity time?

I'm only half serious but way back when our tax code was so onerous that it made sense to have an annuity. It's a shame when bad tax code drives people towards bad investment decisions. Does anyone remember the great limited partnership collapse? They only existed to avoid taxes. After that was removed, the poor investment that most were came quickly to light.

Had a limited partnership, lost everything, luckily only $10,000........

Forget the $250,000 level, that was a campaign number. I suspect the real number will fall closer to $100,000 or so household income......

Obama will have an easy time raising taxes because he can say that we have to "undue the economic collapse brought on by the Bush Administration", it easily gives him 2-3 years to do whatever he wants.........

 

[haha]

I fully expect to pay for every service I consume (that includes an assumption of no Social Security, Medicare, etc. as these programs are all essentially insolvent). . . I hardly see how paying cash for each and every service is a free ride.

Meanwhile, the point was, the people who complain about "income redistribution" and "socialism" might want to consider the subsidies they receive before complaining too loudly.

You are missing something. You won't be consuming cash; you will be consuming real goods and services made and performed by real humans.

A common fallacy is to assume that the real economy equates to the monetary enonomy. It does not.

Likewise the real generational problem in much of the western world is not the amount of cash or assets in retirement or retiree medical programs, it is the number of young well trained workers.

I am certainly not advocating that everyone should have children, or that many people without children of their own don't do much to create a skilled and socialized follow-on generation. But it is annoying when people prattle the selfish and ill-informed line that you were taking. Where do you think your Doctors will come from, if not from the school system? You think that their own parents, in addition to feeding, clothing, and housing them, buying their medical care and physically and emotionally caring for them, should also be sole support of public schools? So that you can purchase the goods and services provided by somone else's children?

Ha

 

[walkinwood]

Here's what the Obama plan says on his web-site:
http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf

o Ordinary Income: The top two income tax brackets would return to their 1990’s levels of 36% and 39.6%. All other tax brackets would remain as they are today. Obama would also restore the 1990’s levels for the personal exemption and itemized deduction phaseouts (known as PEP and Pease). Obama would work with the Treasury Department to adjust the thresholds of these rates slightly to ensure that no married couple making less than $250,000 (or single making less than $200,000) was affected by these changes.

o Capital Gains: Families with incomes below $250,000 will continue to pay the capital gains rates that they pay today. For those in the top two income tax brackets – likewise adjusted to affect only families over 250,000 – Obama will create a new top capital gains rate of 20 percent. Obama’s 20% rate is equal is the lowest rate that existed in the 1990s and the rate that President Bush proposed in 2001. It is almost a third lower than the rate that President Reagan signed into law in 1986.vii

o Dividends: The top dividends rate for people making over $250,000 would be set at 20 percent. Dividends will not return to being taxed at ordinary income tax rates. Obama’s 20 percent rate on dividends will be 39 percent lower than the rate President Bush proposed in 2001, and would be
lower than all but 5 of the last 92 years we have been taxing dividends.

 

[Gone4Good]

You are missing something. You won't be consuming cash; you will be consuming real goods and services made and performed by real humans.

True. But the assertion that somehow this creates a "free ride" is, in a word, balderdash.

Wealth is a claim on labor. Weather that labor is performed by today's workers or future workers is irrelevant. The idea that someone who delays consuming wealth today in favor of consuming wealth tomorrow is somehow getting a "free ride" is . . . balderdash.

In a simple economy with only one product, grain, the person who produces and saves enough grain to last him a lifetime can retire. It is clear he doesn't get a "free ride" from anyone. Our economy is far more complex but the concept is the same. The person who produces and saves enough to last him a lifetime can retire without a "free ride" from anyone. The temporal differences between when the person produces the surplus and when he consumes it is irrelevant. But in the case where everyone decides not to have children, the surpluses of our hypothetical saver are consumed by others and are not available to sustain him during retirement. The saver, in that case, is the one who is giving a free ride to others as they consume the fruits of his surplus labor.

By your logic a similar "free ride" is enjoyed by every retiree. The economy would collapse and wealth would disappear if every worker decided to retire at the same time (just as if every person decided not to have children). But I think most people here would find the notion that a retiree was somehow getting a "free ride" from those who continue to work is as preposterous as I find the notion that the child-free are somehow benefiting from a similar "free ride".

In any event, that wasn't the point. My point was that plenty of people who decry "socialism" gladly accept a socialized education system. Plenty of people who decry "wealth distribution" gladly accept the subsidies for child rearing. Plenty of people in this forum would gladly accept some form of socialized medical care because they know the challenges of self funding these expenditures.

Nowhere in the outcry against "socialism" and "wealth distribution" do we generally hear any comment about the social desirability or benefits of these programs . . . which is, after all, the objection you raise. Typically those complaining about "socialized" this or "socialized" that complain because they see someone else as the recipient. I'm just pointing out that plenty of people gladly enjoy socialism when they are the beneficiary.

 

[Running_Man]

Obama, Clinton and McCain on Tax Policy - Jeremy Siegel - Yahoo!7 Money Matters

The policy will already expire in 2011, and Obama campained on increasing taxes on dividends and capital gains by sixty percent. I think the likelihood that the rates on dividends and capital gains staying where they are: very low.

Since much of this occurs because it is already in the tax code Obama is not actually raising taxes, it is already set to happen.

The democrats also actively wish to seek to eliminate the tax deductibility of 401K's. The elected majority most certainly will press forward with the plans they made very public.

 

[Gone4Good]

The democrats also actively wish to seek to eliminate the tax deductibility of 401K's.

This is a bit suspect. A google search of {401(k) deductibility Democrat} yielded a bunch of blog sites but no real news articles. The top hit was Rush Limbaugh's site. Each of the google links I investigated referenced one comment by Rep. George Miller who suggested we weren't getting a particularly big savings bang for the "cost" of the 401(k) tax break.

One comment by one house member doesn't a policy make. So I'd guess the 401(k) tax break is pretty safe for the foreseeable future.

 

[haha]

Probably we have taken this as far as it can be taken. I would like to point out that your wheat economy is ridiculous. I'd like to see a colonoscopy done by grains of wheat.

By your logic a similar "free ride" is enjoyed by every retiree.

Wrong again. Since the neolithic period at latest people have had children to support them in their old age. Now my sons, one of whom makes seven figures year in and year out, support people like you. It isn't a free ride for the retired parent, it is a closely coupled generational bargain. Again, the free rider is you.

I don't blame you for this; free riding is a long tested evolutionary strategy. And of course, in order for you to free ride in this way you have to give up the biological point of life- to see one's genes make it into the future. However, your specious arguments are annoying, as is your resentment at what you mistakenly see as you having to overpay.

I would gladly trade any public benfits that I might get for what my sons could do for me if I needed help.

Ha

 

[Gone4Good]

Probably we have taken this as far as it can be taken.

Clearly as you and I apparently disagree that 1) wealth (or, maybe, more specifically money) is a claim on labor 2) that surplus labor can be saved and 3) spending surplus labor that you've accumulated is not a "free ride"

However, your specious arguments are annoying, as is your resentment at what you mistakenly see as you having to overpay.

Besides, I'm just claiming that socialized education is, well, socialized education. If you're annoyed by being the beneficiary of a social program, it's not my fault just for pointing out that it is a social program.