by | BIDEN, BLOG, BUSINESS, ECONOMY, ELECTIONS, TRUMP
Democrat Presidential Candidate Joe Biden not only wants to return capital gains to Obama-era rates, but furthermore he would increase them while simultaneously returning the top rate on ordinary income. Biden has said, “I believe we should, in fact, the capital gains tax should be at what the highest minimum tax should be; we should raise the tax back to 39.6 percent instead of 20 percent.”
Add to that the 3.8% Obamacare tax (NIIT) instituted in 2013, and he would have some taxpayers effectively paying a 43.4% long-term capital gains tax! The current total top rate is 23.8%
Biden should know better. The actual impact of raising the capital gains rate by the Obama administration was devastating to the economy. By discouraging the sale of assets, there was reduced capital available for new projects and opportunities, reducing job creation and wages, and resulting in lower revenue collection. Furthermore, the expected after tax rate of return on new projects went down, assuring that fewer of them went forward.
Additionally, there were a number of localities, like the state of California and New York City, which have tax rates of 12% or more and also a large concentration of wealthy people and high performing businesses. Obama’s capital gains rates of more than 37% brought elective capital projects to a crawl. And Biden wants to raise them even higher?
Shame on Biden. Why sell an asset to fund further investment and opportunity when the government takes a large share of the gain with the loss remaining all yours? It makes virtually no economic sense to do so. A higher capital gains rate put a stranglehold on risk-taking and available capital, and would negatively impact the economy.
by | ARTICLES, BLOG, ECONOMY, FREEDOM, LAW, POLITICS, TAXES
Capital gains are unusual in that the taxpayer has the ultimate decision as to whether and when to sell his asset (stock, his business, a work of art, etc.) The higher the tax rate, the less likely he is to sell, seeing as he will only be able to enjoy or reinvest what is left of the proceeds after tax. History has borne this out – capital gains tax collections go down in the periods after increases, and go up in the years after decreases.
The actual impact of raising the capital gains rate by the Obama administration was devastating to the economy. By discouraging the sale of assets, there was reduced capital available for new projects and opportunities, reducing job creation and wages, and resulting in lower revenue collection.
Furthermore, with higher capital gain rates, the expected after tax rate of return on new projects went down, assuring that fewer of them went forward.
Additionally, there were a number of localities, like the state of California and New York City, which have tax rates of 12% or more and also a large concentration of wealthy people and high performing businesses. The Obama federal capital gains increase brought total capital gains rates of more than 37%. A capital gains rate this high virtually brought elective capital to a standstill. This amounted to a rate of almost 60% higher than the rate during the Bush Administration (15%) – when growth and the economy were very strong.
The higher capital gains rate put a stranglehold on risk taking and available capital. Why sell an asset to fund further investment and opportunity when the government takes a large share of the gain with the loss remaining all yours? It makes virtually no economic sense to do so, and the result meant an already anemic economy continued to struggle. Lowering the capital gains rate as part of the Trump Tax Reform package is a positive game-changer for the economy.
by | BLOG, ECONOMY, FREEDOM, POLITICS, TAXES
The concept of an American President (Obama) going after people making a lot of money and paying a relatively low tax rate on it was particularly naïve; it displayed an absolute lack of familiarity with how people get wealthy. As a CPA, I can attest to the fact that the most common way people accumulate massive wealth is either by a huge amount of hard work (creating a successful business) or selling an asset (an invention, real estate, etc).
Many people who file tax returns with large amounts of income, such as selling a business for $10 million, will have a multi-million capital gains amount. It’s not that the higher income earners have some sort of capital gains loophole, but it’s really that the wealthy have done something well to attain the American Dream. And when they do strike it rich through their effort, part of their wealth is treated as a capital gain and it gives those earners a chance to keep a part of it. Knowing that there is a low capital gains rate is an extra incentive to work hard and be successful.
Many of my clients are wealthy, and I have experienced time and again that they will come to me and ask the question: if they are successful, can they keep the majority of their money?” This is because they know that government wants to take more from the highest income earners who have proven their success, while at the same time, the government is quite happy to let them lose on their own on their particular endeavor.
Most in the top echelon get there from a one-time income-producing significant event. To punish such success by having a high capital gains tax only served to drive a deeper wedge between the have- and have-nots in an attempt to level the economic playing field. Trump would do well to lower the capital gains rate and and restore a sense of trust with those who work hard, contribute to the economy, and attain the American Dream.
by | ARTICLES, GOVERNMENT, TAX TIPS, TAXES
Capital Gains and Losses – 10 Helpful Facts to Know
When you sell a capital asset, the sale normally results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are 10 facts that you should know about capital gains and losses:
1. Capital Assets. Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.
2. Gains and Losses. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.
3. Net Investment Income Tax. You must include all capital gains in your income and you may be subject to the Net Investment Income Tax if your income is above certain amounts. The rate of this tax is 3.8 percent. For details, visit IRS.gov.
4. Deductible Losses. You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.
5. Limit on Losses. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.
6. Carryover Losses. If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return.
7. Long and Short Term. Capital gains and losses are treated as either long-term or short-term, depending on how long you held the property. If you held it for one year or less, the gain or loss is short-term.
8. Net Capital Gain. If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.
9. Tax Rate. The tax rate on a net capital gain usually depends on your income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
10. Forms to File. You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses, with your tax return.
For more information about this topic, see the Schedule D instructions and Publication 550, Investment Income and Expenses. You can visit IRS.gov to view, download or print any tax product you need right away.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
Additional IRS Resources:
Form 8960, Net Investment Income Tax— Individuals, Estates, and Trusts
Capital Gains and Losses
by | ARTICLES, BLOG, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAX TIPS, TAXES
The article written by Josh Zumbrun of the Wall Street Journal on December 31, entitled, “Tax Rate for Top 400 Taxpayers Climbed in 2013,” should have been fairly straightforward with interesting data on that particular tax demographic. Unfortunately, the author distorts some aspects of the tax code, which makes the article a bit suspect and disappointing.
Zumbrun begins by gleefully announcing that “Tax rates on the 400 wealthiest Americans in 2013 rose to their highest average since the 1990s, after policy changes that boosted levies on capital gains and dividends.”
Here’s the first major problem. Tax rates may have risen in 2013 — but not because of rate increases on capital gains and dividends; several other tax changes also affecting the wealthy happened due to the Fiscal Cliff negotiations. Some of these include 1) The top marginal rate increased from 35 percent to 39.6 percent; 2) a phase out of personal exemptions; 3) a phase down of itemized deductions; 4) an increase in the death tax.
However, the author fails to mention those in an attempt to focus solely on capital gains.
This is especially evident in his next section. “Over the years, these taxpayers have devised strategies to collect more of their income as capital gains—profits from the sale of property or an investment—and dividends.” Unfortunately, the author has a total lack of understanding of capital gains. He erroneously, like many others, writes as though capital gains are income and thus lumps capital gains discussions together with income discussions. But that distorts the tax picture and tax strategy.
Capital gains are unusual in that the taxpayer has the ultimate decision as to whether and when to sell his asset (stock, his business, a work of art, etc.) The higher the tax rate, the LESS likely he is to sell, seeing as he will only be able to enjoy or reinvest what is left of the proceeds AFTER TAX. History has borne this out – capital gains tax collections go down in the periods after increases, and go up in the years after decreases.
The actual impact of raising the capital gains rate is also devastating to the economy. By discouraging the sale of assets, there is reduced capital available for new projects and opportunities, reducing job creation and wages, and resulting in lower revenue collection.
Furthermore, with higher capital gain rates, the expected after tax rate of return on new projects will go down, assuring that fewer of them will go forward.
But none of this seems to matter to the author. By alluding to “strategies to collect more income as capital gain profits” and describing how, with impending rate increases, “many of the highest earners sold assets before the deadline to avoid higher taxes, leading to a huge surge in income in late 2012,” the author is subtly suggesting that these actions are somehow wrong, underhanded, or unfair.
Juxtaposing that with his opening statement about how tax rates rose on the wealthiest Americans in 2013, the author seems to be dipping his toes into the class warfare playbook of “taxing higher income earners more is a good.”
This becomes readily apparent in the second half of the article, where the author brings up how the “capital-gains rate has become a prominent feature of 2016 presidential candidates’ tax proposals” — pointing out that top Republican candidates such as Cruz or Rubio would seek to lower the rates.
He also helpfully includes quotes about the wealthy and capital gains, and all the tax revenue they bring in. ““It’s not chump change,” said Len Burman, director of the Tax Policy Center, a nonpartisan think tank. Capital-gains taxes bring in more than $100 billion in some years “and almost all of it is realized by people with very high incomes,” he said. In 2013, the 400 households earned 5.3% of all dividend income and 11.2% of all income from sales of capital assets.”
Thus, using 2013 as a bellweather year for higher tax rates for the wealthy, the author tries to correlate it with capital gains — in order to suggest to the reader that higher capital gains taxes on the wealthy is an economic good. This is where he is woefully incorrect. What could have been an interesting article was sprinkled economic ignorance and a subtle agenda.
