Obama Will Seek to Raise Taxes on Wealthy to Finance Cuts for Middle Class | Hacker News Reader

Obama Will Seek to Raise Taxes on Wealthy to Finance Cuts for Middle Class

nytimes.com

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I feel like the tax code needs a much bigger overhaul than anyone has proposed. For example, AGI should be weighTed relative to cost of living. A couple living in San Francisco or LA filing jointly and earning $210k doesn't qualify for the child tax credit or even the IRA deduction, but they are by no means living lavishly. That same couple could make $100k in Atlanta and have a huge mansion but qualify for every tax credit available.

I would agree with you but I think people are apt to tolerate 'big' injustices over 'small' injustices. If you had some kind of COLA apply to taxes --which I think would be more just, you know there would be people suing over the COLA being miscalculated or that their living within a given neighborhood as opposed to the one two blocks away should mean their adjustment is greater... it could get byzantine and unweildly quick.

The government puts out cost of living indexes for select urban areas, so we could just go by that: http://www.census.gov/compendia/statab/cats/prices/consumer_...

The data is from 2010, so a bit outdated, but it puts Manhattan at 2.1x the national average and SF at 1.64x the national average. The high cost of housing also pushes more people to renting instead of buying, eliminating any tax deductions for mortgage interest that people in low-cost areas are more likely to take.

A rent deduction, up to a maximum amount determined by that index. Now that would be a pro middle-class policy that I would support.

The San Fran couple chose to live there. Why should th government give monetary reward to those who wish to live in high cost of living areas? If anything I feel like I'd rather encourage folks spread out more. Although I'd be open to hearing arguments as to whether fewer larger cities is better than more smaller hubs.

The economic benefits of having that many people that close together are absolutely massive. It's absolutely true that costs are enormously higher in certain areas, the value of a dollar significantly lower. Due to the progressive nature of the code, lower-value areas are overly penalized. It's just another flaw in the system.

How exactly will Obama achieve this with a republican House and Senate?

I think the point is he can say whatever he wants without any downside since it doesn't matter anyway. I think as we see here, showing the 'grand vision' however is not without its risks.

The top 10% already pay 65% of the federal tax burden. I'd prefer to see a less "punishment" motivated approach and make up the difference needed with strategic budget cuts.

I'd also prefer to see a move away from the divisive progressive income tax towards a tiered national sales tax. We should be taxing luxury items the way Singapore taxes automobiles.

This would allow low income earners to keep their entire paycheck, encourage thrift for the middle income earners and destroy the tax evasion mechanisms high income earners employ.

BMW at $260,000 as Singapore Tax Keeps Cars for Rich: http://www.bloomberg.com/news/2011-02-16/bmw-3-series-costs-...

"Capital gains at 28 percent"

That's one way to kill venture capital! Title could just as easily read "Obama will seek to raise taxes on Startups to finance ...".

Thankfully startups have at least the QSBS Section 1202 100% exclusion on the first $10m of capital gains through 2014. It helps smaller funds and founders, but there are enough gotchas (e.g. 5 year holding period) that VCs would still be looking at that 28 percent pretty seriously. I wish they would make the 100% exclusion permanent to eliminate the uncertainty, it's hard making decent planning decisions when all the tax rates are changed retroactively at the end of the year.

"The administration’s proposal on capital gains at death would exempt the first $200,000 in capital gains per couple plus $500,000 for a home, along with all personal property except for valuable art and collectibles. The rest would be treated for income-tax purposes as if it had been sold." -- Bloomberg.

That is absolutely terrifying. It would be bad enough to eliminate the step-up in basis and make heirs pay tax on the full nut when selling... but to actually treat the property as if it were sold, that means you actually have to sell it in order to pay the tax! This is actually extremely hostile to middle-class taxpayers.

Imposing taxes in the absence of an actual sale is brain dead. If your parents spend their lives accumulating a couple million dollars in assets they want to pass onto the children, you should not have to liquidate their entire estate just to give nearly half in taxes the day after they die.

Maybe all of this is after the estate tax exemption, in which case it wouldn't be nearly as catastrophic. But it doesn't sound like it from what I can find.

How about making the capital gain and normal income tax equal?

That's called short-term capital gains.

A lot of capital gain, particularly for the middle class, is actually inflation.

You buy a house, pay your mortgage for 30 years, and perform regular maintenance. After 30 years your basis is nearly $0 and the market price has gone up 4x-10x what you paid.

Now you've paid for the house once, plus all the local taxes year after year. Trivia, how much more should you have to pay?

Currently the basis of the house would step-up to market value when you bequeath it to an heir, so no taxes are due. If you take that away, there's 30% of the value of the house in federal and possibly more in state taxes that would have to be paid.

A $500k exclusion is grossly insufficient. Home ownership is the golden road to middle-class. A tax policy like this is akin to saying you have to be able to buy the house all over again. E.g. If you can't afford to pay a 20% down payment (to the IRS) on the house you just inherited then you can't keep it.

To put some hard numbers in an example, your parents buy a $120k house with a 30 year mortgage in 1970. Due to nothing but inflation the house is now worth over $700k. That is not current income, and should not be taxed as current income.

That's (one reason) why long term capital gain is taxed at a lower rate. In many cases it's just double taxation on the same dollars over time.

Good point, though I was thinking about doing it by reducing the income tax.

Been there, done that: https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986

But that's ancient history even though it was less than 30 years ago. Politicians can't resist tinkering with the tax code. It's always for a good cause, e.g. "think of the children".

> That's one way to kill venture capital! Title could just as easily read "Obama will seek to raise taxes on Startups to finance ...".

Because photo sharing apps are so much more important than middle class Americans paying for their day to day lives. I think we can agree that the vast majority of VC-funded tech startups are frivolous. The faster we can pop and deflate this bubble, the better.

I don't think the vast majority of VC-funded tech startups are frivolous. All successful founders become funders, because it's the only thing you can do with the money that doesn't require giving half away. Everything that isn't excluded must be rolled over to keep it tax free.

Also, it's good that at least founders are protected. So if you are starting your own company right now, up to $10e6 will be federal tax free and possibly (but not in CA!) state tax reduced as well. After 5 years. That's a really smart incentive if you ask me. This is a lesser-known plan and it makes a really big difference in many cases.

The taxes suppress all VC investment, it's literally out with the good and the bad indiscriminately. The tax code should not quantify rate tables based on the type of software or product you create. Investment produces growth and scientific advancement, taxes on investment decrease that growth. Don't get caught up with sensational exits which in reality make up only a small percentage of the investment and the body of work which is being done. A doubling of investment tax in 6 years literally could mean the difference between Musk getting to Mars or not.

That's absurdly hyperbolic. We can just as easily argue that undertaxation of capital gains is a disincentive to work. I fail to see why an investment of time and labor should be taxed more heavily than the investment of your know-how and money.

I also don't believe that this would kill investment. What are people going to do with their money instead, put it in a CD and sulk? What other market outside the US is going to deliver the same sort of long-term return while also offering the same degree of legal protection?

Tax Rate is a significant factor in the investment model. It's obvious to say, anyone investing without considering the tax implications is not properly prepared. So it goes without saying that taxes directly impact the level of investment. Saying there's no other option is not understanding the market is a spectrum of individuals making their own choices, I'm not saying the entire curve is shifted up, but the curve certainly shifts in response. (Macro 101)

Surely it does - I'm not claiming there would be zero effect. But I find the idea that it would kill VC investment just ridiculous.

" If your parents spend their lives accumulating a couple million dollars in assets they want to pass onto the children, you should not have to liquidate their entire estate just to give nearly half in taxes the day after they die."

Why not?

If they did more careful planning, a bunch of stuff would be in trust(s), or have been gifted before hand.

I see no reason why taxing capital gains belong to an estate is bad policy -- otherwise they go untaxed.

And for the record, we're 1%-ers likely to get hit by these proposals. It'd be good for the country if we and everyone who made this much paid more, and I'd love to soak the 0.1% and the 0.01%.

This is decidedly not a 1% problem. This is a broad tax which will hit a large percentage. $500k deduction is quite low for the inflated values a house carries.

How is this mythical sale going to be valued? At current market rate, surely that's a joke. What if there's an existing mortgage which is conveying? Anyone inhereting a house in many areas will be forced to sell it under this plan. In my opinion, to force someone to sell their home is twisted.

As @EGreg says downthread, this package has zero chance of enactment any time in the next two years (or longer).

It sounds to me like "highball" negotiating [1] --- ask for the world so that you can make "concessions" and still end up with what you really want.

[1] E.g., http://changingminds.org/disciplines/negotiation/tactics/hig...

I think it is shortsighted to increase taxes on the .1%. Everyone knows that if they (those that have managed to capture most of the fruits of production) have less money, the less likely they are to leave crumbs for the rest of us. /sarcasm

"Those darn native Americans. Once we destroyed their food supply (the buffalo) and took all the good land for ourselves, now they want a handout. The nerve!"

Predictably the top comment here says that this is unjust. No idea why....

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