OT:Be careful what you wish for… 28% Capital Gains Tax Proposal

[Coronita]

Looks like it’s going to get slightly harder for people to build their net worth, especially if you haven’t already gotten there yet…..

Proposed 28% capital gains tax rate… Lol…..
Proposal seems to be for those in the 20% capital gains tax rate category, though I would be surprised if they left those in the 15% category alone…

Man I feel sorry for the younger folks that will have lesser and lesser tools at their disposal to build their net worth…More people that will depend more on counting on labor income which in itself is in decline and never keeps/kept up with increased cost of living and other things….

Enjoy!

http://www.cnn.com/2015/01/17/politics/obama-state-of-the-union-taxes/index.html

Obama is set to propose Tuesday a $500 tax credit for married couples who each hold jobs; the intention, officials say, is to help alleviate the costs of child care and commuting that lead some spouses — usually women — to determine it makes more financial sense to stop working.

He’ll also spell out ways to simplify the way taxpayers apply for education and child care credits, including increasing the top child care credit to $3,000.

To pay for the changes, Obama wants to wring more taxes from investment income — capital gains and dividends — which are taxed at a lower rate than ordinary earnings. Since wealthy Americans are more likely to derive income from investments, they’d bear the overwhelming weight of a higher rate on that type of profit.

The tax rate for capital gains now stands at 20% for the highest-earning Americans. Officials said Saturday that Obama will call for that rate to increase to 28% for those taxpayers.

He will ask lawmakers to close a loophole allowing capital gains on inherited funds to go untaxed — a so-called “trust fund” loophole the White House says allows billions of dollars in capital gains to go untapped by the government every year.

“This proposal is doing what it is intended to do, which is to make sure that the large, accumulated, unearned wealth of the wealthiest Americans is actually subject to tax,” an Obama administration official said. “We are quite confident that we can do this in a way that achieves that objective while in fact helping middle-class families by putting those resources to better use.”

The arguments against raising tax rates on investment income are well established: opponents argue it poses a “double tax” scenario, since the corporate profits that drive stock prices are already subject to taxes. And they stress some portion of investment gains is driven by inflation.

[spdrun]

Top rate used to be 28% prior to 1990 or so. People still built wealth. Good luck to him getting Congress to approve it, though. Should be a gridlocked two years considering the bitterness on both sides.

The funnier part is the $500 tax credit for to encourage women to work. Does anyone really think that $500 per year is going to make the difference between staying home and working for anyone, considering that not working means forgoing at least $20k per year? And what’s wrong with one-working-parent families anyway?

[SK in CV]

Long past due. There may have been a time when preferential tax treatment for capital over labor was warranted. Those days are long past. Even if this passes, there will still be preference for capital, but at least it will be shrinking.

[an]

With 28% rate, for a married couple making $230,450 or a single person making $189,300, there would be no point in keep stocks for a year for long term cap gain anymore. I wonder if this will drive up volume and volatility. At the very least those W2-er who participate in ESPP, there would be no reason to keep it for a year anymore.

[CA renter]

No reason for different tax rates in the first place. This is just another example of the rich controlling policies that benefit them most.

ALL income should be taxed at the same, steeply progressive rates. That is the fairest way to tax, without exception. I have yet to hear a compelling argument that would justify favorable tax treatment for unearned income.

Of course, there IS an argument that unearned income should be offset by some sort of inflation factor (and earned income, too, if it’s not adjusted by inflation…a COLA of some sort). We can work on that while reforming our tax code in a way that would benefit the greatest possible number of people in the greatest possible way.

[Coronita]

[quote=AN]With 28% rate, for a married couple making $230,450 or a single person making $189,300, there would be no point in keep stocks for a year for long term cap gain anymore. I wonder if this will drive up volume and volatility. At the very least those W2-er who participate in ESPP, there would be no reason to keep it for a year anymore.[/quote]

Some of us don’t keep the ESPP shares for that LT capital gains anyway, due to the inherent volatility of our employer 🙂

Man…Gotta love that marriage penalty…lol…

[scaredyclassic]

I feel like I deserve 500 bucks for staying married and keeping a job.

[Coronita]

I wonder if the biggest impact what is being proposed have the biggest impact on the middle class that plans on passing on a small biz or primary home to their kids, especially the baby boomers.

Afterall, if my understanding is correct, the proposal also eliminates the capital gains exemption from properties over $500k (not sure how small farms would work)…So…..upon death, the youngsters will need to cough up the capital gains tax bill or sell the property (and most likely they won’t have the money to pay the tax bill)….So in high cost areas…ouch…..And chances are, most of these middle class heirs won’t have the money for the cap gains bill.

For rich(er) people, this won’t be a problem, since I’m sure aforementioned heirs already have their trust funds set up well before that…

Oh, an foreign money aren’t subject to this, so that’s great news for foreign money…

Can you say, screw the upper middle class again?

[utcsox]

[quote=flu]I wonder if the biggest impact what is being proposed have the biggest impact on the middle class that plans on passing on a small biz or primary home to their kids, especially the baby boomers.

Afterall, if my understanding is correct, the proposal also eliminates the capital gains exemption from properties over $500k (not sure how small farms would work)…So…..upon death, the youngsters will need to cough up the capital gains tax bill or sell the property (and most likely they won’t have the money to pay the tax bill)….So in high cost areas…ouch…..And chances are, most of these middle class heirs won’t have the money for the cap gains bill.

For rich(er) people, this won’t be a problem, since I’m sure aforementioned heirs already have their trust funds set up well before that…

Oh, an foreign money aren’t subject to this, so that’s great news for foreign money…

Can you say, screw the upper middle class again?[/quote]

“Family-owned businesses wouldn’t have to pay any capital gains until or unless the business was sold, and slightly bigger, closely-held businesses would have 15 years to pay whatever they owe.”

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/17/president-obama-finally-has-his-piketty-moment/

[utcsox]

[quote=AN]With 28% rate, for a married couple making $230,450 or a single person making $189,300, there would be no point in keep stocks for a year for long term cap gain anymore. I wonder if this will drive up volume and volatility. At the very least those W2-er who participate in ESPP, there would be no reason to keep it for a year anymore.[/quote]

The long-term captain gains tax rate is 20% if and only if your ordinary income tax rate is at 39.6%. The proposed rule change does not apply to the example you described.

[an]

[quote=utcsox][quote=AN]With 28% rate, for a married couple making $230,450 or a single person making $189,300, there would be no point in keep stocks for a year for long term cap gain anymore. I wonder if this will drive up volume and volatility. At the very least those W2-er who participate in ESPP, there would be no reason to keep it for a year anymore.[/quote]

The long-term captain gains tax rate is 20% if and only if your ordinary income tax rate is at 39.6%. The proposed rule change does not apply to the example you described.[/quote]I didn’t read the part about it only apply to highest earner.

[an]

[quote=flu]I wonder if the biggest impact what is being proposed have the biggest impact on the middle class that plans on passing on a small biz or primary home to their kids, especially the baby boomers.

Afterall, if my understanding is correct, the proposal also eliminates the capital gains exemption from properties over $500k (not sure how small farms would work)…So…..upon death, the youngsters will need to cough up the capital gains tax bill or sell the property (and most likely they won’t have the money to pay the tax bill)….So in high cost areas…ouch…..And chances are, most of these middle class heirs won’t have the money for the cap gains bill.

For rich(er) people, this won’t be a problem, since I’m sure aforementioned heirs already have their trust funds set up well before that…

Oh, an foreign money aren’t subject to this, so that’s great news for foreign money…

Can you say, screw the upper middle class again?[/quote]
If your understanding is correct and this goes through, then it would make perfect sense to do a cash out refi and then let the property foreclose near your death. That would guarantee your tax rate of the property to be 20% or less, depending on how much they let you pull out. Or you can slowly withdraw money out of your house to help your kids pay for their houses. Then foreclose on your properties. At near death. In another word, there’s no point in having a paid off house if the intention is to pass it on.

[Coronita]

Ever wonder when politicians go after “rich” and attempt to tax “rich more”….somehow, they always leave out all the corporate tax loopholes…but instead go after the much lower hanging fruit, typical higher W2 wage earners (double income earners) with supplemental dividends/investment income that is slightly 1 step above middle class but certainly not “rich”, the ones that typically can’t dodge the tax bill through some sketchy slight of hand… Funny how that always seems to work…..

[SK in CV]

[quote=flu]Ever wonder when politicians go after “rich” and attempt to tax “rich more”….somehow, they always leave out all the corporate tax loopholes…but instead go after the much lower hanging fruit, typical higher W2 wage earners (double income earners) with supplemental dividends/investment income that is slightly 1 step above middle class but certainly not “rich”, the ones that typically can’t dodge the tax bill through some sketchy slight of hand… Funny how that always seems to work…..[/quote]

This doesn’t do anything like that. Taxes on wages would be unaffected. Some of the supplemental income would be affected if it was capital gains. No change to taxes on dividends or interest for high wage earners. The biggest effect will be those that have big cap gains. The cap gain tax rate will still be more than 25% lower than on marginal earned income for those affected. There’s no good reason it should be any lower.

[an]

[quote=SK in CV][quote=flu]Ever wonder when politicians go after “rich” and attempt to tax “rich more”….somehow, they always leave out all the corporate tax loopholes…but instead go after the much lower hanging fruit, typical higher W2 wage earners (double income earners) with supplemental dividends/investment income that is slightly 1 step above middle class but certainly not “rich”, the ones that typically can’t dodge the tax bill through some sketchy slight of hand… Funny how that always seems to work…..[/quote]

This doesn’t do anything like that. Taxes on wages would be unaffected. Some of the supplemental income would be affected if it was capital gains. No change to taxes on dividends or interest for high wage earners. The biggest effect will be those that have big cap gains. The cap gain tax rate will still be more than 25% lower than on marginal earned income for those affected. There’s no good reason it should be any lower.[/quote]does this touch the truly rich with 0 income and all cap gain and dividends?

[Author]

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