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Should there be a floor on Capital Gains/Dividends taxes ?

Discussion in 'Political Discussion' started by BelichickFan, Feb 13, 2007.

  1. BelichickFan

    BelichickFan B.O. = Fugazi PatsFans.com Supporter

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    #24 Jersey

    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.
  2. Pujo

    Pujo Rookie

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    Floor or ceiling?
  3. BelichickFan

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    #24 Jersey

    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.
  4. Pujo

    Pujo Rookie

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    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.
    Last edited: Feb 13, 2007
  5. BelichickFan

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    #24 Jersey

    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.
  6. Pujo

    Pujo Rookie

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    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.
    Last edited: Feb 13, 2007
  7. BelichickFan

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    #24 Jersey

    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.
  8. BelichickFan

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    #24 Jersey

    I think we all are - we just disagree on what to cut :)
  9. Patters

    Patters Moderator Staff Member PatsFans.com Supporter

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    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.
  10. Pujo

    Pujo Rookie

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    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).
  11. Pujo

    Pujo Rookie

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    It's strange how you don't know that, but are convinced that the $5K you would withdraw would be good for the economy. Call a spade a spade, you want an HDTV (I don't blame you) and want to buy it without paying an arm and leg to the government, but don't give us a story about you buying your HDTV helping our economy.
  12. chris_in_sunnyvale

    chris_in_sunnyvale Rookie

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    The big thing in this proposal is the interest and dividends which already get taxed at ordinary income rates (except qualified dividends, but let's put that aside for now). Picture this scenario:

    Couple is saving for a house. They want to put savings in a money market fund at 5.10% (e.g. Vanguard's Prime Money Market Fund - VMMXX ticker) since it's a safe investment. Currently, MM funds get taxed at ordinary income rates, so that 5.10% gets knocked down to somewhere in the 3-4% range. By making the MM fund dividends tax-free up to $5K, that couple gets that full return. Every little bit helps.

    In the grand scheme of things, $5K of interest, dividends and capital gains is not much for the upper class, so they won't benefit much from having the first $5K tax-free. However, $5K of investments being tax-free for most middle- and lower-class investors/savers is a big deal. This proposal appears to be pretty friendly to them.

    Regards,
    Chris
  13. Patters

    Patters Moderator Staff Member PatsFans.com Supporter

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    To get $5K, you need about $100K. Even most middle class people don't have $100K saved until they're in their 40s. (A few years ago, I read the average person who has been saving in his 401K for 25 years has $114K.) So, what will the proposal do? It will give incentive to people approaching retirement age to spend some of their money early, and will help the wealthy, many of whom are born with $100K in their portfolios.
  14. BelichickFan

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    #24 Jersey

    No, that's not it at all. I used the HDTV as an example, I will buy one this year and finding the money won't be an issue. My wife and I aren't big spenders it's no big deal.

    My money sitting in Vanguard is just more theoretical to me - other than me making money I don't actually know how it's put to use. But if each year I said to my wife - we have $5K we can take out tax free, what do you want ? We'd be buying something every year whether it's furniture, appliances and it's easy for my to see how that would stimulate the economy.
  15. BelichickFan

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    #24 Jersey

    I think it would create more jobs for the working poor.

    Retirement savings for lower income ? I doubt they have any to be honest.
    Funding the tax breaks ? I don't think that would be an issue. A lot of people would be like me where they leave the money in now to avoid the taxes, the only "lost taxes" would be from people who regularly take money out of their investments and I think that would be more than made up for through the growth that seems clear to result.
  16. chris_in_sunnyvale

    chris_in_sunnyvale Rookie

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    No, to get $5K, you need $100K invested in one of the most conservative investments available - a MM fund. You can get to $5K in other ways with less than $100K. And as for helping the "wealthy approaching retirement age"...if $100K is all they have saved up by then, they (and this country) are in trouble.

    Regards,
    Chris
  17. BelichickFan

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    #24 Jersey

    I would like to think it would encourage people to invest too. Some people can't, I know. But for many people, especially young professionals, if they were told they could put money in the stock market and the first $5K they make is tax free - it's FREE MONEY. To spend. Not only would that stimulate the ecomony, helping the lower classes it would show people there's money to be made. Before long people who otherwise wouldn't have invested will not only be going for the $5K but realizing that they can leave money in and make money.

    Believe it or not, Pujo, this isn't about me. But with my personal experience from not wanting to pay taxes, it's something I've been thinking about and the thing about Romney reminded me. I want everyone to get into the market and make more money, that's why I want SS to be privatized. Not for me so the whole country can grow it's own wealth person by person, family by family.
  18. Patters

    Patters Moderator Staff Member PatsFans.com Supporter

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    I don't think money market accounts pay 5%, but CDs do. And 5% isn't that low on average for a conservative investor. (A few yeas ago, 5% would have been a fairly attractive rate of return.) You can figure that over the long hall, the stock market gives around 8% per year, meaning that instead of $100K, you'd need $60K, but that's still a sizable sum, and I suspect that the less money you have, the less your average return (because you get lower quality advice and may your retirement savings may also be your emergency money). My point about the wealthy was that they would benefit at any age, since they certainly have $100K saved even when young, while the poor and middle class would only benefit when they were older and should really be putting the money aside for retirement. I think the Roth IRA model is far better than what Romney is proposing.
  19. Real World

    Real World Moderator Staff Member

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    I actually like a staggered rate based on income levels. I do think that higher earners can and should pay more. Where I draw the line, is on the amount higher earners should pay. High earners already pay through the nose. What I'd trully like to see, is a consumption tax, more so than a flat tax.

    As for the dividend tax, I like the idea of a $5k ceiling on non taxable income. No one has to draw their money if they don't want to, but if they did, it'd be a nice nest egg with which families could benefit, aside from having disposable non-taxed income as BF explained.
  20. BelichickFan

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    #24 Jersey

    Vanguard's Prime Money Market Fund has averaged 6.5% since 1975 although just 3.77% the last 10 years. It was around 5% last year.

    Stock Market at 8% ? Most funds are well above that, you can see Vanguard's here (the stock funds are at the bottom) :

    https://flagship.vanguard.com/VGApp/hnw/FundsByType

    but the S&P 500 fund has averaged 12.25% a year since 1976. A solid 31 year sample.

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