Stay Classy Cayman Islands.

[Clubfoothead]

I guess that is my whole point, to me more is more. if I write a check for 150k, it is more than 10.5K. To me it is that simple. The 50% of the taxes are paid by the top 5% of earners, is the same argument, in a different way. They are paying more.

 

But you are having an argument with a person that doesn't exist. That was my point. Nobody has disagreed with your point that $150,000.00 is more than $15,000.

[westvirginia]

The point totally missed here is this is a loophole written into the tax code because POLITICIANS CAN BE BOUGHT. And the more power the state has, the more there is for those who govern to sell. This merely strengthens the arguments for a flat or fair tax with the exact same deductions across the board for everyone. P.J. O'Rourke said something like "When legislators decide what is bought and sold the first things to be bought and sold are legislators." This isn't buying/selling, but it's about money and the same principle applies.

[Ursa Majoris]

The point totally missed here is this is a loophole written into the tax code because POLITICIANS CAN BE BOUGHT. And the more power the state has, the more there is for those who govern to sell. This merely strengthens the arguments for a flat or fair tax with the exact same deductions across the board for everyone. P.J. O'Rourke said something like "When legislators decide what is bought and sold the first things to be bought and sold are legislators." This isn't buying/selling, but it's about money and the same principle applies.

I certainly haven't missed that point. Hedge fund managers have bought and paid for the right to declare their salaries / commission as capital gains. Virtually every tax exception / abatement / loophole, call it what you will, is the result of someone buying it. The whole thing is mindblowingly corrupt on a monumental and epic scale.

 

The fact remains, however, that treating income taxation as a proportionality issue is the only way to sensibly examine it. Even flat tax proponents know that.

[yo mama]

The point totally missed here is this is a loophole written into the tax code because POLITICIANS CAN BE BOUGHT. And the more power the state has, the more there is for those who govern to sell. This merely strengthens the arguments for a flat or fair tax with the exact same deductions across the board for everyone. P.J. O'Rourke said something like "When legislators decide what is bought and sold the first things to be bought and sold are legislators." This isn't buying/selling, but it's about money and the same principle applies.

You and I agree more than we disagree on this subject.

 

But why is it that every flat tax proposal also gets rid of the estate and gift tax and keeps capital gains taxed at a lower level than ordinary income? Tax it ALL at the same flat rate, not just wages, and then I'll get on board. Otherwise its a giveaway to the rich, which isn't fair.

[Ursa Majoris]

You and I agree more than we disagree on this subject.

 

But why is it that every flat tax proposal also gets rid of the estate and gift tax and keeps capital gains taxed at a lower level than ordinary income? Tax it ALL at the same flat rate, not just wages, and then I'll get on board. Otherwise its a giveaway to the rich, which isn't fair.

The whole point of a flat tax or fair tax or whatever-the-name-is-this-week tax is to shift the tax burden away from it's proponents. It has nothing to do with "fairness".

[yo mama]

The whole point of a flat tax or fair tax or whatever-the-name-is-this-week tax is to shift the tax burden away from it's proponents. It has nothing to do with "fairness".

And that's the shame of it all. It *could* be fair. But our policy makers clearly have no interest in such provincial concepts.

[westvirginia]

You and I agree more than we disagree on this subject.

 

But why is it that every flat tax proposal also gets rid of the estate and gift tax and keeps capital gains taxed at a lower level than ordinary income? Tax it ALL at the same flat rate, not just wages, and then I'll get on board. Otherwise its a giveaway to the rich, which isn't fair.

 

Well, if we used the fair tax (the one retail sales tax with which I'm most familiar - and the one I've been an ardent proponent of), you would be taxed on what you purchased, and everyone would get a "prebate" based on poverty level necessities at the beginning of every month. So people would be taxed the same percent, if they bought a $150K house, they pay 23% on that. If they bought a $150MM house, 23% on that. Income, thus productivity, is not stifled. And since the hypothetical guy with a $1MM income is going to be paying the tax on either a limo or a luxury car, he's paying a damn sight more in taxes than the guy buying the Camry, right?.

 

I don't know about the flat tax proposals your speaking of. Frankly, the flat tax is only a means to a fair tax for me. The IRS and the power it wields should go, along with the power the legislators wield by being able to use the tax code for social engineering and favor granting. Frankly, rather than a flat tax, I'd rather (than a flat tax) see it where only businesses pay income tax. Since we all know businesses don't pay taxes, it's a de-facto national sales tax that everyone has to pay, illegals, tourists, everyone.

[Boilerduff]

But you are having an argument with a person that doesn't exist. That was my point. Nobody has disagreed with your point that $150,000.00 is more than $15,000.

 

Well, I have heard too many arguments that state rich pay less in taxes than the poor. They are in fact arguing that 10.5 is more than 150k. They aren't saying proportionally they are paying less. I am also not saying that people on this board are the culprit, I am just saying that I have had a lot of conversations with people outside the huddle that try to argue this point. I thought I would try to hash it out here, but I see that perhaps I am the one who is crazy for thinking actual dollar contributions matter. I still think it does, but proportionally, I see Ursa and everyone elses point. Not trying to start this whole thing up again, just trying to explain my point. I have finally gotten someone to admit they they are paying more in tax dollars, so I will take my small victory, and move on. Again, I am not saying it is fair, right, not corrupt, or what it should be.

 

At least all of us agree on one thing, that the tax code needs some major work.

 

Thanks again.

[Ice1]

And those paycheck guys pay full income rates on their 401k profits as well, even though those profits are completely indistinguishable from capital gains because that's exactly what they are. Talk about a rigged system.

 

The reason for this difference is clear.

 

401K dollars are contributed pretax. There has never been a dime of tax paid on this investment. This is why all dollars are taxed as income when pulled out.

 

Capital gains are taxed at a lower rate because the Capital has already been taxed as ordinary income once. Then that post tax capital investment if it results in income are taxed at 15%. This is the law and why it is called CAPITAL GAINS. The flip side risk is if you invest a Million dollars or even a One Hundred Million dollars of dollars already taxed once and that investment goes belly up, the write off is only $3,000.00 I think. The design is set up to generate investment and the risk is lowered to actually invest which creates jobs so others can also improve the quality of life and pay taxes on their income. BTW, the government still gets their hooks in this money. We have this little thing called inheritance tax so don't think the government is not in the double taxation game. They are.

 

If one wants to talk about a rigged system then we should be discussing the 401K instrument itself. If you pull this money, your money, early then there is a 30% penalty plus taxes. Further, to gain access you have to be unemployed for the privilege of gaining access to pay that 30% penalty.

 

I know I would like more open access of these funds to balance personal budgets without this penalty. Instead, we can only borrow against the instrument and cannot borrow additional from ourselves until we pay back that loan.

 

This would be the first thing I would like to see changed as the this would stimulate the economy by allowing individuals to pay down personal debt and fund investment in homes, college tuition, and make purchases without so much debt financing.

 

The tax code is a mess but neither party has the will to change the tax system. BTW, those 1 percents already pay 37% of the total tax bill so it is somewhat disingenuous to blame them for our problem. We could take all their money and would not solve the spending issues. The hard left always talk in percentage rates and for good reason, 47% don't even pay income tax and they need a higher percentage to cover the cost of their vision of government. Those that are actually paying the Lion's share to the government talk in terms of dollars, real dollars actually paid. Given 53% fund 100% of income taxes this argument will not change anytime soon.

 

For those that are making claims that people are cheating the IRS because they park dollars in the Caymans or a Swiss bank accounts, it is not cheating, it is perfectly legal. Secondly, these locations are simply safer given the liability limits of US banks. Keeping millions of dollars in an American bank given the insurance against failure rules in place is not smart.

 

This is not the governments money to continue to waste at historic levels in the first place. This is not a Socialist country yet.

Edited January 23, 2012 by Ice1

[Ursa Majoris]

The reason for this difference is clear.

 

401K dollars are contributed pretax. There has never been a dime of tax paid on this investment. This is why all dollars are taxed as income when pulled out.

 

Capital gains are taxed at a lower rate because the Capital has already been taxed as ordinary income once.

 

<rant snipped>

So how do you square this with capital gains that are reinvested over and over again, always being taxed at 15%. How do you know this money has ever been taxed as ordinary income?

 

You are right about the reason being clear but it isn't anything remotely close to your reasoning.

[SayItAintSoJoe]

Romney reveals taxes: Paid $6.2M on $42.6M income

 

Romney finally wises up and releases this information. He should have done that from the start. Whoever advised him that he could get through the nomination process without releasing it should be fired. I believe it cost him SC.

 

Now there is a really big number attached to what prior to the release was just a percentage. Now even though he's "only" paid a little less than 15%, the $6.2M stands out as a lot of money, IMO.

 

Had he done this from the start it would now be behind him, IMO.

[Ursa Majoris]

Romney finally wises up and releases this information. He should have done that from the start. Whoever advised him that he could get through the nomination process without releasing it should be fired. I believe it cost him SC.

 

Now there is a really big number attached to what prior to the release was just a percentage. Now even though he's "only" paid a little less than 15%, the $6.2M stands out as a lot of money, IMO.

 

Had he done this from the start it would now be behind him, IMO.

The $6.2m as a proportion of $42m pales against Gingrich's $1m on $4m though. Gingrich will still have some leverage.

[Ice1]

So how do you square this with capital gains that are reinvested over and over again, always being taxed at 15%. How do you know this money has ever been taxed as ordinary income?

 

You are right about the reason being clear but it isn't anything remotely close to your reasoning.

 

I know because it is the law and the IRS does have control measures via tax audits. If you are somehow making an assumption there are crooks out there then yes and some actually get caught but the law is specific and clear as it relates to Capital Gains VS. Ordinary Income.

 

Reinvesting Capital gains is big business for the government. Look at the revenue received just from Romney. The government loves it when money is reinvested and makes more money and the revenue benefit is obvious.

 

Not liking Capital Gains laws is a completely different argument. Wanting more money is simply a different issue and goes to rate.

[Ice1]

The $6.2m as a proportion of $42m pales against Gingrich's $1m on $4m though. Gingrich will still have some leverage.

 

One thing for certain. The government likes 6.2 Million more than 1.0 million. Of course many believe 6.2 million is not enough benefit to the Federal Government and really believe they somehow deserve more from one individual.

[Ursa Majoris]

I know because it is the law and the IRS does have control measures via tax audits. If you are somehow making an assumption there are crooks out there then yes and some actually get caught but the law is specific and clear as it relates to Capital Gains VS. Ordinary Income.

 

Reinvesting Capital gains is big business for the government. Look at the revenue received just from Romney. The government loves it when money is reinvested and makes more money and the revenue benefit is obvious.

 

Not liking Capital Gains laws is a completely different argument. Wanting more money is simply a different issue and goes to rate.

I don't think you answered the question. The law is very clear on what constitutes capital gains and what constitutes ordinary income but the point I was trying to make is that you cannot know that any given amount of money has ever been taxed as ordinary income. Indeed, it seems obvious that most money invested is previous CG profit, so it stands to reason it has never been taxed as ordinary income.

 

The issue is simple - 401k profits are reinvested but always subject to ordinary income tax. Capital gains profits are reinvested but always subject to capital gains tax only. And yet these two sets of money do precisely the same thing.

[Ursa Majoris]

One thing for certain. The government likes 6.2 Million more than 1.0 million. Of course many believe 6.2 million is not enough benefit to the Federal Government and really believe they somehow deserve more from one individual.

Including devotees of the Flat Tax, methinks.

[SEC=UGA]

I don't think you answered the question. The law is very clear on what constitutes capital gains and what constitutes ordinary income but the point I was trying to make is that you cannot know that any given amount of money has ever been taxed as ordinary income. Indeed, it seems obvious that most money invested is previous CG profit, so it stands to reason it has never been taxed as ordinary income.

 

The issue is simple - 401k profits are reinvested but always subject to ordinary income tax. Capital gains profits are reinvested but always subject to capital gains tax only. And yet these two sets of money do precisely the same thing.

 

You may also want to differentiate between long term and short term CG taxes.

 

401K is pretax income. Most of the monies invested in the market are post tax income.

[Ursa Majoris]

You may also want to differentiate between long term and short term CG taxes.

 

401K is pretax income. Most of the monies invested in the market are post tax income.

I would make differentiating between short term and long term capital gains job one, just to try to calm market volatility and kill off the worthless quick-buck penny-shaving turds who pay no attention to fundamentals.

 

As for the rest of it, yes, I am well aware 401k contributions are pre-tax. I am advocating that those contributions be taxed at the prevailing income tax rate when they are taken. I am also advocating that profits from 401k be treated the exact same way as capital gains, especially as they are almost always reinvested over and over again due to the withdrawal constraints of the 401k (which capital gains are not subject to).

[Boilerduff]

Romney finally wises up and releases this information. He should have done that from the start. Whoever advised him that he could get through the nomination process without releasing it should be fired. I believe it cost him SC.

 

Now there is a really big number attached to what prior to the release was just a percentage. Now even though he's "only" paid a little less than 15%, the $6.2M stands out as a lot of money, IMO.

 

Had he done this from the start it would now be behind him, IMO.

 

 

My point exactly!!

[SayItAintSoJoe]

My point exactly!!

 

I think you’re comparing apples with oranges. My point on Romney’s taxes is based on the politics of the situation and how his disclosure that he paid $6M in taxes looks better to the average voter than just saying that he paid roughly 15%.

 

Now should someone who earns $42M pay just $6M in taxes while someone that earns $100K can expect to pay a bigger percentage of their income in taxes? That is a point that I’ll leave for you to make.

[Azazello1313]

some reading on capital gains taxes

[Big Country]

You may also want to differentiate between long term and short term CG taxes.

 

401K is pretax income. Most of the monies invested in the market are post tax income.

 

 

Note that Traditional 401K contributions are pretax, but Roth 401K contributions are post tax. Both also receive different tax treatment at the time of withdrawal.

 

Not exactly germaine to this discussion, just a point of clarification that should be made.

[Ice1]

I don't think you answered the question. The law is very clear on what constitutes capital gains and what constitutes ordinary income but the point I was trying to make is that you cannot know that any given amount of money has ever been taxed as ordinary income. Indeed, it seems obvious that most money invested is previous CG profit, so it stands to reason it has never been taxed as ordinary income.

 

The issue is simple - 401k profits are reinvested but always subject to ordinary income tax. Capital gains profits are reinvested but always subject to capital gains tax only. And yet these two sets of money do precisely the same thing.

 

The bold statement may be your opinion but that opinion is factually not correct. The IRS knows and anyone that has ever gone through an audit understands this. When you file with an accountant you will sign a document that states your information is factual. If you invest 100K as an example there will in fact be a trail as to how you received that 100K at some point and you were taxed on those dollars at the ordinary income rate. Once you reinvest that net you are taxed at Capital gains rates if you make money and yet are only allowed to write off 3K even if all is lost including capital on the investment if it goes belly up.

 

I would simply suggest you go see an account. While the tax code is complex, the IRS knows all the tricks and can go back years through records. BTW, the more money and more complex the return, the higher the opportunity for an in depth audit. The IRS is not nice about it either. When they get the hooks out the filer better be prepared. I can almost guarantee, anyone dealing with significant assets keep both accountants and lawyers in business. Someone with Romney type money pays big money to make sure everything is done legally as the risk of prison and draconian penalties are very real.

 

401K accounts are in perpetual investment using new contributions but this investment is using gross dollars that have never been taxed in anyway. This is why they are subject to all taxes as the owner draws down this investment.

 

These are two very different type programs as the 401K is ongoing. Capital you own and use for a new investment is subject to taxes on the annual gain. The rate is lower to stimulate new investment which creates jobs.

 

I can't explain it any better but I know my accountant can as he lives in the tax code world. I am sure if there is an Accountant or Corporate Tax Attorney around here they could make this make more sense than I could.

 

Edit to add:

 

Post 46 is a very good read regarding Capital Gains

Edited January 25, 2012 by Ice1

[Ursa Majoris]

The bold statement may be your opinion but that opinion is factually not correct. The IRS knows and anyone that has ever gone through an audit understands this. When you file with an accountant you will sign a document that states your information is factual. If you invest 100K as an example there will in fact be a trail as to how you received that 100K at some point and you were taxed on those dollars at the ordinary income rate. Once you reinvest that net you are taxed at Capital gains rates if you make money and yet are only allowed to write off 3K even if all is lost including capital on the investment if it goes belly up.

 

I would simply suggest you go see an account. While the tax code is complex, the IRS knows all the tricks and can go back years through records. BTW, the more money and more complex the return, the higher the opportunity for an in depth audit. The IRS is not nice about it either. When they get the hooks out the filer better be prepared. I can almost guarantee, anyone dealing with significant assets keep both accountants and lawyers in business. Someone with Romney type money pays big money to make sure everything is done legally as the risk of prison and draconian penalties are very real.

 

401K accounts are in perpetual investment using new contributions but this investment is using gross dollars that have never been taxed in anyway. This is why they are subject to all taxes as the owner draws down this investment.

 

These are two very different type programs as the 401K is ongoing. Capital you own and use for a new investment is subject to taxes on the annual gain. The rate is lower to stimulate new investment which creates jobs.

 

I can't explain it any better but I know my accountant can as he lives in the tax code world. I am sure if there is an Accountant or Corporate Tax Attorney around here they could make this make more sense than I could.

 

Edit to add:

 

Post 46 is a very good read regarding Capital Gains

OK, fair enough but what about this piece?

 

Indeed, it seems obvious that most money invested is previous CG profit, so it stands to reason it has never been taxed as ordinary income.

 

What I'm referring to here is not initial investment but reinvestment of gains, which are taxed at 15%. While I accept completely that 401k money has never been taxed at all, I still think the reinvestment of gains on a 401k should be subject to the same rate as capital gains. It would just be later is all, which is fair enough because of the restrictions on the money until age 59 1/2. Your point about capital being owned surely applies just as much to a 401k (pending tax).

[SayItAintSoJoe]

The bold statement may be your opinion but that opinion is factually not correct. The IRS knows and anyone that has ever gone through an audit understands this. When you file with an accountant you will sign a document that states your information is factual. If you invest 100K as an example there will in fact be a trail as to how you received that 100K at some point and you were taxed on those dollars at the ordinary income rate. Once you reinvest that net you are taxed at Capital gains rates if you make money and yet are only allowed to write off 3K even if all is lost including capital on the investment if it goes belly up.

 

I don't have a problem with CG being taxed at 15% if in fact the money that was invested was already taxed as ordinary income. However, I think that Romney has taken advantage of a loophole (called carried interest) in the tax code that has shielded much of his wealth from ever being taxed as ordinary income.

 

Romney is not a guy who just got paid a huge income from Bain, got taxed on that income and then went on to invest his after tax money, IMO. I believe that he used the carried interest loophole to shield his money from being taxed as ordinary income and now reaps the reward of those investments while only paying 15% in taxes.

 

I for one want to know more about how he used the loophole. Did he ever receive a substantial (ordinary) income while at Bain or has most of his money been shielded over the years. I suspect that most has been shielded over the years thus his reluctance to go back 12-15 years in releasing his taxes.