New proposed tax on income from interest/dividends

[audreyh1]

Does anybody know if the medicare tax would apply to capital gains?

Thinking that this could alter investor preference for c.g. over dividends, and perhaps even firm's earnings retention policy.

Guess its good I have managed to accrue so many years of loss carry forwards, the value of which seems destined to go only straight up!

That's what I got from the article - that cap gains rate would go from 15% to 22.9% in 2011. The long-term cap gains rate was already scheduled to increase to 20% in 2011 due to the expiration of the GW Bush tax cuts.

Audrey

 

[Bikerdude]

Just to point out that the Clinton era was very prosperous as well, even though taxes increased during the Bush Sr and Clinton presidencies.

Whereas the aggressive tax cuts failed to generate similar prosperity during the Bush Jr. administration.

So I suspect it's just not that simple!

Audrey

I agree its not that simple. Bush Sr. and Clinton raised taxes during an economic expansion that ended with the dot-com bubble burst in 2000. Bush Jr. had to deal with that and a year later 9-11 that threatened to shut down the economy. IMO he did the right thing in reducing taxes along with the Fed reducing interest rates. What's debatable is what followed, two wars, creation of homeland security and Medicare expansion. In addition, we had 7 seven major hurricanes and finally ended the decade with another bubble burst. Now the question is with slow economic growth and 10% unemployment is this a good time to be increasing taxes?

 

[audreyh1]

Now the question is with slow economic growth and 10% unemployment is this a good time to be increasing taxes?

That's why tax increases are not going to be "across the board", but rather will likely target those who benefited the most under the GW Bush tax cuts - or at least those still remaining at those income levels after all these crises!

Audrey

 

[Gone4Good]

Use the right tool for the job at hand.

In the late seventies the economy was hit by a supply side shock (oil embargo) coupled with high tax rates and intrusive regulations like nothing we have today (wage & price controls to name just one). All of this conspired to reduce the productive capacity of the U.S. Against a reduced capacity for output, the government tried to spur demand with monetary and fiscal policy. Output couldn't increase because supply was constrained so government induced demand just caused prices to rise. The right policy response was "supply side" in nature. Breaking the oil embargo, deregulating, and cutting taxes to free up the supply constraints and tighter money to beat inflation.

In 2010, the problem is completely different. Excess productive capacity was built to meet artificial demand created by super loose credit. When the credit bubble burst, demand disappeared but all of that productive capacity remains. So we have a deflationary overhang of excess capacity coupled with asset price deflation due to deleveraging. The right policy response in this environment is to support demand with government spending and fight deflationary pressures with loose monetary policy. (To die-hard supply siders I ask, what do we need more supply of? Houses? Homebuilders? Banks? Auto manufacturers? . . . )

So it's not a matter of "liberal" or "conservative" but rather using the right policy for the problem. It's unfortunate but people box themselves into corners with these labels (liberal/conservative, Republican/Democrat) and use them as an excuse to just stop thinking. Just because something worked when Ronald Reagan was president doesn't mean its the proper response to conditions that are completely different today.

 

[Gone4Good]

Just to point out that the Clinton era was very prosperous as well, even though taxes increased during the Bush Sr and Clinton presidencies.

Whereas the aggressive tax cuts failed to generate similar prosperity during the Bush Jr. administration.

So I suspect it's just not that simple!

And more muddying details.....

And late in the Reagan era capital gains tax rates were increased from 20% to 28% as part of the 1986 "tax reform act" overhaul to match the new lowered top marginal tax rate. Later CG rate was lowered back to 20% in 1997 under Clinton.

Audrey

This all sounds to me like evidence that we're somewhere to the left of the kink in the Laffer curve. The Reagan era tax cuts took marginal rates from 70% down to 28% and the impact on federal revenues as a % of GDP is fairly small (even with a recession in the early 80's far deeper than the one in 2001). Tax increases in the Bush/Clinton years clearly grow the government's take. Meanwhile the Bush tax cuts, which took rates from 39.6 down to only 35% appear to have had a much greater impact on revenues than the far larger Reagan cuts.

 

[MasterBlaster]

Note the trend. As I understand it this chart represents all government spanding including state and local spending.

 

[Gone4Good]

Note the trend. As I understand it this chart represents all government spanding including state and local spending.

Yes..

Please go back to that site and click the button that says "Federal" instead of "Total" (which includes state spending) and repost the chart. If you do it from 1960-2009 it looks like this . . .

 

[MasterBlaster]

Do your numbers include social security and medicare and the SS trustfund spending ?

here's how the budget numbers shake out this year.

feds - $3.7 T (Trillion)
xfer pmts - 0.5 T (thats SS medicare, Medicaid and other xfer pmts)
States - $1.4 T
Local - $1.8 T

Total - ~ $6.5 Trillion

If we call the GDP as $14.5 trillion then the total Government spending is around 44% of the total.

Those numbers jive with my posted chart.

Your charts 25% number (I believe) only reflects the "normal" federal spending
($3.7T/$14.5 T) = 25%.

Keep in mind all of the "Off budget" spending that has taken place.

The trend doesn't look good.

 

[jdw_fire]

Use the right tool for the job at hand.

In the late seventies the economy was hit by a supply side shock (oil embargo) coupled with high tax rates and intrusive regulations like nothing we have today (wage & price controls to name just one). All of this conspired to reduce the productive capacity of the U.S. Against a reduced capacity for output, the government tried to spur demand with monetary and fiscal policy. Output couldn't increase because supply was constrained so government induced demand just caused prices to rise. The right policy response was "supply side" in nature. Breaking the oil embargo, deregulating, and cutting taxes to free up the supply constraints and tighter money to beat inflation.

In 2010, the problem is completely different. Excess productive capacity was built to meet artificial demand created by super loose credit. When the credit bubble burst, demand disappeared but all of that productive capacity remains. So we have a deflationary overhang of excess capacity coupled with asset price deflation due to deleveraging. The right policy response in this environment is to support demand with government spending and fight deflationary pressures with loose monetary policy. (To die-hard supply siders I ask, what do we need more supply of? Houses? Homebuilders? Banks? Auto manufacturers? . . . )

So it's not a matter of "liberal" or "conservative" but rather using the right policy for the problem. It's unfortunate but people box themselves into corners with these labels (liberal/conservative, Republican/Democrat) and use them as an excuse to just stop thinking. Just because something worked when Ronald Reagan was president doesn't mean its the proper response to conditions that are completely different today.

sooo does your post support higher taxes on the higher income individuals (and households)? just trying to keep up here.

 

[youbet]

sooo does your post support higher taxes on the higher income individuals (and households)? just trying to keep up here.

I think he's supporting higher taxes for folks hiding behind trees......... Or something like that.

 

[Bikerdude]

I think he's supporting higher taxes for folks hiding behind trees......... Or something like that.

Aren't we all.

 

[jdw_fire]

I think he's supporting higher taxes for folks hiding behind trees......... Or something like that.

i dont know, i thinking those higher income people can afford to pay some more of the cost of this bailout and recovery, they dont seem to be losing income, in fact the income gap is widening

If all the benefits of investment and capital formation go to the very top of the income ladder, then the rest of us would prefer that they pick up more of the tax tab. Since we've seen widening income gaps over the last 30 years, it seems that is a plausible result.

The IRS just released their report on the 400 highest income families in 2007. Average income was $345 million, mostly from dividends and capital gains, average tax rate was 16.6%. I don't think the rest of us would see anything negative if that rate were 30% instead. http://www.irs.gov/pub/irs-soi/07intop400.pdf

and maybe we could use some disincentive on the high end. http://www.early-retirement.org/for...about-higher-marginal-tax-brackets-48472.html

 

[bobbee25]

What with the global economy in full swing, I wonder if raising the taxes on high income earners and corporations will cause any significant shift off shore. Is there a plus for a corporation to stay in the USA if they can be financially better off elsewhere.

 

[jdw_fire]

What with the global economy in full swing, I wonder if raising the taxes on high income earners and corporations will cause any significant shift off shore. Is there a plus for a corporation to stay in the USA if they can be financially better off elsewhere.

lol do you really think that these high income people can just pick up a corp and move it off shore? and even if they could, do you actually think they would give up their US citizenship? i dont think so and if not they will still pay US income taxes

 

[bobbee25]

Most major corporations have offices around the world, so changing the headquarters and just keeping a skeleton office here isn't all that unrealistic. How many companies have moved out of California over the last few years.

 

[Gone4Good]

All this talk about tax rates over time made me curious about how much we're actually paying versus how much we used to pay. Listening to the "Taxed Enough Already" movement you'd think we're paying much, much more now. So I looked up detailed information on tax brackets (found here) and calculated what someone earning $50K and $500K in taxable, CPI adjusted, income would pay in Federal taxes under the rate structures in place in the years 1980, 1990, 2000, and 2010.

Here's the result . . .

	Tax Owed	Effective Rate	Tax Owed	Effective Rate	Tax Owed	Effective Rate	Tax Owed	Effective Rate
Income	1980	1980	1990	1990	2000	2000	2010	2010
$50,000	10,037	20%	15,169	30%	14,000	28%	10,825	0.22%
$500,000	280,678	56%	141,888	28%	182,010	36%	116,013	0.23%

 

[freebird5825]

All this talk about tax rates over time made me curious about how much we're actually paying versus how much we used to pay. Listening to the "Taxed Enough Already" movement you'd think we're paying much, much more now. So I looked up detailed information on tax brackets (found here) and calculated what someone earning $50K and $500K in taxable, CPI adjusted, income would pay in Federal taxes under the rate structures in place in the years 1980, 1990, 2000, and 2010.

Here's the result . . .

Should the last two year column headers to the right of the table be filled in as "2010" ?

 

[Gone4Good]

Should the last two year column headers to the right of the table be filled in as "2010" ?

Yup. Fixed.

 

[MasterBlaster]

Now add in state and local taxes to the mix as well as property and other taxes.

Add in the user "fees" and add in the stealth taxes like utility surcharges etc.

Notice the trend.

 

[Gone4Good]

Now add in state and local taxes to the mix as well as property and other taxes.

Not at all sure what that has to do with Federal policy, but you seem to like the chart so feel free to post it a couple of more times.

 

[MasterBlaster]

Not at all sure what that has to do with Federal policy, but you seem to like the chart so feel free to post it a couple of more times.

You seem to imply that people aren't paying more in taxes lately which just isn't true if you look at everything.

 

[JPatrick]

Not at all sure what that has to do with Federal policy, but you seem to like the chart so feel free to post it a couple of more times.

Mandated federal programs require state spending, leading to...yup, more local and state taxes.
The cruelest tax of all though, is the trickle down effect of failed federal programs.

 

[bobbee25]

In 80's the economy was struggling with the high taxes so thereafter the rates were lowered and the economy started recovering.
Next year it looks like they are going to let Bush tax cuts expire.
There are quite a few federal fees being added to almost everything, I consider the FCC etc as federal. There are also federal laws being enacted which drive up the cost of living, just not as obvious as the 1040 forms.

 

[Gone4Good]

You seem to imply that people aren't paying more in taxes lately which just isn't true if you look at everything.

Even if we have the debate on your terms, the chart you keep posting doesn't support your argument to any great degree. Most of the spending increase you see as a trend occurred prior to 1970 (which is before the start of the data I posted earlier this morning). I suspect that some of that increase during the early part of this century reflects improving record keeping. Do we really know what the state and local governments of Alabama spent in 1910? I doubt it. We have much better records now so all of that spending is included whereas in prior years some of it got missed.

Not to mention that as of 1900 Oklahoma, New Mexico, Arizona, Alaska and Hawaii weren't even states.

Other spending increases reflect things like public schools, libraries, fire departments, paved roads, etc. etc. Are you suggesting we go back to 1900 spending levels with the commensurate service levels? If not, who cares what was spent 100 years ago?

Meanwhile if we look at the same data, from the same source, for the more recent period from 1980 to 2009 it looks like this . . .

 

[haha]

Halliburton moved to Dubai. Some large company that I cannot remember moved to Zurich.

Plenty of this will happen if they keep thinking-"From each according to his ability, to each according to his need." Don't have to be very old to realize that there is a lot more of the latter than the former, even in the late and great USA.

Ha