I pay State income tax on capital gains but not local/city income tax on them. Local income tax basically only taxes wages earned where you work and/or reside.
It seems to me that this could be relatively easily fixed by a threshold for the increase in basis of the long-held inherited asset. Below that threshold, you owe no tax, above that threshold, you pay tax on the basis adjustment beyond the threshold.
Alternatively, what would be a better method for preventing Bezos et al from passing to their heirs the vast majority of their assets tax free while not hitting middle class inheritances?
Very few cities have an income tax. New York City is one, I think.
Iâm pretty sure Ohio has a bunch of localities that charge an income tax. I remember it being a hassle as I worked an internship in the state over the summer in college. Tax time that year was fun.
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Yeah, I have an acquaintance that is a CPA in Ohio. Evidently, it is very common to have a local income tax on top of state and federal, so the taxes become fairly inconvenient to do, since it is so common to live in a different city/county than you work.
That doesnât change that very few cities assess one. Stinks for Ohioans!
A $7B shakedown of a smart trading structure, which allowed high leverage investing for greatly enhanced returns as well as getting long term capital gains treatment as a bonus.
https://www.wsj.com/articles/james-simons-robert-mercer-others-at-renaissance-to-pay-7-billion-to-settle-tax-probe-11630617328
Backup link
âRenaissanceâs board eventually concluded that the interests of our investors from the relevant period would be best served by agreeing to this resolution with the IRS, rather than risking a worse outcome.â
My read on that IRS case, which they just settled after many years, was that the IRS had to prove the structure had no economic substance when allowing a great trading strategy to get 20x leverage instead of the normal 2-5x in a typical brokerage account sure would matter a lot. You know where this is goingâŚ
The settlement is an example of what the IRS could do if it had more enforcement staff and more resources to pursue complex cases, said Steve Rosenthal, a senior fellow at the Tax Policy Center who testified at the Senate hearing.
With lots more resources, the IRS can shake down anyone they donât like and force an unfair settlement because, unlike Simons and Mercer, you donât have a spare $10-50M(?) to spend arguing about it til you die even if you were right.
Democrats talking about taxing stock buybacks and âexcessâ CEO pay as part of funding their latest budget objectives (which must nominally be revenue neutral to pass via reconciliation).
Is stock buyback a tax-deductible expense? I thought it was done with after-tax money, like dividends. So thatâd be double taxation, right?
Yes, just like they double tax the dividends!
I think asset taxes are coming and so are roth IRA taxes. Theyâll call it excise or something else.
Thatâs not the same â the corporation is not double taxed on dividends. The corporation is taxed once on the profits, then the money is paid to another legal entity (the stockholder), who is taxed once. But with this it sounds like the corporation itself would be taxed twice. Is there anything else in the tax code that does this?
Right now the earnings are taxed at a corporate level, and dividends are then taxed at a personal level when received. I donât know if the proposal would, say if Goldman buys back 1% of their stock in the open market, somehow infer a dividend amount to that action and perhaps ala a K1, give everyone who held that stock that year an extra tax liability. This seems messy, both since the time period of a buyback is generally longer and not often even disclosed precisely (so who gets taxed based on how much they held, and when), while a dividend goes ex on a particular date and you know who got paid. I guess they could tax the company instead of the person, but itâs not clear from the coverage yet.
There are a whole lot more tax proposals on the table, including IRA taxes, Mark to market taxes on the Evil Richâs investment assets, various environmental related taxes (and removal of tax breaks for oil and gas), etc. $3.5T is a crazy amount to come up with and theyâre looking at almost everything.
https://www.bloomberg.com/news/articles/2021-09-03/senate-democrats-eyeing-taxes-on-stock-buybacks-excess-ceo-pay
Backup link (updated)
One idea is applying an excise tax on stock buybacks or treating them as taxable dividends to shareholders,
The âany financial account that sees $600 in cashflows needs to be reportedâ dragnet is also listed. This looks quite bad. Plus they want hundreds of billions in more funding for IRS selective enforcement against people they donât like, which goes together quite poorly IMO with the super intrusive financial reporting proposal.
This seems messy because, unlike a dividend, no money actually changes hands. Thatâs insane.
Mark to market is also insane, but maybe a teeny bit less so â thereâs a high floor and the ability to borrow on margin in perpetuity without ever paying income tax seems unfair / problematic.
Either way, Iâm sure there have always been lots of crazy proposals on the table before, I see no point in talking about the unlikely ones until they become likely. Itâs a waste of time and energy.
I broadly agree, still, itâs good to see which way the winds are blowing. I think capital gains taxes on the rich are going up, and estate taxes are going to be a lot more strict and onerous.
Hopefully we donât see the dragnet financial reporting requirements and IRA restrictions / caps / taxes / forced divestment make it through.
Partial list from that (recently updated) Bloomberg article.
|î|One idea is applying an excise tax on stock buybacks or treating them as taxable dividends to shareholders,
|î|other proposals are in the mix and have previously been proposed by Biden or by Senate Democrats, including raising the 21% corporate rate, increasing taxes on overseas company income and raising both the top individual income tax rate to 39.6% as well as the capital gains rate for high-income investors.|
|î|estate tax proposal to impose capital gains taxes on appreciated assets held by wealthy individuals until death.|
|î |taxing carried interest for fund managers at regular tax rates|
|î Billionaires, meanwhile, could potentially face new âmark to marketâ rules requiring them to pay taxes on unrealized capital gains
|î| cracking down on trusts used by the wealthy to avoid gift and estate taxes.|
|î|Fossil-fuel companies could also lose assorted tax breaks|
|î|limit the use of discounts for reducing the value of assets held in closely held family businesses for estate and gift tax purposes|
|î|new limits are being considered for the size of tax-advantaged retirement accounts, targeting an increase in the number of accounts shielding millions in wealth. |
|î|boost to Internal Revenue Service enforcement |
|î|a new IRS tax reporting requirement on accounts with as little as $600 of inflows and outflows a year in an effort to collect more taxes already owed.|
I am certainly suspect of the gains from IRS enforcement, but otherwise you can see where theyâre taxing the most.
Definitely a corporate tax effort. Increase in base rate, global minimum tax, anti-inversion rules, private equity breaks, minimum profit tax, pretty much all have the same general target. IRS and payroll tax enforcement could affect smaller businesses too but you kinda guess which accounts are going to be the most lucrative for them to go after firstâŚ
I think the focus is due to the assumption that most voters wonât see a direct impact on their finances so they wonât be as much resistance to it. Itâs kinda hard for anyone to make a strong case say for not changing the anti-inversion rules since the vast majority of the public wonât understand what they are let alone their impact.
As far as IRS enforcement numbers, yeah Iâd like a bit more detail on how they got to that high estimate. Nearly $800B is not some change. Although I could see some of it being due to the other tax changes proposed, especially the ones having to do with overseas entities (anti-inversion, global profits, global min tax).
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Especially if even the Evil Rich are only underpaying by $150B or something under the Treasuryâs generous assumptions.
Despite the headline, the source material shows more of the supposed âfailure to payâ taxes coming from the top 70-99% than the top 1%.
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Is this because the $150B underpayment is assessed per fiscal year and the money raised to pay for the $3.5T laundry wish list would happen over several years?
Candid question about the estimates though. Arenât these estimates supposed to be done by the CBO once a firm proposal has been drafted? Or are these numbers just pulled out of thin air/wishful thinking?
Yes, itâs just a puff piece to try to get support for Bidenâs giant spending bill, which will including all this wishful thinking in order to be passed by reconciliation. Itâs just an opinion piece by some minor treasury official posted prominently on the Treasury site,
The blog whines about lack of agents and such, but if they really did have cases worth billions and knew it, you can bet they would prioritize those and collect nearly all of them. I posted recently how they shook down a top hedge fund for $7B and those guys had all the money in the world for lawyers and still lost. Clearly one of these things is inconsistent, and itâs obviously the political posturing for Biden.