Across the board tax rate...fair for all?

[Hikergirl]

Your friend is still welcome to save as much as she wants for retirement. It's just the tax deferred/deductible portion that's limited.

True, but in the spirit of the conversation I think the pp's point was to reiterate that tax deductions and or credits do not apply equally across the board.

 

[DopeyDame]

True, but in the spirit of the conversation I think the pp's point was to reiterate that tax deductions and or credits do not apply equally across the board.

Right - which is another reason to just get rid of most deductions. If someone wants to save a lot for retirement (which is great!) there's a good argument that it shouldn't have an impact on the tax code.

 

[DopeyDame]

Yes, she still put it in a retirement account. However, it isn't fair and now she will be taxed twice on that money.

How will she be taxed twice - genuinely asking, not trying to be snarky.
If she invests it with post tax money, she should only be taxed on the dividends/earnings but she won't be taxes on the base investment when she spends during retirement.

 

[gotomu212]

In the past it has seemed that those calling for flat taxes because they think it is more fair believe that they would receive lower taxes as a result. I think there is a misconception that those at the lower income levels are the only ones not “carrying their fair share”.

However those at the very top are actually paying more dollars into the treasury. Adjusting to a flat tax would mean that most everyone in the middle or lower levels would need to pay significantly more to cover the high earners- I don’t believe the people understand that advocating for a flat tax is against their own interest unless they are at the very top of the income bracket (just think how many middle class families making $100k it takes to offset the $10million dollar payer.

As an example. Let’s say current $100k earners pay 10% and $10million earners pay 30% (I’m not doing any progressive tax or deductions just for simplification) and let’s say there are 20 $100k families and 1 $10million. The government is getting $3,200,000 million but only 1 family is responsible for $3m of that. To get the same revenue the 20 families would need to increase to 27%. 20 families have almost tripled their tax burden to offset one multimillionaire. And remember that’s families making $100k which is pretty comfortable in most parts of the world.

The other side of it is where exactly are low income earners going to get their tax money? If taxes on them ate into another 10-20% of their income (which is the general economic consensus of what it would take) they frankly would not be able to live. Those in the lower brackets are not making enough to house, cloth, and feed themselves now taking away a fifth of their income is not possible.

 

[lifesavacation]

How will she be taxed twice - genuinely asking, not trying to be snarky.
If she invests it with post tax money, she should only be taxed on the dividends/earnings but she won't be taxes on the base investment when she spends during retirement.

And there is the option of a Backdoor Roth conversion. That’s what we do.

 

[Colleen27]

Yes, she still put it in a retirement account. However, it isn't fair and now she will be taxed twice on that money.

Not exactly. The principle will be taxed before the investment is made, while the growth is taxed at the time of withdrawal. Each dollar is still only taxed once.

 

[longboard55]

you need to understand the difference in taxable income and total income. Lower paid workers pay taxes on their entire revenue, i.e. their paycheck. Rich people pay taxes on their taxable income after a mountain of exclusions, deductions, and tax avoidance schemes that is a fraction of what their total income is.

Do rich people pay 35% on their income, no way, they pay 35% on their taxable income, which in many cases is zero.

 

[Hikergirl]

you need to understand the difference in taxable income and total income. Lower paid workers pay taxes on their entire revenue, i.e. their paycheck. Rich people pay taxes on their taxable income after a mountain of exclusions, deductions, and tax avoidance schemes that is a fraction of what their total income is.

Do rich people pay 35% on their income, no way, they pay 35% on their taxable income, which in many cases is zero.

Got any proof of that? I'd love to know how I could do that.

 

[wmmoorejr]

And there is the option of a Backdoor Roth conversion. That’s what we do.

Exactly! Make a non-deductible contribution to your traditional (which anyone can do as long as you have the same amount of earned income) and then immediately convert it to a ROTH.

 

[longboard55]

Got any proof of that? I'd love to know how I could do that.

Own real estate, have your money in tax deferred investments, open a charitable trust.

Lucas sold star wars to Disney for 4 billion as I recall, and put the income in a charitable trust. Taxes= zero

 

[Hikergirl]

Own real estate, have your money in tax deferred investments, open a charitable trust.

Lucas sold star wars to Disney for 4 billion as I recall, and put the income in a charitable trust. Taxes= zero

If I had an extra $4B laying around maybe

 

[Christine]

Yes, she still put it in a retirement account. However, it isn't fair and now she will be taxed twice on that money.

No, she won't be taxed twice. Why does she think that?

 

[longboard55]

If I had an extra $4B laying around maybe

you think someone like Lebron James is not loaded with corporations to push his money around. That is how they do it. Fly in a private jet and say its tax deductible for the Lebron James corporation. You can not do that when you work at Walmart.

Ever notice how movie stars are always buying exotic houses and islands, they are cashing in investments and putting it in a 1031 exchange to avoid taxes

 

[morgan98]

you need to understand the difference in taxable income and total income. Lower paid workers pay taxes on their entire revenue, i.e. their paycheck. Rich people pay taxes on their taxable income after a mountain of exclusions, deductions, and tax avoidance schemes that is a fraction of what their total income is.

Do rich people pay 35% on their income, no way, they pay 35% on their taxable income, which in many cases is zero.

What do you define as rich? If you have two high income W-2 employees, there really are no deductions and many credits and deductions phase out.

The general issue with this conversation is there is no one size fits all "rich" or "poor"

 

[soccerdad72]

you need to understand the difference in taxable income and total income. Lower paid workers pay taxes on their entire revenue, i.e. their paycheck. Rich people pay taxes on their taxable income after a mountain of exclusions, deductions, and tax avoidance schemes that is a fraction of what their total income is.

Do rich people pay 35% on their income, no way, they pay 35% on their taxable income, which in many cases is zero.

Problem with statements like this is always in the definitions. What you consider "rich" always varies from person to person. And in many cases, the notion of "tax avoidance schemes" is greatly over-exaggerated.

No matter what the tax plan, there is never going to be one that is truly "fair" for all.

 

[gottaluvPluto]

How will she be taxed twice - genuinely asking, not trying to be snarky.
If she invests it with post tax money, she should only be taxed on the dividends/earnings but she won't be taxes on the base investment when she spends during retirement.

I really don't know how she will be taxed twice. She was very upset and vented about the amount of taxes she had to pay, trying to put money away for retirement and not being able to deduct it/ being taxed twice on it, the time she spends working and away from family and being penalized for it. I just let her talk and offered her a job change to panhandling.

 

[gottaluvPluto]

True, but in the spirit of the conversation I think the pp's point was to reiterate that tax deductions and or credits do not apply equally across the board.

Yes, that was my main point.

I think everyone should pay federal income tax and at a more fair/equal rate. Yes, I know you have to define fair/equal.

 

[Hikergirl]

you think someone like Lebron James is not loaded with corporations to push his money around. That is how they do it. Fly in a private jet and say its tax deductible for the Lebron James corporation. You can not do that when you work at Walmart.

Ever notice how movie stars are always buying exotic houses and islands, they are cashing in investments and putting it in a 1031 exchange to avoid taxes

I have no doubt that the super rich use tax shelters, I do doubt that their taxable income is $0 though.

 

[tvguy]

Are you in a rural area? I've always had a choice, and we have had some really crappy insurance plans through the years. I pretty much have to drive into suburbia for medical care, but there are three hospitals at about equal distance from me. All three accept my insurance and I have even more choices if I extend the radius out a bit more.

There's a real battle for patients, especially patients with good insurance, in this area. Smaller and rural hospitals tend to lose out and end up closing because they can't offer on-site MRI and other diagnostics and facilities that they don't really need for their patient volume. My part of the county just lost our only local (within 15 minutes) hospital because of that - people stopped going there for non-emergent care because being transferred to the next-closest facility in their system for advanced testing or specialty care was so inconvenient, and the ER was a money loser. So now the building is a walk-in clinic and birthing center, and the closest ER is in the nearest full-service hospital, about 45min away.

Nope. Sacramento, the Capital of California. Population of Sacramento County is 1.5 million
We have Kaiser Hosptials
We have Sutter Hosptials
We have Mercy Hospitals (owned by Dignity health)
We and the UC Davis Medical Center.



My Doctor belongs to a group that is exclusively linked to Sutter.
My insurance, CIGNA has a contract with Sutter and Mercy.
So you have to go to the Hospital group that is affiliated with your Doctor, and you choose your Doctor based on which insurance he or she accepts. I guess the Doctor is the link
My insurance will pay for other hospitals, but that would be out of network so they pay less.

 

[longboard55]

What do you define as rich? If you have two high income W-2 employees, there really are no deductions and many credits and deductions phase out.

The general issue with this conversation is there is no one size fits all "rich" or "poor"

If that is the case you should be maximizing 401k and ira deductions. All I am saying is the super rich are not paying 35% unless they refuse to take advantage of the options available. On the other hand if your living paycheck to paycheck like many do, you have no options

I have no doubt that the super rich use tax shelters, I do doubt that their taxable income is $0 though.

Lets take steve jobs for example, we did not take an income for his job, he always traded companies and never sold them, and he made sure apple never paid a dividend. He dies a billionaire but paid very little in taxes