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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

#261

Post by jermaustin1 »

prostoalex wrote: post #259
jermaustin1 wrote: post #128

Earlier quoted context omitted.

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…

> On the dividend, you don't end up paying toward FICA. Effectively saving you up to 15.3%. The dividend is taxed at 15% for incomes over $37,950.

That is for a Qualified Dividend. S-Corp Dividends are "ordinary", and are taxed as regular wages minus FICA/Self Employment Tax.

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

#262

Post by brianwawok »

mac01021 wrote: post #117
brianwawok wrote: post #74

Earlier quoted context omitted.

This sounds like perhaps the top fix, to get my personal view better represented. But then I see how coalition governments work in other places. I am not sure that is overall better? Better in some ways, but I think it has a lot of downsides also.

What are the biggest downsides, as you see it?

The tiny minority has tons of power.

Think of a three party system with 45 / 45 / 10 of the votes.

The 10% party gets to see which of the big party will support their measures. The party that gives in can now have a combined 55% of the vote, and can then railroad through all the laws of both the 45% and the 10% party, totally ignoring the wishes of the other 45% party.

So effectively, a tiny 10% party now has more political say than a party that represents 45% of the population!

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

#263

Post by prostoalex »

nemo44x wrote: post #144
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.

Then add a progressive tax to investment income such as dividends, bond interest and proceeds. I don't know why we have a flat tax on investment income but a progressive tax on labor. The easy, and fair fix, is to progressively tax investment income.

The biggest players in the bond market are either exempt (they're a pension fund, a 401(k), a foreign entity, a university endowment, a charitable organization, a church or other kind of non-profit) or pass-through (mutual fund, ETF).

I recommend Ken Fisher's "Debunkery" which covers a lot of economic what-ifs with hard data. Capital gains tax rates and treatment varied widely throughout the US history, yet collected revenues did not.

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

#264

Post by javajosh »

baursak wrote: post #214
dogruck wrote: post #32

Earlier quoted context omitted.

We should tax consumption, not income.

Consumption tax is very regressive. We should tax wealth, not income. Eliminate income tax and extend property tax system to all assets, not just real estate.

Well now, that's an interesting idea! Is that your idea?

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

#265

Post by jermaustin1 »

dogruck wrote: post #32
URSpider94 wrote: post #9

Earlier quoted context omitted.

It's not the progressive tax structure that's the problem, it's the fact that cap gains are taxed at a much lower rate than other forms of income.

We should tax consumption, not income.

Take this example of poor people: A person earning 10k/year and a person earning 40k/year both need basically the same things: Water, shelter, food.

A person earning 40k per year isn't MUCH better off than the other. They are both broke, and only have money for the necessities. But if we only tax consumption. The person earning 10k will end up spending a larger percentage of their income in taxes than their counter part.

Now lets throw into the mix, me. I make a healthy 6 figure salary. Lets say I also only pay for what I use, and as a penny-pincher, I only get cheap housing, buy bread and cheese for my food, and tap water. I'm now paying the same taxes as the person earning an order of magnitude less than me.

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

#266

Post by prostoalex »

TheAdamAndChe wrote: post #19
toomuchtodo wrote: post #11

Earlier quoted context omitted.

> It's what was done in the 1950's, and there was still plenty of wealth then. That time period was one of great prosperity that won't be repeated. Market returns were higher; most of the low hanging fruit has been plucked, and you can expect ~5% in equities returns. Its going to take far more capital now to get the same returns your grandparents had, which is why you see capital chasing returns across the world. htt…

Then why not try to structure our economy so that the lower and middle classes have more money to spend? It seems like that would be a pretty good way to get the economy moving more since giving poorer people money increases the velocity of money considerably[1]. [1] https://en.wikipedia.org/wiki/Velocity_of_money

Because that concept only works in an idyllic small town dominated by sole proprietors.

The example they provide

> Farmer spends $50 on tractor repair from mechanic. Mechanic buys $40 of corn from farmer. Mechanic spends $10 on barn cats from farmer.

does not involve stuff made abroad, massive corporations with economies of scale eliminating the middleman, or foreign-owned entities.

Most of that velocity will end up in China invested into another skyscraper ghost town, a massive infrastructure project or a cryptocurrency mining farm.

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

#267

Post by tanderson92 »

random023987 wrote: post #196
tanderson92 wrote: post #168

Earlier quoted context omitted.

There are tax shelters and loopholes for upper middle class workers. The whole tIRA -> Roth IRA conversion is a trivial way to avoid the Roth IRA income contribution cap. The 401(k) system is itself a tax shelter, and is a larger portion of middle class earners' salary than it is for those with tens of millions. Need I mention HSAs which are like triply-tax protected?

Retirement savings is tax advantaged, however most people consider that a feature of the tax code, rather than a loophole. The traditional to Roth conversion will be of benefit only to those whose post-retirement income puts them in a higher tax bracket than they are currently in. Most middle-class wage earners would not be in that category unless they keep working well into retirement age. Health Savings Accounts ar…

The traditional to Roth conversion can help those who remain in the same bracket as well. This is because by spending Roth dollars one can avoid pushing one's taxable income into the next bracket. Technically, that's what you said, but this can be a significant issue even if one's expenses don't require that income, because of RMDs for tIRA but not Roth IRA. Likely to be an issue for those in the low-single millions of assets which is actually quite a few people who consistently save a large portion of income.

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

#268

Post by prostoalex »

jermaustin1 wrote: post #261
prostoalex wrote: post #259

Earlier quoted context omitted.

> On the dividend, you don't end up paying toward FICA. Effectively saving you up to 15.3%. The dividend is taxed at 15% for incomes over $37,950.

That is for a Qualified Dividend. S-Corp Dividends are "ordinary", and are taxed as regular wages minus FICA/Self Employment Tax.

Don't you lose some of the benefits associated with filing as self-employed? E.g., health insurance premium deduction, ability to defer a larger portion of the income into SEP-IRA?

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

#269

Post by jermaustin1 »

prostoalex wrote: post #268
jermaustin1 wrote: post #261

Earlier quoted context omitted.

That is for a Qualified Dividend. S-Corp Dividends are "ordinary", and are taxed as regular wages minus FICA/Self Employment Tax.

Don't you lose some of the benefits associated with filing as self-employed? E.g., health insurance premium deduction, ability to defer a larger portion of the income into SEP-IRA?

In an S-Corp as a "2% Owner," you are still granted the insurance deduction, but only if no one is qualified for a health plan through their employer.

"A 2-percent shareholder-employee is eligible for an above-the-line deduction in arriving at Adjusted Gross Income (AGI) for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements."

https://www.irs.gov/businesses/small-businesses-self-employe...

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

#270

Post by squozzer »

Where this article "phailed" persuasion-wise was in its archtypes -- the hard-working, high-pressure ER surgeon v. trust-fund slacker baby. Really?

How about changing the dramatis personae a little -- say, make the wage-earner a VP of product development at a soon-to-be-purchased startup (straddling both wage-earning and investing, maybe) v. Warren Buffett?

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