Trusts

[swchandler]

"The one good thing about the Bush tax cuts was the sunset provision that forces at least some to think about it now."


While I can't claim to know the facts, its my thought that the tax cuts couldn't have made it through the minority in Congress without that caveat. I saw an article today in the LAT discussing the expiration of the Bush tax cuts, and they brought up some of the background surrounding the original approval of the Bush tax cuts. Apparently many Democrats supported the cuts in light of demanding lobbying interests, particularly in their states. Senator Schumer of NY was one of those supporting tax cuts, to include Senator Diane Feinstein of California amongst others.

Today, the idea of extending or permanently extending the Bush tax cuts is going to contested by not just Republicans, particularly in a critical election year like 2010. As much as tax cuts (across the board in my opinion) need to expire to begin addressing our king sized debit, it will be a difficult uphill battle for the Obama Administration, even if it's targeted at those making $200-250K or more per year. Also, it must be remembered that those without jobs will not be responsible for paying income taxes for the period that they didn't have a job, unless unemployment benefits are taxed as regular wages. In reality, I'm guessing that those without a job would love to be in a position of having a good paying job and having to pay their share of income taxes.

Another thing that keeps coming to my mind is the reduced tax on capital gains. Although Republicans are always quick to argue that keeping them super low stimulates investment in innovation and growth, and I can't help but think that some questionable Democrats will side with them. However, there's no specific guarantee or requirement that investments in the marketplace are helping creating jobs and business growth here in America.

More importantly, what about the folks shorting the market? They're not producing anything at all in the way of jobs and growth, but they expect to take advantage of reduced taxation on capital gains as if they were truly investing in America. I think that winnings shorting the market ought to be taxed at higher rates than wages. Personally I think that hedging bets against investment, jobs and growth should be discouraged by very stiff and heavy taxation.

Lastly, at least for now, it irritates the hell out me that with my IRA investment gains in the marketplace over time are considered to be taxable as wages upon their withdrawal. No capital gains benefits for middle class folks investing in the financial markets, as that's reserved for the very rich that have lots of excess money to play the game and profit at a discount. What's wrong with that picture, and why does the little guy get screwed? Just to be clear, I'm not talking about non-taxed income rolled into IRAs, but only the investment gains part.

[coboardhead]

Regarding IRA gains being taxed.

When I invest in non-IRA investments, I am using money I already paid taxes on. Therefore, I believe this should be a capital gain, if kept more than a year.

When in the IRA, I have deferred the income. The gains are part of this deferral, in my view. I would rather pay the lower rate (I hate taxes); but don't feel I should.

As a self-employed individual, all of my retirement (no pension etc) is in the form of deferrels (IRA KEOGH etc.) When I withdraw, I will be using my gains to supply my income. It would not be fair to those on pensions to have some of my "income" taxed at a lower rate.

Regarding capital gains. I believe that a low tax rate for gains does encourage investment and employment. At least in my case. I have made some speculative (small) investments in experimental drug therapies. If not for the big pay off - why would I?

Regarding playing the stock market. I don't do this; but aren't most of these transactions shorter than the time required for a capital gain? It would be hard to separate this out without hurting some worthwhile investment. Maybe a compromise of a capital gain requiring a longer term - say two years to qualify?

[swchandler]

"Regarding playing the stock market. I don't do this; but aren't most of these transactions shorter than the time required for a capital gain? It would be hard to separate this out without hurting some worthwhile investment. Maybe a compromise of a capital gain requiring a longer term - say two years to qualify?"


As I don't really play the stock market directly, I have to admit to being a bit in the dark about tax rates on capital gains. I thought capital gains were taxed at 15%. Seemingly, based on your comments, the tax rate can be higher for those investments held for less than a year. What rate(s) would apply in those circumstances? Still though, I'm doubtful that tax on capital gains for short period investments would match tax rates for wages.

Regarding pensions, I'm thinking that one's tax liability would depend on whether employee contributions over time were taxed or not taxed. Although I don't have a pension, I did receive a 5 year payout. My contributions were taxed, so when I received my contributions back as part of the distribution, they were tax free. However, the investment gains made over the years where taxed as wages in the distribution.

In my earlier comments about IRAs, I realize that I was coming out against existing rules. I think that a change in the tax rules on investment gains resulting from IRAs, 401ks and other similar plans would be advantageous for middle class working folks and it would stimulate investment by encouraging more savings across the board. Of course, the government wouldn't stand to collect as much revenue overall, at least from the individual or family, but potential gains in revenue could result from the business side due to the result of greater investment input.

I could be wishing for the impossible, but in my opinion, some attention should be focused on growing the size and strength of the middle class.

[coboardhead]

As I understand it, jump in pros anytime:

Generally, short term (less than 1 year) are taxed as ordinary income. Like interest.

Long term gains (more than 1 year) are taxed at a different rate. In my tax bracket 15%. I think lower tax brackets get a lower rate. Some items, I think have different rates like collectibles?

You don't pay Social Security and Medicare on short or long term capital gains.

I, too, am no expert.

As I have indicated before, I don't mind paying the taxes, I just think it sucks to have to hire a professional to figure out how to do it.

[isobars]

The Fair Tax would immediately eliminate altogether the tax filing time and effort of every taxpayer from Coboardhead to Walmart by 100%, plus reduce the government's size by 100,000 IRS workers, reduce the size of federal income tax laws by 70,000 pages, solve most of the problems and inequities associated with the federal tax system, and bring jobs flooding back into the U.S. by the millions.

[mac]

Flooding back? Wasn't that the promise of the Bush tax cuts? Jobs have left the US because of labor costs and the low cost of goods transport, both of which are huge factors compared to taxes. But the tooth fairy promises that they'll all come back, and the tooth fairy does good research, don't you think?

[coboardhead]

As I understand it - the "Fair Tax" is a national sales tax and no income taxes.

While this seems appealing, it is not a progressive tax system. The poor will pay more taxes. I am not sure that works.

Why is it all or none? (Silly me, I forgot for a second the dysfunctional process we have). We could have a national consumption tax that leaves out essentials like food, utilities and healthcare.

The consumption tax could include a sin tax as suggested by others.

Keep the income tax, but get rid of the deductions - Simplify the code. Each tax change should try and reduce, not increase the complexity. Make that a goal.

We really have to reduce the debt. Messing with the whole system at once may not be smart.

[mac]

Now think about it for a minute. The biggest tax deduction is for interest on a home loan. Almost all of the benefits of that measure were to the middle class. Mine is paid off, but I got the benefits. The purpose was to stimulate the construction of housing--a pretty good investment since construction has a high multiplier. Lots of unintended consequences, like urban sprawl. It kind of froze out the poor, and was allowed for second homes and buy-ups that, I think, defeated the purpose.

If you want to have a meaningful discussion about deductions, do some research on the Federal budget, see what they actually cost, who benefits, and suggest what you think should be changed. But if we want to balance the budget, we either have to cut the military dramatically, or raise taxes. I vote to tax carbon fuels.

[coboardhead]

A problem I see with interest deductions is that folks took out second loans on equity (a lot of which did not exist) and used this to buy new cars and tv's etc.

I don't have a mortgage because I bought a real cheap house and paid it off quickly. The interest deduction at the time was minimal. Why should I, or someone who lives in NYC and can't afford to buy (even with a good salary) effectively support, in a lot, not all, of cases, excessive consumption?

I do not have real data that verifies that people buy more expensive houses to get a higher tax deduction, but I know a bunch of people who did. These costlier homes are often larger, require more energy to operate, are located further from city centers and have higher property taxes. In effect, a larger burden on their owners and a higer carbon footprint. This does not seem like something we should encourage.

I agree with cutting military spending and a carbon tax (maybe I'll get back some of the taxes on the big house utilities).

Add to that a tax on alcohol, corn syrup etc. But not tobacco - smokers die younger and I want to make sure of my SS income.

[isobars]

I would love to respond to the errors in your presumed facts and the foundations of your implied opinions, but it would take pages I haven't the time to type and, if you're anything like the guys and gal I had to killfile, facts wouldn't matter. So I pass. Suffice it to say that it sounds like you fairly recently went to a very liberal university (even though at your age, it's unlikely) and/or live in a very liberal city. I'd be very curious to revisit your thinking in 20 years to see whether/how it has changed. (I'm guessing some of your thinking will change very rapidly as an entrepreneur under the Obama administration.)

Mike