Dems propose raising taxes on couples making more than $500k | Hacker News Reader

Dems propose raising taxes on couples making more than $500k

cbsnews.com

23 pointslxm36 comments

Title is inaccurate. This impacts couples making more than $500K (or individuals making over $400K) that have funneled their income through a pass through corporation to avoid paying the medicare tax.

The proposal is to close the loophole and make them pay the medicare tax.

Agreed, the title is editorialized to be more spooky and hopefully will be corrected. Closing loopholes is way more reasonable than the language about simply raising taxes.

I believe it would still violate the ridiculous Norquist pledge, so as far as politicians are concerned it would be "raising taxes."

It's really fun to go back through historical marginal tax rates (you'd have to adjust for inflation yourself in this link [1]) and see just how un-taxed the wealthy really are today. No wonder dynastic wealth is so prevalent. Tbh, I think we need more gradations and income above $1M should be taxed at rates in excess of 70%.

[1] https://taxfoundation.org/historical-income-tax-rates-bracke...

In what world is $500k as a couple “wealthy?” You have to be joking.

Taxing 70%? That’s a sure fire way to have your precious tax donkeys leave the country. Then who will pay for everyone who doesn’t want to work?

It’s this mentality that makes me not want to visit HN anymore.

What world are you living in where 500k/year isn’t wealthy?

For two people. A world called California (which we left for Florida) with 39% top fed tax rate, something like 14% state/city/block tax, high property tax, high sales tax, etc.

Am I the only one here who thinks sending off a huge portion of what I make is not really worth it? California was nice. But it’s not worth working another 5-10 years for the privilege. Don’t worry I’ll come back to California in 15 years when I have zero income and only property. If there’s water left.

You sound privileged, greedy, ungrateful, and out of touch with reality.

Without society and government, you can expect fewer opportunities to prosper and live a nice, comfy, insulated little life.

I'm so sorry you had to buy one fewer yacht this year.

For a couple making 500K and maxing out their 401Ks, the effective tax rate (state+federal) is 24% in Florida and 31.2% in San Francisco, CA.

Which results in post tax (and post 401K) incomes of 340K (FL) and 305K (SF), or around a 10% difference in post-tax salary.

You can verify this yourself on SmartAsset: https://smartasset.com/taxes/income-taxes

I don’t consider myself wealthy, and I make less than half that… But I’m also not poor. I have no problem chipping in or 1 or 2 percent more if it means keeping the masses from revolution… As happened to my step mom’s parents in the Chinese cultural revolution.

Yup same thoughts here... add in a mortgage, school loans, children, expensive cost of living, a few vacations, the rest in a college fund, and some left for savings/investing. Dwindles very fast.

>In what world is $500k as a couple “wealthy?” You have to be joking.

It's 7x the median household income.

Slight correction - it makes more sense to compare post-tax incomes, so it's closer to 5.25x the median.

Still basically on the cutoff of top 1% (I believe the cutoff is 600K nominal).

You're clearly so far out of touch with reality that your contributions aren't beneficial anyway.

I don't mean to be rude about it, but it's kind of bizarre.

That is certainly well beyond the household average in the US, which is still below 100k. So, yes, most people consider >5x average annual household income to be lumped with "wealthy". Haha, that's two People, each making 20k per month.

Being so totally immersed in your own chase with the Joneses to miss that verges on comedic were it not so insulting.

How is that NOT wealthy?

US household median income is around $70k. In 2022, 6% earned over $250k, and some (undefined) portion of that earned over $500k. 94% of that 6% is White or Asian. You may not be a billionaire, but you're still a long ways off from the average American's lived experience.

Taxing 70% isn't so different from what we used to do in recent decades. In 1980 the highest marginal tax rate was 70% at $215,400 ($765,084 in 2022 dollars) for married couples filing jointly. Somehow the US survived, and was a lot less divided as a country. In 1944 it was even up to 94% for those making $200k or above (not adjusted for inflation).

If you think that $500k isn't wealthy, you may be the one out of touch. There are many people working longer, harder than your typical HNer and making much, MUCH less -- in the US alone.

2020 Household income distribution: https://www.census.gov/data/tables/time-series/demo/income-p...

Tax history 1913-2013 (not adjusted for inflation): https://files.taxfoundation.org/legacy/docs/fed_individual_r...

If you’re just talking about income, it’s a worthless question. Actual wealth has a lot more involved than just income.

If you make $400k as a couple in Silicon Valley, live in a modest apartment in Burlingame, you can easily spend north if $5k/m in rent alone.

Let’s now suppose you have two or three kids with some expenses. Braces are $6500 each. You tore a rotator cuff, there’s another $4k. This happens, that happens.

I can go on and on, but at the end of the day, you don’t own a home, live in smaller housing than most people I know in the burbs, drive a 12 year old Subaru, are not putting away enough for college by a long shot, so you’ll have to take out lots of loans (even for in-state), etc.

The end result is this feels a lot more like middle class. Income tax alone eats 50% and you get relatively little for it if you don’t believe in buying F22s.

There is no big savings account, stock holdings, vacation home, tax shelter, etc. Just two people making decent money that are raising a couple of kids in the same way our parents did, except it costs a lot more here.

Without local cost of living, this discussion is meaningless.

> Under the latest proposal, people earning more than $400,000 a year and couples making more than $500,000 would have to pay a 3.8% tax on their earnings from tax-advantaged businesses called pass throughs. Until now, many of them have been using a loophole to avoid paying that levy.

This is raising taxes like a locked door is stealing, lol.

Most pass-through structures already require you to pay social security and Medicare taxes in the form of the self-employment tax. This hits a lot of people really hard, since you are paying both the employer portion and the employee portion of these taxes. The only exception today is the S-corporation. However, S corp owners still have to pay themselves a reasonable salary (for consultants, this is usually set to 50% of their billing rate), and pay SS/Medicare tax on that salary plus payroll taxes.

The loophole closure should only affect how S corps are taxed, and effectively would eliminate the benefit of them. I'm not sure it would get nearly as much money as these people think.

Edit - the way this is worded makes me think that this is a 3.8% surtax on pass-through income, not just closing the S corp loophole. Pass through income is already the most heavily taxed form of income, and taxing it hurts small business owners the most.

I vote for couples over 1.5 Million. Believe it or not, 400k is not a huge amount of money in NYC or SF. Its upper middle class if you have kids, and even then, you arent saving much. Youre also taxing like small business owners, doctors, programmers, lawyers, etc. The professional class, not the wealthy upper class. Politicians are completely out of touch with the american caste system

1.5 million won’t be a huge amount in a couple of years either at this rate.

The problem is that there are a decent amount of extremely wealthy people who absolutely do not get anywhere near 1.5 M in yearly "income". Many of these folks live off of things like dividends, capital gains, or even better loans against ever rising investment portfolio amounts (with the added advantage that the interest on the loan is tax deductible). The emphasis of the tax code on "income" per se, which does make sense on several levels to be fair, ends up missing a significant portion of very wealthy folks who just don't have much "income".

1) NYC and SF are symptoms of runaway gentrification caused by a grossly overpaid tech and finance sector. The housing prices there are artificially inflated, a bubble built on top of the speculation-driven advertising economy we find ourselves in in 2022. They are not at all representative of the typical American's lives and shouldn't be used to make public policy.

2) The professional classes already have way more mobility and options, in terms of where to live, where to work, how to work, etc. They/we don't need the same degree of protections that the working class does. To even be in the professional caste is already a rarity in today's America.

3) Tax brackets are already marginal anyway. If you earn $400k, that means you pay 32% of the first $215,950, and 35% only on the the remaining $184,050. If you just add more brackets at the top, you wouldn't much affect your typical upper-middle-class professional or business owner.

4) The politicians don't care about working conditions at all. We're too busy being distracted by the culture wars to pay attention to class at all =/

Before raising taxes on citizens, governments would be well advised to first make sure companies are paying their fair share.

https://www.nytimes.com/2021/04/02/business/economy/zero-cor... No Federal Taxes for Dozens of Big, Profitable Companies

https://itep.org/55-profitable-corporations-zero-corporate-t... 55 Corporations Paid $0 in Federal Taxes on 2020 Profits

https://www.americanprogress.org/article/these-19-fortune-10... These 19 Fortune 100 Companies Paid Next to Nothing—or Nothing at All—in Taxes in 2021

It seems epically stupid to raise taxes on citizens in this context.

You alienate voters by increasing taxes on them. You win voters by taxing corporations who are paying nothing.

But left wing politicians just have zero idea about this sort of stuff.

What they need to do is make long term capital gains taxed as regular income. I wish I could defer payment from my employer by a year and be taxed 10% instead. In fact, I'd do that exclusively. One year of pain and then 10% tax indefinitely.

This will crash asset values, won't work. The whole system of debt and income is built off expected money, change the expectations and watch things break. And I get your retort, "let it break", but I am telling you, wont work

Why exactly would it crash asset values?

Asset values can be thought of as a series of future cash flows, each discounted back to today (for uncertainty and inflation).

Raising taxes on those future cash flows makes the assets less valuable today.

The contemplated change isn’t this drastic, but imagine that you have an asset today that’s worth $X. Suddenly, overnight, everyone in the market for that asset learns that all future benefits from that asset will be permanently exactly half as valuable as they were yesterday. What would you expect the price of that asset to reconverge to? I’d expect it to converge to pretty close to half of $X.

Most investors care about after-tax returns, so increasing the tax rate on certain assets will decrease demand for them.

I agree that there will be decreased demand, but I don’t see any evidence of a crash. Equities would still out perform most other investments

How about don’t fuck individuals and make corporations pay a real tax?

We should do both. It makes no sense that long term capital gains is taxed less than your regular income. This doesn't mean LTC gains should necessarily be increased to regular income. We could also simply lower regular income tax to be the same as LTC gains but that would only highlight the ridiculousness of the low LTC to begin with.

Raising income taxes on high earners during high inflation is just sound economic policy.

Again, a great way for those earners to bail and move to UAE, etc. I personally find no reason to stay in a high tax support everyone minefield. It’s like having a massive alimony bill only without the ex wife. HN going crazy here. Maybe I should mention I heart crypto? ;)

You will have to relinquish your US citizenship.

In reality, this never change anything about emigration, even for countries without extraterritorial reach. I remember the argument in 2017 in France: "if we lower those taxes, rich will emigrate less". Result: same emigration from high earners(well, wealthy people since it was a tax on wealth), which was still lower than highly educated people (those who really matters).

[edit] and Btw, those came back during covid, fun to watch, not paying taxes and still benefiting from socialized medicine, and still with the same dumb argument, forgetting about what the social contract is.

This is specific to pass through income like from LLCs. These are wildly undertaxed relative to ordinary income at the moment.

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