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

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Submitted by Coronita on January 17, 2015 - 7:14pm

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/o...

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.

Submitted by spdrun on January 17, 2015 - 8:10pm.

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?

Submitted by SK in CV on January 17, 2015 - 9:24pm.

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.

Submitted by an on January 18, 2015 - 12:36am.

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.

Submitted by CA renter on January 18, 2015 - 3:09am.

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.

Submitted by Coronita on January 18, 2015 - 3:53am.

AN wrote:
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.

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...

Submitted by scaredyclassic on January 18, 2015 - 7:30am.

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

Submitted by Coronita on January 18, 2015 - 9:35am.

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?

Submitted by utcsox on January 18, 2015 - 10:41am.

flu wrote:
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?

"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/wonk...

Submitted by utcsox on January 18, 2015 - 10:46am.

AN wrote:
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.

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.

Submitted by an on January 18, 2015 - 11:47am.

utcsox wrote:
AN wrote:
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.

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.

I didn't read the part about it only apply to highest earner.

Submitted by an on January 18, 2015 - 11:54am.

flu wrote:
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?


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.

Submitted by Coronita on January 18, 2015 - 5:30pm.

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.....

Submitted by SK in CV on January 18, 2015 - 7:28pm.

flu wrote:
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.....

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.

Submitted by an on January 18, 2015 - 7:49pm.

SK in CV wrote:
flu wrote:
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.....

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.

does this touch the truly rich with 0 income and all cap gain and dividends?

Submitted by SK in CV on January 18, 2015 - 8:09pm.

AN wrote:
does this touch the truly rich with 0 income and all cap gain and dividends?

I suspect what you mean by 0 income is no wage or business income. Yes it does. It would increase the top marginal tax rate on long term capital gains to 28% (not including the 3.8% medicare tax). Still more than 25% lower than the top marginal rate on high wages.

Submitted by an on January 18, 2015 - 11:02pm.

SK in CV wrote:
AN wrote:
does this touch the truly rich with 0 income and all cap gain and dividends?

I suspect what you mean by 0 income is no wage or business income. Yes it does. It would increase the top marginal tax rate on long term capital gains to 28% (not including the 3.8% medicare tax). Still more than 25% lower than the top marginal rate on high wages.

Not unless they're smart enough to only sell enough to fall below the top tax rate, right? Then this wouldn't affect them. They're the people who can afford to pick when the sell stuff. If you only sell to have $457,600 of cap gain, then your tax would be 20%, if you sell $457,601, then your rate would be 28%. If I was in that position, why would I want to sell $457,601 and incur $40k more in taxes. I would hold off or find other way to subsidize my life style.

Submitted by an on January 18, 2015 - 10:59pm.

The more I see these kind of stuff, the more I'm convinced that it's not worth it to be a rich W2 earner. If you want to be rich, be a biz owner. There are a shit load of stuff you can write off or have the company pay for your life style. Then, you don't need a big pay check to live just as lavish of a life style as those W2-er in the upper echelon.

Submitted by SK in CV on January 19, 2015 - 6:54am.

AN wrote:
SK in CV wrote:
AN wrote:
does this touch the truly rich with 0 income and all cap gain and dividends?

I suspect what you mean by 0 income is no wage or business income. Yes it does. It would increase the top marginal tax rate on long term capital gains to 28% (not including the 3.8% medicare tax). Still more than 25% lower than the top marginal rate on high wages.

Not unless they're smart enough to only sell enough to fall below the top tax rate, right? Then this wouldn't affect them. They're the people who can afford to pick when the sell stuff. If you only sell to have $457,600 of cap gain, then your tax would be 20%, if you sell $457,601, then your rate would be 28%. If I was in that position, why would I want to sell $457,601 and incur $40k more in taxes. I would hold off or find other way to subsidize my life style.

Like most all other income taxes, I'm sure it will be a marginal increase. There won't be a $40K increase in taxes with a $1 increase in income.

And I thought we were talking about the really rich. Those with income of $.5 million even without selling something big. They'll get hit with it every year.

Submitted by SK in CV on January 19, 2015 - 7:00am.

AN wrote:
The more I see these kind of stuff, the more I'm convinced that it's not worth it to be a rich W2 earner. If you want to be rich, be a biz owner. There are a shit load of stuff you can write off or have the company pay for your life style. Then, you don't need a big pay check to live just as lavish of a life style as those W2-er in the upper echelon.

That fantasy world doesn't exist. Business owners can't write off a lavish life style legally.

It is hard to become super rich as a wage earner. But it isn't hard to become super comfortable as a very high wage earner. Don't live like you're super rich, don't spend it all and invest wisely. It doesn't happen overnight.

Submitted by harvey on January 19, 2015 - 1:25pm.

AN wrote:
I'm convinced that it's not worth it to be a rich [...]

First world problem.

Submitted by poorgradstudent on January 19, 2015 - 2:44pm.

I believe capital gains should be taxed as regular income.

Submitted by poorgradstudent on January 19, 2015 - 2:45pm.

Anyways, there's no way Boehner or McConnell will pass anything like this, so it's like me saying I deserve a free pony.

Submitted by CA renter on January 19, 2015 - 7:03pm.

poorgradstudent wrote:
I believe capital gains should be taxed as regular income.

Absolutely agree!

Submitted by joec on January 19, 2015 - 7:52pm.

AN wrote:
The more I see these kind of stuff, the more I'm convinced that it's not worth it to be a rich W2 earner. If you want to be rich, be a biz owner. There are a shit load of stuff you can write off or have the company pay for your life style. Then, you don't need a big pay check to live just as lavish of a life style as those W2-er in the upper echelon.

I think a lot of the complaints are simply people voicing what will affect them the most, and even then, it might not be true...If implemented, it probably wouldn't jump once you hit past a certain income level.

Being a poor non-w2 business owner, whenever I see people complain about people who are self employed with tax write offs, I'd challenge anyone to quit their safer "day" job and become a biz owner.

It's a ton harder than most people see/make it out to be and there are some tax benefits, but you lose a lot as well. Before it was impossible to get decent healthcare, good luck trying to refinance (we can't currently)...also, competition in almost every market is insanely fierce.

A lot of people only see the few successful people and think it's a cake walk, but try it yourself and see how it goes.

Also, I think this tax law only affects people who make over 500k in income. I don't think that many people actually pushes this high in income (I do know some dual doctors who do...), but all the better I feel as these people already pay a much lower tax rate than regular Americans (think Warren Buffet comments). I agree that they should just tax income at the higher rate to begin with.

All that said, it's always been easier to make it super rich as a business owner. Look around at the super wealthy.

Most business owners dump every single profit cent into their business and actually have little or no income...no income = no tax...They expand till the business is massive.

Also, a lot of large massive business pay little to 0 tax and it's all offshore. They're already not paying much, if any tax so there is no double taxation. If anything, more things should be done for normal Americans/small business who can't have offshore operations like the Apples/Googles of the world.

Wishing this would pass, but with a republican controlled Congress, don't see how this can pass at all...

Submitted by CA renter on January 19, 2015 - 11:15pm.

Also agree with your post, joec.

Submitted by an on January 19, 2015 - 11:48pm.

SK in CV wrote:
Like most all other income taxes, I'm sure it will be a marginal increase. There won't be a $40K increase in taxes with a $1 increase in income.

And I thought we were talking about the really rich. Those with income of $.5 million even without selling something big. They'll get hit with it every year.

We'll just have to wait and see. Since neither of us have seen the proposal, there's no point is assuming.

$500k/year as a couple ain't that rich. You're talking about a husband/wife Sr. Director level or a couple of doctors or a couple of dentist, etc. These are not the really rich. The really rich are the CEO type who take $0 salary and everything as stock. They're the one who can pick and choose when to sell and how much to sell. A couple of W2 working stiff aren't the same as a couple of CEOs making millions.

Submitted by an on January 20, 2015 - 12:11am.

joec, point is, we all chose our path based on what we're good at and what we value. Just because we pick one path doesn't mean we can't point out the facts. I've never said it's easy or not risky being a biz owner. I'm just pointing out the fact that there are stuff biz owner can write off that W2 earners can't. Company cars is one example. Home office is another. However about computers, internet, cell phone, electricity, water, home remodel, etc. All of those cost W2 earner some serious change while biz owners gets all of those stuff before they even get to their taxable income. So, $100k is not $100k when comparing W2 vs small biz owner.

I know many small biz owners and I see what they're putting in. I also see many hard working W2 earners who put in just as much time as those hard working biz owners, trying to move up the corp ladder. So, you can't say one is easier than the other if you tried to get to the same level of income.

What I'm pointing out is, a small biz owners making $500k/year is much more well off than 2 W2 earner making $500k/year, since there are many things you can write off. Same can be said at $200k level as well or even $100k level.

Back to the original topic. My selfish side don't mind if this passes. I will be net positive if this passes. But like you said, I don't see this passing with the replucan controlled Congress. Yay for divided government.

Submitted by an on January 20, 2015 - 12:12am.

harvey wrote:
AN wrote:
I'm convinced that it's not worth it to be a rich [...]

First world problem.

I've personally experienced 3rd world problems. Have you?

Submitted by an on January 20, 2015 - 12:18am.

SK in CV wrote:
That fantasy world doesn't exist. Business owners can't write off a lavish life style legally.

It is hard to become super rich as a wage earner. But it isn't hard to become super comfortable as a very high wage earner. Don't live like you're super rich, don't spend it all and invest wisely. It doesn't happen overnight.


I've listed many things that biz owners can write off that W2 earners can't. It ain't fantasy. I've seen first hand many biz owners who do it. You're telling me company cars are illegal? How about company paid cellphones. How about company computers? How about have a home office? I can go on, but you obviously thing it's fantasy.

I'm not saying it's harder or easier to be super rich as a wage earner or as a biz owner. I was just pointing out the double standards.

Submitted by SK in CV on January 20, 2015 - 6:48am.

AN wrote:
SK in CV wrote:
That fantasy world doesn't exist. Business owners can't write off a lavish life style legally.

It is hard to become super rich as a wage earner. But it isn't hard to become super comfortable as a very high wage earner. Don't live like you're super rich, don't spend it all and invest wisely. It doesn't happen overnight.


I've listed many things that biz owners can write off that W2 earners can't. It ain't fantasy. I've seen first hand many biz owners who do it. You're telling me company cars are illegal? How about company paid cellphones. How about company computers? How about have a home office? I can go on, but you obviously thing it's fantasy.

I'm not saying it's harder or easier to be super rich as a wage earner or as a biz owner. I was just pointing out the double standards.

If they use a home office exclusively for work and there is no other local office, then there might be a small deduction. If they use their cars for business, they can write off a piece of the cost, exactly like you can. They can write off their cell phones if they use it for work and it's a 2nd cell phone (can't write off 1st cell phones). Bottom line is, they can legally write off costs that are related to the business. Not unrelated costs that improve lifestyle outside of work.

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