Stop coddling the super rich

[danefan]

Why is it weak?

Interest is paid with earnings that have already been taxed.

Because my earnings pay interest on a loan, which then becomes earnings to the holder of the note. We are two separate entities. In a business's case, the earnings are earned by the shareholders and declared by the BOD and split after taxes are paid (on those earnings). Dividends are what is left AFTER taxes on those earnings have already been paid. True, there's usually a middle man (or group) making the dividends declaration decision, but the earnings belong to the shareholders, as owners, and have already been taxed once.

Why is it weak?

Interest is paid with earnings that have already been taxed.

I do kinda agree with AZ on this one - I'm a fan of good analogies and that just wasn't a good one. I can understand his argument with the taxing of dividends. If you use a family as an analogy for that one, it would be like taxing me for my income I bring in, then taxing my wife on the same income when I put the income in a shared bank account. Heck, you could even tax my kids then, each in turn, since they would have access to the income as well.

Your analogy kinda implies that all money is taxed several times over, indefinitely, which is true. But that's a silly point - I get taxed on my income, and then I get taxed when I spend that income on a good or service I purchase (sales tax), and then that money is taxed again when the place I bought from pays it's employees, and so on. But that's just obvious and not the same as taxing each person down the line for sharing the profit from a singular event.

So you are differentiating between interest being paid with"pre-tax" money and dividends being paid with "after tax" money. Very good point and one I can concede.

I still have the same conceptual problem though. If I invest in J&J, I expect to make money one of two ways (1) appreciation in my ownership interest and (2) dividend income. I do this, like most people to replace or supplement my salary. I do not consider either of those recognized incomes any different than my salary.

Maybe the answer really is that the corporation should get a deduction for dividends paid?

[Skjellyfetti]

Great interview with Buffett on Charlie Rose:
http://www.charlierose.com/" onclick="window.open(this.href);return false;

[GannonFan]

Because my earnings pay interest on a loan, which then becomes earnings to the holder of the note. We are two separate entities. In a business's case, the earnings are earned by the shareholders and declared by the BOD and split after taxes are paid (on those earnings). Dividends are what is left AFTER taxes on those earnings have already been paid. True, there's usually a middle man (or group) making the dividends declaration decision, but the earnings belong to the shareholders, as owners, and have already been taxed once.

I do kinda agree with AZ on this one - I'm a fan of good analogies and that just wasn't a good one. I can understand his argument with the taxing of dividends. If you use a family as an analogy for that one, it would be like taxing me for my income I bring in, then taxing my wife on the same income when I put the income in a shared bank account. Heck, you could even tax my kids then, each in turn, since they would have access to the income as well.

Your analogy kinda implies that all money is taxed several times over, indefinitely, which is true. But that's a silly point - I get taxed on my income, and then I get taxed when I spend that income on a good or service I purchase (sales tax), and then that money is taxed again when the place I bought from pays it's employees, and so on. But that's just obvious and not the same as taxing each person down the line for sharing the profit from a singular event.

So you are differentiating between interest being paid with"pre-tax" money and dividends being paid with "after tax" money. Very good point and one I can concede.

I still have the same conceptual problem though. If I invest in J&J, I expect to make money one of two ways (1) appreciation in my ownership interest and (2) dividend income. I do this, like most people to replace or supplement my salary. I do not consider either of those recognized incomes any different than my salary.

Maybe the answer really is that the corporation should get a deduction for dividends paid?

Well, it's only different than your salary from the standpoint that as a shareholder in J&J, you are in fact J&J. Their profit after taxes is your profit after taxes, shared with everyone else who has shares in J&J. The dividend is just how that profit is shared (shared between shareholders and then shared with the investment in the company). If it was already taxed at J&J, why should it be taxed when it's shared among those who really are J&J? Again, my wife isn't taxed on my income when I bring it home, nor am I on her's.

[Ivytalk]

As to dividends, it's because the money has already been subject to tax at the corporate level. By the time it gets to the stockholder, it's taxed again.

The two levels of corporate tax are a feature of our tax code. There are dividend received deductions in the Code to avoid overly egregious cases of this and for the most part, the invention of the flow-through LLC and entity classification regulations (the "check-the-box" election) have solved that issue for the everyday business owner.

I personally think it should be taxed twice though for large companies without 80% or greater owners. For example, dividend income earned by individuals that owned publicly traded companies is income in my mind just like interest income on loans.

Most publicly traded securities are corporate stocks, not LLC or partnership interests. We're not talking about pass-through vehicles for distributing business income to business owners: we're talikng about what you can buy on the market as an investor. There, you have the double-tax problem. I agree that there's no rational basis for the "carried interest."

[danefan]

The two levels of corporate tax are a feature of our tax code. There are dividend received deductions in the Code to avoid overly egregious cases of this and for the most part, the invention of the flow-through LLC and entity classification regulations (the "check-the-box" election) have solved that issue for the everyday business owner.

I personally think it should be taxed twice though for large companies without 80% or greater owners. For example, dividend income earned by individuals that owned publicly traded companies is income in my mind just like interest income on loans.

Most publicly traded securities are corporate stocks, not LLC or partnership interests. We're not talking about pass-through vehicles for distributing business income to business owners: we're talikng about what you can buy on the market as an investor. There, you have the double-tax problem. I agree that there's no rational basis for the "carried interest."

I know that. That's my point. I have a problem with investors being able to make money in the market solely in the form of dividends without being subject to the same tax as I get taxed on my salary.

Its even worse in the case of former executives that are only owners of the company because they were paid in options that make millions yearly on dividends. Why should they pay a reduced rate?

I understand the two levels of tax in our system. I guess I just don't have a problem with it. If anything the corporation should be the one who gets a break for the dividend it pays out, but even then I'm not sure that would make me feel better.

[AZGrizFan]

Most publicly traded securities are corporate stocks, not LLC or partnership interests. We're not talking about pass-through vehicles for distributing business income to business owners: we're talikng about what you can buy on the market as an investor. There, you have the double-tax problem. I agree that there's no rational basis for the "carried interest."

I know that. That's my point. I have a problem with investors being able to make money in the market solely in the form of dividends without being subject to the same tax as I get taxed on my salary.

Its even worse in the case of former executives that are only owners of the company because they were paid in options that make millions yearly on dividends. Why should they pay a reduced rate?

I understand the two levels of tax in our system. I guess I just don't have a problem with it. If anything the corporation should be the one who gets a break for the dividend it pays out, but even then I'm not sure that would make me feel better.

DF, you're missing OUR point it seems. That money the "investors" have made has ALREADY BEEN TAXED AT THE CORPORATE RATE...dividends are what's LEFT that's distributed to the business's owners. And while I might agree that a corporation should get a break for the dividends it pays out, that doesn't change the fact that currently the money has already been taxed.

[danefan]

I know that. That's my point. I have a problem with investors being able to make money in the market solely in the form of dividends without being subject to the same tax as I get taxed on my salary.

Its even worse in the case of former executives that are only owners of the company because they were paid in options that make millions yearly on dividends. Why should they pay a reduced rate?

I understand the two levels of tax in our system. I guess I just don't have a problem with it. If anything the corporation should be the one who gets a break for the dividend it pays out, but even then I'm not sure that would make me feel better.

DF, you're missing OUR point it seems. That money the "investors" have made has ALREADY BEEN TAXED AT THE CORPORATE RATE...dividends are what's LEFT that's distributed to the business's owners. And while I might agree that a corporation should get a break for the dividends it pays out, that doesn't change the fact that currently the money has already been taxed.

I get your point. I completely understand that it earnings being taxed twice. I'm going against what I said earlier, which was that I don't think its necessarily double taxation. I think it is double taxation. I'm just not necessarily against it in this instance.

I'm floundering in part because I've never really engaged in such a theoretical debate about the tax system. Its an interesting conversation to me because I am trained and paid very well to apply the tax laws as they are currently written, or should I say figure out how to minimize taxes within the confines of the tax laws as they are written. The only time I've ever had to think about whether I agreed with them is in the context of how they applied to my clients or my company. These questions are broader policy questions that I've never had to think about before.

This discussion has made me realize that I'm OK with double taxation on corporate earnings as applied to C Corps. This should not in any circumstance apply to small business and as the tax code is written now there are numerous options to avoid the two layers of tax (e.g., entity classification elections, S corps, partnerships, etc...). Publicly traded corporations with investors buying and selling stock on the market should not be protected from taxation on their dividend income just because the corporation which earned the money has already been taxed on it. Its income to the shareholder and it should be taxed exactly the same as the guy who flips burgers salary.

That's my position. Its two layers of tax and I'm completely fine with it.

[Ivytalk]

DF, you're missing OUR point it seems. That money the "investors" have made has ALREADY BEEN TAXED AT THE CORPORATE RATE...dividends are what's LEFT that's distributed to the business's owners. And while I might agree that a corporation should get a break for the dividends it pays out, that doesn't change the fact that currently the money has already been taxed.

I get your point. I completely understand that it earnings being taxed twice. I'm going against what I said earlier, which was that I don't think its necessarily double taxation. I think it is double taxation. I'm just not necessarily against it in this instance.

I'm floundering in part because I've never really engaged in such a theoretical debate about the tax system. Its an interesting conversation to me because I am trained and paid very well to apply the tax laws as they are currently written, or should I say figure out how to minimize taxes within the confines of the tax laws as they are written. The only time I've ever had to think about whether I agreed with them is in the context of how they applied to my clients or my company. These questions are broader policy questions that I've never had to think about before.

This discussion has made me realize that I'm OK with double taxation on corporate earnings as applied to C Corps. This should not in any circumstance apply to small business and as the tax code is written now there are numerous options to avoid the two layers of tax (e.g., entity classification elections, S corps, partnerships, etc...). Publicly traded corporations with investors buying and selling stock on the market should not be protected from taxation on their dividend income just because the corporation which earned the money has already been taxed on it. Its income to the shareholder and it should be taxed exactly the same as the guy who flips burgers salary.

That's my position. Its two layers of tax and I'm completely fine with it.

Then we have nothing more to say to each other. I'm not OK with it, and I resent having to part with a share of my investment income when I take a market risk to buy an existing company's shares, or if I participate in an IPO to create a market capitalization of a fledgling enterprise that will pay tax on whatever income it generates.

[JohnStOnge]

Ok. Well I'm not mega rich. Not rich at all. OK but not rich. And I say we un-rich need to stop clamoring for lots of government and just saying, "The rich will pay for it." I'm going to make a statement that I think I've documented here before but if someone wants me to I'll provide some links later and document it again.

Over time government spending has increased in per household inflation-adjusted terms while taxes per household have gone down in inflation adjusted terms for overwhelming majority of households. Taxes have increased overall, but only because maybe the top 20 percent of income earners have paid more and more in taxes in inflation adjusted terms. Off the top of my head, going from memory from the last time I looked at it, the top 20 percent carried about 56% of the total federal tax burden (not just income taxes) in 1979 vs. about 69% of it in 2005. Their average household tax liability went from about $50,000 in 1979 (in 2005 dollars) to about $80,000 in 2005. Meanwhile the bottom 20 percent when from carrying a little over 2% of the burden to carrying about 0.8%. And their average household tax liability fell from about $1,200 per year in 2005 dollars to about $680. The middle 60 percent's average tax liability stayed about the same in 2005 dollars but fell some from about %9,600 to about $9000.

This stuff of asking for more and more government over time while most people don't remotely "feel" what it cost to do that was just wrong. I've written it before but I'll write it again: It's too easy to support more and more government when you're not the one paying for it. This "tax the rich" variation of "don't tax you, don't tax me, tax the guy behind the tree" has been rotting this country at the core. Don't know if it'll ever stop but it should.

If you want lots of government, you should be willing to pay for it. The "rich" are already doing that. Most of the rest of us or not. Oh yeah, we pay taxes. But it's like me going into a store, taking a flat screen to the counter and dropping a nickel. I didn't pay for that flat screen just because I gave the cashier some money.

[Ivytalk]

Interesting stats from a Wall Street Journal editorial today. From 2007 to 2009, the number of tax filers with adjusted gross income of $1 million+ declined by 39%, from 390,000 to 237,000. Their tax payments dropped by 42%, from $309 billion to $178 billion. Those with AGI of $10 million+ decreased in number by 55%, from 18,394 to 8,274. The actual tax payments of those "super-rich" declined by 51%.

Put differently, there are many fewer "millionaires and billionaires" to "coddle" these days.

[AZGrizFan]

Ok. Well I'm not mega rich. Not rich at all. OK but not rich. And I say we un-rich need to stop clamoring for lots of government and just saying, "The rich will pay for it." I'm going to make a statement that I think I've documented here before but if someone wants me to I'll provide some links later and document it again.

Over time government spending has increased in per household inflation-adjusted terms while taxes per household have gone down in inflation adjusted terms for overwhelming majority of households. Taxes have increased overall, but only because maybe the top 20 percent of income earners have paid more and more in taxes in inflation adjusted terms. Off the top of my head, going from memory from the last time I looked at it, the top 20 percent carried about 56% of the total federal tax burden (not just income taxes) in 1979 vs. about 69% of it in 2005. Their average household tax liability went from about $50,000 in 1979 (in 2005 dollars) to about $80,000 in 2005. Meanwhile the bottom 20 percent when from carrying a little over 2% of the burden to carrying about 0.8%. And their average household tax liability fell from about $1,200 per year in 2005 dollars to about $680. The middle 60 percent's average tax liability stayed about the same in 2005 dollars but fell some from about %9,600 to about $9000.

This stuff of asking for more and more government over time while most people don't remotely "feel" what it cost to do that was just wrong. I've written it before but I'll write it again: It's too easy to support more and more government when you're not the one paying for it. This "tax the rich" variation of "don't tax you, don't tax me, tax the guy behind the tree" has been rotting this country at the core. Don't know if it'll ever stop but it should.If you want lots of government, you should be willing to pay for it. The "rich" are already doing that. Most of the rest of us or not. Oh yeah, we pay taxes. But it's like me going into a store, taking a flat screen to the counter and dropping a nickel. I didn't pay for that flat screen just because I gave the cashier some money.

A rare moment of lucidity from JSO.