Investment showdown -- beyond the Roth, SDP, & TSP

[Khruangbin33]

On 4/15/2024 at 11:11 AM, nunya said:

Words.

Thanks for explaining; I'm going to keep this in mind when it comes time to deploy a 6 figure sum.

[BashiChuni]

in other news from this shit show of a White House:

 

Our economic estimates likely understate the effects of the budget since they exclude two novel and highly uncertain yet large tax increases on high earners and multinational corporations, namely a new minimum tax on unrealized capital gains and an undertaxed profits rule (UTPR) consistent with the OECD/G20 global minimum tax model rules. Nor do we include the budget’s unspecified research and development (R&D) incentives that would replace the lower tax rate on foreign-derived intangible income (FDII).

 

Increase top individual income tax rate to 39.6 percent on income above $400,000 for single filers and $450,000 for joint filers (effective 2024)

 

https://taxfoundation.org/research/all/federal/biden-budget-2025-tax-proposals/

Edited April 25 by BashiChuni

[Smokin]

Here's to hoping that Moore v US properly rules taxing unrealized gains as unconstitutional.  If this door gets opened, Pandora's box would be almost unlimited.  Your house value rose 5% last year?  That's gains, so you now owe income tax on it on top of the property taxes you already pay.  Not entirely unreasonable that the IRS could require declarations of any personal property of value (except classic Corvettes that double as classified storage) so they can assess if it has appreciated, even if that appreciation is just due to government caused inflation.

[Lord Ratner]

1 hour ago, Smokin said:

Here's to hoping that Moore v US properly rules taxing unrealized gains as unconstitutional.  If this door gets opened, Pandora's box would be almost unlimited.  Your house value rose 5% last year?  That's gains, so you now owe income tax on it on top of the property taxes you already pay.  Not entirely unreasonable that the IRS could require declarations of any personal property of value (except classic Corvettes that double as classified storage) so they can assess if it has appreciated, even if that appreciation is just due to government caused inflation.

Right, and we would add yet another incentive to have every asset overvalued by the government, while creating a new industry around undervaluing assets.

[Negatory]

The US gov already does tax unrealized gains with home valuations and property taxes. Is that unconstitutional or unethical?

What do you guys propose to do about the ultra wealthy who never cash in equity and take cash loans on their unrealized net worth? It is clearly tax evasion that is harmful to the US gov and not in line with the intent of the tax system.

Also, I hope you are being honest brokers in this debate and are aware that the changes only apply to net worths >$100M. It is likely literally never going to directly impact any of you, the middle class, the upper professional class, or anyone in your family. It is aimed at only the ultra wealthy.

Not to mention, the proposal makes these taxes prepayments for future gains. If they have future realized gains, they get to deduct previous payments.

https://taxfoundation.org/blog/biden-billionaire-tax-unrealized-capital-gains/

 

Now explain:

- How is this bad for the working class (my definition includes everyone from McDonalds to Anesthesiologists making $1M a year). People that have to work to live.

- What are the negatives to the economy? You won’t get trickled down on?

- What is your solution? If you don’t have a solution, why is the current state better morally or ethically?

Edited April 25 by Negatory

[Smokin]

7 minutes ago, Negatory said:

The US gov already does tax unrealized gains with home valuations and property taxes. Is that unconstitutional or unethical?

What do you guys propose to do about the ultra wealthy who never cash in equity and take cash loans on their unrealized net worth? It is clearly tax evasion that is harmful to the US gov and not in line with the intent of the tax system.

Also, I hope you are being honest brokers in this debate and are aware that the changes only apply to net worths >$100M. It is likely literally never going to directly impact any of you, the middle class, the upper professional class, or anyone in your family. It is aimed at only the ultra wealthy.

Wrong.  The US government does not tax my property.  The county taxes my property based on land/home value.  Very different than the Federal government.  Additionally, they tax based on a percentage of current value.  The Feds would tax on year to year appreciation in addition to the county tax.  I'm also against the county property tax for the record, but that's another topic.

I hope that you are being an honest broker in this debate as well. 

First, taxes have only increased in scope and percentage throughout history.  When Federal income tax started, the brackets were 3% and 5%.  If America accepts this new tax as legitimate, you and I will end up directly paying it in the future.  This is only a trial balloon.

Second, the Moore vs US case (as I understand it from reading the brief) is about a tax that virtually everyone pays if they have foreign investments that reinvests profits rather than pay distributions, so your >$100M comment is out to lunch.  Perhaps the new Biden tax would only be on >$100M, but don't pretend that's the only attack on unrealized gains.

Third, much like restrictions on free speech, taxes on anyone affect taxes on everyone.  Saying that they only tax the wealthy is a class-warfare smoke screen.  Much like 'companies need to pay their fair share of taxes' as if companies are individual people that have somehow skated out on not paying taxes.  Raise the taxes on the rich for investing their wealth and they will have less wealth to invest.  It will all rolling downhill.

[HeloDude]

7 hours ago, Negatory said:

Translation: “Eat the rich”

Perhaps I’m not ok with it because I know that it won’t just be the rich that will pay this new tax…in the early 1900s the implementation of the income tax was originally sold as “soak the rich” when it was enacted.  Yeah, how did that work out for us? 
 

https://www.pbs.org/newshour/economy/making-sense/the-income-tax-in-1913-a-way-to-soak-the-rich

[busdriver]

7 hours ago, Negatory said:

What do you guys propose to do about the ultra wealthy who never cash in equity and take cash loans on their unrealized net worth?

And how are these loans paid off?

[herkbier]

17 minutes ago, busdriver said:

And how are these loans paid off?

More loans? That don’t get paid off til they die, then the estate pays them with probably some sort of generous tax advantage. 
 

You know though, a good way to ensure everyone (ultra-rich, poor, legal, illegal) pay their fair share.. a national sales tax—tied to the elimination of other taxes of course.

[Lord Ratner]

8 hours ago, Negatory said:

Is that unconstitutional or unethical?

Unethical? You bet your ass. Doubly so in the states where your property tax can go up through no action of your own. I believe it is objectively immoral to change what someone owes on something they purchased responsibly and within their budget simply because a bunch of other people around them have different budgets or spend irresponsibly. Of all the plethora of things California gets wrong, prop 13 should be the law of the land.

8 hours ago, Negatory said:

What do you guys propose to do about the ultra wealthy who never cash in equity and take cash loans on their unrealized net worth? It is clearly tax evasion that is harmful to the US gov and not in line with the intent of the tax system.

I would address that problem specifically, and make it illegal. However the better answer is to simply stop suppressing interest rates artificially. These billionaires are only to play this stupid game because banks are willing to give out near zero interest loans. No billionaire is going to do that if they have to pay 9% on it.

8 hours ago, Negatory said:

Also, I hope you are being honest brokers in this debate and are aware that the changes only apply to net worths >$100M. It is likely literally never going to directly impact any of you, the middle class, the upper professional class, or anyone in your family. It is aimed at only the ultra wealthy.

That doesn't make it ethical. And more importantly that doesn't change the fact that the unintended second and third order consequences of this change can be very messy. However, unforeseen second and third order consequences are a Hallmark of almost all Democratic legislation, so par for the course.

8 hours ago, Negatory said:

How is this bad for the working class (my definition includes everyone from McDonalds to Anesthesiologists making $1M a year). People that have to work to live.

- What are the negatives to the economy? You won’t get trickled down on?

- What is your solution? If you don’t have a solution, why is the current state better morally or ethically?

The problem is that this is the government trying to blame others for what it created. You want to know why the ultra wealthy in this country have reached escape velocity compared to the rest of us? It's because we have a government that believes fiat currency allows them to print as much money as they want for whatever they want. But they are so fantastically unimaginative with this power that they simply feed it directly into the banking system. Gee, small wonder that the biggest beneficiaries of this mechanic have been real estate, equities, and financial assets. Overwhelmingly things that the rich and ultra-rich own disproportionately.

So if you want to fix it, let's lock our currency to something that doesn't allow the government to devalue it massively in a manner that flows almost directly to the richest people in the country. Let's stop artificially suppressing interest rates so that the wealthiest in this country can get nearly unlimited free money to spend in whatever way they see fit. Let's stop protecting gigantic corporations and Banks from the financial Doom of their poor decision making every time it comes home to roost. Too big to fail should be considered hate speech. Anything short of that it's just another trick fuck bit of legislation that will end up having second third order effects worse than the problem it was trying to solve, without addressing the root issue.

Edited April 26 by Lord Ratner

[busdriver]

1 hour ago, herkbier said:

More loans? That don’t get paid off til they die, then the estate pays them with probably some sort of generous tax advantage. 
 

You know though, a good way to ensure everyone (ultra-rich, poor, legal, illegal) pay their fair share.. a national sales tax—tied to the elimination of other taxes of course.

The executer to the will still has to pay debts from estate assets prior to dishing out inheritance (which is where all the tax bennies are).  So capital gains are gonna get paid eventually.  Yes?

There have been a bunch of proposals to go after this in the past.  Taxing gains at death before transfer, and dropping the carryover basis in favor of rollover basis being the two easy ones to remember.  Either of these is better than taxing money that doesn't exist.

Taxing unrealized gains is taxing money that doesn't exist.  This is emotionally driven nonsense.

 

Edited April 26 by busdriver
That first paragraph sounded way too sure of myself...I added the ?

[BashiChuni]

4 hours ago, HeloDude said:

Perhaps I’m not ok with it because I know that it won’t just be the rich that will pay this new tax…in the early 1900s the implementation of the income tax was originally sold as “soak the rich” when it was enacted.  Yeah, how did that work out for us? 
 

https://www.pbs.org/newshour/economy/making-sense/the-income-tax-in-1913-a-way-to-soak-the-rich

THIS!

[jrizzell]

Taxing unrealized gains is taxing money that doesn't exist.  This is emotionally driven nonsense.
 

This is peak government. Literally this “money” only exists on paper, but sure feed it the swamp so they can spend more of our dollars. And anyone who think this will only ever apply to the RICH has more faith in our elected officials than I do.



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[Negatory]

On 4/25/2024 at 7:22 PM, HeloDude said:

Perhaps I’m not ok with it because I know that it won’t just be the rich that will pay this new tax…in the early 1900s the implementation of the income tax was originally sold as “soak the rich” when it was enacted.  Yeah, how did that work out for us? 
 

https://www.pbs.org/newshour/economy/making-sense/the-income-tax-in-1913-a-way-to-soak-the-rich

Pretty fucking good? Best economy in history? One of the greatest increases in QoL ever seen in history? You mad you have to pay $50k of taxes on your $200k salary so that you can still take home more than 99% of the rest of the world?

Also, good luck funding the Manhattan project or global military without an income tax. If you want to go back to pre-1913 US, I hope you're equally ready to experience the significantly lower quality of life that comes with not having a funded government or military that can wield national power. Frontier living wasn't that sweet.

 

On 4/25/2024 at 8:25 PM, Lord Ratner said:

I would address that problem specifically, and make it illegal. However the better answer is to simply stop suppressing interest rates artificially. These billionaires are only to play this stupid game because banks are willing to give out near zero interest loans. No billionaire is going to do that if they have to pay 9% on it.

Double edged sword here (regressive policy) that hurts the working class more. Billionaires need low interest loans to keep wealth they don't need. Workers need it to purchase essentials like housing, transportation, and food. Raise the interest rates and the only people that actually may starve are poor people.

On 4/25/2024 at 8:25 PM, Lord Ratner said:

That doesn't make it ethical. And more importantly that doesn't change the fact that the unintended second and third order consequences of this change can be very messy. However, unforeseen second and third order consequences are a Hallmark of almost all Democratic legislation, so par for the course.

Sure it does. Want to talk about ethical frameworks? From a utilitarian approach, it is beneficial to the group (society) and only marginally affects people who are entirely way too well-off, therefore it is most likely in the best interest for the largest number of people. There's an ethical argument. From a common good approach, it seems to make sense that people with means that are significantly greater than others should contribute to their fellow citizens. There's an ethical argument.

Now you can argue that it is unethical from your point of view or from a specific framework. But in the end it's all just feelings. That's ethics.

Ethical arguments do not have to take into account second and third order consequences, but I would love to talk to some of them if you'd like. I will point out that your statement about Democratic legislation also can easily be applied to Republican legislation - it's a useless statement with no evidence or warrant. But you always throw some baseless point in your arguments about the dems being the problem (with essentially no proof or evidence).

On 4/25/2024 at 8:25 PM, Lord Ratner said:

The problem is that this is the government trying to blame others for what it created. You want to know why the ultra wealthy in this country have reached escape velocity compared to the rest of us? It's because we have a government that believes fiat currency allows them to print as much money as they want for whatever they want. But they are so fantastically unimaginative with this power that they simply feed it directly into the banking system. Gee, small wonder that the biggest beneficiaries of this mechanic have been real estate, equities, and financial assets. Overwhelmingly things that the rich and ultra-rich own disproportionately.

So if you want to fix it, let's lock our currency to something that doesn't allow the government to devalue it massively in a manner that flows almost directly to the richest people in the country. Let's stop artificially suppressing interest rates so that the wealthiest in this country can get nearly unlimited free money to spend in whatever way they see fit. Let's stop protecting gigantic corporations and Banks from the financial Doom of their poor decision making every time it comes home to roost. Too big to fail should be considered hate speech. Anything short of that it's just another trick fuck bit of legislation that will end up having second third order effects worse than the problem it was trying to solve, without addressing the root issue.

If you are saying the US government, as in the federal government that has existed since the 1930s, is ineffective, then I agree and disagree. If you are saying that this is a Biden problem, I'll disagree.

I do agree that you have to lock your currency to something that doesn't let the government devalue it. But once you've left, you can't go back. Have you seen the government operate even on a CR where they don't get their 3% increase? The Air Force modernization folks damn near shut down. If you lock the currency now, you are effectively stating that you will significantly curtail spending in every single government expenditure for the next 50+ years. Which, sure, might be necessary, but not if you want to maintain the quality of life you have or the benefits of the American empire.

The natural progression of fixed currencies to fiat systems has been seen for millennia in countless societies from the Romans to the Chinese to the Dutch to the British to, now, us. While you are correct that it is partially driven by the ultra-wealthy, it is also driven by populist governments and the middle class and working class demanding their lives be improved. When you run out of real growth, you have to create it with Fiat. So you as the government decouple and you pump money into the system to continue the growth. There is literally no stopping this in the natural cycle of nations. Show me one example. Obama did quantitative easing. Trump did a shitload of quantitative easing. Biden is actually tightening, which is a laudable act, but there's still $7T on the balance sheet.

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

It's the old saying hard times strong men, strong men easy times, easy times weak men, blah blah blah. Well we are in the weak men times. And you are the weak men. And I am a weak man. I EXPECT to be paid $250k a year for a job that lets me telework part time. It's actually absurd.  But I expect to be paid that because my fellow countrymen have equally ridiculous expectations. I can't get fast food now without paying $15. This is a positive feedback cycle that cannot be fixed in a pretty way. You either have the country explode into revolution to do what you said, or you choose slow relegation to a shit economy like the UK has been seeing the past 50 years.

On 4/25/2024 at 9:22 PM, busdriver said:

The executer to the will still has to pay debts from estate assets prior to dishing out inheritance (which is where all the tax bennies are).  So capital gains are gonna get paid eventually.  Yes?

There have been a bunch of proposals to go after this in the past.  Taxing gains at death before transfer, and dropping the carryover basis in favor of rollover basis being the two easy ones to remember.  Either of these is better than taxing money that doesn't exist.

Taxing unrealized gains is taxing money that doesn't exist.  This is emotionally driven nonsense.

No, it's not. You don't understand stepped up basis.

This is what is done.

1) Buy: buy an asset and have it appreciate. Say you spend $1000 on a stock and it is now worth $2000. This is $1000 in capital gains

2) Borrow: instead of selling $1000 of stock and paying capital gains tax on $1000, pledge $1000 of stock as collateral for a loan of $1000 that you can spend as you see fit

3) Die: keep holding the stock and loan until you die. Your heir can sell the stock for $2000 with no capital gains due to step-up basis rules. Look at this rule, this is what you don't understand, and I didn't understand for a long time. Using the new basis, pay off your $1000 loan, and have $1000 leftover in cash (the original value of the stock)

https://www.law.cornell.edu/wex/stepped-up_basis

Stepped up basis allows inheritors of a stock to change the basis to the value at the time a person inherits it rather than the value of it when it was originally purchased. No capital gains are paid on inherited stock.

You have spent $1000 on a stock, used $1000 of the gains to buy stuff with, and passed the original $1000 to your descendants without ever paying taxes on those gains in your lifetime. They happily go into your estate intact and with no capital gains tax due.

Edited April 27 by Negatory

[busdriver]

8 minutes ago, Negatory said:

You don't understand stepped up basis.

I do.  My point is that the executor of the will must pay off legitimate debts before distributing inheritance.  Those debts are paid from the assets of the estate.  The kiddos don't get anything until the debts are paid.

[Negatory]

14 minutes ago, busdriver said:

I do.  My point is that the executor of the will must pay off legitimate debts before distributing inheritance.  Those debts are paid from the assets of the estate.  The kiddos don't get anything until the debts are paid.

Estate tax is levied on net assets. Passing the $2000 of stock and $1000 loan on your assets to an heir would be taxed the same as passing $1000 to an heir. So the capital gains that were "borrowed" don't get hit by the estate tax either.

Then, once the heir gains the assets, their basis resets.

 

Plus, regardless, it entirely negates the tax during the life of the individual. Estate taxes exist no matter what. Income and/or capital gains are supposed to exist before said person dies.

 

Additionally, even if you don't believe that this is possible and they will be hit by some tax at some point, you seem to agree that they can defer taxes. There is always a benefit to paying taxes later in the time value of money.

Edited April 27 by Negatory

[busdriver]

12 minutes ago, Negatory said:

Estate tax is levied on net assets. Passing the $2000 of stock and $1000 loan on your assets to an heir would be taxed the same as passing $1000 to an heir. So the capital gains that were "borrowed" don't get hit by the estate tax either.

 

Plus, regardless, it entirely negates the tax during the life of the individual. Estate taxes exist no matter what. Income and/or capital gains are supposed to exist before said person dies.

-Not talking estate tax.  Just the mechanics of technique.   The heir pays the debt rather than allowing the estate to cover it, which makes it gone and frees the burden from the estate and allows the step-up trick to work.  Got it.

I don't care at all about your last point.

[Lord Ratner]

3 hours ago, Negatory said:

Double edged sword here (regressive policy) that hurts the working class more. Billionaires need low interest loans to keep wealth they don't need. Workers need it to purchase essentials like housing, transportation, and food. Raise the interest rates and the only people that actually may starve are poor people.

You're thinking short term. In the long term suppressed interest rates have inflated the assets that are usually financed, such as houses and cars. And now the workers can't afford those things. Inflation affects everyone, but when the wealth y have quadrupled their wealth, even a 50% haircut due to inflation means they're twice as well off. The rest of us however have not experienced a similar increase in wealth, and are there for much more affected by inflation. Fuck with the economy at your (our) peril.

Food is not financed, so that's not a factor. And for those who are financing food, they are way past the interest rate mattering.

 

3 hours ago, Negatory said:

From a utilitarian approach, it is beneficial to the group (society) and only marginally affects people who are entirely way too well-off, therefore it is most likely in the best interest for the largest number of people.

You are delusional if you think property tax primarily affects people who are "entirely way too well off."

Honestly it's kind of hard to conceptualize anything after that statement. It indicates that you live in an alternate universe.

Also, ethical arguments don't have to take into account second and third order effects? What? So ethics only matter on the date of legislation? Honestly if this is how you think about anything it starts to make a little bit more sense that you support these emotional "fairness" policies.

3 hours ago, Negatory said:

If you are saying the US government, as in the federal government that has existed since the 1930s, is ineffective, then I agree and disagree. If you are saying that this is a Biden problem, I'll disagree.

Sure, this is a Biden problem. It was a trump problem. It was also an Obama problem. And it was definitely a bush problem since QE was invented under his watch. But really this was a Nixon, Johnson, Carter, Reagan, and Bush H.W. problem too since we unpegged from gold in 71.

3 hours ago, Negatory said:

If you lock the currency now, you are effectively stating that you will significantly curtail spending in every single government expenditure for the next 50+ years. Which, sure, might be necessary, but not if you want to maintain the quality of life you have or the benefits of the American empire.

Yeah dude, once again, second and third order effects. I care more about my children and grandchildren having a brighter future than I do the continuance of cheap TVs and meme stocks. The sooner we jam a stick in the spokes of modern monetary theory, fiat currency, and Keynesian economics, the better. We are now in a economic cancer situation. Taking the chemo now is going to suck, but it's going to suck a whole lot more if you wait till stage 4.

3 hours ago, Negatory said:

Biden is actually tightening, which is a laudable act, but there's still $7T on the balance sheet.

Biden is not tightening. Powell is tightening. To the great consternation of many Democrats. And don't worry, when Trump wins the election it will be the Republicans spending trillions that we don't have. There are no responsible parties anymore. However the real problem is that we aren't actually tightening yet. The drawdown of fed assets has been exceeded by the drawdown in the reverse repo facility, which is why liquidity has increased rather than decreased. Once the RRP runs dry, if, and it's a huge if, the Fed continues to tighten, only then will we see the effects.

 

[HeloDude]

8 hours ago, Negatory said:

Also, good luck funding the Manhattan project or global military without an income tax.

I already said I’m against the income tax, you don’t have to sell me on it.