Couple tax questions

[Ramo]

Dividends are taxed at much lower rates than income (5-15%).

[Kidlicious]

If you don't understand how it also disincentivizes workers then you're retarded.

I'm too busy preparing tax returns today to deal with your usual bull****. Sorry.

[Solomwi]

Dividends are taxed at much lower rates than income (5-15%).

Only as an exception to the general rule, and only if they qualify for that exception. It was carved out pretty recently, too. Seems like it was '03 or '04. Generally, they're taxed as ordinary income.

[Ramo]

Source (edit: for the "general rule" stuff)?

And from what I understand, the maximum rate will only be bumped to 20%.

[Solomwi]

Source (edit: for the "general rule" stuff)?

And from what I understand, the maximum rate will only be bumped to 20%.

26 U.S.C. 1(h)(3)(B), (h)(11)(B).

The general rule was pounded into my head over two federal income tax classes and a corporate income tax. I may be a bit rusty on the material, but that one's right up there with "partnerships don't pay taxes" in terms of things one remembers . The sections above specify that net capital gains include qualified dividends, and describe the qualifications, respectively. The exception was carved out as part of the 2003 Jobs and Growth Tax Relief Reconciliation Act.

[KrazyHorse]

Dividends are taxed at much lower rates than income (5-15%).

Yup. Just checked. I guess I'd forgotten (or never known) that Bush had changed the law.

[KrazyHorse]

I'm too busy preparing tax returns today to deal with your usual bull****. Sorry.

No, you're just too stupid to respond in any meaningful manner.

[Jon Miller]

In our consumer economy, would disincentivizing consumers from saving (rather than spending) be a good thing?

JM

[KrazyHorse]

The tax code in general:

1) Discourages saving relative to spending
2) Discourages lending relative to investing
3) Discourages active investing relative to passive investing

I have no idea why any of these are supposed to be good things.



I suppose 3 might be an example of countering the optimism bias most people have (sure, I can beat the market; how hard can it be?) but on the other hand a liquid capital market has positive externalities.

[KrazyHorse]

In our consumer economy, would disincentivizing consumers from saving (rather than spending) be a good thing?

JM

This is an economic fallacy. Saving leads to higher investment. Except in unusual situations (for instance today's climate) the economy operates near capacity we have no reason to discourage one relative to the other. There is, in general, no long-term slack which should be picked up by the government.

[Jon Miller]

If there is a lack of consumers than there is no reason for investment.

Saving is different than investment... at least in the US they are taxed differently/make different levels of income/etc.

JM

[Jon Miller]

The tax code in general:

1) Discourages saving relative to spending
2) Discourages lending relative to investing
3) Discourages active investing relative to passive investing

I have no idea why any of these are supposed to be good things.



I suppose 3 might be an example of countering the optimism bias most people have (sure, I can beat the market; how hard can it be?) but on the other hand a liquid capital market has positive externalities.

What are usual rates of return on active investing versus passive investing?

Having a higher tax rate on something that returns a lot versus a lower tax rate on something that returns very little after inflation doesn't mean that the the thing that returns a lot is discouraged.

Most people who get rich do so by active investing. Unless I misunderstand what you mean by active investing?

JM

[KrazyHorse]

If there is a lack of consumers than there is no reason for investment.

Saving is different than investment... at least in the US they are taxed differently/make different levels of income/etc.

JM

Again, saving leads to investment. When you put money in a bank, that bank simply acts as an intermediary to permit investment by another party.

[KrazyHorse]

What are usual rates of return on active investing versus passive investing?

Active investing yields lower results mostly because of transaction costs. Basically, the rule is that the average person can't beat the market.

Having a higher tax rate on something that returns a lot versus a lower tax rate on something that returns very little after inflation doesn't mean that the the thing that returns a lot is discouraged.

Errr...yes, it does.

Most people who get rich do so by active investing. Unless I misunderstand what you mean by active investing?

No, most people end up paying a lot of money to stockbrokers due to active investing. Unless one has some special insight or ability, it is unlikely that you will be able to consistently beat the market. If you can't beat the market, you should just buy and hold an index fund. This is what I mean by optimism bias. People are convinced that they're smarter than everybody else.

[Jon Miller]

Ah, I misunderstood what you meant by active investing.

If you put your money in the bank, the bank is the capitalist and not you. Because of the government insuring your savings, you can't lose it. Unlike a capital investment. They are different beasts because of this.

JM