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Forum: pol
Page 3058
Subject: FAIR TAX QUESTIONS

Posted by: steve houpt - [451161019] Mon, Feb 18, 2008, 09:35

I did not seacrch to see if this topic has been covered anywhere, so apologies - it's already written and I am posting in a new thread.

The FAIR TAX ???? Any experts? Not buying book[s] to figure out what I think of this particular plan. If it’s so great, they should give the books away. Reminds me of the late night commercial on TV, pay $29.95 to learn how to get money from the government. Right.

I’ve got some problems with the explanations [or non] of the Fair Tax. They appear to be explanations for people with little background in math [not me] and less in ‘economics’ and tax structure [probably me]. Also - fair tax does away with FICA tax.

Example:

John ‘regular retired’ Doe [single/divorced]

Yearly spending:

Pension: _________________________ $24,000
Fed Inc Tax now [approx 10%] _______ [$2,400]
FICA _____________________________ 0
Fm Savings [tax already paid] _________ 10,000

NET spent each year ____________ $31,600

John has $31,600 available to spend each year out of an ‘income’ of $34,000 [$24K pension and $10K savings].

Assume [big assumption] a 10.95% corporate imbedded tax already. Imbedded tax = 10.95% times $31,600 = $3460. I use $10.95 to make example revenue neutral. A radio host uses the 23% as ‘already’ imbedded. If revenue neutral, does not compute with me.

Total tax John = $5,860 [$3460 + $2400]

===============================

Joe ‘working’ Sixpack [single/divorced]

Yearly spending:

Income: _________________________ $34,000
Fed Inc Tax________ [10%]__________ [$3,400]
FICA ___________________________ [$2,295]
Fm Savings [tax already paid] ______________ 0

NET spent each year _________________ $28,305

Joe has $28,305 available to spend each year out of an income of %34,000. Imbedded tax = 10.95% times $28,305 = $3099

Total tax Joe = $8,794

===============================

Say there are two working Joe’s for each John. Total tax received by government from these three = $23,348

When examples like this [usually only presented with the John ‘regular retired’ Doe example - not comparing the individuals], this is how John Doe’s tax situation is explained. --------------- When John spends his $34,000 [forget Joe], the tax is already imbedded, so he’s already paying the tax [ignores available to spend].

Under the ‘Fair Tax’, all have $34,000 plus a ‘necessity’ rebate each month [should be the same]. Fair Tax is supposed to be ‘revenue’ neutral so:

Under the Fair Tax, all pay 23% times $34,000 towards the government pot [or $$7,820]. About $23,460.

Any supporters? Where am I going wrong? And if I am correct, why not just say, some people using savings to live off of [and pensions with no FICA] may be impacted, but for good of country with “all the benefits seniors receive” [social security, medicare, prescription drugs, etc], so what.

==================== I've read this by Bartlett. A radio host / co author [Boortz] just rips Bartlett apart. But it appears to be the way my mind is comphrehending the 'fair tax'. Any thoughts? Like I said, I'm far from an economic expert or tax expert, but my math brain does not compute all I am trying to be sold. If it's revenue neutral, has to [even if it's small] benefit some, and not others.

Bruce Bartlett - why fair tax won't work

Mattinglyinthehall
Leader
ID: 01629107
Mon, Feb 18, 2008, 10:12

Feels like old times with Madman and steve popping up. There has been some afir Tax discussion here, though nothing so far that has attempted any real depth. Start skimming at post 393 here and continue through about the first 20 posts here. Or don't bother and take my word that there hasn't been a lot of substance on the topic prior to this thread.

Boxman is an outspoken proponant of Fair Tax though to my knowledge he hasn't offered much beyond talking points. Perhaps this'll draw some more detailed responses from him.

Boxman
ID: 337352111
Mon, Feb 18, 2008, 11:24

Mith, I linked to the Fair Tax Org site which refutes a lot of the negativity around it. The fact that you did not pay attention to it does not mean that Steve Houpt has to tolerate your half truths.

Perm Dude
ID: 2138188
Mon, Feb 18, 2008, 11:29

So---MITH links to the thread which has your link to that site, and this is a half-truth? Merely because MITH linked to a discussion (which included the link) rather than the "whole truth" of the Fair Tax site?

LOL. You might not know steve, but he'll find the link, read the discussion, and come up with his own reaction to it. It isn't a half-truth to link to a discussion of the flat tax which includes a link to your side's home page, Boxman.

Mattinglyinthehall
Leader
ID: 01629107
Mon, Feb 18, 2008, 12:12

Boxman

In the first sentence of the topic field of this thread, steve asked ,"I did not seacrch to see if this topic has been covered anywhere, so apologies - it's already written and I am posting in a new thread."

By reading his post #0 and being familiar with the depth of research that Mr. Houpt used to regularly bring to this forum (before I ever posted here, they used to call him "Source") I knew that the extent we've covered this topic so far isn't quite what he's looking for.

I didn't intend to suggest you don't know what you're talking about. Let's try to not be so sensitive.

I am curious about your response to steve's post.

steve houpt
ID: 451161019
Mon, Feb 18, 2008, 13:08

Thanks MITH - I've scanned fairtax.org before, but it's hard to dive in. Like most numbers, you can lie with them or make them say what you want.

boxman - My biggest problem [have local radio on in morning and Boortz follows] is when he takes the above question from callers [pensions, cash saved - not IRA - no FICA], he asks if they read the book and tells them they are already paying the tax. Goes thru the "you buy the flat screen TV and Joe Sixpack buys it, you both pay the embedded tax [no $-hit sherlock], you already pay it". Ignores the available cash point of the argument.

Well, I'm smart enough to know I pay income tax and I pay some imbedded taxes built into products. But my brain tells me, my cash assets and pension [no FICA] provides a cash advantage over equal amount of income before taxes.

It can't be a 'plus' for everyone. I went to FAIRTAX.org and used the calculator and with $10k in cash added on a pension, it shows a reduction of $1845 in spending power [it assumes the pension was 'income' and that I paid FICA]. When I manually reduce the FICA tax it 'assumed' I paid, my spending power was $4450 less.

Using the FAIR TAX calculator, it's worse than when I figure it out.

Fine, at least the calculator almost tells me the truth. It does not let you put pension in as pension. I had to take FICA out from the summary. It could fool some people some of the time.

steve houpt
ID: 451161019
Mon, Feb 18, 2008, 13:10

calculator FAIR TAX

Here is the calc they provide.

Boxman
ID: 337352111
Mon, Feb 18, 2008, 13:19

Steve Houpt: But it appears to be the way my mind is comphrehending the 'fair tax'. Any thoughts? Like I said, I'm far from an economic expert or tax expert, but my math brain does not compute all I am trying to be sold. If it's revenue neutral, has to [even if it's small] benefit some, and not others.

Thanks for the inquiry. I think this is an issue that does not get nearly enough attention legislatively and is dear to me.

I am for the Fair Tax for qualitative and quantitative reasons.

Qualitative:

It will spur savings. I'm sure you've heard that the savings rate in this country went negative for the first time since the Depression. A tax based on sales, while putting a mental stigma in people's minds about consumerism, could still very well help the economy.

There are no federal or FICA withholdings on a person's check under the Fair Tax. Therefore, people have more net take home pay. The effects on savings vehicles like 401(k)s would then really be for state tax withholding purposes only. Otherwise people will be free to choose their own retirement methods without being subject to the choices their employers provide. From my experience, employers mainly offer an index fund, and then other mutual funds that aren't top tier and have higher management fees costing thousands over a career.

Under a Fair Tax, you can pick your own investment allocations then since there's no federal payroll tax benefit to enroll specifically in your employers plan. I would still recommend people enroll in a plan to skirt state taxes and then contribute the minimum to take advantage of the employer match.

Perhaps a Fair Tax would encourage people to live within their means by really making them think about plunking down an extra 23% for an item that perhaps they don't really want or need. The markets would still benefit from the additional capital injection it would provide. People would also get more money thru secondary income sources like interest, dividends and capital gains, which are not taxed under my understanding of the Fair Tax.

It shifts the burden of tax filing from the consumer to business. Without concrete figures as of this moment, the personal income tax industry is a multi-billion dollar business. People would not have to hire a CPA and pay them hundreds of dollars to file their taxes or deal with a Turbo Tax type program. The business, which already has accounting staff, would have to file the tax. Maybe they hire the unemployed CPAs from H&R Block. ;)

This also cuts down on those ridiculous refund loans that the industry touts. These are reminiscent of those payday loans and all they do is screw people over.

Madman
ID: 230542010
Mon, Feb 18, 2008, 13:24

Good to see you steve.

1) Cowen asks the right question ... "If encouraging savings is the main goal, why not just eliminate the taxation of capital income under the current scheme?"

2) I generally trust Gale and Bartlett. Not saying every argument they make is 100% airtight, but I'd have to see really good evidence from the other side.

And, as in my point #1, what's the point?

3) "It can't be a 'plus' for everyone." Actually, it can be if revenue collection falls dramatically & you don't count the increased borrowing. Not sure that's the answer, but it is worth keeping in mind.

If it is truly revenue-neutral, however, you are correct.

Boxman
ID: 337352111
Mon, Feb 18, 2008, 13:36

I go to Fair Tax Dot Org for my source because they are ones doing it and I worry about the political intentions of those in criticism of it. The IRS has been a punitive arm of the government for a while and trying to push through significant reform, especially in an area that the gov't loves but the folks hate can generate a lot of slanted coverage by the MSM. I know that Fair Tax Dot Org has their agenda too, but at least I'm getting information about the horse from the horse itself. I don't pretend to assume that FTDO is some utopian grouping with no bias, but again, I'd rather get it from the source.

Quantitative:

I am not well versed in pension or FICA income as I do not receive any yet. My income is derived from my job, capital gains, and dividends; usually in that order. I am certain other people out there know more about the Fair Tax from a pension or FICA income perspective than I do. I look at the Fair Tax as giving me an opportunity to invest more money as it would discourage me from some spending habits that at times deter the maximum amount I could be saving.

The FairTax Rate: a 23% tomato or a 30% tomato?

I know you've mentioned you've been to the site before. Perhaps you've seen this table. I would appreciate your comments on it.

Boxman
ID: 337352111
Mon, Feb 18, 2008, 13:38

Cowen asks the right question ... "If encouraging savings is the main goal, why not just eliminate the taxation of capital income under the current scheme?"

That's a great question. I counter with the fact that you would have more top line income to invest if federal and FICA taxes did not eat up a portion of your check.

Madman
ID: 230542010
Mon, Feb 18, 2008, 13:46

That's a great question. I counter with the fact that you would have more top line income to invest if federal and FICA taxes did not eat up a portion of your check.

Yes, the FICA taxes are an issue.

I'm fairly convinced that there will be an adjustment to the FICA taxes sometime in the next two Presidential terms, for a variety of reasons beyond this post.

Therefore, let me extend Cowen's hypothetical. Let's say that FICA taxes were abolished as such (an extreme), and paid for with a revenue-neutral increase in federal income tax rates, with the new rates being proportional to the current rates (so the progressivity of the entire scheme is increased -- something else I'm sure will happen in the next 2 terms).

In such a world, you could still get the savings incentive by exempting capital gains and interest income ... and unlimited and unregulated 401k or IRA, if you will.

Seems like a much simpler way to get there. You don't end up killing the IRS and the billions of man-hours to complete your tax forms. But given the other efficiencies caused by federal revenue collection, I'm not sure that amounts to much. And you don't risk a sudden behavioral change that freaks everyone out.

sarge33rd
ID: 76442923
Mon, Feb 18, 2008, 13:53

Re the "Fair Tax" from Huckabee.....I find it amazing that so many people initially endorsing it, havent really looked into it.

nr 1) Take home pay for the employee, would not change form what it is under the current system.

nr 2) Retail prices, would increase by approx 30% under Huckabees proposal. (As put forth in Neal Boortz' book)

nr 3) The "winner", is corporate America.

Here is the (to me) definitive answer to the question of whether under the FairTax people will receive their gross pay or their net pay.

Apparently, every single FairTax supporter here has been wrong and not a single FairTax supporter understands the tax; but since facts and logic seem to have no influence at all, you will all no doubt be glad that I am declaring that I will not be doing any more research nor posting long essays on the subject.

Your gross pay will be reduced to your net pay amount under the FairTax.

Here it is; believe whatever you wish:

As you may know, much of the FairTax concept came from the work of Dr. Dale Jorgenson, then chairman of the Harvard Economics Department, who is quoted extensively in the FairTax book.

Dr. Jorgenson was asked specifically about the question of whether or not people’s paychecks would be reduced from their gross pay amount to their net pay amount.

Dr. Jorgenson replied: “A more reasonable interpretation of my 1996 testimony is that workers would keep that after-tax pay; producers' prices would fall, but retail prices would be increased by the national retail sales tax.”

AFTER TAX PAY!

Asked to further clarify so that there could be no misinterpretation as to the specific question: “when you say "workers would keep that after-tax pay" are you saying that if they are making $1000 a week now, and paying $200 payroll+income taxes now, that under the FairTax you were assuming that workers would get paid $800 and keep all of that? Or are you saying that you meant they would make $1000 under the FairTax?”

Dr Jorgenson responded: “I am saying that the worker would continue to receive the after-tax amount of $800.”

So...the employer is out of paying "payroll taxes" but that decreased "cost" is not given to the worker. Its retained by the employer.

Retail prices shoot up by the Tax amount.

Major shareholders and corporate America gets a HUGE windfall, while that $15,000 car just shot upto $19,500 PLUS State and local taxes, title and registration. Anyone here TRULY anxious to pay 20 grand plus, for an almost barebones Ford Focus?

Just exactly how quickly would that $150,000 house sell, if it took $195,000 to buy it? (Plus closing costs other than taxes of course?)

Boxman
ID: 337352111
Mon, Feb 18, 2008, 13:57

In such a world, you could still get the savings incentive by exempting capital gains and interest income ... and unlimited and unregulated 401k or IRA, if you will.

Seems like a much simpler way to get there. You don't end up killing the IRS and the billions of man-hours to complete your tax forms. But given the other efficiencies caused by federal revenue collection, I'm not sure that amounts to much. And you don't risk a sudden behavioral change that freaks everyone out.

No argument that it's simpler. I just question the passability of that type of legislation. Is there an existing model out there in another country for this?

How do you pass that type of legislation with the Democratic Party in existence? They get off on taxing investors and in fact I believe that if Obama gets elected he certainly will increase dividend and capital gain tax rates.

I also believe that this country needs a "sudden behavioral change that freaks everyone out". We don't save enough and we spend way too much. Right now the gov't incentivizes debt. Look at the mortgage deduction and the recent stimulus package as proof of that. The gov't just loves debt and so do the banks that can fictionalize more money out of thin air with the more cash reserves they take on as a result of people taking on more loans and paying them.

Some industries wil get hurt. You may not see people buy that third car or a recreational vehicle like a motorcycle or a snowmobile, but instead would buy some equities or other investments which is better for their financial well being anyway.

nerveclinic
ID: 105222
Mon, Feb 18, 2008, 14:00

This is something Bob Brinker has talked abut a number of times on his show recently. He's gone through some of the specifics but I don't have them memorized.

Brinker is no liberal and he mocks this up and down.

He claims the numbers being used do not add up. He also points out that it would be a huge unfair tax on the poor since based on the small income they have coming in they would pay a far higher portion of their income on taxes then a rich person. (The reverse of today)

He claims the number the fair tax people are using is garbage and that this has been looked at by economists and the number is much much larger then quoted.

With out getting into specifics,(because I don't remember them) how can it be fair to tax someone who makes $20,000 a year (And spends every penny of it), the same as a person who makes millions and only spends 5% of it?

f there are some provisions to counter this my impression listening to Brinker was they are not substantial enough.

Box I go to Fair Tax Dot Org for my source because they are ones doing it and I worry about the political intentions of those in criticism of it.

I don't think that's a fair characterization. For example, Brinker is a millionaire many times over, was a hedge fund manager, has had a radio show covering pretty sophisticated investing for 22 years, has supported Bush as recently as this week so not a screaming liberal by any means, he certainly isn't MSM....he looked at the evidence and simply riped it to shreads.

He doesn't buy the numbers the fair tax people are spouting and believes the true sales tax needed, just to get us to where we are today in tax revenue (never mind the deficit) would be so high it would send the economy into a tail spin and dramatically shift the burden of taxation from the rich to the poor.

Boxman
ID: 337352111
Mon, Feb 18, 2008, 14:03

Nerve: Can you throw some Brinker contact info my way in terms of books, websites, podcasts? Stuff like that? You speak very highly of him and I respect your investment strategy so I'd like to hear what your Guru has to say.

What do you recommend for a first time person exposed to Brinker?

nerveclinic
ID: 105222
Mon, Feb 18, 2008, 15:16

Box Can you throw some Brinker contact info my way in terms of books, websites, podcasts? Stuff like that? You speak very highly of him and I respect your investment strategy so I'd like to hear what your Guru has to say.

Box I've been listening to his show, every Saturday and Sunday (3 hours each day) since about 1995. I almost never miss a weekend.

He has a website, that really is just an anchor for the show, here...

link

There is a list of stations he is on, on the website. There are links to listen to him on the computer if you don't get him in your area.

If you don't mind plunking down $4.95 a month, you can get the show on podcast every week and listen to it at your leisure. It's 4.95 well spent.

He never discusses individual stocks, just broad economic conditions, usually reviews all the important economic data for the week, ten discusses index and mutual fund investing and then fields calls from people, mostly about individual investing issues.

I don't think he "knows everything". He does seem very objective to me on a lot of issues. He has supported Republicans on economic issues but also given Clinton (Bill) a lot of credit for working with congress to balance the budget.

He's not a fan at all of Hillary.

He is pretty cynical in general about politics though. (My cup of tea)

He gets pretty detailed about a lot of issues and at times, I think, talks over newbies heads. If you are looking for a little more then a milk toast investing show I think he is a great fit.

He has for years been a proponent of loosing our economic dependence on countries like OPEC, by reducing our consumption of energy. He has been militant in his stance and has discussed Hubbard's peak extensively going back years.

He hasn't been spot on about the current market, but only time will tell.

He doesn't do short term market timing, only very big moves. In the 10+ years I've listened he's only made two major market timing calls. (Other then suggesting good times to go all in with new cash, which is really helpful)

My biggest faith in him comes from his call to take our money out of the market in Jan 2000 (Which I obeyed) and to put it back in virtually to the day at the market bottom of March 2003. (Which I came close to doing I was a week late because I missed the show.)

I would caution he says more sooner in his subscription newsletter (especially during the current situation) which is 175.00 a year.

He doesn't strike me as the type with an ax to grind on the fair tax issue. He just looked at the analysis and came to a conclusion. He sees it as a feel good political issue for people to get behind (I mean that in no way insulting) but that the numbers can't be supported.

He ran the numbers and gave fairly detailed analysis but I can't remember the nuts and bolts.

He also feels strongly it's not fair to the poor and this is a free market capitalist, not a bleeding heart liberal.

If you really want to get into some heavy duty economic podcasts, I'm just really impressed with Tom Keene's Bloomberg radio podcasts. They are free on Itunes.

They are not at all pedestrian. He has serious economists on and they talk in their own academic language without dumbing it down. (So half of it goes over my head)

These podcasts have been particularly fascinating the last couple months given all the detailed discussions about the present financial crisis.

It's interesting that he has such a variety of economists on and the conclusions they draw are all over the map.

Madman
ID: 230542010
Mon, Feb 18, 2008, 16:11

Box -- I also believe that this country needs a "sudden behavioral change that freaks everyone out". We don't save enough and we spend way too much. Right now the gov't incentivizes debt.

I don't disagree, but putting that tax upfront to the consumer will deter consumption in some fundamental ways. If you are concerned about political feasibility, I think a national sales tax fits that bill.

I think the way to improve from our current structure is to consolidate and deregulate the various tax-deferred savings vehicles we now have available to us. Simplify and improve access to lower income classes.

Keep pushing for expanded saving incentives using the arguments you presented -- we consume too much and save too little. This has an environmental impact that is seldom discussed. Yada-yada-yada.

Nerve -- I suspect Brinker is citing Gale and Bartlett some?

Taxman
SuperDude
ID: 029463114
Mon, Feb 18, 2008, 16:32

The post is off topic..probably belongs in a different thread..if not a different century.

I am not interested in discussion of changes to a badly composed set of tax laws (which have accomplished the largest % increase in uber wealth in post civil war times) to any system other than re-imposing at least a dozen graduated rate tables taxing higher income at higher rates of tax...as in yester-year.

Comparing Fair Tax against the current tax system begs the question. Personal income tax before the Reagan tax act of 1984 was based on where-withal to pay. Those that have more income, pay a higher rate of tax than those with less income. Somewhat based on the concept of buying milk..those with more income can still buy milk after paying the higher tax rates..and those that have less income can also buy milk because of paying less income tax. Some call this progressive taxation, while others call it the Robin Hood approach. A recognition of a higher responsibility for funding personal income taxes by those having more where-withal to pay. The maximum tax rates for the highest incomes were @70% during the 60's.

Clearly the marginal tax rates (marginal=rate of tax paid on the next $1 of income) have flattened in the past 20 years..and these changes have shifted the burden to the middle class, with the poor paying no tax, the lower income through the almost upper middle class ($100,000 range) pay between 30% and 43% of wages in combined SS/income tax. The upper middle class to the kinda wealthy sees a rate flattening to 38%. Then the uber wealthy, who are primarily investors, are taxed lower (towards 20%) when the capital tax is weighted in.

The initial attack on the middle class was accomplished w/o fanfare by raising the SS base tax on earned income from $16,500 to today's base of $97,500. Above $97,500, individuals continue paying a Medicare tax of 2.9%. You may argue that you pay only have the one-half the payroll tax I show, but as an employer, I consider the employer matching tax to be included in the wage I pay employees and, I would increase the salaries by any amount of payroll tax I no longer had to pay as an employer...and to better make that point...If you are self-employed you pay both the employer and employee tax. Another successful attack on the middle class was mothballing the dozen or so tax brackets, reducing the number of brackets to 5.

The result is a continuing shift of wealth to the uber wealthy, while the rest of us scrabble amongst ourselves to allocate liability for the taxes to be paid.

Solution is to hit the uber wealthy with significant increase in tax rates..but since they or their business make majority of political contributions, the elected lawmakers will avoid that course of action at all cost to protect their own sources of revenue/contributions.

I am not a welfare proponent, however, I do believe I have a social responsibility for the standard of living for all residing in the US of A. My personal situation is that of upper middle class with retiremant probable in next 5 years.

I have no idea who might champion such a cause. Nevertheless, I urge that a look be given to what is best for all, rather than for a few (us and/or the uber wealthy) which is neither the existing tax structure nor the so called Fair Tax proposal.

nerveclinic
ID: 105222
Mon, Feb 18, 2008, 16:52

The Man who is Mad

Nerve -- I suspect Brinker is citing Gale and Bartlett some?

I don't know that their names came up. He mentioned "politicians" who were for the fair tax and then just ran over the numbers. He has done this several times the last few months because it has been brought up by callers.

He claims that just to reach the same tax receipt base we are at now, it would take a lot more then the numbers being suggested...I want to say an over 30% Federal sales tax (on top of whatever state sales taxes already exist).

He felt this would be detrimental to the general economy and would have a devastating impact on the poor.

He calls it the unfair tax.

steve houpt
ID: 451161019
Mon, Feb 18, 2008, 17:11

Box #9 - The FairTax Rate: a 23% tomato or a 30% tomato?

I know you've mentioned you've been to the site before. Perhaps you've seen this table. I would appreciate your comments on it.

Understand that. Sematics IMHO. Does not matter to me what you call it or how. I understand the bottom line as it's presented. As I said you can use numbers either way with or without 'lying' to say what fits your position. Pretty obvious someone against it would want to call it 30%, someone for it, 23%. Both are playing on the general lack of math education / use and the knowledge many rely on computers, quicken, market managers and cash registers to think math problems for them.

A side note: Math in the USA. I sometimes think we have an obeisity problem because the American public couldn't keep track of the calories / sugar / carbohydrates they consume if they were threatened with jail time for not keeping track. What good do you think the food police will accomplish with "nutrition labels" on food menus? Most couldn't add the numbers up for the day if they had to.

I have to admit, I never used to care what was on the labels, but I could have always added them up if I had to. Now I have to look and keep track of certain items.

Weykool
Leader
ID: 41750315
Mon, Feb 18, 2008, 17:44

Taxman:

What a bunch of socialist propaganda.

For years the tax the rich crowd have claimed that social security taxes was money the government was taking to put aside for the benfit of the individual.
And now you want to include it in the % of taxes paid?
Talk about speaking out of both sides of your mouth.
If SS taxes are that much of a burden on the middle class then why not lobby for abolishing the SS andministration and allow people to save for their own retirement?
And dont give me that BS about people not saving for the future.
Would you care to estimate how much the government has set aside from all your SS payments?
The answer is very easy ZERO.
Like none of us could heve done any worse.

The facts are when you look at only income taxes the richest 5% of this country pay over 50% of income taxes.
The richest 50% pay over 95% of all income taxes.
The facts also show that the latest economic boom this country has seen was when Reagan lowered the mariginal rates from an obsurdly obsene 70%.
And you want to return us to that kind of econimic tryanny?

The problem is not that the government doesnt have enough money to spend....the problem is they spend and waste far too much.

Seattle Zen
ID: 529121611
Mon, Feb 18, 2008, 21:47

They get off on taxing investors and in fact I believe that if Obama gets elected he certainly will increase dividend and capital gain tax rates.

One can only hope.

This is a great thread. I'm with Taxman all the way, not one bit of socialist propaganda, just smart economic policy.

As for your original post, Steve, the "cash problem" has always been the "flat", "fair", "value added" tax's biggest hurdle. When I studied tax policy in school, the proponents always had some sort of transition period policy that never really made economic sense. Hey, the "flat" or "value added" tax scheme is far from fair, it is simply an outlandish scheme by crazy, anti-government zealots. Nerve is right, EVERY flat tax proposal is far from revenue neutral. It's a great opportunity for these crazies to eliminate the IRS and cut tax collections by a third all in one fell swoop. It will never garner enough support because it's poor policy. Steve is right, a flat tax taxes savings twice. It raises consumer prices through the roof and does nothing to encourage average people to invest. It will never happen, ever.

I'm also with Madman, I foresee FICA taxes being abolished and replaced with a revenue neutral increase in the federal income tax. However, I think it would be dangerous to Social Security as a whole if people didn't think they were "paying in" to the program, so the "FICA deduction" will continue to appear on people's paystubs, how it is generated will be determined solely by federal income brackets.

nerveclinic
ID: 105222
Tue, Feb 19, 2008, 15:19

Zen They get off on taxing investors and in fact I believe that if Obama gets elected he certainly will increase dividend and capital gain tax rates.

One can only hope.

Zen Why are you so in favor of raising the capital gains tax?

1) The money being invested has already been taxed once when it was originally earned.

2) The person investing the money is taking risks (Look at the current market)

3) If the investor taking risks loses money the government doesn't say, oh poor you, just deduct that off your taxes.

4) By raising the capital gains tax it makes risk taking even less enticing thus stifling investment and slowing economic growth.

5) By punishing people who are taking risks, you are discouraging people from investing in American companies, which will slow growth and impact the economy, employment, etc.

If I earn $50,000 and pay State and Federal taxes on that money, then scrap together some of that money that has been taxed once already and invest in a company, and then make money on that risk, why is 15% additional tax on the money that has already been taxed once not "fair".

If you want to increase the tax, how much?

Would you consider allowing people who lose money to deduct it from their gross income since it's basically the inverse?

Why should a person who saves money (That's already been taxed once) be punished for investing it rather then blowing it on the latest flat screen or a nice vacation?

If your problem is with "the rich" would you at least consider not raising the tax until the capital investments got to a significant level?

I see a microcosim of this in Dubai. There are two groups here, the burn through the cash crowd and have a great time, and the I came here to save for my future crowd. I fall in the second camp. (What can I say I am getting old)

The have fun now crowd is driving sports cars, buying VIP tables and bottles at clubs they can't afford. They often slip out of town deeply in debt.

Then you have people who are being conservative, living below their means, saving for the future and investing and taking risks with their capital. Why tax that camp brutally ...twice?

Have you honestly thought all this through, because I think the points I make are pretty fair.

Perm Dude
ID: 2138188
Tue, Feb 19, 2008, 16:05

Why are you so in favor of raising the capital gains tax?

For myself, I am in favor because the capital gains tax is only applied to short-term gains. It isn't so much being anti-rich as anti-churning (and day trading).

Investments which aren't held for at least six months aren't as good, IMO, as longer-term holds. Nevertheless, just like taking out money from your IRA early, you still get a profit, just not as much as if you waited a bit.

One isn't punishing people who take risks. One is punishing people taking short-term only gains by taking a larger bite of their profit.

Building 7
ID: 471052128
Tue, Feb 19, 2008, 16:34

Not sure who does your taxes, but if one followed the advice in #24, they'll be needing to do them over.

Frick
ID: 23117516
Tue, Feb 19, 2008, 16:37

RE: 23
3) If the investor taking risks loses money the government doesn't say, oh poor you, just deduct that off your taxes.

I am not a CPA, but can't you offset capital gains with capital losses? And I believe you can deduct up to $3,000 in capital losses each year, with the ability to carry that loss forward to future tax years.

RE: 24
Aren't short-term gains taxed at your income tax rate, not capital gains rates? I thought that was the case, but it could have changed since I looked into it.

Don't long-term gains have the potential to trigger AMT (Alternative Minimum Taxes)?

As far as the the flat/fair tax. If you exempt specific items from the tax it isn't regressive. At least not to the point of being completely unfair (at least IMO). Now the fight for what constitutes a necessity (groceries, utilities, etc) vs what is a luxury (phone service) would be fierce.

As far as housing, it would also be possible to exempt a base amount out of a house. Say $150,000 (adjusted for specific areas with higher prices) and let the buyer pay a fair tax on the amount over that amount. It would be possible, but I can't imagine that anyone could begin to do a good analytical model of those scenarios. At least something that was any closer than a SWAG.

Perm Dude
ID: 2138188
Tue, Feb 19, 2008, 16:39

Investment advice is different from tax advice, B7. Surely you aren't saying that long-term capital gains tax rates are the same as short-term tax rates? If so, it might explain a bit...

BTW, the idea that tax cuts increase revenues is pure bunk. No tax cuts during this administration (including the 2006 Tax Increase Prevention and Reconciliation Act) have paid for themselves.

Frick
ID: 23117516
Tue, Feb 19, 2008, 16:43

I believe that long-term gains are taxed at 15%, short-term gains are taxes at your tax tiered tax rate. Up to what, 32% now?

Building 7
ID: 471052128
Tue, Feb 19, 2008, 16:46

For myself, I am in favor because the capital gains tax is only applied to short-term gains

Short-term gains are taxed as ordinary income...~28%
long-term at the special capital-gains rate....~15%

All capital gains are taxed.

Perm Dude
ID: 2138188
Tue, Feb 19, 2008, 16:49

Right, just like all income is. But short-term gains are taxed at a higher rate. The argument previous to the 2006 vote (and during the Clinton term) was to eliminate the higher rate for short-term gains.

That said, the bottom two tax tiers are taxed at something like 5%.

Seattle Zen
ID: 49112418
Tue, Feb 19, 2008, 17:26

Income is income, regardless of source. That's my mantra. If you want to eliminate one third of the tax code, eliminate the whole notion of capital gains.

Of course I have thought this through, Nerve. Not everyone who invests uses money that they have paid taxes on - inheritance, gifts, etc... I do not for one minute think that your purchases of index funds are investments in the way you portray them. You are speculating, you are not lending money to or purchasing a portion of an enterprise that takes this capital and creates a business employing people. Well, you are funding a system that employs brokers and their infrastructure.

Sorry, but I don't feel the least bit bad in the tax bill that Mr. & Mrs. Leisure-Class must pay when they liquidate a small portion of their Late Impressionists collection. They made money, they should be taxed at their marginal tax rate, not a ridiculously low 15%.

Boxman
ID: 571114225
Tue, Feb 19, 2008, 18:40

I completely agree with Nerveclinic's #23.

STCG and LTCG kill me year in and year out and it's all money I've already been taxed on twice. Sometimes three times because I reinvest dividends (which are taxed) and then buy/sell stock.

Perm Dude
ID: 2138188
Tue, Feb 19, 2008, 19:13

But you are an example of why nerve is wrong on the point. Despite the tax, you still continue to invest, and make a profit each time.

sarge33rd
ID: 99331714
Tue, Feb 19, 2008, 19:24

If I earn $50,000 and pay State and Federal taxes on that money, then scrap together some of that money that has been taxed once already and invest in a company, and then make money on that risk, why is 15% additional tax on the money that has already been taxed once not "fair".

Simple really. The money you make, and is subject to Capital Gains Tax, you never paid tax on to begin with. It has NOT already been taxed. It's income, and as such, should be subject to income tax.

weykool
ID: 2842717
Tue, Feb 19, 2008, 19:29

BTW, the idea that tax cuts increase revenues is pure bunk. No tax cuts during this administration (including the 2006 Tax Increase Prevention and Reconciliation Act) have paid for themselves.

PD....perhaps you should do a little research before you make false statements.
Why dont you look into how much revenue the federal government took in after the Reagan lowered the top rates from 70% to 28%.
Have you ever heard of the Laffer curve?

Its one thing to have an opinion but when the opinion is based on baseless facts....it is known as BUNK.

Perm Dude
ID: 2138188
Tue, Feb 19, 2008, 21:29

We've had Laffer curve discussions on this forum in the past, weykool. Was the nominal amount of research needed to find that discussion on this forum too much for you? It seems so.

Now, before you embarrass yourself about your assumptions about Laffer curves and how much they actually aren't reflected in real life, take a look through the thread, starting about #61 or so.

Now, after you've studied such topics as "optimal tax rate" then perhaps you can come back with something better than a slogan which isn't even factual.

Bunk? To you it might in fact sound that way. But your post reflects an ignorance of the very topic you claim is "bunk." I don't believe you have the standing to make the claim, to be blunt.

Weykool
Leader
ID: 41750315
Tue, Feb 19, 2008, 21:46

PD:

You will have to excuse me if I dont read the entire thread.
It was filled with much of the same baseless opinions expressed in this thread.
That fact is the income tax revenues to the federal government increased after the rates were cut.
The unprecedented econimic boom this country has seen is as a direct result of those tax cuts.
You can bury your head in the sand and deny the facts and cling to your silly notions but the facts speak for themselves.

Perm Dude
ID: 2138188
Tue, Feb 19, 2008, 21:58

I directed you to the beginning of the discussion in that thread, not to the entire thing.

I think your use of the term "bunk" is appropriate, but misplaced (as is Laffer in general, ironically). The Laffer Curve is one of the most misused economic models ever, typically by people who don't understand what it measures and what it doesn't; people who are clueless about the optimal tax rate and where that actually is on the curve (here's a hint: we're on the left side of the curve--pretty much always have been.).

This might not reflect you (being clueless, that is). But your insistence on Laffer as being the saving grace (or causal pouint) of a mythic Reagan ecomonic revolution reveals severals points of error.

I don't think it is necessary to point out the factual errors in your posts, except to ask you to examine tax rate changes and economic growth during the Clinton Administration. "[U]nprecedented econpmic boom this country has seen" indeed.

Seattle Zen
ID: 529121611
Tue, Feb 19, 2008, 22:17

That fact is the income tax revenues to the federal government increased after the rates were cut.

Well, when people hold assets that have appreciated and are told that the income tax rate has dropped significantly, they tend to sell these assets. The higher tax rates pent up the Public's desire to realize those gains. The huge sell-off can lead to increased overall tax returns for that year. This phenomenon covers what would be a deficit of income tax collection and is hardly something to tout when claiming income tax cuts CAUSE increased tax revenues.

I'm with Perm, you can't come in here, say something as flip as "haven't you heard of the Laffer Curve" and expect to win the argument. The Laffer Curve is a complex creature that few truly understand. People who think it means "you can cut taxes because you will see increased tax revenue, people will work harder" don't get it and that's how it is used flippantly.

The unprecedented econimic boom this country has seen is as a direct result of those tax cuts.

Preposterous.

but the facts speak for themselves.

What facts? You are repeating false clichés without a shred of truth. Try making a cogent argument with links to economic papers for support, then you might be getting a little closer to these "facts" which you claim to know.

Taxman
SuperDude
ID: 029463114
Wed, Feb 20, 2008, 02:05

Weycool…re post 21

For years the tax the rich crowd have claimed that social security taxes was money the government was taking to put aside for the benefit of the individual.
And now you want to include it in the % of taxes paid?

As to the history of SS tax, you are at best misinformed, and that is compounded by ignoring basic logic. Surprising after seeing a post where you worked in a CPA practice in the late ‘80’s.

You youngsters don't know that once upon a time...all SS $ were segregated from all other government revenue. This is a fact..look it up. Initial segregation legislation came not from "tax the rich liberals" but by negotiations at the the creation of SS (the anti SS group would only support the forced contribution aka SS TAX if $ segregated from general tax revenue). These segregated funds were actually a ledger entry on federal books. Thus no actual dollars were put in separate bank accounts, just that the SS tax collected was not available to fund general federal spending legislation.

Back in the 1970's and 1980's the baby boomers were producing revenue and taxes, yet the then retiring generation (which had been thinned by a half million men during WW II) was drawing far less SS dollars than SS dollars collected from baby boomers. SS generated a significant excess accumulation. To balance a federal deficit budget knocked out of whack by the Eisenhower/Kennedy/LBJ/Nixon Viet Nam corporate war machine, lame brain legislation unrestricting SS $ (thus making them part of general tax revenue) was enacted. The opposition pointed out that by the 2010, as the Baby Boomers retired, SS tax revenue coming in would be insufficient to fund baby boomer retirement. That argument fell on ears deafened by the “then” sound of a federal budget surplus.

What followed was a return to deficit budget as the Republican controlled legislature rolled over to Bush’s (successful) plan to reduce taxes on the wealthy. Bush further compromised SS, the federal budget, the economy and yada yada yada by firing up the Iraq corporate war machine..

Now that the current day deficit had accelerated the baby boomer retirement (negative net SS tax received/expenditures) crisis, the Bush brain trust demanded a cessation of government “hand outs” and rationalized everyone should (read should have) provided for their retirement independent of SS. This retroactive “you should’ve” thinking is logical now because now SS was a general revenue item to the gov, just like income taxes. To pay the corporate war machine the gov must eliminate the handouts.

Another words, Bush disavowed recognition of the ponzi scheme (seems like a ponzi scheme to those of us paying in for the past 40 years) and the result is people work later into their life, thus delaying retirement while the gov continues to squeeze (reduce) benefits to those qualifying for SS.

AND HeII yes SS is a (significant) part of taxes paid by individuals...but only those that work. How can you logically reach any other conclusion. It is a tax. The tax is on wages. Wages are income. It clearly is an income tax from which the proceeds go into the unrestricted general federal budget.

And lastly, for now, you say the richest 50% pay 95% of income tax (see below link estimating top 60% pay 94.6% of Income Taxes) what percentage of total individual income is received by richest 60%??? My guess...and strictly a guess is 80% (and by the way the poorest 50% have only earned income and thus pay SS tax on all of their income ... whereas your richest 50% have significant investment income (no SS paid) and a lower marginal tax rate. Result is clearly that your beloved wealthy pay significantly less tax (as a percentage of disposable income) than the lower and middle class.

The following chart shows % of Total Income Tax (doesn't include SS tax) collected by gov @ different level of income earned pre/post cumulative Bush tax acts.

Also note in table 2 the % of federal budget SS expense represents. 1964 12.4% and in 2003 21.7%

See Table 4..however this chart does not include SS tax

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 04:16

For myself, I am in favor because the capital gains tax is only applied to short-term gains. It isn't so much being anti-rich as anti-churning (and day trading).

Well PD you are in favor of it based on a false premise.

Your example above is an incorrect statement.

Short term gains (Investments held for less then a year) are currently taxed at the normal tax rate and this is not the debate. It's part of the reason day trading has dropped off and never really worked long term.

The "capital gains tax" which is currently at 15% is only for investments held at least one year. There is a crowd that wants to raise this tax and it has nothing to do with day trading.

3) If the investor taking risks loses money the government doesn't say, oh poor you, just deduct that off your taxes.

I am not a CPA, but can't you offset capital gains with capital losses?

That's different then adjusting your gross income in years when you have no gain.

Lots of investors are getting killed in the market right now, nothing is done for them. For instance if the year was to end now, in my taxable investments, my losses far out weigh my gains, so there are no gains to speak of to take advantage of.

And I believe you can deduct up to $3,000 in capital losses each year, with the ability to carry that loss forward to future tax years.

I'm no CPA either but I believe the only thing you can do is offset gains up to $3,000. If it's a pure loss, with no gains to offset, you cannot adjust your gross income by $3,000.

I definitely have examples of this right now in my taxable account.

Look at the early 2000's when the SP 500 lost almost 50% of it's value and didn't get back to even until last year, 7 years later. How does the $3,000 offset provision help investors who were put through a shredder in that market. The NASDAQ lost over 80% of it's value, so the people who invested in tech were crushed, lost tons of money, and could only deduct the $3,000...if they had gains.

I think a lot more people would be open minded to a higher cap gains tax if they could deduct losses from real income (The inverse) in situations where they lose huge amounts of money in the example I described above.

So we are happy to tax the the investor (On money he has already been taxed once) but when he loses real income (losses far out weighing gains) we don't allow a reduction in their gross income.

I am not arguing capital gains shouldn't be taxed (Twice) I just don't think it is fair to tax it twice at up to 40% depending on what state you live in) If you want to tax it (twice) like true income, then there should be allowances for years when there are losses.

Income is income, regardless of source. That's my mantra.

It may be your mantra (why am I not surprised) but it's not a factual statement.

Normal Income, hasn't been taxed already.

Capital gains tax, is for most Americans, money that was earned and taxed, then reinvested, at risk and now taxed a second time. It may be your mantra that the two are the same but it's just a "pipe dream". 8-}

Not everyone who invests uses money that they have paid taxes on - inheritance, gifts,

Even in this case the money has bee taxed once, who ever originally earned it, the deceased or gift giver paid income tax on it. This is a small subset though anyway and you are just using it to throw off the main argument.

I'm talking about people who have earned and paid normal taxes on the investment money.

I do not for one minute think that your purchases of index funds are investments in the way you portray them. You are speculating, you are not lending money to or purchasing a portion of an enterprise that takes this capital and creates a business employing people.

Huh? An index fund is a group of companies. I also own individual stocks of companies. When I am discussing this on the stock thread Zen this is money I have put away for the last 15 - 20 years by saving and sacrificing. I lived in a studio apartment in Seattle so I could put money into my 401K.

I have investments that I have held since 2003 without touching them just adding to them. How is investing in an index fund, like the SP 500 not investing in a company? It's exactly what it is. If you take the money from the millions of people who invest this way and add the money together, this is all money that is being loaned to American companies (Or foreign) to grow.

What do you mean...speculating? Every investment in a company is a form of speculating.

You have no clue what I am doing. I am scraping together whatever I can and saving it so that some day I can retire and not have to work just to eat. My father is 76 and he still works, fortunately he likes it, but frankly he has to, to survive.

Sorry, but I don't feel the least bit bad in the tax bill that Mr. & Mrs. Leisure-Class must pay when they liquidate a small portion of their Late Impressionists collection. They made money, they should be taxed at their marginal tax rate, not a ridiculously low 15%.

Again one of your typical extreme hypothetical examples, that ignores all the hard working average people who are scraping together money to try and get ahead. Just lump them all together.

If you can dehumanize it by ignoring the average Americans who work hard and save you can make the lower classes sympathetic to your cause and make it a rich versus poor issue and ignore the lower and middle classes who save and invest.

Just imply it's only the ultra rich who make capital gains.

I ask you again, if you want to tax the gains as normal income, are you willing to allow gross income adjustments for the losses?

perhaps you should do a little research before you make false statements.
Why dont you look into how much revenue the federal government took in after the Reagan lowered the top rates from 70% to 28%.
Have you ever heard of the Laffer curve?

Well I certainly don't want a 70% tax, but I seem to remember the tax cut created the largest deficits in our country up until that point, was I dreaming?

The Bush tax cuts combined with the war on terror have over taken the 80's deficits with the now largest deficits in our countries history.

Right?

So if we take the tax base to zero, by your logic, the government revenue will just come pouring in right?

Reducing taxes certainly helps the economy, but it is a false statement to imply that every dollar dropped in tax is recouped somehow in revenue as a new tax. It's just not factual.

At some point the amount you are reducing doesn't come back, particularly with the very rich. At some point they just hang on to the money because they can't spend it all so then it's not taxed.

Sorry if I sound like a broken record but this is a topic that came up on Brinker's show last week, Someone called in and said Rush Limbaugh has been talking about this.

Again Brinker's a free market capitalist, and again he disagrees that continually lowering taxes increases revenue. He ripped the logic to shreads.

Yes a certain amount comes back, but not all of it.

If your logic was true, by reducing the tax to zero we would have huge revenues.

I do not think a 70% tax rate is good for the health of our economy though.

Taxman
SuperDude
ID: 029463114
Wed, Feb 20, 2008, 04:56

NClinic..I believe you said:Capital gains tax, is for most Americans, money that was earned and taxed, then reinvested, at risk and now taxed a second time.

You are probably a bit more awake than me, however there appears to be a mistatement of the law. To quote "Capital gains tax, is for most Americans, money that was earned and taxed, then reinvested, at risk and now taxed a second time. It may be your mantra that the two are the same but it's just a "pipe dream". 8-}"

Well I just don't get your point. Capital gains are not taxed twice. In example: You make an investment of $1000.00... Next, you cash in for a profit of $400.00 and a total cash received of $1400.00. The tax bite on th $400.00 profit (assume LT is 15%..or..$60 leaving cash on hand of $1340. That $1340 is reinvested and a year later liquidated for $1540. A tax will be paid on the gain ($1540-$1340) of $200 in the amount of ($200x.15 or $30 leaving a balance on hand of $1510 ($1540-$30).

For the life of me I do not see either double taxation or any taxation at higher than the capitol gains rate.

Can you enlighten my confusuin, or do you understand that once a gain is taxed, the reinvestment bhecomes basis and cannot be taxed a second time.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 07:40

Taxman Can you enlighten my confusuin, or do you understand that once a gain is taxed, the reinvestment bhecomes basis and cannot be taxed a second time.

No problem Taxman I probably didn't explain it well enough. (And you still may argue the "new" money hasn't been taxed twice) but what I meant was.

You go to work and earn money, let's say $1,000 now that money is taxed, let's say at 30% Fed and State so now you have $700 left.

This $700.00 that is left has been taxed once, agreed?

Now you take the $700 and invest it and make a capital gain. Now the gain is taxed. Since the original investment was taxed once when you were paid, the capital it has just generated is being taxed a second time.

We could argue semantics and say the gain is all new money, but I don't think it's fair to tax it at full taxation if it's been held a year in a investment that is helping the country grow and is clearly at risk.

If you want to tax it like new money, then the inverse should be true when you lose income because of an investment.

Perm Dude
ID: 36118207
Wed, Feb 20, 2008, 08:18

If you want to tax it (twice) like true income, then there should be allowances for years when there are losses.

Capital gains taxes (at whatever rate) are taxes on gains, not losses. Or are you saying that wage income shouldn't be taxed as income if it is later lost through investment? It osn't subject to capital gains taxes.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 09:04

Capital gains taxes (at whatever rate) are taxes on gains, not losses. Or are you saying that wage income shouldn't be taxed as income if it is later lost through investment? It osn't subject to capital gains taxes.

What I am saying PD is, if the government is going to tax a capital gain, as if it were the same as any other income, then why would the inverse not apply?

If an investor has a year where they have an overall investment loss of say $10,000, why not allow them to deduct that amount from the gross income for the year on their taxes?

I'm not suggesting this should really happen, I am just making the point that why should most of the risk be on the upside, and be taxed at full price as some would like, with little help ($3,000 offset of gains max) when big losses happen.

Since people are often using money to invest that has already been taxed, and since they are risking capital to help invest in companies, I think the lower capital gains tax is appropriate.

Perm Dude
ID: 36118207
Wed, Feb 20, 2008, 09:13

If an investor has a year where they have an overall investment loss of say $10,000, why not allow them to deduct that amount from the gross income for the year on their taxes?

Well, I believe (but will have to look this up) that investors can deduct losses in many cases. But your larger point is: "Why doesn't the government cover investment losses?" The answer to this should be obvious: The loss of risk will change the whole dynamic--making "wise investment" an oxymoron.

sarge33rd
ID: 76442923
Wed, Feb 20, 2008, 09:15

*self edited 46, cause PD answered much better with 47*

Weykool
Leader
ID: 41750315
Wed, Feb 20, 2008, 09:25

And I believe you can deduct up to $3,000 in capital losses each year, with the ability to carry that loss forward to future tax years.

I'm no CPA either but I believe the only thing you can do is offset gains up to $3,000. If it's a pure loss, with no gains to offset, you cannot adjust your gross income by $3,000.

I dont currently do taxes but I know the old rule was you could deduct 3,000 per year for up to 15 years.
If you had gains in a subsequent year you are allowed to offset those gains by any capital loss C/O plus another 3,000.
Example:
Year 1: 50,000 loss....deduct 3,000.
Year 2: 20,000 Gain.....Deduct 23,000 for net loss of 3,000.
Year 2: 40,000 Gain...there is 24K of losses left so you would report a net gain of 16K.

The 3 years taken together equals a net gain of 10K.
The two years of 3K losses and 16K gain come out to the same 10K of reprted income.

Building 7
ID: 471052128
Wed, Feb 20, 2008, 09:49

A couple comments:

One can deduct up to $3000 in capital losses per year. i.e. Losses exceed gains. Then there's long-term and short-term and short sales, and 5 year holding and different rate schedules. You can learn about it all by reading the tax code, which is over one million words long. And you are required to know it all. Failure to understand it completely can and does result in penalties, fines, jail time, refiling, etc. It's not tought in high school, though every student will be required to fill one out. And people think this is a good system. Criticize anything else that comes along. Anything is better than the current monstrosity known as the IRS Code. Tax lawyers and accountants love it. It's job security. And I am sure they lobby heavily to get new things complicated on purpose. And keep the curent system in place. Not good for the general public though.

A Roth IRA allows one to invest without paying taxes on the gains. There are certain rules, and there is no initial deduction, but, it is an option.

I agree with my Esteemed Colleague Dr. Nerveclinic in that limiting capital losses to $3000 and having no limit on capital gains is completely unfair, Unconstitutional even, but don't get me started on that.

Perm Dude
ID: 36118207
Wed, Feb 20, 2008, 10:09

#46: I'm not sure on the exact numbers anymore, but the gist is correct, I believe.

Larger, short term losses can be written off as well, if I recall correctly, if you can show that investing is your job (like farming--you can carry large losses, but not forever).

pd

Perm Dude
ID: 36118207
Wed, Feb 20, 2008, 10:12

Oops, I meant #49.

Building 7
ID: 471052128
Wed, Feb 20, 2008, 10:38

A couple more gems about the current tax system:

A. Tax court is the only court where you are quilty until proven innocent. Except for Guantanamo maybe. The IRS says you owe $10,000....you owe $10,000 and it is up to you to prove otherwise. That's not constitutional. How about making it less complicated where average citizens do not have to go to court and put up with that bullshit. Maybe something like the fair tax.

B. Some of America's best and brightest go into tax accounting because it pays well. Instead of working on a new fuel cell or cancer cure, they're working on weaseling out of taxes for some client. Probably not the best use of the nation's resources.

Perm Dude
ID: 36118207
Wed, Feb 20, 2008, 10:43

I know plenty of accountants. If any of them wanted to operate on me I'd kick their ass.

I think a bigger waste would be many "entertainers." But in a capitalist society people have the freedom to choose what they want to do. Are you saying that the Communists were right, and jobs should be given to people based upon the needs of the country?

Frick
ID: 23117516
Wed, Feb 20, 2008, 10:52

I don't think that Building7 is implying that the Communists are correct, but more that well paying jobs attract smarter people (in general). Medicine used to be a great example, with the changes in the health care system, many of the people who would have been doctors in the past are moving into biomedical research jobs.

Perm Dude
ID: 36118207
Wed, Feb 20, 2008, 11:00

I'm sure he's not implying that about Communists, Frick! I'm just pointing out a flaw in the argument. The implication that accounting is a great waste of minds seems misplaced, however. Accounting (and engineering, as another example) attract a certain kind of person, and to imply that these people should plug themselves into a more "worthy" profession is a little silly, I think. Taxes aren't going to go away. Neither are all the many other things that accountants do besides taxes.

Building 7
ID: 471052128
Wed, Feb 20, 2008, 11:30

Perm Dude
ID: 36118207
Wed, Feb 20, 2008, 11:47

Again, you confuse "complex" with "unfair." And "flat tax" with "makes sense economically." No flat tax proposal will bring in the revenue without having a very high tax rate, skewed toward the middle & lower classes. And the more exceptions are made (some kind of pothole-fix economic policy) the more the tax rate has to increase among those still liable.

I suspect, like a lot of flat tax proponents, your problem isn't the tax rate, but the mere existence of an income taxing authority like the IRS. The rest is merely an excuse to try to get rid of it.

sarge33rd
ID: 99331714
Wed, Feb 20, 2008, 11:50

Just noted that I neglected to post the relevant link in my post 12 above;

with apologies here it is:

The Citizen

Now, it is a moot point whether the rate is 23% or 30%. In order ofr the retailer to still get $1 for what is currently priced at $1, and in order for 23% to be remitted to the govt, the price has to climb 30% to $1.30 for that item. (23% of 1.30 = .299 or 30 cents)

As the original designer as it were, of the Fair Tax states, the prices would climb by the tax amount.

Your 20k car, just went to 26k. Your 200k home, just went to a sale price of 260k. (Try financing THAT, when you're 30% above appraised value, or when 60k cash down, puts your financing at 100% of appraised value.)

Nope, you want totally destroy retail sales? Implement Huckabees "Fair Tax".

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 11:56

Weykool I don't believe the math you are showing in post 49 applies.

What I have heard over and over lately, is the only thing you can do to recoup on an investment loss is to offset a $3,000 gain.

So you would have to sell both the losing $3,000 investment and also $3,000 worth of gains in the same year. I believe you can carry it over to the next year if you don't have gains in the losing year.

Also you don't "deduct it", you just don't have to add the $3,000 you are off setting into your earned income for that tax year. That's why I said earlier it "assumes" you have gains.

I think tax law has changed a lot since you practiced it.

Then again I could be completely wrong.

PD it s possible you can deduct investment losses if it relates to your business but that really has nothing to do with what we've been talking about.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 12:03

Well, I believe (but will have to look this up) that investors can deduct losses in many cases.

My understanding is that except for offsetting a $3,000 capital gain in the same year you cannot deduct investment losses.

But your larger point is: "Why doesn't the government cover investment losses?" The answer to this should be obvious: The loss of risk will change the whole dynamic--making "wise investment" an oxymoron.

I can see by this answer you've completly misundertood all the points I tried to make but I will chalk it up to poor execution on my part and move on becase I don't know how else to make my point.

Let me just say though, I don't believe the government should..."cover investment loss", that would be absurd.

I was simply making the point (badly apparently) that it's just as absurd to tax a capital gain on an investment, made using money that's already been taxed, in the exact same way you tax ordinary new income.

Seattle Zen
ID: 49112418
Wed, Feb 20, 2008, 12:07

Nerve

Even in this case the money has bee taxed once, who ever originally earned it, the deceased or gift giver paid income tax on it.

That's simply not true. With the elimination of the estate tax, wealthy families are completely avoiding taxation on much of their wealth. It used to be that estates paid tax on the amount their investments - stocks, real estate, commodities, art. etc... had appreciated at death. Now they pass on to their issues without ever being taxed. That's the way the Republicans want it, that's the way it is.

Nerve - if you put your hard earned income, taxed once, into the bank and earn interest, are you going to complain when you are taxed on it? Are you not being taxed twice? Why is investing in an index fund so much better for the economy than interest income?

I don't care to argue with someone who relies so much on his personal experience when the argument is one of policy. That's great that you scrimp and save, Nerve, but utterly irrelevant to our debate. People who own stocks and property already benefit from only having to pay tax when they sell their assets, people who have income-producing investments have to pay each year. Do the numbers, you can obviously see the advantage. So when these stock-property people then bellyache that they deserve a lower tax rate on top of it, I don't buy it.

sarge33rd
ID: 99331714
Wed, Feb 20, 2008, 12:08

But NC, that gain hasnt already been taxed. The principle was, yes. Not the gain however. It isnt taxed, unless/until its realized.

ie:

I make $5,000 and pay a 20% tax on it (to keep the math simple)

I invest the balance of $4,000

I sell of that investment a year later and realize $4,800 from the sale.

I pay Capital gains Tax on the $800, at 15% or $120.

Total Income:

5,000 plus 800 = 5,800

Total Tax 1,000 + 120 = 1120

Net: 4,680

No dollar, was taxed twice.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 12:09

If the fair tax or flat tax is implemented, it would eliminate a large amount of tax preparation jobs.

That reason alone doesn't justify the flat tax.

I doubt you will find many people that post here, left or right wing who disagree that the current tax laws are absurdly over complicated.

weykool
ID: 2842717
Wed, Feb 20, 2008, 12:47

From the IRS Website:

If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000

Capital loss carryover. If you have a total net loss on line 16 of Schedule D that is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you had incurred it in that next year. If part of the loss is still unused, you can carry it over to later years until it is completely used up.

Nerve:

I think you may be confusing passive activity losses that are only deductible once the asset is sold.

weykool
ID: 2842717
Wed, Feb 20, 2008, 13:01

If the fair tax or flat tax is implemented, it would eliminate a large amount of tax preperation jobs. People would no longer study to be a tax accountant. Even the best ones would no longer be needed because the average citizen could prepare their own taxes by themselves, as it should be. Thus, they would go into another field.

If you think about it, what a waste of resources just to figure out how much you have to dole over to the federal governemnt. pdwd

Again, beware of the promise that anything will be "simplified".
The calculation of the tax once you have determined net income is the easy part.
Almost any monkey can perform that simple task.
The problem is determining the net income.
There will always be the need for accountants to determine what is and isnt income.
Dont confuse income with revenue.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 13:33

Zen That's simply not true. With the elimination of the estate tax, wealthy families are completely avoiding taxation on much of their wealth.

Go back and read my sentence, it doesn't contradict what you said. I said it was taxed when the ORIGINAL person earned the money. The one who passed away and left it for his family...he was taxed on it.

Also the estate tax hasn't been eliminated (Except oddly enough during one upcoming year) the exemption is only up to a certain point (Current tax year I believe it's $600,000 but it's hard to keep up because it changes.)

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 13:52

if you put your hard earned income, taxed once, into the bank and earn interest, are you going to complain when you are taxed on it? Are you not being taxed twice? Why is investing in an index fund so much better for the economy than interest income?

I think that is a great idea, (As long as you saved the principle for one full year) it would encourage people to save. I believe it applies already to bonds (I'm just guessing) which is essentially the same thing. Governemnt bonds are completely tax free.

To answer your question though the difference is the savings are FDIC insured so you are guaranteed of no loss and you are guaranteed a definite rate of return, no risk.

Zen do you know what an index fund is? You keep saying it like it's short selling...You are just investing in a basket of companies with one trade instead of a single company, otherwise there is no difference. The companies still borrow and use your money.

I don't care to argue with someone who relies so much on his personal experience when the argument is one of policy.

I don't even know what that means.

That's great that you scrimp and save, Nerve, but utterly irrelevant to our debate.

Not when you try to always make people who invest into sloth filled fat cats.

People who own stocks and property already benefit from only having to pay tax when they sell their assets,

How do they "benefit",they don't have access to it when it's invested, the second they go to use the money they have to pay taxes on it...what's your point?

people who have income-producing investments have to pay each year. Do the numbers, you can obviously see the advantage.

That depends, if the income producing investment is a government bond, the income is tax free. If the "math" is so great, why don't these people just invest in stocks instead?

So when these stock-property people then bellyache that they deserve a lower tax rate on top of it, I don't buy it.

I never imagined that you would, sorry to bother you with my "belly aching".

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 13:55

Weykool post 65, that is interesting, looks like you can offset some other income but it still limits you to $3,000 per year.

I thought in post 49 you were implying you could deduct much larger amounts then that? Or am I missing something?

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 14:00

I screwed up a couple italics in post 68.

weykool
ID: 2842717
Wed, Feb 20, 2008, 15:27

Nerve:

What I am saying is you can reduce your ordinary income by up to 3,000 per year.

However, if you have a capital loss carryover you can reduce your gains up to the full amount of your loss C/O.

Another example:
You lose 50K by selling shares of stock.....you can deduct 3k on your taxes and the 47K is a C/O.
The next year if have capital gains of 100K you can deduct the 47K from those gains and you pay taxes on 53K.

As others have pointed out the gains you pay taxes on are not taxed twice.
While the money you invest might be taxed...any gains are based on what you made over your investment and only paid on money that has not been taxed yet.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 15:41

The next year if have capital gains of 100K you can deduct the 47K from those gains and you pay taxes on 53K.

That would be more then $3,000 in a year. I've heard over and over you cannot offset more then $3,000 in a given year.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 15:44

Weykool 65 Capital loss carryover. If you have a total net loss on line 16 of Schedule D that is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you had incurred it in that next year.

Yes you can carry the excess over but it still is a maximum of $3,000 in any one year. Your example allows an offset of 47K.

I'm sure that's not right.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 15:48

As others have pointed out the gains you pay taxes on are not taxed twice.
While the money you invest might be taxed...any gains are based on what you made over your investment and only paid on money that has not been taxed yet.

Yes I understand this and I always have, I just didn't word it carefully.

My point was always that you are being taxed on gains that were made on the original money that has already been taxed. That is what I have always meant when I said you are taxed twice.

I completely agree I could have articulated it more clearly.

sarge33rd
ID: 99331714
Wed, Feb 20, 2008, 16:04

I think its limited to a 3k NET loss in any given year, with actual losses beyond 3k carried over to offset any real gains in subsequent years.

Now, you take someone in a 28% bracket with say 30k in net investment losses, they get to deduct 3k this year form their "normal" income. That means, they reduced their net tax bill by 28% * 3,000 or $840.

Why on earth, would you complain about a 15% Cap Gains Tax, when losses shelter real income from a tax rate in some cases which will be double the capital gains rate?

(ie, those losses continue through a 4 yr down trend. That makes 3,360 in net reduced taxes. Then in the 5th year, you would still have 18k in carry-over losses to offset any gains as the market enters a broad rebound/recovery.)

weykool
ID: 2842717
Wed, Feb 20, 2008, 16:06

Nerve:

You can never offset more than 3k of ORDINARY INCOME.
If you look on your 1040 there is a line from shcedule D.....that line can never be more than a -3,000

You can offets Capital Gains with any and all Capital Loss C/O.
In my example of deducting 47K.....you would be reporting 53K of Net Gains on the front page of the 1040.

Taxman
SuperDude
ID: 029463114
Wed, Feb 20, 2008, 16:55

Responses to tidbits from earlier posts.

Gross Income, defined in § 61 Internal Revenue Code (IRC) " Income shall include all wealth received, unless specifically excluded hereafter" (paraphrased). Excluded from income are inheritances, gifts received (both covered under the Transfer Tax portion of IRC) and a litany of exceptions such as Municipal bonds interest, compensatory personal injury awards (but not lost future earnings awards) and loan proceeds. The Transfer Tax (previously known as Estate Tax and Gift Tax) is not a significant revenue source for Gov...but does inhibit creating fiefdoms by limiting uber wealth being passed to future generations.

NC On your taxed twice theory, do you consider the following to be taxed twice?? You make a 100,000 in capital gains, pay 15,000 in capital gains tax, then buying a 1 yr CD paying 10% with remaining $85,000. Upon maturity you receive 93,500 of which $8500 is interest and new income. Only the $8500 is taxed. Where is the double taxation? The tax system has always intended to tax the fruit, not the tree that grows the fruit.

Weycool .. Capital losses can be carried fwd and offset against all future capital gains as well as be deducted (limit 3k/yr) from other taxable income. And Passive Activity Losses (PAL) are carried fwd to be offset against qualified passive income or eligible for unlimited deduction in year of terminating ownership in property (investment) giving rise to a specific PAL.

No one has really gone into the At Risk limitations on deducting losses.

Taxman
SuperDude
ID: 029463114
Wed, Feb 20, 2008, 17:14

You didn’t ask, but this is my opinion of an example of how the complexity of the IRC evolved.

In 1981 Reagan, enacted the Accelerated Cost Recovery System (ACRS) which allowed cost of business assets purchased to be depreciated in 3-5 years, and real estate (R/E) buildings (not dirt), repairs ETC to be written off in 15 years even though FMV was diminishing far less if not increasing. The intended result occurred. Upper Middleclass and those wealthier all began buying rental R/E for the purpose of reducing taxes, not for the purpose of creating their own wealth. The return on those investments was absolutely dependant on receiving the tax benefits.

Great plan, but was the engine soon became huckster R/E developers & puffed appraisals used by reckless lenders (many convicted of civil as well as criminal fraud, other’s escaped including the Clintons re: Whitewater escapade) as justification for loans in excess of FMV. The more egregious loans excluded the borrower from personal liability. Enter stage right: FDIC, FSLIC and other permeations thereof. Loan portfolio audits started forcing banks and S&Ls to increase reserves for upside down loans made on puffed appraisals and where the property values had fallen. Initial calamity was, no lenders were available to lend, or would lend, thus the R/E values took a nose dive. No lenders, meant no purchasers. 1985 saw lenders (Banks in Texas and S&Ls in California …really everywhere) began to fail. Property foreclosures soared as FDIC & FSLIC responded to the rampant fraud encouraged by Reagan's ACRS by shuttering thousands of banks and S&Ls nationwide. As the loans became delinquent FSLIC/FDIC first foreclosed on the R/E for later resale and then sold portfolios of the now unsecured delinquent loans to “bottom feeders” and “scavengers” who set about collecting from the makers and guarantors of the foreclosed loans. Scavengers typically paid less than 2% of face value of this “bad paper”.

When foreclosed, investors had to deal with large deficits owed the “scavengers” which was eventually partially forgiven in "workout agreements" (full release for payment of something to the scavenger) or negated by Chapter 7 bankruptcy filings, Additionally, the foreclosed investor had to recapture as income a portion of ACRES deductions. The coup de grâs found IRS ALSO taxing as income all forgiven debt (being relieved of a debt in receipt of wealth) even debts secured only by collateral containing no personal liability of the foreclosed owner.

Well you can imagine the fallout. US was jumped into a period of runaway inflation. Low interest rates exceeded 14%. The real estate industry had been trashed. All because of Reagan’s introduction of ACRS to help the economy.

The next tax act phased out ACRS and led to the Modified Accelerated Cost Recovery System (MACRS) and introduced PALS.

PALS simply limited deduction from passive activities. In general, PAL activities included all business income/losses received by anyone not “active” in the business and all real estate rental activity. Losses from real estate activities on an individual property by property basis were limited to income from that individual property (talk about a pain the ass for people owning/managing multiple R/E properties) and losses from passive business activities limited to income received from all passive businesses. PAL has mutated over the years and now far easier to work with.
PALS ended the era of fraudulent lending and rapid cost deduction (ACRS) of real estate investments. The ACRS deduction was a % of property's cost unrelated to actual dollars out of pocket. There were few if any dollars out of pocket more often than not. Hence the term "paper loss" (“paper deduction”) was coined. The "paper loss" favored high bracket taxpayers, such as famous entertainers, doctors, lawyers and corporate executives. A $1000 paper loss to a 50% bracket tax payer saved taxpayer $500 while that same deduction to a 15% bracket taxpayer saved only $150.

PAL ended paper losses. To deduct a dollar now, you must spend the dollar. As for depreciation, now R/E is depreciated under MACRS over 37-40 years (rather than 15 yrs under ACRS).

That is but one of the historical events underlying the ridiculous complexity of the IRC. The legislative motives seem based in fixing prior problems, or attempting to solve economic questions, but usually continue creating new disasters, such as current ALT MIN TAX bracket creep.

Gawd, hate to label myself, however I am both a CPA and an attorney (should probably include asswhole somewhere in description) and spent 35 years in the tax industry.. I hate new tax legislation. It has and never will be a good thing.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 17:16

NC On your taxed twice theory, do you consider the
following to be taxed twice??

No, in this process you have been taxed 3 separate times.

first when you earned the money.

second when you invested it and earned income on the already
taxed money.

third when you invested the profits from the investment which
was taxed after it was made from the original money that was
also taxed.

that's 3 times.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 17:21

sarge do i have to run through 63 or did my follow up points to
others make my position clear?

I don't disagree with your analysis, nor did i ever. we are arguing
semantics.

You are taxed twice, but yes the "capital gain" is only taxed once.

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 17:23

Tax

you can only deduct 3k a year in investment losses, period,
correct?

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 17:27

sarge I don't understand 75 after reading it 5 times.

weykool
ID: 2842717
Wed, Feb 20, 2008, 18:49

Weycool .. Capital losses can be carried fwd and offset against all future capital gains as well as be deducted (limit 3k/yr) from other taxable income.
I think that is exactly what I have said at least 3 times.

Tax

you can only deduct 3k a year in investment losses, period,
correct?
As I have stated 3 times and Tax restated....no.
You need to add all your gains.
Then subtract all your losses.
Then you subtract any Capital Loss C/O.
If that number is positive you pay taxes on that number.
If that number is negative you deduct 3,000 on your return.(unless it is less than 3K then you deduct that number)

And yet another example:
This year you lose 133K (adding all your gains and losses together)
You deduct 3,000 on your tax return and you C/O 130K in losses.

For the next 10 years you make 10K per year in Capital Gains.
Each year you would use 10K of your losses to offset the gains and deduct 3K on your taxes.
At the end of 10 years your Carry Over would be used up and you would be back to square one.

If you still dont understand then I give up.
You should try to make as much as you can and pay the taxes as you go.

sarge33rd
ID: 99331714
Wed, Feb 20, 2008, 18:58

If he couldnt follow 75, 83 should have him scratching his head in total bewilderment. (Though they say the same things.) {No disrespect intended NC. Absolutely none. I cant follow half your talk in the investment thread. All depends on what your "background" knowledge base is I guess.}

Taxman
SuperDude
ID: 029463114
Wed, Feb 20, 2008, 19:04

you can only deduct 3k a year in investment losses, period, correct?

Well yes and no.

No to "investment losses" IRC uses very specific terminology and a question using a terminology not used in IRC is like asking how many points is a field goal worth in a baseball game.

I believe the term you intended was "Capital Losses" A Capital gain or loss is generated by the sale of a Capital Asset
Code section 1221 definition of a capital asset Not every investment is a Capital Asset.

As you can see from the lengthy IRC definition, what you ask as a general question can not be answered as a general answer.

But given you make an "investment" of $15,000 into 1000 shares of Dell, which qualify as a Capital Asset (and normally would), and you sell the 1000 shares for $5,000, you suffer a $10,000 Capital Loss (CL).

First the CL must be used to off set current year net Capital Gains (CG) then you are permitted to use remaining CL, not in excess of 3000, as an "allowed" deduction to other. Any unused CL at that point is carried over to the next year and available to be used, first to offset net CG for that year, then a deduction not exceeding 3000 is allowed with any CL balanced carried fwd to the next year.

Simple..no?

nerveclinic
ID: 105222
Wed, Feb 20, 2008, 23:52

weykool

Taxman you can only deduct 3k a year in investment losses, period, correct?

As I have stated 3 times

I know what YOU stated 3 times, I was asking Taxman.

I still don't think Taxman answered my question.

Look at Weykool's example, he's implying that a large investment loss can be carried over to the next tax year to offset a very large capital gain the next year i.e. more than $3,000.

For example he says... The next year if have capital gains of 100K you can deduct the 47K from those gains and you pay taxes on 53K.

which is offsetting 47k. I am saying the limit in any one year is 3k. Can you please just address this one question?

Weykool no need to answer for a 4th time, I understood what you said the first time you said it. I'm just questioning the accuracy.

Tax?

sarge33rd
ID: 76442923
Thu, Feb 21, 2008, 08:45

First the CL must be used to off set current year net Capital Gains (CG) then you are permitted to use remaining CL, not in excess of 3000, as an "allowed" deduction to other. Any unused CL at that point is carried over to the next year and available to be used, first to offset net CG for that year, then a deduction not exceeding 3000 is allowed with any CL balanced carried fwd to the next year.

He did answer it Nerve. To have a deduction of 3k, you'd have to have already offset 100% of any gains from other investments.

Building 7 Tax Prep
ID: 471052128
Thu, Feb 21, 2008, 09:04

Schedule D Instructions

Page D-7 Capital Loss Carryover Worksheet

Also, see if a monkey can fill out the form on D-10. Most high school students could not IMO.

nerveclinic
ID: 105222
Thu, Feb 21, 2008, 09:49

He did answer it Nerve. To have a deduction of 3k, you'd have to have already offset 100% of any gains from other investments.

Thanks Sarge but that is not what I asked.

nerveclinic
ID: 105222
Thu, Feb 21, 2008, 09:53

BLDG 7 Also, see if a monkey can fill out the form on D-10. Most high school students could not IMO.

I'm not disagreeing with your point, it is ridiculous, but isn't that why most people with complicated taxes use a software program?

Doesn't Turbo tax eliminate most of these challenges?

Again I don't know the answer but that's what I've heard.

Building 7 Tax Prep
ID: 471052128
Thu, Feb 21, 2008, 11:16

Turbo Tax: so now we have to buy a $50 software program every year just to see how much money we have to dole over to the federal government. I bet you don't have to under the fair tax.

The monkey response is for post #66.

The calculation of the tax once you have determined net income is the easy part.
Almost any monkey can perform that simple task.

Taxman
SuperDude
ID: 029463114
Thu, Feb 21, 2008, 11:37

Nerve,

Maybe I don't understand the question. If you are asking ..as an isolated question..how much in Capital Loss can be deducted in a year..the answer would be ....the sum of net capital Gains (exclusive of the Capital Loss) + $3000

A continuing problem with many of my clientswas not hearing the desired answer :0/

I'm still in total confusion with your concept of taxing capital gains multiple times. The only accurate way to view income tax, is that of an ordinary reoccurring expense associated with a single item (income).

Same as a realator's fee is charged against the sales price of R/E. Except taxes do not hit your investment again, only your gain from subsequent investments. If you sell a house for 100K (no other sales expense) and pay 6% to realator, your net (before tax) is 94,000. When you by the next house..for all cash..you have but 94,000 to spend, and when you sell that house at @ 50% gain, oe 141K the realator expense @ 6% is 8460 and is comproised of 6% of your investment (94K) and of your profit (47K).

Taxes do not tax your investment (principal) only taxes the gain. If you don't want you gains taxed before you reinvest, set up an IRA or Roth and buy and sell from those entities. However upon distribution from those entities (IRA 100% as ordinary income)(Roth, the amount above your contribution received is ordinary income), you will pay a tax, but lose any Capital Gains lower tax hit by doing so.

weykool
ID: 2842717
Thu, Feb 21, 2008, 11:47

Taxman wrote:
First the CL must be used to off set current year net Capital Gains (CG) then you are permitted to use remaining CL, not in excess of 3000, as an "allowed" deduction to other. Any unused CL at that point is carried over to the next year and available to be used, first to offset net CG for that year, then a deduction not exceeding 3000 is allowed with any CL balanced carried fwd to the next year.

Weycool .. Capital losses can be carried fwd and offset against all future capital gains as well as be deducted (limit 3k/yr) from other taxable income.

NC:
Perhaps this is more of a reading comprehension problem than a tax problem?
Taxman has answered your question twice.
I have answered it 4 times with examples.
In post 65 I posted the answer to your question from the IRS website.
You seem like a bright guy but somehow it seems you have a mental block on this one.

nerveclinic
ID: 105222
Thu, Feb 21, 2008, 14:34

Weykool

It wasn't a reading comprehension problem.

I read everything you posted.

I also know in post 49 you said "I don't currently do taxes."

Also in the paste from the IRS in post 65 it doesn't specify if in the carry over to the next year you can deduct more then only an additional $3,000 the next year so I found the context vague.

I also read a post where you implied that all taxes we cut come back as revenue which is hogwash.

So even though you answered it 4 times, and even though I read and understood every word you said, I was looking for a second opinion from someone who DOES currently do taxes.

I hope that clears it up.

Please don't explain it a 5th time.

sarge33rd
ID: 99331714
Thu, Feb 21, 2008, 15:31

with your permission NC; I'm going to rephrase what I think you are asking and then ask TAXMAN to answer it. (Feel free to correct my question(s) if I am misunderstanding YOUR question)

Assume that in tax year 2007, I sold investments and realized a real loss of $35,000 from the sale of those stocks, bonds, etc. I sold no investments, at a profit. (Simply divested myself of "losers".)

I can write off $3,000 as a capital loss, deducting that from my otherwise "normal" taxable income, AND I can carry forward to tax year 2008, the balance of $32,000 in losses.

Is that correct?

Now, tax year 2008, I sell some more investments, and show capital gains from those sales of $22,000. I have $32,000 in carry over losses so either;

1) I can "offset" the 22k in gains by using 22k of the carry-over losses, and THEN use another 3k of that carry-over, allowing my to deduct yet another 3k from my otherwise taxable "normal" income. This would leave me still with 7k in losses to carry over again to tax year 2009.

or

2) I can only use 3k of the carry over, and pay capital gains tax on 19k, while carrying over 29k in losses remaining from the 32k I brought into tax year 2008.

NC; is that essentially what you are asking?

weykool
ID: 2842717
Thu, Feb 21, 2008, 16:11

NC:

I can understand how you would get the impression that maybe I didnt know the rules because I made the clarification that I dont currently do taxes.
The IRS makes changes to the tax laws every year and so I am cautious to make statements without clarifications in the event that the laws in question have changed.
After making that statement I went to the IRS website and verified that indeed the laws concerning Capital gains and losses are the same.
I can further understand your skeptecism when the Taxman rephrases what I have already posted and then makes it sound like he is correcting something I said.
If you dont care to believe me that is fine.

The bottom line is I would caution you against relying on anythng written on this site when it comes to your taxes.
You could look really silly trying to convince an IRS agent with..."But the Taxman and/or Weykool at Rotoguru said I could deduct it".
Along the same lines I would look really silly if I lost a bunch of money in the stock market because someone at Rotoguru advised to get into the market or recommended an investment.
The fact is if you find the context I posted from the IRS to be VAGUE then you have no business doing your own taxes or tax planning.
You need to hire a professional that you will have recourse in case you get audited and have to pay additional taxes and penalties.

Taxman
SuperDude
ID: 029463114
Thu, Feb 21, 2008, 16:16

nerve

it has always been my opinion that free advice (if you are lucky) is worth what it costs

:)

and maybe my moniker should change to Taxedman, or better yet Xtaxman, as I shuttered my practice @4 years ago. I now help wifey-poo operate Invisible Fence Brand distributorship (exclusive rights to Texas and New Mexico) and a retail Invisible Fence Brand operation from Austin with employees (35 in total) also in Houston, Dallas and Albuquerque and a pet products web page. I still have the various tickets (law and cpa licenses), but they are becoming a bit dusty.

nerve ...and about that CG are taxed more than once idea..where do we sit on that??

Building 7 IRS Agent
ID: 471052128
Thu, Feb 21, 2008, 17:15

Sarge33rd post #95....1) is correct. In fact, that was one of the most coherent posts you've ever made. It's not that simple, though. If you look at the worksheet linked in #88, you'll see that your capital loss carryover has to retain it's short-term and long-term status. Thus, you could have a short-term capital loss carryover and a long-term capital loss carryover. Or just one or the other. Then those are combined with the next years' capital gains/losses via the worksheet. I've had to complete that worksheet in the past for my mother's returns. And people want to keep this tax system.

nerveclinic
ID: 105222
Thu, Feb 21, 2008, 17:20

Sarge 95

Thank you.

You see I must not of explained it completely wrong because you got it.

My assumption was #2 is correct. Sounds like Weykool and Tax are saying number #1.

I've always invested in tax free 401K's until this year so it's never come up for me in the past.

100

nerveclinic
ID: 105222
Thu, Feb 21, 2008, 17:45

Weykool I can understand how you would get the impression that maybe I didnt know the rules because I made the clarification that I dont currently do taxes.

no offense I read and understood your posts, just looking for a second opinion.

The fact is if you find the context I posted from the IRS to be VAGUE then you have no business doing your own taxes or tax planning.
You need to hire a professional that you will have recourse in case you get audited and have to pay additional taxes and penalties.

I use a tax lawyer to prepare my taxes because I am an Ex Pat at the moment. He has 20+ years in Expat tax law. Used him last year and will use him again this year.

I was just making the typical BS post on Roto. Fortunately my losses this year are no where near $3,000...yet, so it's not an issue.

101

nerveclinic
ID: 105222
Thu, Feb 21, 2008, 17:47

and maybe my moniker should change to Taxedman, or better yet Xtaxman

HA yes you should.

Well then you are officially in the same room as Weykool and I will just have a talk with my accountant...of course he charges me by the minute.

102

nerveclinic
ID: 105222
Thu, Feb 21, 2008, 17:50

with your permission NC; I'm going to rephrase what I think you are asking and then ask TAXMAN to answer it.

Now Sarge, when have you ever needed anyones permission around here?

Anyway you got the Oscar for interpreting a foreign language because you articulated what I was trying to mumble.

103

nerveclinic
ID: 105222
Thu, Feb 21, 2008, 17:56

B7 I don't know anyone who wants to keep the current system except for the accountants etc.

Just because the present one is screwed up, doesn't mean the "flat tax" is fair.

It will be no easy task getting this titanic turned around though.

104

sarge33rd
ID: 99331714
Thu, Feb 21, 2008, 18:00

lol @ 102. True that, but I have to rethink my approach. According to 98, my post made perfect sense to B7.

105

Taxman
SuperDude
ID: 029463114
Thu, Feb 21, 2008, 21:58

My assumption was #2 is correct. Sounds like Weykool and Tax are saying number #1.

And Building 7 IRS (shudder)Agent joins in selecting Sarge's #1

Building 7 IRS (shudder)Agent also puts into play the Long term Capital Loss (LTCL) versus Short term Capital Loss (STCL) concept...and that/those label(s) impact the use of the carryover in future years. It adds a layer of complexity that truly exceeds the understanding of most non-tax professionals (and actually that of more than a few CPA's and Attorneys)

106

biliruben
ID: 5610442715
Fri, Feb 22, 2008, 13:29

Man.

I go to Vegas and an actual useful thread breaks out. And me without internet access for the foreseeable future. Bah.

107

Taxman
SuperDude
ID: 029463114
Fri, Feb 22, 2008, 13:33

Most people just lose money in Vegas :>)

108

biliruben
ID: 5610442715
Fri, Feb 22, 2008, 13:38

I actually did pretty well! Bellagio poker room was full of folks with more money than sense.

109

protester
ID: 121472717
Wed, Feb 27, 2008, 18:47

ya'll missing the point. If you enact the Fair Tax, YOU keep what YOU earn and you pay taxes on what you buy minus the neccessaries(per poverty level code) minus the prebate. In 1979 a study on embedded taxes stated that the cost more to book keep that they cost the manufactor. In the study, a loaf of bread sitting on the store shelf has between 182 to 234 different minute taxes on that loaf, there by running up the cost of business and the product. Before congress in 1981, Roger Smith, chairman of GM told congress that if it were not for the embedded taxes, he could at that time sell $10,000.00 Chevy for $5000.00. Bottom line, the Fair Tax funds the government, Social Security, Medicare, and allows your IRAS and 401s to stay profitable and the earnings TAX FREE when you retire. If you don't tax my business, I buy what equipment I want and therefore keep the increased profits from doing more work. It's simple folks 2+2= 4 and the government out of your business and life.

secutity

110

sarge33rd
ID: 99331714
Wed, Feb 27, 2008, 18:54

No protester...you dont "keep" anything. Your take home pay, would not change from what it is now. It would be THE SAME. (see the link I provioded in post 59 above)

The retail price of goods, would NOT include the "Fair Tax" as those goods are marked today. So...your take home stays falt and your out-of-pocket for everything you buy goes UP 30%.

No thanks.

111

Boldwin
ID: 3013265
Wed, Feb 27, 2008, 23:33

I just got done destroying my sons at poker [just chips, not cash]. The funny part is they are currently hooked on poker on TV and I can't bear to watch.

112

Boldwin
ID: 3013265
Thu, Feb 28, 2008, 00:39

“I would like to electrocute everyone who uses the word "fair" in connection with income tax policies.” - William F Buckley

113

nerveclinic
ID: 105222
Thu, Feb 28, 2008, 04:56

YOU keep what YOU earn and you pay taxes on what you buy minus the neccessaries(per poverty level code) minus the prebate.

Well protester I think "Y'all missing a point"

A person who makes $20,000 a year has to spend pretty much everything to survive. Therefore he/she will be taxed on almost their entire income. (minus the necessaries(per poverty level code) minus the prebate.)

A person who make 5 million dollars a year might only spend 5%-10% of his/her income.

Therefore the poor will be paying an almost 30% income tax (Plus state tax) while the rich will pay 30% of 5-10% of their income (Maybe a 3% income tax) therefore the poor will pay at a much higher tax rate then the rich.

How is that "fair"?

114

Mark Curran
ID: 30154289
Thu, Feb 28, 2008, 10:54

Scientology isn't whats wrong with the "fairtax" -- its MATH. Fairtax is a bunch of garbage math. Its like those little pills they sold suckers years ago, advertized to let you use water in your gas tank. Utter nonsense.

Fairtax only works if Math isn't real. For example, almost a trillion dollars that fairtax pretends to be able to collect -- comes from the GOVERNMENT itself.

That's right. The GOVERNMENT will just pay ITSELF a huge sales tax. How stupid can you get?

Neal Boortz wrote in The Fair Tax Book (Page 148) "The federal government ITSELF will become a MAJOR TAXPAYER".

Hello you con artist huckster. How the hell can the government PAY ITSELF a tax? It would have to WRITE the check.

If governments can just write themselves checks to magically pay 900 billion in taxes - why stop there? Why not a trillion? WHy not 2 trillion? Hell, just leave us alone, let the government pay itself ALL its taxes.

These lunatics would not only tax the FEDERAL government -- they will tax ALL goverments a huge sales tax -- state, city, and county. Thats a sales tax on everything from the space shuttle, to air craft carriers, to bridges, school desks and cop cars.

The lunacy doesn't even slow down there. The fairtax also puts a huge sales tax on nursing home patients, cancer surgery, heart transplants -- ALL medical bills would have a huge sales tax on them.

How stupid is that?

And there is more. Renters would have to pay the tax on their RENT. You sould have to pay SALES tax on your insurance premiums -- car insurance, health insurance, life insurance -- all have to pay a huge sales tax.

Same thing with utilities- - high sales tax. Same thing with gasoline - high sales tax.

Its absolutely insane crap.

When it becomes clear with this lunatic plan would tax, people will reject it.

Personally, I wish it would pass, cause I want to see these idiots try to tax NASA and nursing home patients. I want to see them try to tax the parents of a child with leukemia 70,000 dollars to keep their child alive.

Please PLEASE pass the idiot fairtax.

8:30 AM

115

sarge33rd
ID: 99331714
Thu, Feb 28, 2008, 12:24

according to this papre from "FairTax.org", ALL consumption other than Education Tuition, would be subject to the Tax. (Other papers I've seen, would also exclude "used" goods.) So, even essential get taxed. Then, monthly, the US Govt would send "prebate" checks to every American household, the size of said check dependant upon household size and Govt established "poverty level" spending tables. (The idea being, to rebate those taxes paid against "essentials".)

First problem...those who favor the Fair Tax, by and large stem from "the right" side of the political spectrum. Traditionally, opposed to welfare in virtually any form, yet here they are endorsing a plan which grants a govt check (welfare) to EVERY American household. AM I alone in seeing some glaring irony there?

Now, many proponents calim that take home pay would increase to current gross pay. In post 59 above, I provide a link to a Q&A with the economist predominantly behind the Fair Tax, and he sates explicitly, that take home pay would NOT increase and that retail prices WOULD increase, by the amount of the Fair Tax.

So, lets take the ex of a single American worker. Person makes $2,500/m or $30,000 annually and nets (for the sake of argument) 80% of that or $24,000/yr which is 2k/m.

What happens to that person, when their costs rise by 30% (necessary to raise prices 30% to submit 23% of the revenue and still retain the current sale price of goods.)

Util: Was $150/m...now $195
Groc: Was $400/m...now $520
Car Ins: Was $50/m...now $65
Gas: Was $100/m...now $130
Rent: Was $500/m...now $650
Phone: Was $30/m...now $39
Cable: Was $100/m...now $130
Hlth Ins: Was $200/m..now $260
Remaining: Was $470 ...now $11
Prebate Check: Was $0...now $187

Net: Was $470...now $198

So a middle class, middle of the road avg worker, gets to pay an additional tax of $272/m or $3,264 annually.

Someone please tell me how raising actual taxes on an avg joe by almost 11% of their current annual gross...is going to benefit them in any way, shape or form?

Forum: polPage 3058Subject: FAIR TAX QUESTIONS

Forum: pol
Page 3058
Subject: FAIR TAX QUESTIONS