Why I?????m Voting for Obama and Mormonism

[_Jason Bourne]

In The Audacity of Hope after quoting Buffett, Obama says,

Buffet’s low rates are a consequence of the fact that, like most wealthy Americans, almost all his income comes from dividends and capital gains, investment income that since 2003 has been taxed at only 15%. The receptionist’s salary, on the other hand, was taxed at almost twice that rate once FICA was included.

Do you think that is a disingenuous explanation?

No I do not. But this is not the comments I have seen Buffett make in interviews.

And you ignore the fact that dividends are still taxed at 50% overall. If you ratchet the rate on them back up to the ordinary rate and the recipient is in the 39% bracket Obama proposes then they will be taxed at 74%. I think that is egregious. Perhaps a solution is to let Corporations deduct dividends.

These are fair points to discuss, but given the enormous advantages accrued to the company that organizes as a corporation (as opposed to, say, a partnership), and the risks and costs that such entities can shift to society as a whole, I think it is totally fair to tax corporations in addition to taxing dividends.

I am not sure what advantages you think corporations have over partnerships. Perhaps you can enlighten me. From a tax standpoint a C Corp is the absolute worst way to do business as it is subejct to double tax. Tax on gains when a C Corp is sold can approach 65%-70%. Thus no small business uses a C Corp anymore unless it has to for investment and finance reasons. Publically traded companies have no choice but to use a C Corp. The taxing regime that you think is fair puts US C Corps at a competitive disadvantage on the world stage because almost every other industrialized nations taxes corporations more favorably than the US does.

I totally agree with you that this is complex stuff that Obama has oversimplified, but the sad truth of democracy is that most voters don't have the background, time, or inclination to dive into the details. You can't say that distorting complex issues into 30-second commercials and catchy sound bites is something that only Obama or Democrats does. Everybody does it. I don't blame them, really. The sad reality is that distorting the truth into catchy sound bites is what gets people elected in our society. Those who are unwilling to do so don't get elected.

Yep. We live in the fast food and fast information world of 2008.

Yes I did misread you. Sorry. But how about this. Let's cut spending too! You know I am in a fairly high tax bracket. And guess what. I would be happy to pay more IF I trusted the government to cut spending and balance the budget and build a surplus and pay start to pay down this 11 trillion dollar debt. And do it with real money. Don't print and inflate your way out of it. I would also like to see something done to deal with the 50 trillion of unfunded liabilities that will come due in the next 40 years in the form of Social Security, Medicare and Medicaid as well as other programs.

I agree with you 100% on these points.

One of the main reasons I've become so turned off by the Republicans involves their abandonment of fiscal responsibility. They used to make arguments involving the Laffer curve that states that there is a point where raising taxes won’t increase government revenue, and hence if taxes are beyond that point that lowering taxes will actually increase revenue. In theory, I can see that point, but then they always made the tenuous assumption that we were on the backside of the Laffer curve, regardless of what the tax rates were.

As a life long republican I agree. I so disillusioned. Here a rant I sent out today to some friends and work associates:

in my opinion any incumbent in office should not be voted back in. Republican or democrat, whatever you are, vote for the person running against your incumbent. This is the only way to send a message to our spineless political I can hardly call them leaders. It is time for revolt and time to find someone who will lead instead of pander and drive us into the ground. They all need to go. Polosi and Reed and Frank. Bush too…well he has too! McCain and Obama as sitting Senators ought to go too. Neither of them have what it takes and were part of the problem. Lindsey Graham, Bennett, and all current sitting republican should go! All we have is our vote and if we don’t fire all these joker what makes you think anything will change!! I am just fuming about this. There is no leadership in DC and none on the horizon either. Prepare for hard times.

And here is the article I linked to this: http://accounting.smartpros.com/x63591.xml

[_Analytics]

Dumb question: how much will Obama's taxes hurt my retirement prospects given that most of it is in stock? Most of my current income is salary, but I am transferring it to stock as my nest egg. If the account is tax-deffered, doesn't that still decrease my future expected value? A 30-second soundbite just won't help me there.

I'm not a tax advisor so take my POV for what it's worth. There is a possibility that the value of your current portfolio would take a hit, but arguemnts could be made that it wouldn't and I really don't know what it would do. But if it did decrease the price of stock, future contributions would be made at the lower valuation, so you'd be able to buy more shares for the same contribution. Thus the further away retirement is for you, the less this matters.

The other variable is how much you'd withdraw per year when you retire. If you were withdrawing enough to put you in the high tax brackets, then Obama's plan would hurt you. If you were in the middle or lower brackets, it would help you.

So in other words, I really don't know.

[_Jason Bourne]

Not meaning to quibble, but I think you are making some algebraic mistakes that is exaggerating your point. If a corporation makes $100, then after a 35% federal income tax, it will pass $65 onto its shareholders. If they then pay 15% tax on the $65 dividend, then they'll have $55.25 free-and-clear; thus, the total corporate tax is currently 44.75%, not 50%.

I do not think it works that way. Dividends come out of earnings period. There is no tax deduction and it is not as simple as paying the left overs to the shareholders. A company may make 100 in year 1 and pay 35 in tax. It may make 200 in year 2 and pay 70 in tax. It now has 195 in retained earnings. It now pay a 100 dividend. There was no dedution for this. The company pays no tax. It gets no savings. It had to earn $153 to pay the $100 ($100/1-.35). I think my computation of tax rate burden is correct.

Now, if you look at the receptionist's total tax burden, there would be 15% FICA tax (including the employeers share, which I think is fair), say 10% in income tax, and another say 15% of her income would go towards property tax, sales tax, gas tax, and all the other marginal taxes that hit people who have to spend their income on living expenses. This crude analysis gets the receptionist's tax burden up to 40%. That's not too far away from the 44.75% that Buffett is paying even when you include the corporate income tax. If this analysis was refined further, are you sure that you wouldn't find out that Jane the receptionist pays a higher total tax rate than Buffett?

I do not think you can include all other taxes in this comparison. Buffet pays all these other taxes too although it is a maller percent of his overall income. But really let's talk about someone making $250k rather than Buffet. There are not that many Beffets our there.

And here we are talking income tax. So let's assume the receptionist maked $50,000 a year. She is single but owns a home. She also put 5000 in her 401k. We will assume no other income. Let's see what her tax is:

Wages $50,000
Personal Exemption $3700
Interest, RE Tax,
State Tax, Charity $11,000

Taxable Income $35,300

Rate 15%

Tax $5302

Percent of wages 10.6
FICA and Medicare 15.2

Total Fed Rate 25.8

This is a far cry from 44%

[_Jason Bourne]

Dumb question: how much will Obama's taxes hurt my retirement prospects given that most of it is in stock? Most of my current income is salary, but I am transferring it to stock as my nest egg. If the account is tax-deffered, doesn't that still decrease my future expected value? A 30-second soundbite just won't help me there.

You really should ask a tax accountant or a financial planner. But basically all your money going into your 401k assuming this is what it is is tax deferred. Gains, losses, dividnends,etc do not impact you at all now. You take a tax deduction for what you put in now. When you take it out it is part of your income along with any other income you earn and you will be taxed on it at whatever your rate is then.

[_asbestosman]

I'm not a tax advisor so take my POV for what it's worth. There is a possibility that the value of your current portfolio would take a hit, but arguemnts could be made that it wouldn't and I really don't know what it would do. But if it did decrease the price of stock, future contributions would be made at the lower valuation, so you'd be able to buy more shares for the same contribution. Thus the further away retirement is for you, the less this matters.

The other variable is how much you'd withdraw per year when you retire. If you were withdrawing enough to put you in the high tax brackets, then Obama's plan would hurt you. If you were in the middle or lower brackets, it would help you.

So in other words, I really don't know.

What I was more concerned about were the long term effects on stock growth, not short term since I still have lots of time.

The other answer is also quite useful. I doubt I'll even withdraw enough to put me in a high bracket. So if I understand correctly, Obama's plan wouldn't increase the taxes I'll pay on my nest egg as I withdraw since I won't be withdrawing enough?

I'm not worried about being filthy rich, but I am concerned that this may make it more difficult for me to be financially independent when I retire. I wish to avoid relying on the government as much as possible. While I dislike what taxes can do to the economy, I also agree that we need some level to fund what we view as important. However, I think it's also important to keep in mind that stock portfolios help support more than just the wealthy. It helps widows, school endowments, the elderly, and others with their needs.

[Anonymous]

I am not sure what advantages you think corporations have over partnerships. Perhaps you can enlighten me. From a tax standpoint a C Corp is the absolute worst way to do business as it is subejct to double tax. Tax on gains when a C Corp is sold can approach 65%-70%. Thus no small business uses a C Corp anymore unless it has to for investment and finance reasons. Publically traded companies have no choice but to use a C Corp. The taxing regime that you think is fair puts US C Corps at a competitive disadvantage on the world stage because almost every other industrialized nations taxes corporations more favorably than the US does.

The corporate structure allows companies to raise immense sums of capital, which allows them not only to grow quickly and capitalize expensive endeavors, it also allows their founders to become very wealthy very quickly. It allows investors to diversify their holdings while being professionally specialized in a chosen niche. The corporation’s owners being thus diversified, corporations are better able to more aggressively pursue higher returns for higher risk. Accompanying all this is the limited liability; only the corporation itself is liable for its own actions, Sarbanes Oxley notwithstanding.

I’d also argue that a huge advantage corporations have is that they’ve literally been granted “personhood” by the U.S. Government. Corporations have freedom of speech, freedom of the press, and basically all of the rights that citizens enjoy. Yet rather than pursuing higher values such as love and happiness as humans presumably should, they are cooly and effectively focused on the pursuit of their own profits. Thus focused, they have a nack of finding profit opportunities that have a cost to society as a whole (e.g. causing polution, spreading disinformation)

Of course there are big disadvantages. In additions to the ones you listed, I’d add that public corporations have to spend millions of dollars on reporting and compliance.

Given how easily American companies find capital, it's hard for me to believe that the competitive disadvantages of the current tax structure isn't offset by other benefits American companies enjoy.

The facts that companies do in fact choose this structure and that they tend to do quite well prove that there are compelling advantages that offset the disadvantages.

[_Who Knows]

Was Buffet referring to marginal tax rates? I'm guessing his admin is probably in the 25% bracket (for fed tax). Meanwhile, buffet's income is basically all capital gains, dividends, etc. - that have a marginal tax rate of 15%.

I think this is what he was referring to.

[_dartagnan]

McCain and Obama as sitting Senators ought to go too. Neither of them have what it takes and were part of the problem.

How do you reconcile this statement with the title of this thread?

So Obama is part of the problem, he must go, he doesn't have what it takes as senator... but you're going to vote for him as President?

I’d also argue that a huge advantage corporations have is that they’ve literally been granted “personhood” by the U.S. Government.

Did you watch Michael Moore's film "The Corporation"?

I just got back from out of town and will post more tomorrow.

[_Analytics]

What I was more concerned about were the long term effects on stock growth, not short term since I still have lots of time.

The other answer is also quite useful. I doubt I'll even withdraw enough to put me in a high bracket. So if I understand correctly, Obama's plan wouldn't increase the taxes I'll pay on my nest egg as I withdraw since I won't be withdrawing enough?

I'm not worried about being filthy rich, but I am concerned that this may make it more difficult for me to be financially independent when I retire. I wish to avoid relying on the government as much as possible. While I dislike what taxes can do to the economy, I also agree that we need some level to fund what we view as important. However, I think it's also important to keep in mind that stock portfolios help support more than just the wealthy. It helps widows, school endowments, the elderly, and others with their needs.

Here is the issue. In the U.S., corporate profits are taxed twice: once at a flat 35% rate that the corporation itself pays, and then as income that the stockholder pays when he receives a dividend or takes a capital gain. Currently, the wealthy only pay 15% income tax on the dividends they are paid or the capital gains they take.

If Obama has his way, that 15% income tax that the investors pay would either increase or decrease, depending upon the income of the individual investor. For the ultra-rich, it is possible that they’d say, “you know what? It isn’t worth investing in the stock market if I have to pay more than 15% income tax on my stock market earnings. I’m going to buy bonds.” If they all did that, they’d all sell and it would lower the price. However, I doubt very many of them would march that way, and even if they did, the damage would be minimized by the fact that most of the stocks are held by normal people in their 401(k)s and IRAs, and those holders aren’t going to care since the taxes are deferred.

So in general, I think Obama’s plan wouldn’t hurt the market very much.

What I’m more concerned with is the overall direction that the economy is taking. Will there continue to be a middle-class where there is opportunity for everybody, or will we live in a winners-take-all world where the ultra-rich continue to obscenely rich and the rest of us are out of luck and on our own? I think Obama has the better understanding of the causes, implications, and solutions to this more fundamental issue.

[_Analytics]

Was Buffet referring to marginal tax rates? I'm guessing his admin is probably in the 25% bracket (for fed tax). Meanwhile, buffet's income is basically all capital gains, dividends, etc. - that have a marginal tax rate of 15%.

I think this is what he was referring to.

I don't think so; somebody in the 25% bracket is going to pay a lot less than 25% in income taxes.

I think the correct way to look at it is to divide total taxes paid by total income earned. The main point of disagreement is whether the 35% income tax that corporations pay should be considered tax paid by the owners.