With Biden’s cap gains tax, it won’t make sense to work anymore
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Poast new message in this thread
Date: April 23rd, 2021 11:43 AM Author: Outnumbered galvanic karate
I’m already paying ~50% tax rate after state and local taxes. Biden’s proposed capital gains tax is for all people who EARN $1mm or more a year. That’s not for capital gains over $1mm, it is all earnings. This basically means that the marginal taxes on my salary will be somewhere around 90%.
Think about it. If, one year ago, you had a $2mm portfolio invested in the S&P 500, you will keep virtually none of the salary you earned this year (assuming you’re near the top tax bracket).
EDIT: assumes you are realizing your gains, rather than just holding and hoping the democrats don’t sweep the tax rates higher
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42335790) |
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Date: April 23rd, 2021 6:02 PM Author: irradiated spruce electric furnace
No. There are basically two forms of taxed income: "earned income," which is money earned from labor, like wages and self-employment income, and "capital gains," which is the "gain" on a capital investment.
So let's say a bigshot like you earns $1M in 2021, and has $5M in the market, with a basis (meaning the original acquisition price) of $4M.
Ignoring the lower marginal rates on the first $400K, let's say you pay 50% between feds and state. So you keep $500K in your checking account at the end of the year from your long-haul trucking practice.
If you don't liquidate your market holdings, you don't pay anything. But let's say you are confident the market is going to crater once all incentive for work and investment is eliminated by Biden, so you decide to cash out your $5M. You have a $4M basis, so you keep that $4M. You have a $1M capital gain, so you pay $500K when you cash out.
Make sense? Your tax rate is 50% -- 50% of your earned income, and 50% of your capital gain. You don't add those together and say that your tax rate was 100%.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42338526)
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Date: April 23rd, 2021 6:10 PM Author: Gaped orange site
I interpreted the proposed plan as:
For those who have **earned income** $1m or over, then their capital gains rate will be 50%.
In other words, if you make $100k per year at your job but for some oddball reason are taking $2m in capital gains each year (extreme scenario just for illustration), you wouldn't be subject to the 50% super tax on the $2m cap gain--you'd just pay it at the usual rate, which in this case would be 15%.
Conversely, if you earned $1.01m per year, even if you took a paltry capital gain (say 5k), that 5k capital gain would be taxed at 50%.
Am I misreading the proposal?
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42338546) |
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Date: April 23rd, 2021 6:21 PM Author: irradiated spruce electric furnace
I think this pretty much sums it up, and explains why OP is hyperventilating unnecessarily:
"The White House plan would instead tax capital gains as ordinary income, at a top proposed rate of 39.6%. It would apply to those with more than $1 million in annual income, according to Bloomberg."
https://www.cnbc.com/2021/04/22/how-the-biden-capital-gains-tax-proposal-would-hit-the-wealthy.html
Taxes are confusing, and are easily mis-explained to rile up proles who aren't close to being subject to them.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42338581) |
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Date: April 23rd, 2021 6:24 PM Author: Outnumbered galvanic karate
Ok, super genius. That’s not what Biden proposed, so let me give you a counter example.
A company you own is bought, and part of it comes as a cash consideration. You wind up with $999k in capital gains. If capital gains were calculated marginally, like earned income taxes, you would expect to pay 0% on the first $30k, 15% on the next $60k, and 20% beyond that, up to $1mm, after which you would start paying 40%.
But Biden didn’t propose that.
Biden proposed that, if the sum of all your sources of income are greater than $1mm (short term passive, long term passive, earned income, etc), you pay 40% on long term passive and capital gains. Even if we are being generous and assuming that he is going to tranche capital gains so that you only owe 40% on each dollar over $1mm, your current income now pushes your total capital gains over $1mm, where they will be taxed at 40%. And the income you earned to get there is taxed at 50%. If you are $100k, you owe k50k in taxes, plus $40k in capital gains. To be fair, the marginal increase in capital gains is only 20%, not the full 40%, but that still comes out to a 70% marginal effective rate.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42338591) |
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Date: April 23rd, 2021 6:28 PM Author: Arrogant chartreuse locale
Are you sure about this:
if the sum of all your sources of income are greater than $1mm (short term passive, long term passive, earned income, etc)
Are you sure about this:
{claim that if condition is met, all LTCG would be at 40%}
Those are two critical elements that need to be understood about the proposal.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42338609) |
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Date: April 23rd, 2021 6:32 PM Author: irradiated spruce electric furnace
No. Just no.
"The White House plan would instead tax capital gains as ordinary income, at a top proposed rate of 39.6%. It would apply to those with more than $1 million in annual income, according to Bloomberg."
You'd pay 39.6% on your cap gain (there are some Medicare or Medicaid surtaxes of a few percent also). I highly doubt they would apply the 39.6% rate to your $100K earned income, but I could be wrong about this; not sure whether the details have been fleshed out. But even if they did, you'd pay 39.6 on your earned income, and 39.6 on your cap gain, for a total effective rate of 39.6%. What's so hard about this?
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42338635) |
Date: April 23rd, 2021 11:46 AM Author: Gaped orange site
One effect of this may be to just keep more money in the market that's already there. If you're making over $1m per year, I have to imagine you have enough liquidity / leverage access to not *have* to be realizing capital gains. I suspect a lot of these people are just going to let this money sit and hope for a tax regime change in the next 5 years.
But wealthy people evaluating a new investment are absolutely going to be disincentivized because of this.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42335810) |
Date: April 23rd, 2021 11:48 AM Author: Exhilarant sienna senate
More than disincentives, it’s just a massive signal of the future direction of the US. Why would I risk capital on starting a US business when tax rates are already 50% — who in their right minds think they will just stay there and not increase over time?
I’ll take my money, horde it, and Tommy T it up and enjoy my life in some third-world country rather than risk it in a business and kill myself getting it off the ground and have 50+% go to people who didn’t do anything to create it and who actively hate me.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42335831) |
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Date: April 23rd, 2021 2:25 PM Author: Disrespectful Wonderful Range
Yeah this. I /think/ he's saying that his cap gains from his 2M invested last year, at the new rate, will be as if cap gains rate had stayed the same but marginal tax rate on his salary had been raised to 90%
this informs his thesis that it incentivizes not working, as if suddenly by quitting his job he won't pay that cap gains rate
also i don't understand how his one-year cap gains on 2M invested will dwarf his apparently >1M annual salary that it will increase his marginal tax rate to 90%
nothing about his OP makes sense
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42337180) |
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Date: April 23rd, 2021 5:40 PM Author: Outnumbered galvanic karate
I have no idea why xo finds these concepts so hard to understand, but lets put some numbers behind it to illustrate the point.
Assume you have $675k in realized capital gains and long term passive income coming in FY2022. You're trying to decide whether you should quit your current consulting gig, where you earn $330k/year.
If you were to keep working, your total pre-tax income is $1.005mm. Since the Biden rule stipulates that if your TOTAL take home (not just capital gains / long term passive income) is over $1mm, you get bumped up to a 40% tax bracket on capital gains / long term passive. You will owe 50% of you $305k salary, plus 40% of your $675k capital gains, coming to a total of $435k in taxes.
If you were to quit your job, you would not cross the $1mm threshold, and you would only owe 20% on your long term capital gains, for a total of $135k.
By working, you would earn another $305k of earned income, but pay an additional $300k in taxes, coming out to a net effective marginal tax rate on your income of 90%.
Yes, i get it. Taxes are marginal. Maybe you wouldn't owe 40% on the first $1mm, just every dollar after that, etc. The point is that the tax rate has gone up enough that the difference in rates between tranches, and the combining of income and capital gains to produce income thresholds, make it more appealing to simply not work and allocate more cash each year out of capital gains than it is to continue slaving away and have the marginal advantage of such work be minuscule.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42338417) |
Date: April 23rd, 2021 3:11 PM Author: alcoholic big tanning salon jewess
The cap gains tax is an awful idea and I think the full implications of this aren't even felt yet, but I don't think OP is very clear. Sure, if you make $990k/year then it sounds like you will absolutely not want the extra $10k/year because that will push you into the $1m bracket and you will have to pay a high cap gains tax if you sell anything (though, couldn't you just wait until next year where you're under and sell then?).
In reality, we have no idea how this is going to work.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42337568) |
Date: April 23rd, 2021 5:48 PM Author: irradiated spruce electric furnace
I heard they were going to do it the easy way, by just having the banks send them 50% of the balance in each account.
OMG THIS IS TERRIBLE CAN ANY1 CONFIRM
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42338462) |
Date: April 23rd, 2021 9:05 PM Author: Arousing police squad depressive
EPAH shows his true cali shitlib colors in this thread.
"just pay 70% marginal tax rate, whats the big deal!@"
fuck you faggot.
(http://www.autoadmit.com/thread.php?thread_id=4818024&forum_id=2#42339276) |
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