How much less?
IIRC it was 6.2% less, which is why I keep thinking that the employerās portion is not capped.
The employerās portion was never capped, unless a cap was recently (within the last decade) added.
Iām glad to see that was labeled āOpinionā because it was sure full of it, no surprise from the NYT.
All taxpayer income groups with incomes of $75,000 and under ā thatās about 65 percent of taxpayers ā will face a higher tax rate in 2027 than in 2019.
Did they just admit people have been better off under Trump? You see, since Trumpās tax cuts were so good for the common taxpayer, when they start to sunset in 2027, nearly every taxpayer who saw lower net taxes over these recent years will see higher ones when the tax laws revert. Here are some examples of how this might effect you.
As for Biden, even if you believe his headlines about his income tax proposals only hurting The Evil $400k+ Rich, you can bet his other policies will hurt the average person. For example,
- he has pledged to restore the Obamacare individual mandate, a tax penalty that disproportionately hit low to moderate income Americans who couldnāt afford healthcare but werenāt poor enough to get it with heavy subsidies/credits for being very close to the poverty level. Hereās the NYT telling you how under the old laws millions of poor Americans who couldnāt afford healthcare were slapped with several thousands (single) to potentially over $10k (larger families) in penalties. Trump got rid of all that - over $3B in penalties that were paid in vast majority by people earning less than $50k per year.
Thatās before you get to proposed carbon taxes raising the price of things made with or transported with fossil fuels, which is pretty much everything. Raising the price of consumer goods is in effect a regressive tax.
However, youāve established in the other thread that opinion writersā āconclusionsā count as reported facts.
No, and you know this. The new brackets are higher rates than they would have been without the ātax cutā legislation. Nothing about people earning more making it higher. Their higher on equal earningsā¦
That the rates would rise on all normal people were built into the bill is not any surprise, it was discussed (both the pros and the cons of the various details) on this forum back when the bill was passedā¦ People either with short memory or intentionally misleading currently. So were some of the carveouts that were scribbled in the margins on the final ālegislationā like the one Trump used to not pay US income tax where he would have previously had to.
Thatās assuming Congress does not make those temporary cuts permanent.
The GA runoff situation will further complicate EOY tax planning moves, since we wonāt know until next year if the Democrats will control the Senate. Their very large tax changes could still be implemented effective as of Jan 2021, but people for example with large long term capital gains will have to decide if they want to sell this year while LTCGs still get the 23% tax rate rather than being taxed at the ordinary rate (plus Obamacare surtax as well).
Do you foresee this affecting the broad market, or particular sectors in any way? For instance, do you think it is more likely we will experience a sell-off in sectors that have seen large gains over the last few years (like tech) as profits are taken?
It looks like the treasury is going to allow some SALT workarounds for entities like partnerships, if not individuals, to get their full deductions.
Based on results of the previous round and history of voting in GA, if I had to make a bet on the outcome to sell or not, Iād bet on Republicans keeping at least one of the two senate seats. Itāll come down to whichever electorate is more motivated but Iād give GOP the edge in both races.
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Asset allocation changes due to possible tax hikes, suggests higher equity allocation to compensate
https://elmfunds.com/whos-the-biggest-investor/
Conclusion
The taxation of investment income and capital gains not only reduces the welfare of individual investors relative to a world of zero taxes on our savings (ignoring possible societal benefits of the taxes collected), but it also can materially affect our asset allocation decisions. Capital gains tax, due to its character as a one-sided tax, requires a framework that takes account of risk in outcomes and an investorās personal risk-aversionā¦ we see that almost every change that hurts investor welfare is also associated with an increase in the optimal allocation to equities. In general, the greater allocation to equities softens the blow from the taxman taking a bigger slice of the investorās pie.
Biden tax planning article.
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Interesting read on what can be done this year to protect against tax increases should the Biden tax reform actually happen. But I wonder why they did not include the option of doing Roth conversions before the end of 2020 to benefit from lower tax brackets.
Also Iām not sure about timing. Their analysis would seem to indicate that the tax reform is unlikely to hit 2021 income. Assuming Dems win both GA seats - which is a tall task IMO -, they still wonāt have a rock solid majority in the Senate, plus theyāll be dealing with the end of the pandemic (hopefully) and the continuation of the economic recovery from it. So I donāt know how likely they are to come up with a new tax law early enough that it could be retroactive for 2021 income. So Iād assume thereās a very significant chance to have a bit more time than before the end of 2020, especially when it comes to real estate moves which are not that quick usually. Better be safe than sorry though.
Speaking of Roth conversionsā¦ is there a user friendly tool to guestimate an optimal ratio between Roth and non-Roth retirement accounts balances? Iāve looked for such tool but so far no luck.
It depends on your eventual retirement tax bracket and income, as well as the size of your IRA/401k retirement savings. Basically, you want to try to estimate your long term retirement tax bracket and then, if your current bracket is lower some year, you could do some conversion at the lower-than-average rate. Thatās the easy case, like if you have pretax money and take a year off to go back to school or something. Similarly, if youāre pretty sure youāre in a high tax year (due to good job prospects or spendthrift politicians), doing pretax contributions is an easy choice to defer those costs, with the hope of paying less down the road either when you withdraw the funds in retirement or when you might convert to Roth at an opportune time.
The other thing to consider however, is that itās not your marginal retirement tax bracket, say due to your expected dividends, SS, and pension income. If youāve got millions in a tIRA and plan on enjoying those funds in retirement, those will have to be withdrawn, for example a proportional amount of your tIRA over each expected year of retirement, and that will give rise to a higher average retirement tax rate.
You can end up in early retirement situations where maybe before your take SS, your income is a bit lower and it can be right to convert before your RMDs kick in since otherwise those would put your later retirement years into a higher bracket. Generally tax planning over time works by smoothing your income since spikes in income incur higher tax rates.
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Thanks for the detailed explanation, Xerty.
Iāve seen it often misstated (not by you here) to use the expected average tax rate, which is incorrect.
Itās only the marginal rate now and later that matters, but the future marginal rate will include any future traditional withdrawals.
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This is a good reminder that I have to withdraw my contributions from my old pension before the end of the year, and that considering how little income I had for several months this year, I should really put it all, plus whatever else I can afford, into my ROTH IRA.
Nothing too deep, but a good list of EOY items to consider