Author Topic: Higher taxes coming for the investor class?  (Read 9283 times)

skinnyninja

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Higher taxes coming for the investor class?
« on: February 15, 2012, 03:50:39 PM »
It looks like Mitt screwed it up for the rest of us.....after exposing that he only pays capital gains tax of like 15% or so on his investments, the world is now out for blood.  They are proposing all sorts of hikes on this and it is especially bad if your income is higher.  People who used to pay around 15% effective tax rate may be looking at more like 40 to 50 percent if all the changes go through. 

What does everyone think?  Will these changes really come into effect, or will the investor class (the rich) prevent it?

And, if capital gains taxes become punishing in the future, how will you shift your investment strategy to deal with the changes?

Guitarist

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Re: Higher taxes coming for the investor class?
« Reply #1 on: February 15, 2012, 08:14:22 PM »
Looks like they are going after federal pensions, I think the investor class is fine.

FrugalToque

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Re: Higher taxes coming for the investor class?
« Reply #2 on: February 15, 2012, 08:25:58 PM »
When you say "higher taxes", do you mean "higher relative to everyone else" or "higher than they are now"?

Because I don't see a problem with the "investor class" paying as much in taxes as I do on the income I earn.  There's nothing so special about investing that we should put a greater incentive on it than working.  And the idea that people who have lots of money will stop investing it because they have to pay taxes like everyone else is ludicrous and not supported by history.

The governments of Canada and the U.S. provide plenty of tax-free shelters for those of us saving up for our modest, Mustachian retirements.  I don't have an issue with the multi-millionaires getting dinged for the promotion of the general welfare.

Chris

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Re: Higher taxes coming for the investor class?
« Reply #3 on: February 15, 2012, 08:33:57 PM »
I think rates for cap gains and dividends will increase, but I think the lower income tax brackets will be at least somewhat shielded from this. And with mustachian spending levels around $20k annually, the hit will not be so severe, as this amount of income would reside in the two lowest tax brackets.

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #4 on: February 16, 2012, 12:09:37 AM »
the 15% tax rate is available to you as well. Work smarter, make more money, invest it, enjoy the same benefits.

Also, unless I misunderstand something very basic, there is something special about investing. You are giving your money to a company so that company can grow and provide more jobs/services etc. You taking whatever it is you earn and throwing it in a savings account does nothing for anyone but yourself and the bank.  Obviously I am making that assumption that you are saving in a way that does not yield that benefit, However to say there is no difference is silly.

Not to mention the fact, that he paid in around 3 million in taxes last year. 3 million... one more time.. 3 million. Did you pay anything close to that? Statistics would suggest not.

When you say "higher taxes", do you mean "higher relative to everyone else" or "higher than they are now"?

Because I don't see a problem with the "investor class" paying as much in taxes as I do on the income I earn.  There's nothing so special about investing that we should put a greater incentive on it than working.  And the idea that people who have lots of money will stop investing it because they have to pay taxes like everyone else is ludicrous and not supported by history.

The governments of Canada and the U.S. provide plenty of tax-free shelters for those of us saving up for our modest, Mustachian retirements.  I don't have an issue with the multi-millionaires getting dinged for the promotion of the general welfare.

keepingmobens

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Re: Higher taxes coming for the investor class?
« Reply #5 on: February 16, 2012, 12:20:06 AM »
I don't have an issue with the multi-millionaires getting dinged for the promotion of the general welfare.

This attitude of "as long as I don't have to pay for it" is what got us into this mess in the first place.

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #6 on: February 16, 2012, 01:14:53 AM »
I don't have an issue with the multi-millionaires getting dinged for the promotion of the general welfare.

This attitude of "as long as I don't have to pay for it" is what got us into this mess in the first place.

Very eloquent way to state the idea. That really is what is at the heart of all of these issues.

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #7 on: February 16, 2012, 04:55:48 AM »
Let us not forget he also donated 3 million to charities. If we want to give his actions "social worth points" I am fairly sure his actions will tip the scales in his favor over many many people.

FrugalToque

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Re: Higher taxes coming for the investor class?
« Reply #8 on: February 16, 2012, 05:15:04 AM »
As my salary increased and I moved into higher tax brackets, I indeed did not complain about the taxes I was paying.  I just put more money into my RRSP - a tax shelter available to everyone, not just the investor class.

And I live in Canada, where I am repeatedly told that taxes cripple people like me and make us want to go hide under our beds and never do productive labour again.

But you know what?  My kids go to a well funded public school with reasonably paid teachers.  My hospitals and walk-in clinics provide excellent prompt care.  My employer is prevented from firing me on a whim or subjecting me to dangerous work practices.  The roads are in pretty good shape and when I call up a gov't institution, I get a pretty quick reply.

If I made a million dollars, I would pay the tax rate I'm supposed to pay and appreciate that this is the acceptable level to maintain the society in which I live.  And if that means that some of the working poor in my country get a "free health care ride" on my tax dollar, I can live with that because (it turns out) they're human beings.

Your assertion that I go along with high taxes on the wealthy "as long as I don't have to pay for it" is demonstrably false.  Also, it is not "what got us into this mess".  What got the United States into this mess was eight years of tax cuts, wars, manipulation of derivatives markets, sub-prime loans and other financial trickery.

This is not a personal attack on Mitt Romney, but is 3 million equal to the taxes he didn't pay because he's in the magical "investor class" that makes him better than everyone else?  Of course I didn't pay what he paid in taxes.  I didn't make as much as he did.  We use percentage rates for that purpose.  The greater amount one earns through our society, the more one shares in paying to maintain that society.  That's how taxation works.

Dave

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Re: Higher taxes coming for the investor class?
« Reply #9 on: February 16, 2012, 05:19:23 AM »
Also, unless I misunderstand something very basic, there is something special about investing. You are giving your money to a company so that company can grow and provide more jobs/services etc. You taking whatever it is you earn and throwing it in a savings account does nothing for anyone but yourself and the bank.  Obviously I am making that assumption that you are saving in a way that does not yield that benefit, However to say there is no difference is silly.

But the banks invest the money people save with them. So you could argue, rather than "doing nothing for anyone but yourself", regular savers are really investors who grant the market access to funds with great benefits of scale... ;-)

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #10 on: February 16, 2012, 05:30:51 AM »
"anyone but yourself and the bank."

indeed indirectly, but I did also directly point out the bank is gaining from your money. I do have a slight bent on my money working for me and not for someone else.

you could further argue that allowing the bigger banks access to your money leads to more crazy investments which leads to more economic issues.

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #11 on: February 16, 2012, 05:50:31 AM »
...


had a big post, lost it. dam dam dam.

paying more in taxes boils down to giving the government more money to spend on those wars. I am not aware of many who want that. more money to the "State" gives more leeway for them to mismanage things. You don't get someone fit by offering them cakes everyday. Also its somewhat of a joke to suggest that your money dropping into the bucket matters at all, just like one vote doesnt matter. having 2% of the population paying a couple percent more means a lot less then everyone paying 15% we are all benefiting at the same basic level right?

I make quite a few donations over the year, I am an adult, completely capable of supporting the things I enjoy. You or anyone else thinking you can do a better job of managing my money then I can are really missing the point of freedom.

as far as the " turns out they are people too " comment. I would agree but state personally the monkeysphere concept. I can really only seriously care about the people close to me, I give money to bums, support cancer research, donate large amounts to police in the area, but that is all because I chose too, not because some assholes got together and decided to pass a law making me do anything.

FrugalToque

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Re: Higher taxes coming for the investor class?
« Reply #12 on: February 16, 2012, 06:10:17 AM »
We don't let our gov't get us involved is as many wars, so maybe there's a bit of difference between Canada and the U.S. in that respect.  On the other hand, I don't think the last two American wars were actually funded.  Thus your debt.

Another thing we do is expect our gov't institutions to be well managed.  For instance, the Canadian public health care system has a much lower administrative overhead than the private American system (something like 30% vs 11%).  So as much as I've detested some of the assholes and what they've done with our tax dollars, the overall effect is that I'm secure in knowing that my health needs (and my education needs, my roads etc. etc.) are being handled.

Freedom isn't necessarily the Libertarian "I got mine, you got yours" freedom.  It's also the freedom of the people to form a more perfect union and promote the general welfare.  Human societies actually work much, much better when people cooperate.

And I know it's hard to understand, but you have no idea how much more comfortable I feel about life in general because I know that every person I meet in my country is covered by universal health care.  No one here ever loses a house or goes bankrupt for needing a medical procedure.  It's a very soothing, happy feeling, knowing that I live in the kind of society that takes care of its people that way.

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #13 on: February 16, 2012, 06:24:11 AM »
Indeed I am sure there is a large difference there.

I have never known anyone to go bankrupt or lose a house or anything like that here either. Everyone hears the horror stories, but its not like you walk down the streets and people are dying due to lack of health care while being forceably evicted from their homes.

I think saying " freedom is " when regards to a group is counter to the meaning of the word. there is nothing to say every society has to function like yours any more then every society has to function like mine. You can control what you do, trying to control everyone else overly much is just being a dick. It may work better as some large utopia of caring, but as long as someone else is willing to screw you over you need to be on your guard. A lot of those problems of people losing their homes and such is directly attributed to them not managing their money and buying more then they should, its only their faults. if the banks are goign to be bailed out of course they will take the risk of loaning the money. I would.

also, its not hard to understand at all, I currently live outside the US and where I am has free healthcare. From what I understand its somewhat sketchy, but even with free healthcare there are levels of care for the different levels of society, so you have a lot of the same issues with the forced equality. although yes admittedly, everyone gets something.

FrugalToque

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Re: Higher taxes coming for the investor class?
« Reply #14 on: February 16, 2012, 06:41:01 AM »
According to Harvard University, medical bills are the single largest cause of personal bankruptcy in the United states.
http://finance.yahoo.com/news/pf_article_109143.html

I would like, however, to get back on to the original topic, which was "Mitt ruined it for the rest of us".

I don't think that this is true.  The "rest of us", which are the Mustachians on this board who want to save for retirement, should be nearly immune to changes in the capital gains tax rate.  My money is invested in tax shelters which, while limited in size, are large enough to hold the investments I need to live off of.

In Canada, these tax shelters are RRSPs and TFSAs.  Money grows in them tax free.  In fact, it's better for me if corporate taxes are lower and capital gains taxes are higher, because that would mean more dividends in my RRSP mutual funds.  Since I don't pay cap gains on those mutual funds, I'm better off.

So Mitt hasn't ruined it for the rest of us.  He's just going to have to pay his percentage share - like the rest of us - like rich people had to do from 1945 through to the 1970s - back when, quite frankly, things were going quite well economically.

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #15 on: February 16, 2012, 06:59:22 AM »
I believe a decent percentage of us, while attempting to maintain a stoic outlook on spending also relentlessly pursue the chances to make that retirement more comfortable. 

So if all taxes go up x amount, that will indeed hurt me. the US version of the tax advantaged accounts have limits to the amount you can contribute, not to mention the fact that your ability to put money into them at all actually starts to phase out the more you make.

FrugalToque

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Re: Higher taxes coming for the investor class?
« Reply #16 on: February 16, 2012, 11:01:46 AM »
The Canadian RRSPs limits are a percentage of your lifetime income with an annual maximum of $25k or so.  For most people, if you put in 18% of your income your entire life, you will stay under that limit.

If taxes do go up, it's probably to pay off a deficit or to provide better services, so you won't necessarily be hurt.  You might have nicer parks to hike through, or better schools, or better hospitals.  Taxation is not a hole into which money goes, though sometimes it can feel that way.  Taxation pays for our society.

keepingmobens

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Re: Higher taxes coming for the investor class?
« Reply #17 on: February 16, 2012, 07:44:18 PM »
If taxes do go up, it's probably to pay off a deficit or to provide better services, so you won't necessarily be hurt.  You might have nicer parks to hike through, or better schools, or better hospitals.  Taxation is not a hole into which money goes, though sometimes it can feel that way.  Taxation pays for our society.

Maybe it's different in Canada, but here in California, if your taxes go up, your POLITICIANS will have nicer cars, better pensions, and their kids will go to better private schools. And illegal aliens will have access to all the welfare benefits and programs they care to sign up for, just as long as they continue to vote for those said politicians.

No thanks, I'd rather keep my money and decide for MYSELF how it should make my life better.

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #18 on: February 16, 2012, 07:54:57 PM »
I cant say I hike through many public parks.. its not like money makes the scenery better. Do not have kids and if I did they would probably be in private schools and I believe the hospitals are private.

again, as we said I think its just different between where we are, But especially with them spending money we dont even have.. whats the difference between them running through a few more hundered billion vs the amount I would pay in more taxes. the problem here is not the amount we pay or they collect from us, its how they spend it.


Brett

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Re: Higher taxes coming for the investor class?
« Reply #19 on: February 17, 2012, 03:09:08 AM »

Maybe it's different in Canada, but here in California, if your taxes go up, your POLITICIANS will have nicer cars, better pensions, and their kids will go to better private schools. And illegal aliens will have access to all the welfare benefits and programs they care to sign up for, just as long as they continue to vote for those said politicians.

No thanks, I'd rather keep my money and decide for MYSELF how it should make my life better.

Maybe I misunderstood your point, but I'm assuming illegal aliens don't actually get to vote? At any rate, their getting healthcare is an issue for border control more than tax spending on healthcare, surely?

The thing that really gets me is that politicians are supposed to work for the citizens. If people all actually want changes to the way things are run, we all need to get out and do something about it. Admittedly that is maybe a vague statement, but people do have power, we've seen it repeatedly through history for cases such as suffrage and civil rights. And I agree with Enemy mind:

the problem here is not the amount we pay or they collect from us, its how they spend it.

That is the area people should aim to change, rather than just getting PO'd about having to pay tax in the first place. We need to accept that if we want a society that runs smoothly, we have to work together including paying taxes.

EnemyMind

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Re: Higher taxes coming for the investor class?
« Reply #20 on: February 17, 2012, 03:37:29 AM »
I dont think the people have much hope of changing much of anything. Politicians are terrible terrible people*. All they care about is getting reelected, and continuing to have power. civil rights and a lot of that stuff were because the force the people showed the gov forced change. We have occupy wallstreet and anonymous, politicians dont care about the hippies protesting and they dont even view the internet as an important thing aside from something to soap box on to gather more votes based on protecting the children.

Once an actual Riot breaks out on wallstreet a time or two I will believe change is coming, Once troops start deserting in mass I will believe it, once the general public learns that whomever you can elect is automatically a terrible person I will believe we can all move forward and care about each other. I would be very surprised If I am around to see it.

* - I was both in the military (Navy), and I have worked on Capitol hill for roughly 4 years alongside senators/congressman/ etc etc. for the most part, they are all demons.

just my opinions, and I will freely admit I am not an optomist when it comes to the american public or the political system.


Reido

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Re: Higher taxes coming for the investor class?
« Reply #21 on: February 19, 2012, 02:49:23 PM »
The Canadian Healthcare system seems to work very well in Canada - most canadians are happy with their national healthcare...  and it is for the reasons you mentioned - convenience and lack of direct billing (two of the biggest shortcomings of the US System).

I can tell you, however, there is no free lunch...  I live right across the border and I can tell you that we sometimes see dozens of Canadian patients when the Province of Ontario runs out of critical care beds, or doesn't have the capacity to treat patients properly.  I've taken care of patients who will come to the US to pay $3-4K for a knee replacement out of their own pocket because the Canadian Government won't cover their surgery until they're 10 years older...

In short there's no perfect solution...


On the subject of taxes...  Financial studies have shown that capital gains rates of greater than 20% will can actually decrease the revenue brought in by the tax, as people become less and less likely to sell the equity and incur the tax if it gets too high.  This is a horrible model of inefficiency...

Finally, I agree whole-heartedly with Enemy about Politicians.  I've seen studies that show politics is a huge draw for people with anti-social tendencies (sociopaths) since they are terrific and being both manipulative and still being personable...

mmmsc

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Re: Higher taxes coming for the investor class?
« Reply #22 on: February 19, 2012, 03:30:13 PM »

On the subject of taxes...  Financial studies have shown that capital gains rates of greater than 20% will can actually decrease the revenue brought in by the tax, as people become less and less likely to sell the equity and incur the tax if it gets too high.  This is a horrible model of inefficiency...



I am assuming you were meaning to say a  horrible model of efficiency or a terrific model of inefficiency ;). Can you please explain the inefficiency here? Do you mean an inefficient tax system?

Reido

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Re: Higher taxes coming for the investor class?
« Reply #23 on: February 19, 2012, 05:33:51 PM »
Are you familiar with the concept of optimal tax rates? Basically, if you tax something at 0% then you gain no revenue, but if you tax something at 100%, then no one will work/trade or otherwise obtain that income so, once again the government will take in no revenue. 

With Income taxes, the I've read that the optimal tax rate is estimated to be as high as 50% depending on the person's income, while with regard to capital gains taxes the optimal revenue is gained at a much lower percentage.  This is due to the fact that an investor holding stock A might prefer to own stock B, but he/she will continue to hold stock A rather than make a trade, due to tax implications.  This hurts both the individual, who doesn't own the stock that they would like, and the government by not gaining the additional revenue.

This example was outlined perfectly by Reagans tax cut - which significantly dropped the tax rates on all individuals, but instead of obtaining less income tax revenue, the government actually saw tax revenue increase.  No one knows what the exact point of revenue maximization is, but these are the relative levels I've seen published...

I agree that the Mitt Romney issue could lead to higher cap. gains taxes, but I'm certainly hoping that it only bumps them up to 20% or so...  anything higher would be very counter-productive.

Mike Key

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Re: Higher taxes coming for the investor class?
« Reply #24 on: February 20, 2012, 06:00:26 AM »
The age old debate. Employees don't understand that our economy and tax system is designed for BUSINESS and not EMPLOYEES and the truth is and always has been that there are more deductions for Business and very few for those with a J.O.B. Increasing the taxes on us won't do a world of good.

I'm personally in favor of extending more tax deductions to employees. In 1902 something like 80% of Americans where self employed. Then the industrial revolution happened, and WW1. And that number has exponentially decreased over the last 100 years. But the tax advantages really haven't shifted.

My tax advantages owning my own business almost allows me to write away almost every last dollar I make, so long as every last dollar is spent on something business related. People got mad when they found out GE paid $0 in taxes, but that's because they put every last dollar of profit into GE. Even paying your employees and CEO's is a tax deduction from your profit and what you'd be taxed on.

Don't quote me, I'm not a tax expert though. I pay someone else to handle mine.

Reido

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Re: Higher taxes coming for the investor class?
« Reply #25 on: February 20, 2012, 08:30:55 AM »
I tend to agree...
But keep in mind that things which are being "written-off" are things which are supposed to be necessary in order to obtain the revenue to run the business.  A business can take in TONS of revenue, but it's not considered income if it all goes out in the form of paychecks to employees, overhead, etc. - the employees have to pay the income tax on that instead.

Still, I hate how the government treats workers and middle-class earnings like they're idiots - can't invest in hedge funds, most can't self-direct their 401K's, 401k fees are WAY higher than they should be...