Tax changes / proposals - discussion

I don’t follow your question, because Roth is an individual account, not something a VC firm can get.

All I’m saying is he probably knew that whatever he was investing his Roth in would explode. And without knowing exactly what he invested in and when, there’s no way to know how many times he hit or missed.

My point was, How could he always pick right when venture capitalists very rarely pick right? And if he were so good at picking right, why would he only limit it to his Roth account (a relatively small amount of his investible funds)?

If you have a tax-free and a taxable investment account, and you had an opportunity to invest in a sure thing, wouldn’t you want to invest the tax-free account first? And if it wasn’t a sure thing, wouldn’t you want to keep your Roth safe for better, more certain opportunities?

Why do you say he only limited it to his Roth? Are you saying he didn’t invest in PayPal (or whatever) using non-Roth money? I’d be surprised.

My point was, that he only invested his Roth in a sure thing. His non-Roth money was probably used like any other VC firm.

Thiel did take out several $100M’s in premature Roth withdrawals, paying taxes and penalties presumably. This is what happens when you end up with too much of your assets in the Roth and not enough in taxable to spend on your lifestyle. I knew some people who ran algo strategies in their IRA eventually stopped putting it in their IRA even though it was as close as you could get to a sure thing.

Why wouldn’t you put a money printing machine in your Roth? Because you can’t borrow against your IRA, and if you’re young and want to live a nice life from your hard work, you can’t access that Roth money easily for another 20-30 years. Say you want to buy a nice house. You could pull the Roth profits out, pay the max tax rate and a 10% penalty too, or you could have just earned the money in taxable, paid taxes, and avoided the 10% penalty.

The article is long, but after skimming it, I really don’t understand the point of all the ink spilled. One of the most successful people in the world bought stock in his own company with a tax advantaged account before the company ever turned a profit. Then it became a huge company. Seems lucky and smart, which is why you can literally only write this article about 1 person in the whole country. What is the point of the article except to foster a “We should hate the ULTRA RICH!” type attitude?

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No, Roth should be used for investments with the highest expected return. Sure, there may or may not have high variability, but in the long run having your highest return stuff in roth works out better.
Up until the point which xerty illustrates.

Not sure what Thiel buying it in his roth has any/many connotations. Elon Musk is wildly successfully in his investments - Paypal, Tesla, SpaceX - do we then jump to the conclusion that there must be something shady going on?

List goes on:
Guy that consistently beat the market over decades and is now worth billions - Must it be insider trading? (Buffet)
Guy tried to run his humble store for many years, but never really scored a hit. Suddenly, his fortunes turned. Must the obvious conclusion be that he be funded by aliens trying to take over the world? (Bezos)

$3.5T in “anti poverty” measures, including more healthcare and climate change spending.

Backup link

Democrats are pursuing a process tied to the budget called reconciliation to advance the bill through the 50-50 Senate without GOP support and avoid the 60-vote threshold typically needed in the chamber. With the top-line figures set, lawmakers will still need to craft the details of the policy provisions in the $3.5 trillion agreement.

The legislation is also expected to ultimately include a series of tax increases on corporations and wealthy Americans. Sen. Mark Warner (D., Va.), a member of the budget panel, said its full cost would be paid for.

Oh, I’m sure we’ll be paying for it for a long time.

IMO all the parading and back-slapping seems - to be kind- very premature until the CBO shows Manchin how all this is gonna get paid for (which I highly doubt they can show).

Plus I thought they could only do a couple of budget-reconciliation trick only once more this year. How are they gonna forcefully pass this and the infrastructure bill unless they wait for next year with one of them?

I’m not exactly sure, but it seems like they can use it twice for some reason, having done it once already. So I think the plan is to get the R’s to agree with the infrastructure one, and then put all the Hope and Dreams into this $4T Family bill and force through whatever doesn’t get thrown out as budget unrelated. More below.

I was wondering if the plan was not to aggregate all these spending bills together. Call it the “Massive Handouts to Buy Your Vote and Whatever Pork We Could Think of” budget reconciliation bill. At this point, these bills have so broad scopes, why the heck not huh?

Believe the federal fiscal year starts Oct 1 - and senate parliamentarian ruled that reconciliation could be done more than once a year. That means 51 votes, plus IIRC it needs to meet some sort of budget neutral threshold. Oh, the tricks they do.

Infra bill as it stands will go through the normal process - thus the 60 vote threshold. It doesn’t need to be budget neutral according to senate rules.

This could end up to be a very shrewd move by McConnell. “Look, we were bipartisan and agreed to a 1 trillion infrastructure plan, but these guys couldn’t get their act together and govern [if this all falls apart]. On their watch, they want to spend (so far, maybe more to come) 7 trillion - almost 58k per family - was this all necessary?”

That’s how things are supposed to work no? Senate forcing compromise compared to the extremes the House may vote on, where nobody really get 100% of what they want and we end up with more balanced laws? IMO the original proposals for infrastructure had a lot of stuff that you had to stretch the definition of infrastructure to fit in. I think it’s was fair to axe a lot of it and keep the already very large spending bill just for core infrastructure, not every pet project vaguely related.

I was not aware about the requirement for being budget neutral. Is it based on CBO estimates? That’d be at least something to keep things in check a tiny bit. But I don’t know how strict it is. Like the Trump tax cuts for example. They got done through reconciliation IIRC but they were never going to be tax neutral unless we started having 4% GDP growth forever which I doubt the CBO would have endorsed as realistic.

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Yup, the infrastructure bill isn’t perfect but nothing is. According to reuters, $109 billion will go into roads and bridges. They also go into the broad outlines of how it would be paid for, which I haven’t seen discussed in detail elsewhere.

I’m not too familiar with the intricate details, but it should keep things in check a teeny tiny bit. I believe the TCJA somehow waived the deficit-adding issue within the term of cuts, but some other check (described below, I believe) prevented it from being enacted as permanent.

Reconciliation legislation is also subject to a number of budget points of order. To avoid a 60-vote point of order, they must comply with the spending and revenue levels in the budget and abide by the Senate “pay as you go” (PAYGO) rule, which prevents legislation from adding to deficits. However, these rules can be changed – or exceptions added – in the budget resolution itself.
As with any other bill, deficit increases under reconciliation are subject to the statutory PAYGO law, which does not allow net increases in the deficit over the course of a year or the following five-year and 10-year periods. An exclusion from the Senate PAYGO rule and statutory PAYGO as part of the reconciliation bill would be subject to a 60-vote point of order.
Reconciliation 101 | Committee for a Responsible Federal Budget

I think the plan is to try to pass the “real” infrastructure bill with bipartisan support, and strip out all the non-infrastructure left wing dreams (climate, labor, etc) into the “family plan” and force that thru via reconciliation with lots of higher taxes to supposedly pay for it. Here’s a summary and analysis of that current “family” plan.

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My wild guess is that it’s politics and ‘22 positioning. Perhaps road user fees only for commercial vehicles - would be good to somewhat level out freight haulers’ use of publicly funded roads vs railroads or air. Could just be mileage based to simplify implementation and it’ll penalize long haul more vs. last mile than diesel taxes.

And corporate tax rates - raise it by a couple points? The reconciliation bill will raise it anyway; might as well throw a monkey wrench in that. CBO will score straight rate rises as revenue, but iirc won’t count revenue from increased IRS enforcement.

A reminder on how Biden’s high tax proposals will go with his high inflation policies to raise your effective tax rate to over 100% on investments. Math was never the liberal strong suit, probably because it’s so racist.

Backup link

the president’s proposal would raise the nominal capital-gains rate from the current 20% to 39.6%, plus the ObamaCare 3.8% Medicare surcharge. Many investors who would be subject to the proposal live in places like California and New York City, where the combined federal, state and local tax rates would reach 56% and 58%, respectively.

For the past 20 years, the nominal average annual total return on the S&P 500 index has been about 8.6%. If this continues in the future and the Federal Reserve succeeds in hitting its 2% inflation target—an optimistic prospect, given wildly excessive fiscal policies this year—total real returns, after inflation, will be about 6.6%. A 58% tax rate on an 8.6% nominal return is the equivalent of a 76% tax on after-inflation returns of 6.6%. An investor would keep less than a quarter after-inflation gain.

The consumer-price index, which relates more directly to what consumers pay for themselves and what Americans intuit as the cost of living, tends to run about 0.4 points above the Fed’s inflation measure. Using this more realistic understanding of the cost of living, the real marginal tax rate would be about 80.5%.

And what if the Biden administration’s profligate fiscal policies induce several years of disappointing equity returns? Excessive fiscal spending, combined with the Fed’s explicit policy of aiming for above-target inflation, makes it likely the U.S. will see some inflation overshooting… If inflation continues at a pace near 5% (without boosting nominal equity returns any higher than their longer-term average of 8.6%, as high inflation tends to lead to poor performance), the real marginal tax rate jumps to an investment-crushing 139%.

Commentary on how paying for all this infrastructure is going…

  • We don’t know how the tax landscape will change since the negotiations over the infrastructure and “human capital” bills are ongoing. But as a placeholder, consider the following: Biden’s original proposal included a 28% corporate rate on domestic income, no deferrals, and a 26.25% GILTI minimum tax after eliminating the exemption for normal returns and eliminating the commingling of foreign tax credits across countries (effectively moving back to a worldwide tax system); new higher taxes on oil & gas; a new SHIELD tax on foreign entities operating in the US; no commingling of foreign tax credits across countries; a cap on like-kind exchanges; full unification of capital gains and ordinary income tax rates for HNW individuals; and forced realization of capital gains at death
  • We now believe that the negotiations are headed for a 25% corporate tax rate, a GILTI tax of 15%-19%, partial commingling of foreign tax credits, and possibly a minimum book tax of 15%-20% which we estimate would have a negligible impact on S&P 500 earnings; an increase in capital gains to 28% instead of full unification with ordinary rates; and a possible doubling of the SALT deduction from $10k to $20k. There’s a long way to go, but it is notable how different the possible outcomes are from the original proposal

In other tax news, it’s apparently a matter of national security that Trump’s tax returns be given to the Congress committee for prompt (and criminal!) leaking to the media so we can hear all about how Bad the Orange Man is for the next 3 years into the 2024 election.

It remains to be seen if this will be used to

  1. press for particular tax hikes, perhaps on real estate, to “correct” his successful use of the existing tax law to pay less tax than “his fair share”,

  2. to put pressure on the IRS agents currently auditing him to press their case if anything turns up that could possibly be spun by some tax prognosticator as questionable

or both. Biden’s DOJ was happy to take the obviously partisan request by the House Ways and Means committee at face value that they only wanted to look at specifically Trump’s returns to make sure overall tax policy was being set correctly. Yeah, right.

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Smart democrats know that pretty much all their messaging and policy prescriptions (defund the police, men can become women, socialist medicine, perpetual covid regulations, etc) are ballot box losers, so they are sticking with the tried and true tactic of bringing up trump at every possible juncture in order to do something popular. It’s the whole reason behind the Jan 6 commission as well, in which nothing new will be discovered.

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That seems at best misleading to me. As far as I understand the proposal, that 39.6% is not nominal but the top marginal tax rate on capital gains. That’d apply only to individual investors having annual incomes >$450k (higher than 99th percentile which was $360k in 2020). Fair to say, the vast majority of investors would not pay that rate although many like myself would still pay a higher rate since their income marginal rate is >20%.

I don’t know in CA or NY, but in my state, I don’t pay local tax on capital gains so these tax rate percentages are erroneous (too high) when applied to the real returns mentioned later.

Combination of these errors seem deliberate to me to exaggerate the magnitude of the tax hike on capital gains. I’d end up paying about 4% more on capital gains which I’m definitely not thrilled about. But that’s a far cry from having them get bumped by nearly 20%. And it’d be worse for me if it became a uniform tax rate of 28% like some other proposals have mentioned.

But like you mentioned, this is really early goings and I’d expect tons of changes in the final version, if/when that ever makes it through Congress.

As far as Trump’s tax returns are concerned, honestly I want them out ASAP so we can finally close this infuriating saga. For the record, I still think he should have released them and his excuses to not do so are BS. It sure is not a good look - just like it’s not a good look for all those from the recent leak of wealthy people effective tax rates - but this has definitely gone on for way longer than it should have. Big surprise that he very likely paid low/zero tax rate due to exploiting legal loopholes and carry over of losses. We know most of us will not be able to replicate that because most of it happened in the past, laws changed, and we’re not in his position to make the same deals. He’s wealthy and like Bezos and Buffet they have ways to pay very little income. I’d rather we spent all this energy on finding smarter ways to tax them more fairly going forward instead of constantly focusing on what’s in the past.

Yes, the proposal is a top bracket cap gains rate hike, not on everything. Sorry if the quote I pasted didn’t make that clear. It would still be 10-20% for those in lower brackets, possibly with the extra 4% Obamacare kicking in over $200-250k also.

Almost all states that tax capital gains at all, which is nearly all of them but perhaps you chose more wisely, tax them as ordinary income. Both NY and CA do.

I will point out that if the Democrats do get rid of the estate tax step up on death current policy, that capital gains tax rate will hit almost any long held inheritance because of all the inflationary gains from many decades of stock or real estate appreciation (and that’s before whatever new inflation they create printing another $3-4T for their Family plans). It’s definitely a real risk even to a middle class inheritance since it would hit all at once.