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The pope on income re-distribution
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techno900



Joined: 28 Mar 2001
Posts: 1364

PostPosted: Thu Jan 23, 2014 11:11 am    Post subject: Reply with quote

pueno said:
Quote:
You think that federal, state, and local GAS TAXES pay for police and fire and their retirements? Really? And building, maintaining, plowing, and managing roads too? You really think that?


I guess I should have been more clear. City, county and state taxes pay for the things you mentioned, NOT federal income tax. However, federal gas taxes do pay for roads.

Pueno said:
Quote:
But if it was a business deal and you depreciated the property to zero value, then you need to acknowledge what the depreciation allowance was over those years that you received it. Might it have some bearing here? (Or do you see it as value that you keep, untaxed?)

This was all explained in my original post about my condo, but again-----
I was loosing money monthly because my mortgage payment (and HOA fees) was more than the rent I collected. I depreciated the condo over 15 years getting an annual deduction from my income tax (roughly 6000 a year). This tax benefit roughly balanced my annual loss via the low rent.

Actually, I would have to get with my tax guy to know if the deduction was actually 6K per year. That seem high, but if it is accurate (dividing 90K for the condo by 15 years), and I was in the 28% bracket (guessing), I saved $1680 per year in income taxes. That seems pretty close to what I lost per year via rent vs mortgage/HOA fees.

As stated before, I lived in the condo for one year and then rented it out for 15.

Would you still be happy paying 39.5% on capital gains if you were the condo owner? I don't think so. Paying 0 capital gains tax would still have generated a net loss on the investment. My lesson was learned. I should have unloaded the dog as fast as I could rather than going into the real-estate business. At that point in time, home values had been on a long run of rapidly increasing value, but all that turned around in the mid 80's. You never know.
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pueno



Joined: 03 Mar 2007
Posts: 2366

PostPosted: Thu Jan 23, 2014 12:10 pm    Post subject: Reply with quote

techno900 wrote:

I guess I should have been more clear. City, county and state taxes pay for the things you mentioned, NOT federal income tax. However, federal gas taxes do pay for roads.

I think that gas taxes (the tax charged per gallon of fuel used on the highway) is used in part to offset the costs of roads. Federal gas taxes partly offset the costs of building and maintaining federal roads (interstate highways). State gas taxes are targeted to help pay the costs of state roads. I believe that local roads are paid out of the budget earmarked for highway departments, since most communities (aside from big cities) do not impose their own fuel tax.


techno900 wrote:

This was all explained in my original post about my condo, but again-----
I was loosing money monthly because my mortgage payment (and HOA fees) was more than the rent I collected. I depreciated the condo over 15 years getting an annual deduction from my income tax (roughly 6000 a year). This tax benefit roughly balanced my annual loss via the low rent.

Actually, I would have to get with my tax guy to know if the deduction was actually 6K per year. That seem high, but if it is accurate (dividing 90K for the condo by 15 years), and I was in the 28% bracket (guessing), I saved $1680 per year in income taxes. That seems pretty close to what I lost per year via rent vs mortgage/HOA fees.

As stated before, I lived in the condo for one year and then rented it out for 15.

I think the issue here is understanding the fundamental concept of depreciation. When you're allowed a $6k/yr deduction from your gross income, the IRS is allowing you to deduct the loss in value of your property. At the end of the 15 years, the IRS has "paid you back" for its complete loss in value. Your condo has ZERO value, according to their books. And you've received that money in the form of income deductions every year for 15 years.

At the end of 15 years, the IRS says that your condo has ZERO value... so, when you sell it, the full amount is considered income and taxed.

But the tax you now pay is the tax you didn't have to pay over those 15 years because of those deductions.

If you were considering something besides a condo -- a milling machine used in business, for example -- the assumption is that you'd bank the money allowed by the deduction every year over the full depreciation period (probably 7 years). Then, at the end of depreciation, your machine would have zero value and you'd junk it and buy a new one with the money you banked every year.

Any residual value, whether from selling it used or selling for scrap iron, would be considered full income and taxed, because it had zero value upon sale.


techno900 wrote:

Would you still be happy paying 39.5% on capital gains if you were the condo owner? I don't think so.

Yes, because I was keeping money each of those 15 years by my deductions. The tax I pay now is the tax I didn't have to pay (due to depreciation) over those 15 years.

But, of course, I agree that 100% is more than 60%. And each of us would prefer to keep 100%.

It's a question of ethical responsibility. Do you want to pay your fair share?

Do you want Warren Buffett to pay his fair share (calculated as a % of income)?
.
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techno900



Joined: 28 Mar 2001
Posts: 1364

PostPosted: Thu Jan 23, 2014 1:38 pm    Post subject: Reply with quote

Pueno said:
Quote:
I think the issue here is understanding the fundamental concept of depreciation.


I have the understanding, I will pay tax now or later, but that isn't the issue or topic. Enough with my real-estate venture.

No one has addressed the point I have been making - lower capital gains taxes, in my opinion help stimulate the economy and job growth via investments and business development. If you take risks by investing, you should get a break on taxes if you make money. Not everyone will agree, but that is my take. Since the CG taxes are going up, someone? in government certainly feels that the investors need to share more of their profits with "the people".

"Fair Share"- the liberal catch phrase is over played. I guess you would like to see the top 5% of income earners paying 75% of all taxes while more than half the country pays nothing. Income redistribution is the goal, right? Is paying no income tax a fair share?
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pueno



Joined: 03 Mar 2007
Posts: 2366

PostPosted: Thu Jan 23, 2014 2:12 pm    Post subject: Reply with quote

techno900 wrote:

If you take risks by investing, you should get a break on taxes if you make money.

So.... where's the cutoff? By your logic, 0% CG tax would be the best, since it would provide the most stimulation.

Is Mitt stimulating the economy with his off-shore banked zillions?


techno900 wrote:

"Fair Share"- the liberal catch phrase is over played. I guess you would like to see the top 5% of income earners paying 75% of all taxes while more than half the country pays nothing. Income redistribution is the goal, right? Is paying no income tax a fair share?

Some years ago, the top earners paid 75% and more. They NEVER went hungry.

I think everyone should pay something, since everyone benefits from things paid for with our taxes. The question is how much.

I think it should be a graduated scale, with the poorest among us paying 1% or less of their income (earned and unearned). The percentage rate should increase with increasing ability to pay.

Unfortunately, most taxes paid by the poorest are sales-related taxes, and those are applied by consumption, not by ability to pay... so those folks bear a huge relative burden just to buy the bare necessities. The wealthy never feel the impact of those taxes.

In my opinion, all should pay taxes, but the heaviest burden should be on those most able to pay.

And, please......... don't start with "job creator" horseshit. The wealthiest these days are the hedge fund managers. They DO NOT create jobs with the multi-millions they pocket each year.
.
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reinerehlers



Joined: 25 Jul 2001
Posts: 707

PostPosted: Thu Jan 23, 2014 4:04 pm    Post subject: Reply with quote

Special taxes for hedge fund managers and different for those who create jobs? Great idea! A tax incentive to those who create jobs, I'm all for that. I would try to keep everything "in house" with my business, and maybe, in country for other business. The incentive would make having to handle more staff, and in country unions more tolerable. Pueno, now you're talking like a conservative.
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keycocker



Joined: 10 Jul 2005
Posts: 3035

PostPosted: Thu Jan 23, 2014 4:59 pm    Post subject: Reply with quote

Liberals seem to have this idea strongly among them.
They think the tax breaks for hedge funds, oil companies making record profits and so on should not continue. Most conservatives agree.
The GOP disagrees, once again failing to represent conservatives.
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pueno



Joined: 03 Mar 2007
Posts: 2366

PostPosted: Thu Jan 23, 2014 7:44 pm    Post subject: Reply with quote

reinerehlers wrote:
Special taxes for hedge fund managers and different for those who create jobs? Great idea! A tax incentive to those who create jobs, I'm all for that. I would try to keep everything "in house" with my business, and maybe, in country for other business. The incentive would make having to handle more staff, and in country unions more tolerable. Pueno, now you're talking like a conservative.

Not a conservative, really. What you said just plain makes sense -- tax incentives for true, genuine job creators, based on the actual jobs they've created.

But the inverse is illogical. To award tax breaks to the wealthy on the presumption that they'll use that cash to create jobs is foolhardy, maybe downright stupid. Mostly, that extra cash goes into their off-shore, numbered bank accounts (ala Mitt).

Anyway, jobs are created based on the need for production, not based on the cash in an employer's pocket. It's well recognized that corporations today are rolling in cash but not creating jobs. Why is that? (Because there's reduced demand for their products, thus reduced demand for production employees.)

(Psst: Those tax breaks for actual created jobs ALREADY EXIST.)
.
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mac



Joined: 07 Mar 1999
Posts: 4673

PostPosted: Thu Jan 23, 2014 7:54 pm    Post subject: Reply with quote

Well said Pueno. We should use the tax code to encourage things that create jobs, increase conservation of energy, and so forth. Not things that further stimulate gambling on either real estate or stocks, because those behaviors don't create jobs--and threaten the basic economy.
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swchandler



Joined: 08 Nov 1993
Posts: 5479

PostPosted: Fri Jan 24, 2014 2:21 pm    Post subject: Reply with quote

The idea that a low tax rate on capital gains creates jobs is a myth promoted by the Republican party. Over the last decade, it's arguably clear that the Bush tax cuts didn't stimulate the kind of innovation and growth that expands the job market. I'm of the opinion that capital gains should be taxed at the same rate as wage income.

History has proven that increased demand stimulates jobs and hiring. However, with today's focus on global trade and manufacturing, the idea of dependably growing traditional manufacturing jobs in the US will be difficult at best. Where opportunities are going to be in the future will be linked to technical innovation and development in fields that demand a highly educated work force. The idea of succeeding with a limited educational background will be less viable and realistic as time moves on. With current statistics showing that 1 in 4 students does not graduate from high school is not going to be the foundation for a successful career and future. We need to change that, and that means we need to spend more tax money on higher education and demand higher performance and accountability from both educators and students. Moreover, we need to stimulate a business climate that leads to innovation and real growth. That means tax incentives and preferences for growing businesses that actually create new sustainable jobs and products for the future. The idea of simply giving special tax breaks for folks benefiting from capital gains income doesn't accomplish anything in itself. It only allows the rich to easily become richer with little or no accountability.
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reinerehlers



Joined: 25 Jul 2001
Posts: 707

PostPosted: Fri Jan 24, 2014 2:43 pm    Post subject: Reply with quote

Supply and demand create jobs for sure. Where those jobs go and why is another story. If those tax credits already exist for job creation, then I sure as heck am not seeing them here. I've often considered a business model where everything is sub traded out, where I would only design and sell. It buys me freedom but I would see it reducing quality. If I could gaurantee the quality it would be an attractive proposition. I'm sure that is much of the driving force of sending jobs elsewhere. If I had a big enough financial incentive ALL aspects of our projects would be kept "in house", but without that, I don't need the headaches.
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