Author Topic: Warren wealth tax may impact your small business or business planning  (Read 5255 times)

SeattleCPA

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I don't mean this to be the start of a heated political discussion, but I thought it'd be okay to point something out to anybody with an established small business. The mark-to-market rules proposed by Senator Warren may impact your small business. And so you probably want to pay attention to the discussion.

Here's how they work, BTW: If someone's wealth puts them into the top one percent (so by one of her economist's estimates, $4M of net worth), two changes to capital gains taxation occur. First, gains aren't taxed using capital gains rates but rather using ordinary income tax rates. Second, taxes get paid when asset values increase and not when assets are sold.

Example with rough, easy-to-process numbers, just to make this understandable...

Someone has a $1M home and a $3M IRA. They also have a small business (a blog, an ecommerce site, etc) initially worth zero basically... But the small business explodes and starts making $300K a year. That income gets capitalized and suggests business is worth $2M. Bingo. Now taxpayer owes income taxes on the $2M and the $300K.

BTW, this isn't an issue for folks saving money into retirement accounts per the proposals...

E.g., if someone has a $1M home and a $3M IRA and the IRA increases in value by $2M, no mark-to-market gain gets taxed.

SwordGuy

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Re: Warren wealth tax may impact your small business or business planning
« Reply #1 on: November 09, 2019, 02:45:05 PM »

Example with rough, easy-to-process numbers, just to make this understandable...

Someone has a $1M home and a $3M IRA. They also have a small business (a blog, an ecommerce site, etc) initially worth zero basically... But the small business explodes and starts making $300K a year. That income gets capitalized and suggests business is worth $2M. Bingo. Now taxpayer owes income taxes on the $2M and the $300K.


Maybe you need to make this easier because it's just gibberish to me. :(

I don't understand where you're getting the $2M from.

What does "That income gets capitalized" mean?

And where is your source for this?   Because I can guarantee you that there's a lot of paid-for, intentional misinformation out there.

maizeman

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Re: Warren wealth tax may impact your small business or business planning
« Reply #2 on: November 09, 2019, 03:30:15 PM »
I'm not SeattleCPA, but I think in this case you started a business that initially had zero value ($0). After a year the business is growing and people would probably be willing to pay you money to buy it from you. Now your ownership stake in that business is worth something significant. You have unrealized capital gains.

Right now that doesn't matter until/unless you decide to sell your business. Let's say after five years you decide it's time for you to exit. You sell the business to someone else for $2M. You own capital gains tax on the difference between what you paid for the business ($0) and what you sold it for ($2M). So about 23.8% of $2M (about $500,000) you receive for selling your business gets sent off to the government.

Warren's plan includes taxing people on unrealized capital gains and taxing capital gains at income tax rates. So after one year, the value of your business gets assessed (somehow, the mechanism is unclear). If the assessment finds that the business is worth $2M, you own ~37% of that ($740,000) in taxes to the government. You owe taxes for owning a business that is growing in value, but if you don't sell you haven't actually received any new money you can use to pay the new tax. This might force you to sell the business early to raise money to pay your tax bill. At a minimum it means you should expect to save a lot more of any income from a business to cover not only taxes on profits but taxes on increases in the value of the business.

Another Reader

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Re: Warren wealth tax may impact your small business or business planning
« Reply #3 on: November 09, 2019, 03:36:25 PM »
The income gets capitalized into value, just as your net income from your rentals can be capitalized into property value with a cap rate.

Where there may be some confusion is between wealth tax and income tax.  My understanding is that Warren is proposing an annual wealth tax, based on capitalized asset value.  Her proposed rate or rates are much lower than income tax rates. 

Ms. Warren is going to force a lot of business people and others that have saved and invested to hold their noses and vote for the opposition, presumably Trump, if that's her proposal.  If, in fact, she wants to tax capitalized asset value or even increases in capitalized asset value annually at income tax rates, well, that is not likely to pass and she is probably unelectable.

maizeman

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Re: Warren wealth tax may impact your small business or business planning
« Reply #4 on: November 09, 2019, 04:04:54 PM »
Where there may be some confusion is between wealth tax and income tax.  My understanding is that Warren is proposing an annual wealth tax, based on capitalized asset value.  Her proposed rate or rates are much lower than income tax rates. 

I would say there are three big changes.
1) The wealth tax, which is a tax on current net worth at a comparatively low annual rate.
2) Taxing capital gains at regular income tax levels (probably the least controversial of the three).
3) Taxing unrealized capital gains each year as regular income.

#1 and #3 both require coming up with a way to value things like equity in private businesses so in principle figuring out how to value a privately held business with $300,000/year of profit applies to both. However #3 is probably the more relevant to discuss for tax planning purposes since there are a lot more households in the top 1% than households with net worths >$50M and the potential for unexpected and nasty surrises is much higher.

Creating a $2M privately held business would incur $40,000 in wealth taxes* each year. However, in the year the business went from an idea to something with value it might incur $750-$800,000 in taxes on unrealized capital gains.

*Assuming a household net worth high enough to be subjected to the wealth tax. 

Another Reader

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Re: Warren wealth tax may impact your small business or business planning
« Reply #5 on: November 09, 2019, 04:15:01 PM »
Where there may be some confusion is between wealth tax and income tax.  My understanding is that Warren is proposing an annual wealth tax, based on capitalized asset value.  Her proposed rate or rates are much lower than income tax rates. 

I would say there are three big changes.
1) The wealth tax, which is a tax on current net worth at a comparatively low annual rate.
2) Taxing capital gains at regular income tax levels (probably the least controversial of the three).
3) Taxing unrealized capital gains each year as regular income.

#1 and #3 both require coming up with a way to value things like equity in private businesses so in principle figuring out how to value a privately held business with $300,000/year of profit applies to both. However #3 is probably the more relevant to discuss for tax planning purposes since there are a lot more households in the top 1% than households with net worths >$50M and the potential for unexpected and nasty surrises is much higher.

Creating a $2M privately held business would incur $40,000 in wealth taxes* each year. However, in the year the business went from an idea to something with value it might incur $750-$800,000 in taxes on unrealized capital gains.

*Assuming a household net worth high enough to be subjected to the wealth tax.

I have been deliberately ignoring this because it's all meaningless noise until the candidates are chosen and the platforms written.  If, in fact, this is what Warren proposes, and it makes the Democratic platform with her as the candidate, she will not be electable.  The policy is confiscatory and too much money is at stake to allow this to happen.

The sad thing is that this sort of nonsense is even being discussed.  Confiscatory policies destroy incentive and are antithetical to what made the US as wealthy as it is today.  Next stop: Venezuela...

maizeman

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Re: Warren wealth tax may impact your small business or business planning
« Reply #6 on: November 09, 2019, 04:26:42 PM »
So I will admit to being a lot weaker in my knowledge of party platform procedures than of candidate nominating procedures. I know the national platform is written at the national convention.* Do you know if there is precedent for the convention nominating a candidate for president but refusing to incorporate the policies that candidate ran on into the primary into the party platform?

You'd asked about whether or not these policies are actually being discussed. Warren put out her detailed line by line plan to pay for medicare for all last week (here's the campaign's own text of the plan: https://medium.com/@teamwarren/ending-the-stranglehold-of-health-care-costs-on-american-families-bf8286b13086). Here's the specific bit that discusses the issue being talked about above.

Quote
Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income.

I'd be happy to hear I'm either misinterpreting her plan or there is a flaw in the reasoning above about what the plan would mean to people starting businesses.

*I actually had a chance to contribute to a county democratic platform at a county convention once when I was much much younger. Was a fascinating experience.

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #7 on: November 09, 2019, 04:34:12 PM »
What does "That income gets capitalized" mean?

And where is your source for this?   Because I can guarantee you that there's a lot of paid-for, intentional misinformation out there.

Here's the link to Warren's Medicare for All plan: https://elizabethwarren.com/plans/paying-for-m4a

The relevant paragraph from above page I quote below:

We can also change the way the government taxes investment income for the top 1%. Today, taxes are only assessed on capital gains when securities are sold. That means wealthy investors can put their money in the stock market, see it grow, and not pay a dime in taxes on those earnings unless or until it is taken out of the market. Under the current system, they can then pass along those shares to their heirs when they die and their heirs will be able to pay even less when they choose to sell.

What mark-to-market accounting does, btw, is make taxpayer pay income taxes on the increases in market value. That's the "marking to market" step.

The valuation mechanics I borrowed from Saez and Zucman's 2014 research paper available here: https://gabriel-zucman.eu/files/SaezZucman2014.pdf These two economists, you may already know, are widely quoted by Senator Warren.

The interesting thing about the economists approach is they apply what they describe as simple formulas which estimate the value of a closely held business by using a capitalization factor. You multiple that by the small firm's income to get a simple estimate of its value. But you can also just use regular valuations.

If you want more detail, you can check out my longer blog post that explains how the taxes work.... just click the link to my blog in sig. I think you'll see what I'm trying to explain... bottomline, small businesses get impacted by the mark to market stuff.
« Last Edit: November 10, 2019, 08:26:31 AM by SeattleCPA »

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #8 on: November 09, 2019, 04:34:55 PM »
I'm not SeattleCPA, but I think in this case you started a business that initially had zero value ($0). After a year the business is growing and people would probably be willing to pay you money to buy it from you. Now your ownership stake in that business is worth something significant. You have unrealized capital gains.

Right now that doesn't matter until/unless you decide to sell your business. Let's say after five years you decide it's time for you to exit. You sell the business to someone else for $2M. You own capital gains tax on the difference between what you paid for the business ($0) and what you sold it for ($2M). So about 23.8% of $2M (about $500,000) you receive for selling your business gets sent off to the government.

Warren's plan includes taxing people on unrealized capital gains and taxing capital gains at income tax rates. So after one year, the value of your business gets assessed (somehow, the mechanism is unclear). If the assessment finds that the business is worth $2M, you own ~37% of that ($740,000) in taxes to the government. You owe taxes for owning a business that is growing in value, but if you don't sell you haven't actually received any new money you can use to pay the new tax. This might force you to sell the business early to raise money to pay your tax bill. At a minimum it means you should expect to save a lot more of any income from a business to cover not only taxes on profits but taxes on increases in the value of the business.

+1

And this additional comment: The multiple (so the price to earnings multiple) that Saez and Zucman use for S corporations is 6.7. So an S corp business that makes $150K is worth $1M basically. A business that makes $300K, worth roughly $2M.

These are very rough formulas... but they produce the wealth values Saez and Zucman use for their research discussions which in turn feed into Senator Warren's policies. (BTW, in a later paper, Saez says you can use more finely tuned multiples than they did for that quoted research.)

Note, too, that you can do this math with regular old taxable accounts... or with rental real estate.
« Last Edit: November 09, 2019, 04:40:57 PM by SeattleCPA »

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #9 on: November 09, 2019, 04:49:35 PM »
Taxing unrealized capital gains each year as regular income....is probably the more relevant to discuss for tax planning purposes since there are a lot more households in the top 1% than households with net worths >$50M and the potential for unexpected and nasty surpises is much higher. 

Right. There are 1.7 million taxpayers/family units in the top 1%.

And then it's not just them that need to stay alert to this. Taxpayers close to the 1% need to stay alert because they may soon be paying wealth and weath-triggered taxes. And then due to the carry forwards, former 1% folks need to continue to deal with the wealth tax returns.

E.g., if in year 5 your business explodes in profitability and grows in value by $2M and that puts you in the top 1%, you owe maybe $800K of tax. (40 percent on $2M.) If in year 6, the thing craters and value drops to zero, you're no longer in the top one percent. But you've got a $2M mark-to-market loss you will want to carry forward in case you ever have taxable mark-to-market gains again. (Note that you can't carry back mark-to-market losses...)

I am skeptical something like this gets passed. But because people don't have experience thinking about how wealth taxes work and also how wealth-triggered taxes work, I think potentially affected taxpayers need to learn the details and stay alert.

Or maybe a better way to say this... it's not just billionaires and ultra-millionaires that will get hit.
« Last Edit: November 09, 2019, 04:51:59 PM by SeattleCPA »

Another Reader

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Re: Warren wealth tax may impact your small business or business planning
« Reply #10 on: November 09, 2019, 04:57:43 PM »
So I will admit to being a lot weaker in my knowledge of party platform procedures than of candidate nominating procedures. I know the national platform is written at the national convention.* Do you know if there is precedent for the convention nominating a candidate for president but refusing to incorporate the policies that candidate ran on into the primary into the party platform?

You'd asked about whether or not these policies are actually being discussed. Warren put out her detailed line by line plan to pay for medicare for all last week (here's the campaign's own text of the plan: https://medium.com/@teamwarren/ending-the-stranglehold-of-health-care-costs-on-american-families-bf8286b13086). Here's the specific bit that discusses the issue being talked about above.

Quote
Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income.

I'd be happy to hear I'm either misinterpreting her plan or there is a flaw in the reasoning above about what the plan would mean to people starting businesses.

*I actually had a chance to contribute to a county democratic platform at a county convention once when I was much much younger. Was a fascinating experience.

I made a decision 40 or more years ago not to pay attention to politics.  It's a black hole for time and energy and there is not a lot I can do to change the outcome, i.e. it's outside my span of control.  I wait to see the outcome and how it affects me.  Then I plan my response.

The last time I remember a significant platform fight was in 1968 during the Vietnam War. The infighting in the Democratic Party probably got Nixon elected IIRC.

If this ridiculous proposal is implemented, it will smother business incentive.  Politicians like Nancy Pelosi understand how destructive this is and how little financial support they will get for the campaign from the big donors if it's part of the platform.  She's probably hoping she can get Trump and Pence out through impeachment so she can become President and circumvent disaster.

If Warren is nominated and then elected on that platform but does not win both houses of Congress, this won't pass.  It would probably not pass anyway, because a lot of Democrats could not support it, as it would be political suicide for them.

If it does pass, a lot of business people will be financially crippled, including me.  A lot of people will decide it's time for the torches and pitchforks if this looks like it will pass and become law...




FIPurpose

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Re: Warren wealth tax may impact your small business or business planning
« Reply #11 on: November 09, 2019, 05:13:24 PM »
Wow ok, I think people really are misreading what the proposal is. Some people here are way way off.

If we're talking about Warren's plan, then I think there a few things here to qualify.

1. Warren's wealth tax starts at 50MM. So 2MM business would produce 0 taxes from the wealth tax unless this person was already extremely rich.
2. I haven't seen anything where Warren's plan is talking about doing a forced step-up at the end of each year. She does however suggest raising estate taxes, eliminating the free step-up at death, and removing the cap on social security.

Even for the ultra wealthy, I can imagine that there would be a way to delay liquidating illiquid assets. Either in carrying over the amount owed from year to year. Or they could just take out a loan against the business. Either way. We're talking about people with >50MM net worth. Part of their wealth is going to be liquid enough to cover the tax.


SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #12 on: November 09, 2019, 05:15:48 PM »
If it does pass, a lot of business people will be financially crippled, including me.  A lot of people will decide it's time for the torches and pitchforks if this looks like it will pass and become law...

OK, now I'm sorry I brought this up. Apologies to you, Another Reader, and anyone and everyone else discouraged by this.

What I was thinking in terms of starting this thread was to flag the issue for small business owners as something to be alert to as a future business planning issue.

Like you, I would be greatly impacted by the mark to market stuff.

The other thing is, while I'm skeptical Senator Warren's proposal gets implemented, something wealth-tax-y seems likely. And we small business owners (at least I was thinking) want to stay on top of this.

BTW, I'm influenced here, probably, because business owners with tiny offshore subsidiaries just got beat up by the last tax law's Section 965 and Section 951A (aka "GILTI")  "foreign corporation taxes.

Again, though, I'm sorry I brought this up. None of us need more stress...

maizeman

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Re: Warren wealth tax may impact your small business or business planning
« Reply #13 on: November 09, 2019, 05:22:22 PM »
I haven't seen anything where Warren's plan is talking about doing a forced step-up at the end of each year.

It's part of the plan she posted on medium and her campaign website for how to pay for Medicare for All. The specific relevant text is:

"I’ve already proposed closing that loophole for how capital gains are treated when shares are passed on to heirs. But we can go a step further. Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income."

This is from her campaign website. https://elizabethwarren.com/plans/paying-for-m4a/

Quote
We're talking about people with >50MM net worth. Part of their wealth is going to be liquid enough to cover the tax.

On her campaign website (linked and quoted above) she talks about applying mark-to-market (having to pay taxes on unrealized gains each year) to the top 1%, which is a much lower bar than $50M.

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #14 on: November 09, 2019, 05:23:16 PM »
Wow ok, I think people really are misreading what the proposal is. Some people here are way way off.

If we're talking about Warren's plan, then I think there a few things here to qualify.

1. Warren's wealth tax starts at 50MM. So 2MM business would produce 0 taxes from the wealth tax unless this person was already extremely rich.
2. I haven't seen anything where Warren's plan is talking about doing a forced step-up at the end of each year. She does however suggest raising estate taxes, eliminating the free step-up at death, and removing the cap on social security.

Even for the ultra wealthy, I can imagine that there would be a way to delay liquidating illiquid assets. Either in carrying over the amount owed from year to year. Or they could just take out a loan against the business. Either way. We're talking about people with >50MM net worth. Part of their wealth is going to be liquid enough to cover the tax.

Senator Warren's policy proposal absolutely proposes taxpayers in the top one percent use mark to market accounting.

At least two of us copied and pasted the relevant paragraph from her website.

Also, just so you understand, while her proposal doesn't suggest taxing retirement accounts, if you are subject to the mark to market rules, you owe capital gains tax if assets increase in value. And the capital gains tax rate in this situation is the ordinary income tax rate.
« Last Edit: November 09, 2019, 05:33:35 PM by SeattleCPA »

Another Reader

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Re: Warren wealth tax may impact your small business or business planning
« Reply #15 on: November 09, 2019, 05:26:02 PM »
If it does pass, a lot of business people will be financially crippled, including me.  A lot of people will decide it's time for the torches and pitchforks if this looks like it will pass and become law...

OK, now I'm sorry I brought this up. Apologies to you, Another Reader, and anyone and everyone else discouraged by this.

What I was thinking in terms of starting this thread was to flag the issue for small business owners as something to be alert to as a future business planning issue.

Like you, I would be greatly impacted by the mark to market stuff.

The other thing is, while I'm skeptical Senator Warren's proposal gets implemented, something wealth-tax-y seems likely. And we small business owners (at least I was thinking) want to stay on top of this.

BTW, I'm influenced here, probably, because business owners with tiny offshore subsidiaries just got beat up by the last tax law's Section 965 and Section 951A (aka "GILTI")  "foreign corporation taxes.

Again, though, I'm sorry I brought this up. None of us need more stress...

I'm glad you did bring this up.  Like FIPurpose, I was only aware of the proposed wealth tax.  And the title of your post refers to the wealth tax, not the funding for the "Medicare for All" proposal, of which I was unaware.  I now have another issue to pay some attention to, sadly.

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #16 on: November 09, 2019, 05:27:42 PM »
... the top 1%, which is a much lower bar than $50M.

The two economists she often quotes or references say in that 2014 research paper I linked to earlier in thread the threshold to top one percent is $4M... which is a lot... but also way less than $50M.

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #17 on: November 09, 2019, 05:30:07 PM »
I was only aware of the proposed wealth tax.  And the title of your post refers to the wealth tax, not the funding for the "Medicare for All" proposal, of which I was unaware.  I now have another issue to pay some attention to, sadly.

I think of this as there are three wealth taxes:

The wealth-triggered income taxes for one percent folks due to the mark to market accounting and the change in tax rates.
The "ultra millionaires" tax for people with more than $50M which is that two percent tax.
The "billionaires" tax which equals six percent due to two separate three percent taxes.

Another Reader

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Re: Warren wealth tax may impact your small business or business planning
« Reply #18 on: November 09, 2019, 05:39:56 PM »
I was only aware of the proposed wealth tax.  And the title of your post refers to the wealth tax, not the funding for the "Medicare for All" proposal, of which I was unaware.  I now have another issue to pay some attention to, sadly.

I think of this as there are three wealth taxes:

The wealth-triggered income taxes for one percent folks due to the mark to market accounting and the change in tax rates.
The "ultra millionaires" tax for people with more than $50M which is that two percent tax.
The "billionaires" tax which equals six percent due to two separate three percent taxes.

Yes, but it is an income tax.  It marks assets to market and treats increases the same as current income, taxing them accordingly.

SwordGuy

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Re: Warren wealth tax may impact your small business or business planning
« Reply #19 on: November 09, 2019, 06:25:56 PM »
That unrealized capital gains tax is about "securities", i.e., stocks  and bonds.   Not a small business owner who just owns a business.
That means that the stocks held for you by the brokerage houses would calculate the year's unrealized capital gains (just like they do now).   

I'll bet the brokerage houses will offer to "automagically" handle it for you, sell a portion of the stock to pay the bill, send the money to Uncle Sam (after milking it for interest for as long as possible), and send you the paperwork to file with your taxes.   And, of course, if the market goes into a decline, you'll have unrealized losses, too.  Those would offset other gains in the future.

Y'all making a whole lot of noise about very little.

Am I happy about a wealth tax?   Meh.   

On those who are really, really rich?   Cry me a river.  It might take them a few more years to afford a second yacht and the world will survive.

All this is brought on by rich people being too damn greedy.    I just hope the ultra-rich goobers learn their lesson and start to be reasonable again before the jacquerie comes out in force and they start using guillotines on the wealthy.  (Because once that happens, they don't stop with just the people who caused the problems...


SwordGuy

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Re: Warren wealth tax may impact your small business or business planning
« Reply #20 on: November 09, 2019, 06:28:27 PM »
Securities!  The wealth tax is being discussed in terms of securities, i.e., stocks and bonds.

This would have no impact on a regular small business owner who privately owns their own business.

And the wealth threshold is high enough that regular people trying to get rich needn't worry about it one iota.

Y'all making a lot of ruckus about nothing.

maizeman

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Re: Warren wealth tax may impact your small business or business planning
« Reply #21 on: November 09, 2019, 06:36:20 PM »
That unrealized capital gains tax is about "securities", i.e., stocks  and bonds.   Not a small business owner who just owns a business.

Could you clarify what is leading you to the conclusion assets other than stocks* and bonds would be excluded from Warren's proposed tax on unrealized capital gains?

*Presumably publicly traded stocks? Because what small business owners own is also stock in a business. It's just illiquid stock without a market to enable price discovery.

And the wealth threshold is high enough that regular people trying to get rich needn't worry about it one iota.

I agree with you that the threshold for the wealth tax is high enough that "regular people" wouldn't be directly effected. But I've certainly seen plenty of folks who post on this forum with net worths >$4M (probably enough to put them in the top 1% and subject to the unrealized capital gains tax).
« Last Edit: November 09, 2019, 06:42:08 PM by maizeman »

Another Reader

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Re: Warren wealth tax may impact your small business or business planning
« Reply #22 on: November 09, 2019, 06:42:55 PM »
Securities!  The wealth tax is being discussed in terms of securities, i.e., stocks and bonds.

This would have no impact on a regular small business owner who privately owns their own business.

And the wealth threshold is high enough that regular people trying to get rich needn't worry about it one iota.

Y'all making a lot of ruckus about nothing.

There are two separate proposals.  Although SeattleCPA put wealth tax in the title, the issue he raises is the funding proposed for the "Medicare for All" program.  There is a reference to the proposal, above.  That's an income tax proposal that treats all unrealized capital gains as income and taxes them at ordinary income tax rates.  The top 1 percent is anyone with a net worth somewhere around $4M.  That includes a lot of business owners and residential real estate owners in HCOL areas that have smaller businesses.

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Re: Warren wealth tax may impact your small business or business planning
« Reply #23 on: November 09, 2019, 06:49:35 PM »
I agree with you that the threshold for the wealth tax is high enough that "regular people" wouldn't be directly effected. But I've certainly seen plenty of folks who post on this forum with net worths >$4M (probably enough to put them in the top 1% and subject to the unrealized capital gains tax).

But it also excludes all retirement accounts. Maybe I'm off or just not wealthy enough, but my retirement accounts represent like 70-80% of my wealth. This wouldn't touch any 60 year old whose been saving for retirement their whole working career. People who have net worth >4MM ex retirement accounts would most likely have actual net worths closer to 8-12MM.

FIPurpose

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Re: Warren wealth tax may impact your small business or business planning
« Reply #24 on: November 09, 2019, 06:50:10 PM »
My guess is that any legislation would also exclude primary residence from wealth consideration.

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Re: Warren wealth tax may impact your small business or business planning
« Reply #25 on: November 09, 2019, 07:14:04 PM »
Securities!  The wealth tax is being discussed in terms of securities, i.e., stocks and bonds.

This would have no impact on a regular small business owner who privately owns their own business.

And the wealth threshold is high enough that regular people trying to get rich needn't worry about it one iota.

Y'all making a lot of ruckus about nothing.

There are two separate proposals.  Although SeattleCPA put wealth tax in the title, the issue he raises is the funding proposed for the "Medicare for All" program.  There is a reference to the proposal, above.  That's an income tax proposal that treats all unrealized capital gains as income and taxes them at ordinary income tax rates.  The top 1 percent is anyone with a net worth somewhere around $4M.  That includes a lot of business owners and residential real estate owners in HCOL areas that have smaller businesses.

I just read what Warren says about funding Medicare for All in the link provided above (https://elizabethwarren.com/plans/paying-for-m4a) and I do NOT see what you claim.   

Please be kind enough to quote where it says that.   

Also, a $10,000,000 net worth isn't in the top 1% according to https://personalfinancedata.com/networth-percentile-calculator/?min_age=18&max_age=100&networth=10000000#results, so $4,000,000 certainly isn't.

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Re: Warren wealth tax may impact your small business or business planning
« Reply #26 on: November 09, 2019, 07:36:35 PM »
I agree with you that the threshold for the wealth tax is high enough that "regular people" wouldn't be directly effected. But I've certainly seen plenty of folks who post on this forum with net worths >$4M (probably enough to put them in the top 1% and subject to the unrealized capital gains tax).

But it also excludes all retirement accounts.

This is a case where I agree the language is ambiguous. My reading is that the tax on unrealized capital gains only applies to wealth outside of retirement accounts for anyone in the top 1%. It sounds like your reading is that the tax on unrealized capital gains only applies to wealth outside of retirement accounts for anyone in the top 1% (considering only wealth outside of retirement accounts in making the determination of who is in the top 1%). Of course if we only consider wealth outside of retirement accounts the threshold for being in the top 1% is probably lower than $4M.

Quote
Maybe I'm off or just not wealthy enough, but my retirement accounts represent like 70-80% of my wealth. ... People who have net worth >4MM ex retirement accounts would most likely have actual net worths closer to 8-12MM.

This is a place where I think extrapolating from percentages is misleading. If a person maxes out their 401k/403b + an IRA every year over a 30 year working career and earns 6.8% per year after inflation, they'd end up with about $2.5M in retirement accounts. Exceptions like Mitt Romney aside, it's going to be hard to get vastly more than that into retirement accounts during a working career.* For folks worth more than about $3.5M or so it'd be hard to hit 70-80% of net worth in retirement accounts.

FWIW, I've got about 56% of my net worth in retirement accounts, that's with maxing out retirement accounts since I got my first real grown up job and using the fun loophole where I can contribute to a 403b AND a 457 AND an IRA for the past five years. And I'm definitely not measuring my net worth in the millions.

*However if you put it all in Roth accounts and don't touch it for years after retirement it can certainly compound to significantly higher numbers.

We are in agreement about the Warren campaign proposing tax on unrealized capital gains that kicks in at some number significantly less than $50M though? That's the main thing I wanted to clear up. Because if you have some statement from Warren or document that changes the interpretation of the text from her how to pay for medicare for all plan from the website I'd be happy to hear it.

...Has really been kind of discouraging...

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Re: Warren wealth tax may impact your small business or business planning
« Reply #27 on: November 09, 2019, 07:38:00 PM »
I just read what Warren says about funding Medicare for All in the link provided above (https://elizabethwarren.com/plans/paying-for-m4a) and I do NOT see what you claim.   

Please be kind enough to quote where it says that.   

"I’ve already proposed closing that loophole for how capital gains are treated when shares are passed on to heirs. But we can go a step further. Under a “mark-to-market” system for the wealthiest 1% of households, we will tax capital gains income (excluding retirement accounts) annually, rather than at the time of sale, and raise the rates on capital gains to match the tax rates for labor income."

You can use control-F to search for this exact text in the link you just posted.

« Last Edit: November 09, 2019, 07:48:09 PM by maizeman »

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Re: Warren wealth tax may impact your small business or business planning
« Reply #28 on: November 09, 2019, 07:38:18 PM »
Securities!  The wealth tax is being discussed in terms of securities, i.e., stocks and bonds.

This would have no impact on a regular small business owner who privately owns their own business.

And the wealth threshold is high enough that regular people trying to get rich needn't worry about it one iota.

Y'all making a lot of ruckus about nothing.

There are two separate proposals.  Although SeattleCPA put wealth tax in the title, the issue he raises is the funding proposed for the "Medicare for All" program.  There is a reference to the proposal, above.  That's an income tax proposal that treats all unrealized capital gains as income and taxes them at ordinary income tax rates.  The top 1 percent is anyone with a net worth somewhere around $4M.  That includes a lot of business owners and residential real estate owners in HCOL areas that have smaller businesses.

I just read what Warren says about funding Medicare for All in the link provided above (https://elizabethwarren.com/plans/paying-for-m4a) and I do NOT see what you claim.   

Please be kind enough to quote where it says that.   

Also, a $10,000,000 net worth isn't in the top 1% according to https://personalfinancedata.com/networth-percentile-calculator/?min_age=18&max_age=100&networth=10000000#results, so $4,000,000 certainly isn't.

See Maizeman's quote from the proposal in Reply 13.  Assets are not just stocks and bonds.  Assets include real estate and businesses, both of which incur capital gains tax if sold.

Per SeattleCPA's original post, one of Warren's economists pegs the 1 percent at $4m net worth. 

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #29 on: November 09, 2019, 07:40:59 PM »
Securities!  The wealth tax is being discussed in terms of securities, i.e., stocks and bonds.

This would have no impact on a regular small business owner who privately owns their own business.

And the wealth threshold is high enough that regular people trying to get rich needn't worry about it one iota.

Y'all making a lot of ruckus about nothing.

There are two separate proposals.  Although SeattleCPA put wealth tax in the title, the issue he raises is the funding proposed for the "Medicare for All" program.  There is a reference to the proposal, above.  That's an income tax proposal that treats all unrealized capital gains as income and taxes them at ordinary income tax rates.  The top 1 percent is anyone with a net worth somewhere around $4M.  That includes a lot of business owners and residential real estate owners in HCOL areas that have smaller businesses.

I just read what Warren says about funding Medicare for All in the link provided above (https://elizabethwarren.com/plans/paying-for-m4a) and I do NOT see what you claim.   

Please be kind enough to quote where it says that.   

Also, a $10,000,000 net worth isn't in the top 1% according to https://personalfinancedata.com/networth-percentile-calculator/?min_age=18&max_age=100&networth=10000000#results, so $4,000,000 certainly isn't.

Swordguy, Warren says that capital gains will treated using mark-to-market rules. This is the passage that has been quoted several times already. Internal Revenue Code Section 1221 describes how capital gains taxation works. But also keep in mind that other Internal Code Revenue Sections, like 1231, piggy-back on 1221. Bottomline: The accounting works like I describe.

Regarding, your question about who is in the top one percent. Great question. Lots of disagreement about that. IRS says one thing. (About $2M, btw.) Federal Reserve in their Survey of Consumer Finances says something else. Keep in mind that often people quote the median wealth top one percent, which is WAY above the threshold required to get into the top one percent. When I referenced $4M, that was number from economists Warren regularly quotes and references.
« Last Edit: November 09, 2019, 07:42:54 PM by SeattleCPA »

SwordGuy

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Re: Warren wealth tax may impact your small business or business planning
« Reply #30 on: November 09, 2019, 08:51:28 PM »
The context of the quoted statements seem clearly on "shares", i.e., shares of securities like stocks and bonds.    That would not include small business owners of privately held businesses.   

I think you need to re-read it with less panic.

Or write her with some honest, CPA-like example questions that would clarify which meaning is meant.   

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Re: Warren wealth tax may impact your small business or business planning
« Reply #31 on: November 09, 2019, 09:16:44 PM »
I see now where the confusion might be. Warren's page on this state's that the mark-to-market tax would affect the top 1% richest families.

There's a link to a paper in reference to this line, however the link is broken, so I'm not sure what paper she references with this. I'll assume it's this paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2710738 Which is about taxing the top 0.1% with this type of accounting. That he estimated to be 1.6T over 10 years. Maybe Warren's website is just a typo? Until that link is fixed, I'm not sure what paper she's referencing there.

I wonder if that means that companies would stop bothering to rebuy shares and just start preferring dividends again...

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #32 on: November 10, 2019, 06:30:00 AM »
The context of the quoted statements seem clearly on "shares", i.e., shares of securities like stocks and bonds.    That would not include small business owners of privately held businesses.   

I think you need to re-read it with less panic.

Or write her with some honest, CPA-like example questions that would clarify which meaning is meant.

Here's my longer blog post which describes all of the details: https://evergreensmallbusiness.com/planning-for-the-warren-wealth-taxes/ It includes a bunch of examples.Very CPA-like...

To make some important points, the proposal is to use mark to market accounting for capital gains. Capital gains accounting is controlled by Section 1221 of the Internal Revenue Code and then, as noted earlier, often piggy-backed by other code sections like those that determine what happens if you sell real estate, a business's assets, etc.

Also, Warren clearly recognizing the liquidity problems of paying wealth-triggered income taxes and wealth taxes softens the cash crunch by saying taxes can be paid over five years and IRS can create rules for exceptional situations where taxpayers would face real hardship. E.g., private companies, direct real estate, farms, and so on. (See her discussion of the ultra-millionaire tax here for details: https://elizabethwarren.com/ultra-millionaire-tax/ )

Finally, regarding exclusions from the mark-to-market, Warren specifies what she excludes: retirement accounts (and also I think personal property less than $50K?) In any case, if she'd wanted to exclude other stuff (principal residences, closely held businesses, farms, etc) she surely would have said that.
« Last Edit: November 10, 2019, 06:49:26 AM by SeattleCPA »

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #33 on: November 10, 2019, 06:41:46 AM »
I see now where the confusion might be. Warren's page on this state's that the mark-to-market tax would affect the top 1% richest families.

There's a link to a paper in reference to this line, however the link is broken, so I'm not sure what paper she references with this. I'll assume it's this paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2710738 Which is about taxing the top 0.1% with this type of accounting. That he estimated to be 1.6T over 10 years. Maybe Warren's website is just a typo? Until that link is fixed, I'm not sure what paper she's referencing there.

I wonder if that means that companies would stop bothering to rebuy shares and just start preferring dividends again...

I'm not sure what you mean here. But Warren uses the phrase "top 1%" several times in the Medicare for All plan description. I counted four times.

She also uses another phrase, ultra-millionaires, to describe taxpayers with $50M or more of wealth... and then sometimes references these people as the top .1%... though that's not actually the right percentage. She's rounding. (No problem with that... just saying.)

BTW, if you spend much time reading the stuff written by the economists who study wealth (Picketty, Saez, Zucman, Splinter,  Zwick), you see a couple of things pretty much everybody agrees on... First, different methodologies produce difference wealth numbers (which predictably results in lots of debate)... Second, much of the top one percent's wealth (often half?) is stored in alternative asset classes. So often not publicly held stock, but private companies, direct real estate, etc.

Wealth and wealth-triggered taxes would have to hit this stuff as a practical matter.

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Re: Warren wealth tax may impact your small business or business planning
« Reply #34 on: November 10, 2019, 08:27:57 AM »
Warren's wealth tax plan is eye-rollingly bad. Talk about a compliance nightmare.

Formal valuations of property that isn't publicly traded are very expensive and also subjective. They are already frequent subjects of "dueling" valuation experts in courtrooms. Are we going to invent a whole new court for this? Because arguing about the actual value of property will be an all day, every day affair for a specialized court.

Are we going to make people sell their businesses, real estate, and farms, in order to pay the wealth tax? Because how else will they pay the wealth tax if their assets are illiquid?

And if we just restrict the wealth tax to liquid assets with a known value, such as securities, then the whole thing is pointless because people will just invest in non-liquid assets and private securities. In fact, an entirely new class of investments will doubtless be invented practically over night to help rich folks loophole their way out of wealth tax.

There's a reason people hate AMT. The government basically created a second tax system to exist next to our normal tax system in the hopes of capturing higher income taxpayers who were deducting "too much." Over time, the number of people affected by AMT increased and it became a general annoyance.  Estate tax is an older, but similar example. For a tax that affects a small number of people, it sure gets tweaked a lot and sucks up a lot of Tax Court time (and what is the most litigated aspects of estate tax? Valuations. Remember estate tax is a wealth tax - just a wealth tax that kicks in after you die. It's a tax on the value of your estate).

Warren is basically proposing to impose the estate tax every year, and all of the BS litigation and compliance issues that should normally happen once in a lifetime are going to become a bureaucratic nightmare. And all of the BS loopholes the rich use to get out of the estate tax? Guess what. They will all work with a wealth tax, too.

So what's the point? We already have (albeit imperfect) ways to tax the rich. Lower the estate tax exemption so that more people are impacted by it. Add some new tax brackets for the rich. Raise capital gain rates for the rich.

That said, if a wealth tax does get imposed, I'm going to sell my tax firm and just become a valuation expert full time. Warren's plan would line my pockets with dollar bills.

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Re: Warren wealth tax may impact your small business or business planning
« Reply #35 on: November 10, 2019, 08:30:57 AM »
And the number of people affected by all the above drama ^ is miniscule and they can afford the CPAs to help them navigate it.


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Re: Warren wealth tax may impact your small business or business planning
« Reply #36 on: November 10, 2019, 08:40:46 AM »
And the number of people affected by all the above drama ^ is miniscule and they can afford the CPAs to help them navigate it.

Yeah. Job security is great.

Plans that create bureaucratic nightmares that enrich the accounting industry at a huge cost to the government to enforce are always super effective, right?

As I said, creating a few new income tax brackets, raising capital gains rates, and lowering the estate tax exemption all accomplish the same thing within a system of compliance that already exists.

I have the expertise to conduct business valuations. I only stand to be enriched by Warren's wealth tax. And then I can use my expertise to get out of wealth tax. Win win!

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Re: Warren wealth tax may impact your small business or business planning
« Reply #37 on: November 10, 2019, 08:42:18 AM »
That said, if a wealth tax does get imposed, I'm going to sell my tax firm and just become a valuation expert full time. Warren's plan would line my pockets with dollar bills.

I think there's an Arrested Development episode where Henry Winkler's character (playing the family attorney) says something like, "Well there's both bad and good in this new legal problem... gosh there will be lots and lots of legal fees."

One of the Bluths then asks, "What's the good part?"

Winkler's response, "Oh, yeah, I see how you could think that's bad..."

SeattleCPA

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Re: Warren wealth tax may impact your small business or business planning
« Reply #38 on: November 10, 2019, 08:53:15 AM »
And the number of people affected by all the above drama ^ is miniscule ...

It sounds then like we're in rough agreement now that mark-to-market accounting applies to capital gains?

Also, happy to stipulate that if one to two percent of taxpayers meets the definition "miniscule," we're in agreement about the size of the group impacted.

BTW, I think to be precise, one would say 1.7 million taxpayers pay taxes based on mark-to-market accounting each year. But more than 1.7 million people will pay the CPAs and valuation guys fees to deal with the accounting.

E.g., and this is based purely on the carry forward rules of the mark-to-market accounting, anyone with a mark-to-market loss will want to continue to deal with the extra accounting costs in case they can someday use that loss to offset future mark-to-market gain. Even if they no longer count in the one percent.

More debatable and maybe harder to understand, it's my professional opinion that people approaching the one percent and entrepreneurs who partner with people approaching the one percent, in the one percent, or with carryforward losses will need to deal with the accounting costs.


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Re: Warren wealth tax may impact your small business or business planning
« Reply #39 on: November 10, 2019, 09:36:01 AM »
And the number of people affected by all the above drama ^ is miniscule ...

It sounds then like we're in rough agreement now that mark-to-market accounting applies to capital gains?

I'm not positive about that yet, I'll have to look into it more.   

As for the rest of your comments, yes, we're pretty much in agreement.   Shnugi's net worth calculator shows a net worth of $50M to be in the 99.93rds percentile, so we're talking about 0.07ths of a percent of the population affected by it.  Or, as you pointed out, a few more who aren't yet at $50M who think they soon will be.

They are getting the lion's share of benefits from being in this country, they should be paying the lion's share of taxes to support it.

The income tax is a tax on middle class workers to prevent them from gaining wealth as fast as people who are already rich and who make their money off of investments.   It slows down their accumulation of wealth.

A wealth tax slows down the accumulation of wealth by people who already have, as we mustachians well know, way more than needed to live a happy and pleasant life.    It doesn't bother me in the least if it takes an extra five or ten years for a billionaire to make their next billion.    It bothers me a lot that it takes longer for the poor and middle class to build wealth.

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Re: Warren wealth tax may impact your small business or business planning
« Reply #40 on: November 10, 2019, 11:13:29 AM »
And the number of people affected by all the above drama ^ is miniscule ...

It sounds then like we're in rough agreement now that mark-to-market accounting applies to capital gains?

I'm not positive about that yet, I'll have to look into it more.   

As for the rest of your comments, yes, we're pretty much in agreement.   Shnugi's net worth calculator shows a net worth of $50M to be in the 99.93rds percentile, so we're talking about 0.07ths of a percent of the population affected by it.  Or, as you pointed out, a few more who aren't yet at $50M who think they soon will be.

They are getting the lion's share of benefits from being in this country, they should be paying the lion's share of taxes to support it.

The income tax is a tax on middle class workers to prevent them from gaining wealth as fast as people who are already rich and who make their money off of investments.   It slows down their accumulation of wealth.

A wealth tax slows down the accumulation of wealth by people who already have, as we mustachians well know, way more than needed to live a happy and pleasant life.    It doesn't bother me in the least if it takes an extra five or ten years for a billionaire to make their next billion.    It bothers me a lot that it takes longer for the poor and middle class to build wealth.

You are mixing up the limit for this proposed tax with the limit for the "super millionaires'"proposed wealth tax.  This tax on capitalized assets will apply to the top 1 percent, estimated by her own economist to be those with more than $4M in assets, not including retirement accounts.  If you live in Silicon Valley, your mediocre tract house is now worth $1.5M.  If you have a business, other real estate or paper assets worth $2.5 million, you get hit with the tax. 

I don't know why you get to define a "happy and pleasant life."  That's up to each individual in my opinion.  This level of taxation is punitive and confiscatory and undermines wealth building, especially generational wealth building.  It destroys incentive, which is the basis of the economic success of this country.

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Re: Warren wealth tax may impact your small business or business planning
« Reply #41 on: November 10, 2019, 12:32:31 PM »
This level of taxation is punitive and confiscatory and undermines wealth building, especially generational wealth building.  It destroys incentive, which is the basis of the economic success of this country.

@Another Reader and @SwordGuy , I don't think any of the economists writing about mark to market think it makes sense. I quoted Saez and Zucman's comments in my blog post about this practice. They also describe it way Another Reader does. And Larry Summers, former Secretary of Treasury and economic adviser to two Democratic presidents in an op-ed piece last week in Washington Post trash-talks the proposal. He also sees plenty of second order risks in the stuff other than the mark to market.

Also, @Another Reader ? Right now, I think we simply stay alert to the details. But if unlikely occurs and something like Warren policies get enacted surely surely one will be able to mitigate some of the damage.

One example: Current policy description says retirement account not subject to mark to market. So maybe that means small businesses look at ways to dial down their small business equity and dial up their retirement account balances.

Another example: home appreciation not subject to Sec 121 exclusion would be subject to mark to market probably. (Just applying a plain language reading.) But one might be able to sidestep that by more regularly using Sec 121 exclusion. (I know, kind of crazy. So really just an example of sorts of actions one might be able to take.)

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Re: Warren wealth tax may impact your small business or business planning
« Reply #42 on: November 10, 2019, 12:50:11 PM »
Is there a paper out there on the tax implications of we instead put a lifetime cap on IRA/ Roth account size? We use these accounts so as to encourage retirement funding, but maybe we should create a 3M cap on total account size. Do a forced 10% withdraw on any amount over the cap per year. Maybe that doesn't raise enough taxes to be worth too much.

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Re: Warren wealth tax may impact your small business or business planning
« Reply #43 on: November 10, 2019, 10:36:21 PM »
And the number of people affected by all the above drama ^ is miniscule and they can afford the CPAs to help them navigate it.

Disagree.

The fundamental problem with all of this is that it's taxing money that doesn't really exist.

Let's take Amazon: $885 billion market cap. Let's say that 1% of shares change hands at a rate of double the current market value. The company is now "worth" 1.77 trillion. Very little of that extra $885 billion has actually changed hands. It only exists in the collective minds of investors. Jeff Bezos, who owns 12%, is going to need to sell A LOT of Amazon stock, especially when you consider the increased taxation on the gains compared to today.

There has to be a buyer for every transaction. The selling that would be required to pull something like this off (considering Bezos would probably need to sell liquid Amazon stock to cover the valuation of non-liquid assets which ARE included) would be astronomical and runs a serious risk of crashing markets.

I'm not saying we should be crying a river for Bezos. But, the idea that this won't affect the rest of us is ridiculous. It will affect anyone who owns stocks, has a pension, etc.

FWIW I'm pro-increasing taxation on the 1%, but when the gains are realized and the money actually exists.
« Last Edit: November 10, 2019, 10:50:16 PM by MaaS »

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Re: Warren wealth tax may impact your small business or business planning
« Reply #44 on: November 10, 2019, 11:17:01 PM »
You make good points.  Reinstate the estate tax or don't let the value step up when heirs inherit. 

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Re: Warren wealth tax may impact your small business or business planning
« Reply #45 on: November 11, 2019, 01:00:11 AM »
^Definitely agree.

The liquidity issue of the mark to market part seems like a big problem.

Also a 6.7 multiple would be a lot...it seems if your company grew past $600k income, every time you increased income by another dollar, you'd owe 36% or more of $6.70, so I guess more than $2.40 of mark to market tax as a result of $1 of income increase. Plus if there was inflation, every dollar of inflation increase would increase the company's nominal value, resulting in $2.40 or more of tax in exchange for zero increase of real income.

If this somehow passes, will be checking this thread for suggestions. Just in case I ever succeed wildly in business. :)

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Re: Warren wealth tax may impact your small business or business planning
« Reply #46 on: November 11, 2019, 07:35:04 AM »
I used the 6.7 multiple because that was in the papers from the economists who do research Warren cites.

But FYI they themselves point to follow-up research from Zwick that says you need to use more finely calibrated "capitalization factors."

However, this point: It's that 6.7 multiple that was used to create the wealth numbers that determine who's in the top one percent. So this is all pretty squishy. (With lower multiples for capital-light small businesses, e.g., the threshold to top one percent possibly moves around.)

bwall

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Re: Warren wealth tax may impact your small business or business planning
« Reply #47 on: November 11, 2019, 08:51:54 AM »
Y'all making a whole lot of noise about very little.

Am I happy about a wealth tax?   Meh.   

On those who are really, really rich?   Cry me a river.  It might take them a few more years to afford a second yacht and the world will survive.

All this is brought on by rich people being too damn greedy.    I just hope the ultra-rich goobers learn their lesson and start to be reasonable again before the jacquerie comes out in force and they start using guillotines on the wealthy.  (Because once that happens, they don't stop with just the people who caused the problems...

I'm a bit late to the party, but this comment was one that resonated with me the most.

I sell stuff to rich people all day long and have for decades. I see how they spend money so easily and thoughtlessly and many years ago it occurred to me that they could painlessly pay more taxes and help make this country much, much better by solidifying the middle class and bringing up the working poor into the middle class. That phrase alone 'working poor' shouldn't exist in the world's richest country, but it does and the reader knows what I'm talking about.

I love that Senator Warren is putting increased taxes on the table. No one has had the courage to do this for years. I can't even remember the last time a politician campaigned on the idea of higher taxes.

bwall

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Re: Warren wealth tax may impact your small business or business planning
« Reply #48 on: November 11, 2019, 08:58:50 AM »
And the number of people affected by all the above drama ^ is miniscule and they can afford the CPAs to help them navigate it.

Disagree.

The fundamental problem with all of this is that it's taxing money that doesn't really exist.

Let's take Amazon: $885 billion market cap. Let's say that 1% of shares change hands at a rate of double the current market value. The company is now "worth" 1.77 trillion. Very little of that extra $885 billion has actually changed hands. It only exists in the collective minds of investors. Jeff Bezos, who owns 12%, is going to need to sell A LOT of Amazon stock, especially when you consider the increased taxation on the gains compared to today.

There has to be a buyer for every transaction. The selling that would be required to pull something like this off (considering Bezos would probably need to sell liquid Amazon stock to cover the valuation of non-liquid assets which ARE included) would be astronomical and runs a serious risk of crashing markets.

I'm not saying we should be crying a river for Bezos. But, the idea that this won't affect the rest of us is ridiculous. It will affect anyone who owns stocks, has a pension, etc.

FWIW I'm pro-increasing taxation on the 1%, but when the gains are realized and the money actually exists.

I think that lowering stock prices and increasing/widening the stock ownership base is a great idea. Ideally that would be one of the knock-on effects--lots of margin calls and forced selling by people who rent stock instead of owning it.

Alternatively, lots of opportunity for short selling in advance of the dip, thus softening any potential drop. If the market rips higher, though, you can get your head cut off by shorting. Be careful!

I welcome the changes proposed by Senator Warren and if my net worth outside of my retirement account is greater than $4m, then I'm happy to pay more taxes because this means that those that are above me in terms of net worth are also paying higher taxes.

maizeman

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Re: Warren wealth tax may impact your small business or business planning
« Reply #49 on: November 11, 2019, 09:09:46 AM »
I welcome the changes proposed by Senator Warren and if my net worth outside of my retirement account is greater than $4m, then I'm happy to pay more taxes because this means that those that are above me in terms of net worth are also paying higher taxes.

FWIW I don't have anywhere close to $4M, and I'd welcome paying higher taxes if it meant people like me and folks with a lot more money were also paying higher taxes.

And at the same time I think both mark-to-market and wealth taxes are the wrong way to do it, they'll have lots of unintended consequences that distort and harm the economy, and they will raise way less revenue than anticipated (based on evidence from other countries).

I completely support raising existing income tax rates, as well as adding one or more additional tax brackets at higher income levels. I think raising capital gains tax rates is reasonable, and, while taxing them at the same rates as income might be more than optimal it's not a terrible idea. I think reducing the exception for the estate tax and raising the rate for the estate tax (possibly bringing in a couple of brackets) makes a LOT of sense.

TL;DR: You can think the rich (and all of us) need to pay more taxes and still think the approach proposed by the Warren campaign to raising more revenue creates way more problems than it solves.