Defusing the Debt Bomb - It can be done. Here's how.

[YoUDeeMan]

I am so glad to hear that Europe, and its VAT, has solved all of its debt problems. Shazzing...VAT = all debt gone.

I want to hug something French right now.

[dbackjon]

I
I want to hug something French right now.

[OL FU]

I am so glad to hear that Europe, and its VAT, has solved all of its debt problems. Shazzing...VAT = all debt gone.

I want to hug something French right now.

No shit. The only thing that is going to get the deficit down is realize that continued growth of entitlements has to stop. You might could cut the deficit some by shrinking the military down significantly. But the appetite for will just tax to cover the spending is a no win situation.

[kalm]

Cutting spending is just another form of Nimby. Everyone talks a tough game until it's their entitlement program, or their military base, or their subsidy that's going to get cut.

Here's a few people who should be happy with the current arrangement :

Following up on last week's post, IRS Releases 2007 Tax Return Data on Wealthiest 400 Americans: Income Soared 31% (to $345m), Tax Rate Fell 3.2% (to 16.6%):

•Center on Budget and Policy Priorities, Tax Rate for Richest 400 Taxpayers Plummeted in Recent Decades, Even as Their Pre-Tax Incomes Skyrocketed:

The effective federal income tax rate for the 400 taxpayers with the very highest incomes has declined by nearly half over the past two decades, even as their pre-tax incomes have grown five times larger, new IRS data show. The top 400 households paid 16.6% of their income in federal individual income taxes in 2007, down from 30% in 1995.

http://taxprof.typepad.com/taxprof_blog ... on--2.html" onclick="window.open(this.href);return false;

[ASUMountaineer]

Think before you type. I didn't miss it, I saw it, and...wait for it...wait for it...I agree. However, I also think taxing people's income is WRONG, and therefore, I support eliminating the income tax.

I support a consumption tax IN PLACE of an income tax. You see, Cluck, I didn't say we needed to add additional taxes (as you suggest I did--once again, you're wrong). Interesting description of my mind though (conservative, unopened, yet liberal). You couldn't be further from the truth, but why let that get in the way?

And you, again, missed the point.

As did you.

I didn't say a consumption tax wouldn't happen, despite you, in two consecutive posts, jumping to that erroneous conclusion. A consumption tax probably will happen. Nothing new...it's just a state sales tax with a different name. No surprise there,

Now, what I said was that that getting rid of the old taxes won't happen. Go back and read and you will see your error. Then you can apologize in two consecutive posts and asking yourself why you think that people always say things won't happen...you know, because you're different.

No apology, you inferred incorrectly as I apparently did as well.

Now, I also followed up and said that we wouldn't need a new tax if we controlled our spending.

Following so far?

Now let's deal with reality. The writer wants to implement a new tax so that we can get rid of all of our debt. You posted his article. Incorrect, actually UNI88 posted the article...what was that you were saying about reading and apologizing? By most accounts, we won't be paying off our debt anytime soon - especially with new spending on the horizon, so he is proposing a way to improve our ability to pay that debt off faster. Gosh, how would he do that? Let's review his quote:

..."and drop income-tax rates to compensate somewhat..."

"Somewhat".

In other words, increase taxes. Meaning to not get rid of all the old taxes. As in, "As has been noted, the problem isn't adding a new type of tax...it is getting rid of the old types of taxes. That simply won't happen.

The government would not need a new tax if we controlled spending."

And, if you read what I posted you would have seen that I agreed we need to control spending, and that I didn't support adding a consumption tax to the income tax, but to replace the income tax with a consumption tax...as you said, read.

See, that wasn't that hard to follow, was it?

Again, I posted a link (here I'll do it again) http://www.fairtax.org which is what I support. Was that hard to follow?

Your apology is accepted...if you can behave yourself in the future.

Again, no apology, and how exactly did I "misbehave?" Look, sounds like we both think similarly in that spending is out of control in Washington (and in most states). However, I will always be against an income tax, and want to see it eliminated. I prefer the Fair Tax plan, to what the writer posed. Let me summarize: Spending does need to be controlled, I don't support adding a consumption tax and keeping the income tax, I would be shocked if the income tax was repealed (though that doesn't mean we shouldn't try), and I support the Fair Tax. Perhaps that summary will clear things up.

[ASUMountaineer]

I don't necessarily disagree with you, but I don't think that should stop an attempt at trying. Regardless of how many times Cluck says it's impossible. So was beating the British in the revolution, so was landing on the moon, so was beating the Russians at hockey...just saying, if something is right, it's worth working for...and the elimination of the income tax is worth working for.

I'm not saying we shouldn't attempt something new, so don't put me in the "change is bad" corner. I'm just saying it's tough to completely change over overnight. Tax policy is nothing if not fluid and continuously changing. Unfortunately there aren't enough people in Congress who have actually ever balanced a checkbook, so they have no concept of "spend less than you earn". I don't know when it became in vogue to continue spending at a breakneck pace when unemployment is at near-depression levels and the tax base is depleted. They've thrown a few trillion at the economy so far and the unemployment rate continues to rise and yet the pork barrel spending is alive and well. We need to clean house in the biggest way possible.

Like I said, I don't disagree with you. on every point you made... Nicely said, fellow Mountaineer.

[BDKJMU]

We are beyond fucked by the debt bomb. 11+ trillion US debt. 50 trillion in unfunded social security and medicare mandates. A govt that is incapable of controlling its spending. A dollar that has lost 90% of its value since the inception of the Fed in 1910. Eventually looking at a generation of misery. I wish China would go ahead and get it over with and dump US Treasuries (even though they'd be fucking themselves)

[OL FU]

Cutting spending is just another form of Nimby. Everyone talks a tough game until it's their entitlement program, or their military base, or their subsidy that's going to get cut.

Here's a few people who should be happy with the current arrangement :

Following up on last week's post, IRS Releases 2007 Tax Return Data on Wealthiest 400 Americans: Income Soared 31% (to $345m), Tax Rate Fell 3.2% (to 16.6%):

•Center on Budget and Policy Priorities, Tax Rate for Richest 400 Taxpayers Plummeted in Recent Decades, Even as Their Pre-Tax Incomes Skyrocketed:

The effective federal income tax rate for the 400 taxpayers with the very highest incomes has declined by nearly half over the past two decades, even as their pre-tax incomes have grown five times larger, new IRS data show. The top 400 households paid 16.6% of their income in federal individual income taxes in 2007, down from 30% in 1995.

http://taxprof.typepad.com/taxprof_blog ... on--2.html" onclick="window.open(this.href);return false;

I agree with you on people's outlook toward entitltements. IT isn't mine however. When I talk taxes I talk total taxes. I have no problem if we move the capital gains rate up and slide the income tax rates down. I know a lot would disagree. Capital gains is why rates on the rich have fallen. But as stated before, if we taxed the every dollar of income (and I assume that is earnings not gains) over $250,000 or more 100% we could not cover the deficit. Don't ask me for the link, it has been a while since I read that information

[houndawg]

I am so glad to hear that Europe, and its VAT, has solved all of its debt problems. Shazzing...VAT = all debt gone.

I want to hug something French right now.

No ****. The only thing that is going to get the deficit down is realize that continued growth of entitlements has to stop. You might could cut the deficit some by shrinking the military down significantly. But the appetite for will just tax to cover the spending is a no win situation.

You might could cut it a lot more than some if you were serious about minimizing reliance on oil from halfway around the planet. If we would just stick to appropriating oil from locations closer by, like Venezuela and Canada, we might could save a couple hundred billion per year in defense costs. Hell, we could afford the kind of health care for ourselves that we provide for our so-called leaders.

[youngterrier]

We are beyond fucked by the debt bomb. 11+ trillion US debt. 50 trillion in unfunded social security and medicare mandates. A govt that is incapable of controlling its spending. A dollar that has lost 95% (almost 96%) of its value since the inception of the Fed in 1913. Eventually looking at a generation of misery. I wish China would go ahead and get it over with and dump US Treasuries (even though they'd be fucking themselves)

fixed

[danefan]

We are beyond fucked by the debt bomb. 11+ trillion US debt. 50 trillion in unfunded social security and medicare mandates. A govt that is incapable of controlling its spending. A dollar that has lost 90% of its value since the inception of the Fed in 1910. Eventually looking at a generation of misery. I wish China would go ahead and get it over with and dump US Treasuries (even though they'd be fucking themselves)

They have already started.

Japan is now the #1 holder of US Treasury Bonds

http://www.google.com/hostednews/afp/ar ... o2642Z7Xyw" onclick="window.open(this.href);return false;

[danefan]

Cutting spending is just another form of Nimby. Everyone talks a tough game until it's their entitlement program, or their military base, or their subsidy that's going to get cut.

Here's a few people who should be happy with the current arrangement :





http://taxprof.typepad.com/taxprof_blog ... on--2.html" onclick="window.open(this.href);return false;

I agree with you on people's outlook toward entitltements. IT isn't mine however. When I talk taxes I talk total taxes. I have no problem if we move the capital gains rate up and slide the income tax rates down. I know a lot would disagree. Capital gains is why rates on the rich have fallen. But as stated before, if we taxed the every dollar of income (and I assume that is earnings not gains) over $250,000 or more 100% we could not cover the deficit. Don't ask me for the link, it has been a while since I read that information

Capital gains and qualified dividend treatment need to go for individuals. Income is income is income for people, IMO.

[dbackjon]

I agree with you on people's outlook toward entitltements. IT isn't mine however. When I talk taxes I talk total taxes. I have no problem if we move the capital gains rate up and slide the income tax rates down. I know a lot would disagree. Capital gains is why rates on the rich have fallen. But as stated before, if we taxed the every dollar of income (and I assume that is earnings not gains) over $250,000 or more 100% we could not cover the deficit. Don't ask me for the link, it has been a while since I read that information

Capital gains and qualified dividend treatment need to go for individuals. Income is income is income for people, IMO.

If you are saying that Capital Gains should be treated as ordinary income, I agree.

[houndawg]

We are beyond **** by the debt bomb. 11+ trillion US debt. 50 trillion in unfunded social security and medicare mandates. A govt that is incapable of controlling its spending. A dollar that has lost 90% of its value since the inception of the Fed in 1910. Eventually looking at a generation of misery. I wish China would go ahead and get it over with and dump US Treasuries (even though they'd be **** themselves)

They have already started.

Japan is now the #1 holder of US Treasury Bonds

http://www.google.com/hostednews/afp/ar ... o2642Z7Xyw" onclick="window.open(this.href);return false;

Time pay back the Japanese for their behavior in China during WW2.

[danefan]

Capital gains and qualified dividend treatment need to go for individuals. Income is income is income for people, IMO.

If you are saying that Capital Gains should be treated as ordinary income, I agree.

Yes, sorry - poor wording.

Reduced capital gains rates and qualified dividend treatment needs to go for individuals.

[dbackjon]

If you are saying that Capital Gains should be treated as ordinary income, I agree.

Yes, sorry - poor wording.

Reduced capital gains rates and qualified dividend treatment needs to go for individuals.

Yup - why should the income you derived by doing nothing be taxed less than the income I derived from my hard work.

[OL FU]

Capital gains and qualified dividend treatment need to go for individuals. Income is income is income for people, IMO.

If you are saying that Capital Gains should be treated as ordinary income, I agree.

Possibly. I am not a tax guy so someone that knows more than I feel free to step in. I do know that people who are in business that would normally provide individuals with capital gains have to pay taxes on those gains as ordinary income. For example, a real estate developer pays taxes on property sales as ordinary income because he is in the business. (there may be loopholes, I am not sure). Therefore, if an individual receives most of their incomes from investments are they not effectively in the business of investing and therefore should be subject to ordinary income tax rates. I realize they last thing we need is to complicate the system, but it does seem to be different matter for the average Joe that makes $60,000 a year on the job and earns $5,000 in gains than the person that earns nothing in income and $500,000 in gains. the later person is basically self employed in the investment business and should be taxed accordingly.

[OL FU]

We are beyond **** by the debt bomb. 11+ trillion US debt. 50 trillion in unfunded social security and medicare mandates. A govt that is incapable of controlling its spending. A dollar that has lost 90% of its value since the inception of the Fed in 1910. Eventually looking at a generation of misery. I wish China would go ahead and get it over with and dump US Treasuries (even though they'd be **** themselves)

They have already started.

Japan is now the #1 holder of US Treasury Bonds

http://www.google.com/hostednews/afp/ar ... o2642Z7Xyw" onclick="window.open(this.href);return false;

don't know which is true but NPR said the numbers had been revised and the Chinese were still number 1.

[kalm]

Yes, sorry - poor wording.

Reduced capital gains rates and qualified dividend treatment needs to go for individuals.

Yup - why should the income you derived by doing nothing be taxed less than the income I derived from my hard work.

Because dynastic wealth creates jobs and more wealth, while hard work does not.

[danefan]

If you are saying that Capital Gains should be treated as ordinary income, I agree.

Possibly. I am not a tax guy so someone that knows more than I feel free to step in. I do know that people who are in business that would normally provide individuals with capital gains have to pay taxes on those gains as ordinary income. For example, a real estate developer pays taxes on property sales as ordinary income because he is in the business. (there may be loopholes, I am not sure). Therefore, if an individual receives most of their incomes from investments are they not effectively in the business of investing and therefore should be subject to ordinary income tax rates. I realize they last thing we need is to complicate the system, but it does seem to be different matter for the average Joe that makes $60,000 a year on the job and earns $5,000 in gains than the person that earns nothing in income and $500,000 in gains. the later person is basically self employed in the investment business and should be taxed accordingly.

Capital asset means property held by a taxpayer regardless of whether used in the taxpayer's trade or business but does not include the property listed below:

... Stock in trade or other property of a kind that would properly be included in the inventory of the taxpayer if on hand at the close of his tax year;
... Property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business;
... Supplies regularly used or consumed in the taxpayer's trade or business;
... Real and certain depreciable property used in the taxpayer's trade or business, but if the property is held for more than the short-term capital gain holding period, a gain on a sale or exchange can possibly qualify as a capital gain under the capital gain-ordinary loss rule;
... Certain copyrights, literary, musical or artistic compositions, or similar property created through personal effort;
... Accounts or notes receivable acquired in the ordinary course of trade or business for services rendered or from sale of property held in inventory or primarily for sale to customers in the ordinary course of trade or business;
... Hedging transactions;
... Commodities derivative financial instruments held by commodities derivatives dealers;
... Certain publications of the U.S. government (including the Congressional Record).

[OL FU]

Possibly. I am not a tax guy so someone that knows more than I feel free to step in. I do know that people who are in business that would normally provide individuals with capital gains have to pay taxes on those gains as ordinary income. For example, a real estate developer pays taxes on property sales as ordinary income because he is in the business. (there may be loopholes, I am not sure). Therefore, if an individual receives most of their incomes from investments are they not effectively in the business of investing and therefore should be subject to ordinary income tax rates. I realize they last thing we need is to complicate the system, but it does seem to be different matter for the average Joe that makes $60,000 a year on the job and earns $5,000 in gains than the person that earns nothing in income and $500,000 in gains. the later person is basically self employed in the investment business and should be taxed accordingly.

Capital asset means property held by a taxpayer regardless of whether used in the taxpayer's trade or business but does not include the property listed below:

... Stock in trade or other property of a kind that would properly be included in the inventory of the taxpayer if on hand at the close of his tax year;
... Property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business;
... Supplies regularly used or consumed in the taxpayer's trade or business;
... Real and certain depreciable property used in the taxpayer's trade or business, but if the property is held for more than the short-term capital gain holding period, a gain on a sale or exchange can possibly qualify as a capital gain under the capital gain-ordinary loss rule;
... Certain copyrights, literary, musical or artistic compositions, or similar property created through personal effort;
... Accounts or notes receivable acquired in the ordinary course of trade or business for services rendered or from sale of property held in inventory or primarily for sale to customers in the ordinary course of trade or business;
... Hedging transactions;
... Commodities derivative financial instruments held by commodities derivatives dealers;
... Certain publications of the U.S. government (including the Congressional Record).

I need it dumbed down.

Interesting, I wasn't involved in the preparation of the tax returns but I thought when I worked for the land developer we paid ordinary rates on property sales no matter how long the investment was held. with that said, the tax code is horribly skewed if that is the case. People in the business of trading stocks, real estate, etc. should be taxed at ordinary rates.

[OL FU]

I thought it was a little more confusing

Residential and commercial investors, builders, and
developers often purchase raw, undeveloped land and
hold the property for a period of time until a favorable
development opportunity arises. This is called land banking
or real estate warehousing. But, federal tax law does not
treat all investors in real estate equally. A person who is
considered a “dealer”1 in real estate is prevented from
obtaining capital gain treatment upon the sale or disposition
of the real estate, and must pay higher ordinary income
tax rates on the subsequent sale. An individual who is
not a dealer can obtain favorable capital gain treatment.
With proper planning, even dealers can obtain favorable
capital gain treatment for part of their holding period.
The issue of “dealer” status and the corresponding tax
treatment is among the most litigated topics in the tax code
with respect to real estate. This article will analyze cases
discussing the factors used to characterize someone as a
dealer in real estate and will provide practical suggestions
for planning and structuring for the bifurcation of gain
into capital gain and ordinary income so that the real
estate professional can take further steps to reduce tax
by reducing the indicia of dealer status.
A. Synopsis of Dealer Tax Treatment

http://www.butzel.com/pdf/060701artREAL-Moss.pdf" onclick="window.open(this.href);return false;

[danefan]

Capital asset means property held by a taxpayer regardless of whether used in the taxpayer's trade or business but does not include the property listed below:

... Stock in trade or other property of a kind that would properly be included in the inventory of the taxpayer if on hand at the close of his tax year;
... Property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business;
... Supplies regularly used or consumed in the taxpayer's trade or business;
... Real and certain depreciable property used in the taxpayer's trade or business, but if the property is held for more than the short-term capital gain holding period, a gain on a sale or exchange can possibly qualify as a capital gain under the capital gain-ordinary loss rule;
... Certain copyrights, literary, musical or artistic compositions, or similar property created through personal effort;
... Accounts or notes receivable acquired in the ordinary course of trade or business for services rendered or from sale of property held in inventory or primarily for sale to customers in the ordinary course of trade or business;
... Hedging transactions;
... Commodities derivative financial instruments held by commodities derivatives dealers;
... Certain publications of the U.S. government (including the Congressional Record).

I need it dumbed down.

Interesting, I wasn't involved in the preparation of the tax returns but I thought when I worked for the land developer we paid ordinary rates on property sales no matter how long the investment was held. with that said, the tax code is horribly skewed if that is the case. People in the business of trading stocks, real estate, etc. should be taxed at ordinary rates.

A land development company falls into the blue section above.

Stocks held for investment are considered capital assets unless they are being held for sale to customers by a securities dealer or included in the businesses inventory at year end. Then they would fall into the red portions above.

[danefan]

I thought it was a little more confusing

Residential and commercial investors, builders, and
developers often purchase raw, undeveloped land and
hold the property for a period of time until a favorable
development opportunity arises. This is called land banking
or real estate warehousing. But, federal tax law does not
treat all investors in real estate equally. A person who is
considered a “dealer”1 in real estate is prevented from
obtaining capital gain treatment upon the sale or disposition
of the real estate, and must pay higher ordinary income
tax rates on the subsequent sale. An individual who is
not a dealer can obtain favorable capital gain treatment.
With proper planning, even dealers can obtain favorable
capital gain treatment for part of their holding period.
The issue of “dealer” status and the corresponding tax
treatment is among the most litigated topics in the tax code
with respect to real estate. This article will analyze cases
discussing the factors used to characterize someone as a
dealer in real estate and will provide practical suggestions
for planning and structuring for the bifurcation of gain
into capital gain and ordinary income so that the real
estate professional can take further steps to reduce tax
by reducing the indicia of dealer status.
A. Synopsis of Dealer Tax Treatment

http://www.butzel.com/pdf/060701artREAL-Moss.pdf" onclick="window.open(this.href);return false;

Essentially it comes down to this:

Is real property used in your business (e.g. are you a real property dealer)? or Was the real property held as an investment?

The same rules do not apply to stocks that apply to real estate.

[OL FU]

I thought it was a little more confusing



http://www.butzel.com/pdf/060701artREAL-Moss.pdf" onclick="window.open(this.href);return false;

Essentially it comes down to this:

Is real property used in your business (e.g. are you a real property dealer)? or Was the real property held as an investment?

The same rules do not apply to stocks that apply to real estate.

Now it makes sense. Thanks.