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Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

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Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#121

Post by notacoward »

snarf21 wrote: post #86
chollida1 wrote: post #8

> Americans in the top 1 percent, and especially the top 0.1 percent, have seen their wealth and income multiply in recent decades as the rest of the country’s share of the economic pie shrank. Since 2000, a recent study found, the top 1 percent have made those gains almost entirely on income from capital, especially corporate stock—not on labor income. One reason may be the financial options of the wealthy: Business…

This is very true. The hard part is we need corporations to create jobs, provide housing and finance company growth. You get what you reward and optimize for. The problem is that we aren't optimizing for the right things. I think we need to drop things such as "like kind exchange" and find new ways for people to use their retirement to start business but with tax forgiveness if it fails that could be used to refund r…

> we need corporations to create jobs

Not really. Sure, we need some form of association to hold property, and sometimes limited liability. Does it need to be the kind of corporations we have now, able to exercise all the rights of people but not taxed or held accountable like people? Nope. A deep reform in all of the laws defining what "corporation" means, and not just tax laws, is overdue.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#122

Post by njarboe »

Here is a question for any tax attorneys out there. Not sure how to find a clear answer to this question but these pages[1][2] seems to suggest that the capital gains tax rate is based on your "Taxable Income". This is shown further down the second page to be "really Regularly Taxed Income minus Adjustments, Deductions, and Exemptions". If your "Taxable Income" is less than 37,950 your long range capital gains tax is 0%.

This seems to me to mean that if you are say Larry Page or Sergey Page and set your salary to $1 (like the do), your main motivation for the low salary might not be to signal that, as a large shareholder, you are aligning your interest with shareholders and thus won't take a salary (this is what I thought the $1 salaries in the Valley were all about, but it always seemed a little silly to me). Maybe your main motivation is that you make all of your income in capital gains and if you have less than $37,950 in "Taxable Income", you pay %0 in capital gains. $1 in "Taxable income" with $1 billion in capital gains and pay $0 in tax. You could make a bit more with a salary of $37,949, but that is nothing compared to your capital gains, and then people would be pointed to exactly what was happening.

This would be a much bigger loophole than covered interest being taxed at the long term capital gains rate. Although, now that I think about it, the two loopholes would work together. Own a hedge fund, take $1 in salary, make $1 billion in carried interest, pay $0 in taxes.

I sure don't want to believe this is the way it works. Links to an IRS.gov web page example that shows otherwise would be greatly appreciated.

[1]http://www.moneychimp.com/features/capgain.htm

[2]http://www.moneychimp.com/features/tax_brackets.htm

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#123

Post by aylmao »

gnicholas wrote: post #94

> You owe the IRS about $38,500 more, assuming each of us pays the maximum with no special deductions. This also assumes the investor has no interest income, which would be unlikely. For a younger person with a big nest egg, this wouldn't be a huge chunk of their assets. But as you age you'd want to shift into less-risky assets, like interest-bearing ones. Also, investors would probably be diversified into real estat…

Yes. I would assume the article's point IS to emphasize the author's point.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#124

Post by jandrese »

fooster wrote: post #10
cylinder wrote: post #6

The biggest lie is this nonsense about "double taxation," ie taxing money that's already been taxed is somehow unfair. So stupid. Capital gains tax shouldn't exist. It should all be one income tax. You can carve out discounts or exemptions for things like sale of PPOR, sale of family business up to a certain point, if you want.

I don't see it that way. When you invest you risk the capital. You might get a return, you might not and therefore the taxation rules should reflect that. The situation as a worker is different. The only risk you take is that you might select a bad company.

Well, what else are you going to do with that capital? Stuff it in a mattress? The Government really doesn't need to encourage people with money to use it to make more money, that happens naturally.

You might argue that they'll just "waste" it on goods and services, but that's what keeps the economy moving so it's not really a waste.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#125

Post by rhino369 »

rat_1234 wrote: post #112
walshemj wrote: post #15

Earlier quoted context omitted.

That's to encourage money to be invested and also to compensate for the risks.

I've heard the former but I have never heard the latter unless it's been one of my friends in PE trying to justify it. It's the investor's job to make sure their investments are producing an adequate risk-adjusted return, not the government's job to help you get there.

Taxes change the expected value of an investment. Thus, it changes the amount of risk v reward.

If I have you 51% odds on a coin flip, that's a good bet. But if you only get paid out 60% when you win, it's a bad bet.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#126

Post by jwally »

cylinder wrote: post #6

The biggest lie is this nonsense about "double taxation," ie taxing money that's already been taxed is somehow unfair. So stupid. Capital gains tax shouldn't exist. It should all be one income tax. You can carve out discounts or exemptions for things like sale of PPOR, sale of family business up to a certain point, if you want.

Completely agree if you nuke the corporate / business tax as well.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#127

Post by ringaroundthetx »

cgore wrote: post #2

Because politicians sell progressive income taxes as a way to screw the rich, when it actually just screws the upper middle class, since the actual rich don't have jobs to tax the income from.

and it works because the politicians are pandering to the massive amount of people in the working class who are subject to income taxes exclusively, and don't understand the parallel tax systems

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#128

Post by jermaustin1 »

alexlongterm wrote: post #93
vasilipupkin wrote: post #48

Earlier quoted context omitted.

yes, but if you have your own corporation, unless it's an LLC, then you will have to pay corporate tax on that income in addition to personal income. And if it's an LLC, there is no difference.

^^^ this. In fact in the US the IRS will flag abnormally high salaries for small businesses (millions per individual) if no or very few dividends are paid out because income tax is less favorable to the government in the total amount the IRS receives when looking at multi million dollar salaries. Beyond the first $110kish FICA stops making a dent as social security caps out. I'm sure there are possible loopholes for…

People often forget about S-Corps. As the owner you W-2 yourself, then what is "left over" is a dividend. Since an S-Corp is a pass-through entity, you don't pay corporate taxes, and aren't getring the C-Corp double tax on your dividends.

On the dividend, you don't end up paying toward FICA. Effectively saving you up to 15.3%.

IRS rules stipulate you have to be paid a "reasonable" compensation, which most accountants I've talked with define as within 30% of average wage for your "profession".

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#129

Post by random023987 »

dougk16 wrote: post #55
chollida1 wrote: post #8

> Americans in the top 1 percent, and especially the top 0.1 percent, have seen their wealth and income multiply in recent decades as the rest of the country’s share of the economic pie shrank. Since 2000, a recent study found, the top 1 percent have made those gains almost entirely on income from capital, especially corporate stock—not on labor income. One reason may be the financial options of the wealthy: Business…

Could you link to any "for dummies"-type resources that show how you can incorporate and use that corporation to reduce your taxes? Something that would hopefully be applicable to your typical middle-class homeowner in their 30s with young kids and a 9-5 making enough to get by but is looking for any edge they can find? Edit: (in the US)

Tax shelters are not made for people like you.

The middle class is best served by collective bargaining to increase their wages and benefits, strong consumer protections, and access to affordable health care.

Up to about your first 5-10 million (depending on where you live) you need to play by the rules. After that, you can think about hiring a tax advisor to start scamming the system. But the downmarket financial advisors that serve people with a paltry million or two are mostly focused on selling high-commission financial products.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#130

Post by taeric »

ChiliDogSwirl wrote: post #90
taeric wrote: post #24

Earlier quoted context omitted.

They would benefit from a funded government. Schools and other public services cost money.

Schools in the US are funded at the local county/township/municipal level, typically by property taxes or sales taxes, though it varies from state to state. Nothing really to do with income taxes, apart from the occasional grant.

I get that it is not the majority of funding. I don't know if it is a solid source, but http://www.data-first.org/data/how-much-money-does-our-schoo... has it at about 10%. 10% is not nothing.

And, quite frankly, the places that need the most help probably don't have a lot of options at the local level.

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