article: Why the Iowa Caucuses Made Me Love the Roth IRA

[swampwiz]

(It references the Iowa caucus in the Democratic Party for the 2016 Presidential election.)

https://millennialmoola.com/2016/02/03/why-the-iowa-caucuses-made-me-love-the-roth-ira/

Here’s why this is important. I don’t believe Bernie is a one time phenomenon. His message really appeals to a slice of the American public, and it really appeals to young Democrats. His attacks on income inequality, Wall Street, and the rich send his followers into a frenzy, especially folks that sympathize with Occupy Wall Street. His desire to make college and healthcare basically free inspire passion and massive numbers of small campaign contributions, just like Obama in 2008. Sanders is farther to the left than any major presidential candidate in history, and young Democrats support him at a higher rate than the populations of many dictators around the world.

Why did gay marriage suddenly become way more popular, and even socially awkward to not support, in the past 10 years? It’s because every year members of the older generation died off and were replaced by voting age young people who are extremely pro gay rights. The same phenomenon seems like it could be true for redistributionist politics. When 84% of a demographic group reject a center left candidate who supports capitalism and free trade, there is a major ideological rift between old and the young on the Democratic side.

Sanders is a democratic socialist, and as such he advocates for extremely high tax rates, especially for the rich. However, the middle class will see big increases in their taxes too, regardless of what fiction the Sanders campaign spreads. Income tax brackets will likely stay the same nominally, but he introduces a lot of new surtaxes that will increase the overall bill.

The WSJ finds that Sanders would raise taxes by 27 times as much as Hillary Clinton. He makes her look like a conservative Republican by contrast. Yet, Democratic millennials are ‘feeling the Bern.’ He is a well mannered and likable man, but he’s no Bill Clinton or Ronald Reagan. He doesn’t have inspirational rhetorical skill like Barack Obama either. What he does do is articulate a very extreme economic agenda very well.

Just as gay marriage became popular over time, socialist policies seem destined for a similar future. As older, more conservative voters die off and younger voters take over this republic, the median voter appears like she will become more liberal.

The crux of the issue is if more people support socialism, taxes will go up. In fact, they will go up a lot. Bernie wants to increase capital gains and dividends taxes by almost TRIPLE. He wants the top income tax rate to almost DOUBLE. Young people are flocking to him, and thus the future will have much higher taxes. It’s as simple as that.

[W]ith the rise of Sanders and socialist politics, the probability that your taxes will be higher many years from now versus today just skyrocketed with the numbers we’re getting out of Iowa. It’s looking like the median voter in 20 years is going to want a lot more government programs and higher taxes than the ones today. Sanders wants huge new social programs and will pay for them with massive new government tax revenue. Lots of people are supporting him, and young people love him. If you haven’t heard about all the benefits of opening a one already, the Iowa caucuses just made me love the Roth IRA even more.

[Bro-mero]

The GOP has done an amazing job at slashing the taxes for the ultra-wealthy in this country. The highest marginal tax bracket in the 1950's was 90%

Bernie is trying to undo some of the horrendous redistribution of wealth from the poor to the rich that has happened over the decades.

What the article fails to point out are the benefits that Bernie's economic policies would bring. Students wouldn't have to worry about borrowing tens of thousands of dollars just to get a higher education. People wouldn't have to be in constant fear about going bankrupt over medical bills.

Capital gains would return back to a normal income tax level. The fact that Capital Gains is taxed at a much lower level is disproportionately advantageous to the wealthy.

Would taxes go up under Bernie? Absolutely. But the majority of new taxes would be aimed at the very wealthy, and those in the middle-class could very well see a larger increase in benefits vs. their marginal increase in taxes

[jpdx]

It seems that whether or not you think new programs such as single-payer healthcare are a good idea is beside the point. If you think your tax rate will be higher when you retire, Roth probably makes sense.

Notably, some of these proposals would be payed for by higher payroll taxes, not income taxes. Retirement contributions which are tax deductible do not reduce payroll taxes.

Personally, I think trying to predict the future is a fools errand.

[DreamFIRE]

Sanders was a failure, but taxes probably will go up for reasons that have nothing to do with what was stated in the article.  Younger voters will grow older and become more conservative, just like those from the past.  The next generation will be more conservative as the pendulum swings back is just as likely as anything in the article.

Yet, something else swampwiz found on the internet.

[GU]

The GOP has done an amazing job at slashing the taxes for the ultra-wealthy in this country. The highest marginal tax bracket in the 1950's was 90%

Bernie is trying to undo some of the horrendous redistribution of wealth from the poor to the rich that has happened over the decades.

What the article fails to point out are the benefits that Bernie's economic policies would bring. Students wouldn't have to worry about borrowing tens of thousands of dollars just to get a higher education. People wouldn't have to be in constant fear about going bankrupt over medical bills.

Capital gains would return back to a normal income tax level. The fact that Capital Gains is taxed at a much lower level is disproportionately advantageous to the wealthy.

Would taxes go up under Bernie? Absolutely. But the majority of new taxes would be aimed at the very wealthy, and those in the middle-class could very well see a larger increase in benefits vs. their marginal increase in taxes

Very misleading and uninformed.

1. "90% marginal tax rate in the 1950s" True, but the effective tax rate was not much higher in the 1950s than it is now on the rich. See https://taxfoundation.org/taxes-rich-1950-not-high/ I would also note that state and local tax burdens were much lower in the 1950s compared to today—high earners in, for example, California or NYC are paying a ~50% marginal rate, when you factor in state and local income tax. Property taxes and sales taxes are also much higher today than in the 1950s. The very high marginal rates also caused inefficient behaviors, for example, highly-compensated employees being paid with non-taxable in-kind benefits (e.g., company car) rather than taxable cash.

2. "the majority of new taxes would be aimed at the very wealthy"  More than likely, successful wage earners would bear the brunt of Bernie's wrath. The actual rich—people with assets—are quite difficult to tax heavily. For one, they have extraordinary clout with politicians. Moreover, a high tax on wealth will cause the wealthy to either leave the country or offshore their wealth. Finally, taxing wealth, as opposed to wages, is an administrative nightmare that requires tracking disparate assets that are spread all over the world. It just doesn't work well. No, the tax hikes will hit wage earners the hardest, and if we are to actually give everyone free healthcare and college, it's going to be normal joe schmoes paying higher, probably significantly higher, taxes to fund that stuff.

3. "the middle-class could very well see a larger increase in benefits vs. their marginal increase in taxes"  Probably true for some, I would guess not true for the majority. With Medicaid and Medicare and nonprofit hospitals, "medical bankruptcy" is quite rare. And if we looked closely at the spending habits of the "bankrupt," you'd see that many (but not all) were careening towards fiscal insolvency already, and a medical bill simply broke the camel's back. As for free college, a college degree is already practically worthless at this point unless from a prestigious school. That will only be amplified by making it even easier for any rube to hang a diploma on his wall. And with academic standards already plummeting, and given the SJW-ization of academia, many would argue that going to college is actually making people less intelligent and less employable. I'm not sure how anyone could say with a straight face in 21st century America that *more* people need to go to college.

So color me very unimpressed by the Bernie bros. If it makes you feel better, it is very unlikely that I'll ever be rich.

[Raymond Reddington]

I still think the best tax going is the estate tax.

It's not a tax on already taxed money. It's a tax that basically allows government to recover from the deficit spending that is inherent in governmental operations due to their answering to the people:
-"we have money in the budget!" -govt. "well spend it on something for us already!" -the people
-"we don't have money in the budget!" -govt. "well now is no time to be taking things away from us!" -the people

An estate tax allows government to recover from this cycle. Not by taking ANYTHING away from anyone who worked for it mind you, but by preventing their heirs from disproportionately inheriting sums of wealth that are so vast, many never need to work a day in their life to be set for life.

This money could be plowed into government to erase deficits (which reduces the debt service line item in the budget), fund necessary programs like Social Security, Medicare, etc.

A strong estate tax that hits say, anything above $5M in wealth but carves out an exception for real estate if the heir makes it their primary residence, and taxes the rest at 75% would be more than fair. $5M is more than enough head start in life.

Coupled with tax policies that reduce taxes on businesses, but eliminate deductions on high individual salaries AND bar options as compensation (stock and restricted stock only - which has a fair value on the date awarded and avoids loopholes in compensation taxation that options get around), add more brackets above the current top bracket, and maintain the lower brackets of the TCJA, there could be a start to funding a middle class recovery. The key is right now, there is no ability for shareholders to vote against outsized executive compensation packages. However, if the business were subject to a larger tax liability because the executive's salary wasn't tax deductible as a business expense beyond a certain point, then it would pit the shareholders against the executive taking so much of the pie in a more robust way.

Besides, all economics are trickle up anyway. Would this fix income inequality? Maybe a little. Would it fix wealth inequality? Of course not. The majority of people will still spend everything they have and be stupid, and the rich will still get that money in the end anyway, but it will have been taxed a few more times on the way (generating deficit reduction), and you'll have fewer people struggling due to circumstance and birthright than you do now. In essence, the country would still be stupid, but it would be more fair. More meritocracy is what I want to see. Birthright shouldn't determine someone can float through life and be fine no matter what, nor should it mean one bad decision in life sentences you to a lifetime of poverty with no opportunity for parole. Just my 2c.