Cut capital gains tax?

[Closet_Gamer]

Not sure how anything (of substance) is going to get done by other than executive order. Been happening this way for (at least) the last 10 years....

And that's why it later gets undone and swings back-and-forth.

Better to let pressure build.

If the population can't bring itself to rally to a topic, then either its not that important or there isn't an answer that a sufficiently large fraction of the population can get behind.

This goes in category one...not that important, IMO.

 

[pb4uski]

Not sure how anything (of substance) is going to get done by other than executive order. Been happening this way for (at least) the last 10 years....

And nothing getting done on capital gains isn't bad... I don't see the current system as being broke at all... hence no need to "fix" it... particarly to fix it with more complexity than we have today. Just plain a bad idea.

 

[triangle]

I think indexing due to inflation would be extremely difficult to implement, even if it would a more "fair" system except to those who think dividends and cap gains should be taxed as ordinary income, ignoring that the income stream has already been taxed once at the corporate level.

I have been surprised that the opposite has not happened. Where the Federal reserve tries to accelerate inflation as a scheme to raise tax revenue and pay down the national debt. If the Fed chief could "engineer" ~8% annual inflation without wrecking the economy then markets should double over 10 years just due to the inflation component even if the real economy was flat. Where the IRS could essentially harvest 15% of the market gains held outside retirement accounts, and a bigger percentage from non-Roth retirement accounts and pension funds as those future payouts would be taxed at ordinary income levels.

 

[Tiger8693]

While I agree this is in the "not that important" category, there are much bigger and very important issues that are failing to be addressed due to the political posturing of both sides. A huge detriment to the country, and potential landscape changer for democracy, IMHO.

 

[scrabbler1]

I am often puzzled at those who claim "income should be taxed once" who are usually among the same crowd as those who want to eliminate SALT even though that income is already being taxed at the federal and state level. SALT at least mitigates (but doesn't eliminate) the double-taxation of income at both levels. (Triple-taxed, if you count FICA; and taxed again if you count property taxes and then sales taxes as it is being spent.)

 

[triangle]

SALT, property taxes, VAT, vehicle registration fees, hunting/fishing license fees, etc are not based on income; thus are not income taxes. They are simply extra ways to fund the government.

This is over generalizing, but I was surprised at the degree of SALT backlash in the media, since this mainly affected blue states which generally vote for candidates that demonize the wealthy (who own more physical assets and spent more, thus are subject to higher SALT). Where the SALT deduction limit was just another avenue to increase the tax burden on the upper middle class, while giving those with lesser means and fewer assets a tax break.

But I certainly understand that residents in a high property tax state are put in a bind and their tax burden is too high. I sympathize and agree, but what is the answer to our debt and spiraling obligations.

 

[scrabbler1]

SALT, property taxes, VAT, vehicle registration fees, hunting/fishing license fees, etc are not based on income; thus are not income taxes. They are simply extra ways to fund the government.

This is over generalizing, but I was surprised at the degree of SALT backlash in the media, since this mainly affected blue states which generally vote for candidates that demonize the wealthy (who own more physical assets and spent more, thus are subject to higher SALT). Where the SALT deduction limit was just another avenue to increase the tax burden on the upper middle class, while giving those with lesser means and fewer assets a tax break.

But I certainly understand that residents in a high property tax state are put in a bind and their tax burden is too high. I sympathize and agree, but what is the answer to our debt and spiraling obligations.

State income taxes ARE based on income, the same way federal income taxes are. Some states have state property tax rebates which are based on income (and age) limits, too.

It is definitely NOT true that it is only the upper middle class who pay high SALT. Here on Long Island, it is very common for ordinary, middle-class homeowners to pay more than $10k in property taxes alone, not just property+state income taxes (SALT). To me, the SALT cap was merely a way for powerful Red majorities to raise the federal tax burden on the powerless Blue minorities. The media was right to point out how unfair this was, especially its effect on middle-class homeowners.

 

[RetireBy90]

Inflation indexing makes sense to me too, but perhaps this could be accompanied with taxing capital gains at regular income tax rates.

I agree, while many here seem to rely on low or 0% cap gains tax for income, I think that they should be taxed like W-2 income. Doesn't spend any differently than my old paycheck or my 1099-R income.



Just one opinion

 

[scrabbler1]

I agree, while many here seem to rely on low or 0% cap gains tax for income, I think that they should be taxed like W-2 income. Doesn't spend any differently than my old paycheck or my 1099-R income.

Just one opinion

Even though indexing+taxing the remainder as ordinary income would probably cost me more in taxes (I have a lot of my CGs taxed at 0%), I would be okay with it. It might enable me to more likely qualify for an ACA subsidy instead of going over the cliff, though, because it would lower my income (MAGI) even if it raised the tax rate. hmmmm…...

 

[RetireBy90]

One more wrinkle, just heard one of the talking heads on CNBC refer to taxing cap gains as they happen not when realized. So if you bought stock at $10 and it is now $15 you would be taxed on the $5 paper profit. Said this would stop people from timing sales to minimize taxes. Can you imagine the record keeping this would require and the ups and downs in your taxes if implemented ? This one I count as just a crazy idea.



Again, just one opinion

 

[Chuckanut]

IMHO, the capital gains tax rates should be the same as the tax on 'regular' earned income.

I would team the above so that the capital gains amount is reduced by the inflation rate so taxes are paid on real earnings, not inflated earnings.

 

[Montecfo]

I agree, while many here seem to rely on low or 0% cap gains tax for income, I think that they should be taxed like W-2 income. Doesn't spend any differently than my old paycheck or my 1099-R income.



Just one opinion

Sure. But it already got taxed by a corporation. Your W-2 pay did not. That is the difference.

 

[scrabbler1]

Sure. But it already got taxed by a corporation. Your W-2 pay did not. That is the difference.

The gross pay on my old paystub was taxed 3 times - by the Feds, by the state, and for FICA. Taking income multiple times is very common. Why should corporate income be singled out for such preferential, tax-once treatment?

 

[Montecfo]

The gross pay on my old paystub was taxed 3 times - by the Feds, by the state, and for FICA. Taking income multiple times is very common. Why should corporate income be singled out for such preferential, tax-once treatment?

We are talking federal income tax.
Corporations and individuals both pay it, Fed govt controls it.

 

[pb4uski]

The gross pay on my old paystub was taxed 3 times - by the Feds, by the state, and for FICA. Taking income multiple times is very common. Why should corporate income be singled out for such preferential, tax-once treatment?

A shallow argument.

Corporations pay federal and state income taxes too. One could argue that FICA isn't as much of a tax as the premium for a government mandated life insurance, disablity insurance and retirement pension plan.

 

[scrabbler1]

We are talking federal income tax.
Corporations and individuals both pay it, Fed govt controls it.

And this is unfair because...…? Forming a corporation is not a requirement.

 

[scrabbler1]

A shallow argument.

Corporations pay federal and state income taxes too. One could argue that FICA isn't as much of a tax as the premium for a government mandated life insurance, disablity insurance and retirement pension plan.

Corporations should pay federal and state income taxes, the same way individuals pay federal and state income taxes. No "all income should be taxed once" BS.

 

[Montecfo]

And this is unfair because...…? Forming a corporation is not a requirement.

Of course it is not. But there are good business reasons for doing so which I assume I need not explain. And your profits get federally taxed at the corporate level. Distributions of those profits are thus taxed a second time.

Capital gains were previously taxed as wages, corporate income or otherwise. Favorable tax rates on dividends and capital gains partially mitigate, but do not eliminate the double federal tax.

 

[pb4uski]

Corporations should pay federal and state income taxes, the same way individuals pay federal and state income taxes. No "all income should be taxed once" BS.

Under the current rules corporate income is taxed twice... once when earned by the corporation and then again when paid as dividends to an investor... it is the same income.

Corp earns $100 and pays $20 in tax for net of $80... if the $80 is distributed to an individual as dividends and then taxed at 15% so the total tax on that income is 32%. That should be enough!

If the $80 of dividends was ordinary income at 22% then the total would be 37.6%... too much!

 

[triangle]

State income taxes ARE based on income, the same way federal income taxes are. Some states have state property tax rebates which are based on income (and age) limits, too.

It is definitely NOT true that it is only the upper middle class who pay high SALT. Here on Long Island, it is very common for ordinary, middle-class homeowners to pay more than $10k in property taxes alone, not just property+state income taxes (SALT). To me, the SALT cap was merely a way for powerful Red majorities to raise the federal tax burden on the powerless Blue minorities. The media was right to point out how unfair this was, especially its effect on middle-class homeowners.

My response to the comment about capital gains double taxation was a little too brief. Of course state income taxes are based on income and the same applies to corporations and individuals which pay both federal and state taxes on their income. Where dividends are paid out from what is remaining after these taxes and other expenses such as debt payments (bond payments are a deduction). That taxing the dividend again as ordinary federal income is akin to taxing one spouse for extra ordinary income when they receive a deposit in their bank account from the other spouse.

There are multiple sides to the SALT deduction debate. Surely those with larger potential deductions have higher incomes and more valuable assets. Most are not in the lower middle class. The rub is that many of these same people live in high Cost-of-Living areas. Which clouds these kinds of discussions when considering things at a national level (such as the minimum wage debate).

Personally I would like there to be no SALT deduction, no earned income credit and all the rest. Just give some basic exemption for income up to some ratio of the poverty level and then apply a slowly growing increasing tax rate as the income level rises. Applying higher tax rates at higher thresholds of income. As it stands a big family uses more government resources but gets a bigger tax break. Why should the family with 2.2 children subsidize the family with 5+ children? IMO a simple tax system where the government just takes X% would be more transparent and honest with citizens. But again there is the issue of high COL areas, but if the scale of increasing rates was gradual it should work economically (I think).

 

[RetireBy90]

Triangle, problem with your recommended or desired changes to the income tax system is it would take power to grant favors from the congress. There may be talk about this or that being not fair share, but congress put the law in place and updates it regularly to if there is an issue of being fair it is due to the very ones that complain in the media. IMHO

 

[joeea]

Looks like President Trump is planning to cut the capital gains tax by executive order. Not sure if that is even legal to do but lets assume that it is.

It's not legal. And it's not actually going to happen.

Is this a good thing for the majority of the people or only the wealthy?

It's a good thing for anyone paying a lot of capital gains taxes. Clearly that benefits the wealthy far, far more than everyone else.

And assuming the government won't want to actually collect less in overall tax revenues, it's bad for everyone who pays less in capital gains taxes than in other taxes - the vast majority of people. Their taxes will need to increase to make up the difference.

I would think that many people on here would actually want to pay the tax because it gives them income to qualify for ACA. Thoughts?

I think you are kidding yourself if you think anyone wants to pay any taxes at all.

Many folks understand that taxes are the necessary cost to run the country the way they would like. But wanting and understanding aren't the same thing.

 

[samclem]

[Moderator note: The general rule here is to hold off on discussion of pending legislation until the proposed law has been passed by committee. In the discussion at hand, there is no legislation--and no prospect of accomplishing the proposed changes through executive action.



Hopefully the thread can remain open as a place for friendly, illuminating discussion of tax policy. Odds of this improve if we can avoid political debates and rancor.


If actual legislation comes about, someone will start a new thread so those who aren't interested in/reading this "what if" discussion will know something is up. Mod Note closed. Thanks!]

 

[scrabbler1]

To me, corporations are separate entities from their investors. If corporate income is taxed at the corporate level, then it is separate from the dividend income it distributes to its investors, income which is also taxable. Until 2003, dividends were taxed as ordinary income, and I think that policy should be resumed (even it costs me more in taxes).

 

[pb4uski]

To me, corporations are separate entities from their investors. If corporate income is taxed at the corporate level, then it is separate from the dividend income it distributes to its investors, income which is also taxable. Until 2003, dividends were taxed as ordinary income, and I think that policy should be resumed (even it costs me more in taxes).

The discussion was more of income being taxed more than once.... while you seem to be fine with it others are not and don't think that the same income should be fully taxed twice.

While you can consider it separate, the reality is that it is not separate... it is the same income, passed on to investors.