Here We Go Again: Tax Increases Coming?
Obama has proposed tax increases on "the rich" even as he claims to be supporting the "middle class."
Capital gains tax hikes on those earning more than $500,000 certainly appear to single out the prosperous among us. In certain circumstances, rich people will pay higher taxes on their capital gains. But, as you might suspect, if people are really rich, rich enough to hire professionals to guide their decision-making, they can minimize or even totally avoid this increased tax.
For example, rich people who invest in tangible assets like real estate typically avoid paying capital gains taxes when they sell properties. Actually, they defer the taxes owed, but the fact is they can do this for a long time, and ultimately can even avoid paying the taxes altogether. For intangible assets like stocks and bonds, it's harder to avoid paying taxes on gains, but remember that a) you only pay capital gains tax when you sell an item, not simply when it increases in value; and, b) active tax planning - for example harvesting tax losses on investments that lose value - can, again, minimize or even eliminate those taxes.
As for the proposed tax increases on inherited property, in fact this will have a negative impact on middle class families. Just think about the typical couple who own a home and, after they die, pass that home to their children. If they do that now, the children can likely sell the home and pay no taxes. With the proposed regulations, they would pay tax on any amount that exceeds what the parents paid for the house (plus any improvements to the home over the years). And note, please, that many families may not have the records to prove that improvements were made, so they may wind up in the position of paying taxes on gains that really don't exist.
And when it comes to those "intangible" assets, like stocks and bonds, the same requirement to provide records to demonstrate the actual amount paid for the investments would, in many cases, be difficult to obtain. If you've ever dealt with the estate of a person who wasn't particularly good at record-keeping, you know what I'm talking about.
So the middle class family who might have inherited a few bucks from their hard-working parents who saved their money, bought a house, maybe invested some of their savings in prudent investments, will in all likelihood derive a much-reduced benefit from those hard-working parents if the new regulations are passed.
On the other hand, there are some benefits that may provide some tax relief for middle-class individuals and families in the proposed regulations like increased child credits and education deductions. And if history guides the fate of these proposed changes, the increase on inheritance tax may not see the light of day, as it has been rebuffed many times in the past. Of course, there's always the chance that this time will be different.
But our main point here is that the grandstanding regarding how the "rich" will be soaked in order to benefit the middle class may prove illusory. And what's particularly objectionable in this approach is the implication that the government will be playing Robin Hood - taking from the rich to benefit the poor, or at least the middle class. It very well may prove to be pure smoke and mirrors, simply more political shuffling intended to garner votes in the next election from the dupes who believe the nonsense politicians continually shovel down their throats.
Mr. Obama will outline the measures in his State of the Union address Tuesday night. He will propose using revenue generated from the tax increases—which would fall mainly on high-income households—to pay for a raft of new breaks aimed at boosting stagnant incomes for low- and middle-income households.Two of the proposed taxes - an increase in capital gains rates, as well as an increase in taxes on inherited wealth - supposedly target those of means, but they really don't.
Capital gains tax hikes on those earning more than $500,000 certainly appear to single out the prosperous among us. In certain circumstances, rich people will pay higher taxes on their capital gains. But, as you might suspect, if people are really rich, rich enough to hire professionals to guide their decision-making, they can minimize or even totally avoid this increased tax.
For example, rich people who invest in tangible assets like real estate typically avoid paying capital gains taxes when they sell properties. Actually, they defer the taxes owed, but the fact is they can do this for a long time, and ultimately can even avoid paying the taxes altogether. For intangible assets like stocks and bonds, it's harder to avoid paying taxes on gains, but remember that a) you only pay capital gains tax when you sell an item, not simply when it increases in value; and, b) active tax planning - for example harvesting tax losses on investments that lose value - can, again, minimize or even eliminate those taxes.
As for the proposed tax increases on inherited property, in fact this will have a negative impact on middle class families. Just think about the typical couple who own a home and, after they die, pass that home to their children. If they do that now, the children can likely sell the home and pay no taxes. With the proposed regulations, they would pay tax on any amount that exceeds what the parents paid for the house (plus any improvements to the home over the years). And note, please, that many families may not have the records to prove that improvements were made, so they may wind up in the position of paying taxes on gains that really don't exist.
And when it comes to those "intangible" assets, like stocks and bonds, the same requirement to provide records to demonstrate the actual amount paid for the investments would, in many cases, be difficult to obtain. If you've ever dealt with the estate of a person who wasn't particularly good at record-keeping, you know what I'm talking about.
So the middle class family who might have inherited a few bucks from their hard-working parents who saved their money, bought a house, maybe invested some of their savings in prudent investments, will in all likelihood derive a much-reduced benefit from those hard-working parents if the new regulations are passed.
On the other hand, there are some benefits that may provide some tax relief for middle-class individuals and families in the proposed regulations like increased child credits and education deductions. And if history guides the fate of these proposed changes, the increase on inheritance tax may not see the light of day, as it has been rebuffed many times in the past. Of course, there's always the chance that this time will be different.
But our main point here is that the grandstanding regarding how the "rich" will be soaked in order to benefit the middle class may prove illusory. And what's particularly objectionable in this approach is the implication that the government will be playing Robin Hood - taking from the rich to benefit the poor, or at least the middle class. It very well may prove to be pure smoke and mirrors, simply more political shuffling intended to garner votes in the next election from the dupes who believe the nonsense politicians continually shovel down their throats.
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