Tax changes / proposals - discussion

Tax changes / proposals - discussion
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#1299

Hmmm. Tax Evasion for Fun and Profit?

I think I’ll stick to the honest route. I don’t have that much to gain, honestly. Make sure the juice is worth the squeeze. But for others…

You’d think though that an income producing or at least income fetching part of the government would be of interest to be able to do their job and commit proper resources to. The suspicious side of me wonders if this isn’t intentional right now. GOP FTW?


#1300

Looks like the Democrats are going to be competing for who can try to soak the Evil Rich the most to fund their 2020 vote buying efforts. Warran wants a wealth tax, which in some ways sets an even worse precedent than Cortez’s 70% income tax.


Regarding the income tax,

While the proposal is unlikely to go anywhere, it could provide a blueprint for what some liberal Democrats might try to accomplish if the party regains power in the Senate and White House.

Sounds like a Democratic victory would be a boon for Puerto Rican real estate, if nothing else.


#1301

Lots of details on the new 20% QBI deduction for things like REITs, MLPs, and certain individual businesses.


https://www.bogleheads.org/forum/viewtopic.php?p=4138215#p4138215 (Discussion)

One highlight is that while there is an income limit (around $300k) for this phasing out for business income, the deduction for REIT income is not capped the way it would be for directly held real estate.


#1302

I think this is strictly noise and campaigning garbage. Neither proposal is going anywhere. I think there are cleverer (and a lot less flashy) ways to increase tax revenues to make the code a bit more progressive than it currently is. But it’s probably not gonna make good campaign material for either party.

Things like unrealized appreciation hardly ever gets mentioned as reason why wage slaves are taxed more in proportion than Buffets. Wealth tax may be popular buzz word but it has many issues. From double taxation argument to how effective it’d be if it’s not crippling and leading to either massive tax evasion schemes (look back how that went when tax rates were up to 90%) or massive capital evasion with rich people moving their money to other shores. What you hardly ever hear proposed is something like a shift from income tax to a progressive consumption tax.

And of course, all of this campaigning fodder is much more important to keep in headlines than trying to touch entitlements, no matter how much much more badly that reform needs to happen sooner than later. It’s just so much easier to talk about taxing the rich more than talking about not being able to have your cake (low taxes) and eat it too (high level of entitlements).


#1303

Tax increase is coming regardless. Anybody can talk about raising or lower tax or walk on water. In the end, s*it will have to balance out more or the less. I can always cut the hell out the tax and leave the problem to the next administration. I thought we learned that lesson by now.


#1304

I wouldn’t be so sure. From recent events, it seems to me that kicking the can is still alive and well.


#1305

You’d think. But they’ve been doubling down on the opposite for decades now.

Slashing the interest rates we pay on our debt down to 2% then refinancing all that debt has helped a lot too though. Now the cost to service the national debt now is less than half of what it was in the 90’s.


#1306

I don’t follow, as that was not Buffet’s argument. The reason why wage slaves are taxed more in proportion is because of favorable tax rates for dividends and long term capital gains (that’s realized appreciation, not unrealized).

I never heard of this so I glanced at it. It’s not clear tome how consumption would be calculated (for the purposes of making it progressive). Expecting me to provide my SSN with every purchase or keeping every purchase receipt and tallying them up at the end of the year sounds burdensome. One idea I read was to subtract savings from wages to calculate consumption, but monetary gifts and cash savings makes it complicated. Do you have a link for a good (but brief) primer on this subject?


#1307

I think the point is that over time you get asset price inflation from general monetary/CPI type inflation and taxing people on those phantom gains is basically unfair when they didn’t make any money. Some tax systems explicitly recognize this and your basis is inflation-adjusted, but for ours they tax you on these non-gains but do so at a lower rate - an imperfect trade off for simplicity, but not an unreasonable one.

Dividends are taxed at a lower rate since they were already taxed at the corporate level as profits, so arguably they shouldn’t be taxed to the individual at all. To do so, discourages rational corporate behavior to realize shareholder value by paying out excess capital. The alternative is that companies try for growth and reinvestment perhaps more than they should due to the tax drag on paying their shareholders (which should really be their main priority most of the time).

Of course these are all rational arguments about sensible tax policy, which is very different than the political pandering that underlies most of the arguments made about these situations.


#1308

That’s pretty close. As I understand it, the premise is that income can only be spent or saved so Income = Consumption + Savings. But the main difference is that debt would be taking into account as well. If you own stock like Buffet or Gates, you don’t really pay tax until you realize your gains. But meanwhile, you can obtain relatively cheap debt against your massive assets (what bank would not lend millions to Buffet for personal expenses?).

To make it progressive, it’d be a flat consumption tax (which we know is regressive) but with rebating (say instead of having tax estimated and withheld, people would get an estimated rebate on their paychecks). So you’d not really have to give your SSN when making purchases, you’d basically be taxed say a flat 15% on every purchase/expense and get some/all of it back (or possibly owe more when you file for wealthy filers).

I don’t have a very brief summary of it but here’s a detailed look at what it could be like [here].(http://bostonreview.net/archives/BR24.6/mccaffery.html)

It still leaves many questions to be answered about exact implementation especially with regard to currently tax-advantaged saving vehicles, and also projected tax revenues from such a scheme. I’m also a bit skeptical on how it would really save people from filing taxes (how would they know how much to rebate people otherwise?). But apparently there were tax reform proposals in the 90s that were based on something like that so some people must have gone beyond just academics on the idea.

By unrealized gains, I mean for example you hold on to a stock. Its value may have gained 10% in the past year but you do not get taxed on that gain unless you sell some of it. But it may be more advantageous to borrow money against your assets at favorable interest rates than paying 20% tax on capital gains if you sold the assets.


#1309

Consumption is just a measure, a consumption tax is not inherently progressive or regressive. There are many theories on methods to accomplish a progressive consumption tax. For instance, we know that poorer people spend a higher percentage of their income on necessities. So right off the bat you say - no tax on necessities. You can also impose luxury type taxes. If you buy a car, you pay tax at 5% of the amount over 15k, 10% of the amount over 25k, etc. Impose higher taxes on country club memberships, first class travel, etc.

You’ll notice that many states actually try to make their sales tax a little bit less regressive by doing things like taxing food from restaurants, but not food from grocery stores. To make it actually progressive, you just have to take it further.

None of this would require individual tracking. Although, as pointed out above, there are other formulas you can use as well that would take into account individual tracking.


#1310

Isn’t that just the “FairTax” ?

Discussion on that peaked last in 2008 around the election and has since died.

Google Trends :


#1311

I think it’s a similar. I thought FairTax was just a flat national sales tax, but I guess the “prebate” makes it a little progressive.


#1312

Yes this system would seem very similar to FairTax which also had a monthly prebate included.

There are lots of things that’d need to be addressed.In a FairTax system, vehicles like Roth IRA or Roth 401k have already paid tax on earnings and income compared to traditional IRAs and 401k. So would you get an additional rebate on withdrawals from Roth accounts to avoid double taxation (once on income the second time on consumption)?

In any case, you’re right that it was debated a lot several times previously but the complexity of the issues involved in determining how progressive it’d be, how it’d impact various systems,etc is much more complicated to convey to masses for campaigning purposes than just throwing around terms like separate wealth tax or advocating the creation of a 70% bracket.


#1313

Proposals to raise the age for RMDs as well as allow more types of IRA moves, like rolling Roth IRAs into Roth 401ks and the like.


#1314

Overall those sound like good initiatives but they’re a bit of a drop in the bucket.

The RMD change really does not change the fact that you still may be required to take distributions in down markets even if you don’t need the income. Pushing the limit by 2 or 5 years helps only if you’re still working and cannot rollover to a Roth IRA by age 70.5. Otherwise, you’ll probably have rolled your Roth 401k money into a Roth IRA to avoid those RMDs forever while also giving you much broader investment options.

The only reason not to rollover from 401k/403b to IRA would actually be on the other side of the retirement age, for early retirement, since you can use the rule of 55 for a 401k/403b but not for an IRA somehow.

Really, it feels like they should just take the best of each of these accounts and extend it to the other types of retirement accounts.


#1315

Interesting news story. Supposedly the law change is start to have an effect on charity donation. This food bank has seen their cash donation drop off drastically.


#1316

You can take your distributions in kind, at least for IRAs, so it’s not like you have to sell your positions in a down market; even from a 401k if you had to take cash, you could just buy back the same thing or a similar investment in your taxable account. I guess you will owe taxes on the distribution either way, but you knew that was coming either way so presumably should have your asset allocation and liquidity such that you can manage paying whatever taxes are due in a year when they come due.

Pushing the RMD age limit out does help in that it’s a free option. Maybe you have a low income year in 71 and take some out anyway, but then don’t in a high income year for year 73. More flexibility is always a good thing. Also, if you were still working, you probably could avoid RMDs by moving your IRA money into the company 401k plan - there’s an RMD exception for those still working (and not owning too much of the company) after the normal RMD age.

Broadly, the main reason to roll assets out of an old 401k is for more control, choice of investments, and lower costs. Yes, the 401k could let you access the funds sooner, but you can get some of that with a 72T distribution from an IRA in the early retirement scenario anyway.

Anyway, I didn’t see anything obviously bad and there were some marginal additional options for when to take your RMDs or how to move around your retirement accounts and those seemed like good things.


#1317

I agree that the proposal has no obviously bad effects by increasing options but I just thought the changes are a bit too incrementally small compared to what I’d hope for. But this RMD age extension could still help a few people so it’s not a bad thing.


#1318

IMO they’re seeing about 15-20% less in cash donations because of tax change. Corporate donations are steady because corporations are still getting the same deductions for charity donations. But some people now donate less because their donations are effectively no longer deductible (because they take the standard deduction vs. itemizing before).

I’ve seen it first hand with church donations but it’s very disheartening to see that it also impacts food banks.