BelichickFan

I was reading some of Romney's positions and one :

"This month Romney announced an economic plan that would make the Bush tax cuts permanent; simplify the tax code; make dividends, interest and capital gains tax-free up to a ceiling (he suggested $5,000 for joint filers)"

struck me because I've been thinking about it too.

In saving for retirement I have a decent amount of money in the stock market - all of us that do have made decent money the past couple of years. Now, I have no problem having my dividends and gains re-invested to further save and largely make the money tax deferred (only a part of the gains and dividends are taxable now, most is when the money is taken out).

The main reason I leave it all in is that I don't want to deal with paying taxes on it. In my tax bracket I get killed by additional income and I'm far better off leaving the money in until I retire when I can take it out in a much lower tax bracket.

Let's say, though, the first $5K of money I take out of my mutual funds is tax free. Although this would hurt Americans' saving for retirement - which is a big issue for me - it would likely be a pretty big stimulant to the economy. I know I would be FAR more likely to take money out and buy something - maybe the HDTV I want - if the gains I had on the money wasn't gonna be taxed out the ass. Honestly I don't know if other candidates have mentioned this but it's a solid pro growth concept IMO.

Pujo

Floor or ceiling?

BelichickFan

I think of it as a floor, below which I wouldn't pay any taxes. However you want to word it, though, I just mean that the first $5K I took out annually would be tax free and after that it would be taxable.

Pujo

Personally, I'd like to abolish capital gains tax and treat it all like regular income. The lowest income bracket doesn't pay taxes, everyone else does... of course I'd like to see them eliminate tax brackets as well, and charge everyone the same %, except for people making below a certain amount (poverty line), who wouldn't pay taxes. If that were done, I'd see no reason to create any special exemptions for gains.

BelichickFan

That would be brutal. The capital gains rate now is 15%. That's high enough for me to re-invest all my gains and not take a dime out. Increase that to over 30% and you're guaranteeing it never gets out into the economy until I retire.

The middle class would pay more taxes then. As long as you're fine with that, but I'm guessing you aren't.

Pujo

I don't care if you spend your money or keep it invested, it's stimulating the economy either way (it's being loaned by virtue of it being invested).

I'm fine with that on a percentage basis, but obviously it won't work if the middle-class has to pay more taxes on a dollar basis. The only viable way to implement a flat tax would be to cut our spending - drastically - and I'm all for that.

BelichickFan

I'm not a "money guy" enough to know how my money helps the economy by sitting in my Vanguard Funds (not saying you're wrong, I have no idea) but I know that I would buy more stuff and products if I could use the first $5K without paying taxes.

BelichickFan

I think we all are - we just disagree on what to cut

Patters

Of course, it raises a lot of questions:
- What will be cut to fund the tax breaks?
- What will be its impact on inflation?
- How will it affect retirement savings, especially for lower-income people?

I'm more concerned with helping the working poor, and Romney's proposal is fairly irrelevant for them.

Pujo

We'd agree more than disagree - most of our current spending needs to be cut out. We could probably get by on 25% of our current spending. Military, police and first response services, emergency services for vulnerable populations (for the retarded, for example), prisons, courts, and K-12 education I'd keep and fund with general tax dollars.

Everything else should be self-funded (drivers license/registration fees should pay for those services, etc).