Future Dividend Taxes

[Guest kawikaho]

The social contract is implicit.  And it's not a real contract, of course, but a theory that explains how society maintains social order.  If you don't like the idea of paying taxes in whatever country you're from, you should leave and find one that lets you get away with not paying taxes.  Good luck with that.

[ERICOPOLY]

Ericopoly,

 

What is your current profession and is it easy to practice it in Australia if you decide to move there? From your discussion, Australia seems like an interesting place. I am a bit worried that it may follow the US path in the not too distant future just as the US seems to be following a European social welfare model with a lag.

 

My current profession is that I change diapers.  Today I was out flyfishing on the Bogachiel river in Washington state's Olympic Peninsula and I hooked four steelhead fresh out of the ocean and landed 3 of them.  Largest was 12 pounds.  A steelhead is a sea-run rainbow trout.  I just got back and read bedtime stories to my two year old boy.  Reason why I quit my job was because #1 I hated it.  #2  I could afford to.  #3  I won't get these years back with the little kids

 

Now that tax season is almost past, my accountant will have time to meet with me.  I plan on setting up a software consulting business.  I will earn $65 dollars an hour (I already have a company interested in signing me, I just need the legal entity set up).  The company isn't even in the same state as me so I could pretty much do the job on a sailboat as long as I have internet access.

 

The difference here is that I will be working for myself and not for Microsoft where I had to commute 2 hours each way and set career goals and all kinds of corporate BS that they subjected me to.

 

[ERICOPOLY]

I am for tweaking our system, but basically someone is going to have to pay up.

 

And that person isn't going to be me.

 

Out of altruism I would vote for a VAT system because that's the only way you can extract my fair share of taxes going forward.  Speaking from experience, I know the rest of these taxes are easy to game.  But the VAT can't be avoided, unless you just leave the country entirely.

 

You practically gave me a hardon when you suggested corporate taxes be eliminated because that's the only real tax I pay on my owners' earnings.

 

I have enough money in my taxable account where I can park it solely in stocks like FFH and L (which for the most part I've done, weighted to FFH).  These dividends will give me enough income that... after my deductions for property tax and mortgage interest, will land me at about 15% tax bracket on the personal income tax scale.  Then I have my income paying dividend and REIT stocks in my RothIRA which is practially 50% of my net worth.  My strategy is to live off of margin loans in my taxable account, and let the dividends and interest accumulate in my RothIRA.  I will have a margin liability offset 100% with a cash pile in the RothIRA.  If the market selloff and I need to sell some FFH to raise margin, then I will sell the FFH and simultaneously buy it back in my RothIRA.  I can't take a tax loss for that because I'm buying it in my RothIRA, but my cost basis on the FFH is low so what I'd really be doing is just paying less capital gains tax than I otherwise would have been.   In the event of no crash, after maybe a decade I will sell off some FFH to pay down the margin significantly and buy the same amount of FFH using the accumulated cash in the RothIRA.

 

You can probably see where I'm going with this... my margin interest is deductible against my FFH dividends, yet my RothIRA dividends continue to compound in things like CDs tax-free.  So, I will be paying little to nothing in dividend taxes.

 

If I pay any meaningful tax at all, it will come in the form of capital gains or if I get a job consulting.  But that consulting job I can put 45k out of the first 100k I earn (I won't work enough to make more than that) into a tax-deferred IRA (and self-employed 401k), so don't expect me to be helping you with your tax burden.

 

So, ALTRUISTICALLY I offer you the VAT tax which is pretty much the only way I'll pay any tax of consequence.

 

Yet you guys are so distrustful that you think I'm trying to rig the tax code for my self interests.  Nothing could be further from the truth.

 

And Myth you thought my margin loan example was ridiculous -- it happens to be exactly what I plan to do which is why I had it so readily available.

 

I didn't have my laptop last night so I didn't feel like thumb-typing this explanation on my blackberry which is what I used to post everything else.

[ERICOPOLY]

Wealth for the Common Good, which represents many of these individuals, was organized to help rebalance our economic system. Our goal is to contribute to the public debate on taxes and support President Obama and Congress in creating a more progressive tax code.

 

Socialists

our rates are historically *extremely* low, certainly relative to the taxes the middle class pays. 

 

When does history begin?

 

There was no income tax prior to... 1913 I think?  I might be getting the year wrong.  Somewhere in there, I may be off by 10 years.

[rkbabang]

The social contract is implicit.  And it's not a real contract, of course, but a theory that explains how society maintains social order.  If you don't like the idea of paying taxes in whatever country you're from, you should leave and find one that lets you get away with not paying taxes.  Good luck with that.

 

I'm not saying such a place exists, to my knowledge it doesn't, but that doesn't mean taxation is not theft.  There was a time where you'd be hard pressed to find a place in the world that didn't practice chattel slavery, or where you could live without being a surf under some landed aristocracy.  That didn't mean these practices were just.  It just means most people have been brainwashed into thinking these things are OK and even necessary by the people who benefit from these abominations.  Taxation is the same.  Humanity will one day look back upon taxation the same way we today look smugly back upon chattel slavery and think we're so morally superior then our ancestors.  You have a million reasons in your mind why coercive government is necessary, and they are all false.  Just because you personally can't imagine the solutions to these problems you envision doesn't mean there are none.  And - I don't beleive this to be so - but if you are correct, and it takes violence and slavery to produce roads and bridges, then I'd rather live without them. Just as, if it took violence and slavery to produce cotton and tobacco, I'd rather live without them.  Fortunately it no more takes violence to produce convenient modes of transportation than it does to produce cotton or tobacco.

 

--Eric

 

[rmitz]

When does history begin?

 

There was no income tax prior to... 1913 I think?  I might be getting the year wrong.  Somewhere in there, I may be off by 10 years.

 

You're right on the year.  But when income tax was instituted, and for many years thereafter, the burden fell overwhelmingly on the rich.  Initially, it was only on people who by any definition were rich.

[onyx1]

The social contract is implicit.  And it's not a real contract, of course, but a theory that explains how society maintains social order.  If you don't like the idea of paying taxes in whatever country you're from, you should leave and find one that lets you get away with not paying taxes.  Good luck with that.

 

I found one.  Its called America.  In 2009, 47% of Americans paid no income taxes whatsoever.  Whats more, the bottom 40% recieve cash & benefits (EETC, unemployment benefits, S-CHIP, Medicaid, housing subsidies, food stamps, welfare, etc.) paid from reciepts of those who paid their share of this 'social contract'.  What kind of perverted theory justifies a system where half the nation are freeloaders?

[rkbabang]

The social contract is implicit.  And it's not a real contract, of course, but a theory that explains how society maintains social order.  If you don't like the idea of paying taxes in whatever country you're from, you should leave and find one that lets you get away with not paying taxes.  Good luck with that.

I found one.  Its called America.  In 2009, 47% of Americans paid no income taxes whatsoever.  Whats more, the bottom 40% recieve cash & benefits (EETC, unemployment benefits, S-CHIP, Medicaid, housing subsidies, food stamps, welfare, etc.) paid from reciepts of those who paid their share of this 'social contract'.  What kind of perverted theory justifies a system where half the nation are freeloaders?

 

"Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone" -- Frederic Bastiat.

 

 

[rmitz]

I found one.  Its called America.  In 2009, 47% of Americans paid no income taxes whatsoever.  Whats more, the bottom 40% recieve cash & benefits (EETC, unemployment benefits, S-CHIP, Medicaid, housing subsidies, food stamps, welfare, etc.) paid from reciepts of those who paid their share of this 'social contract'.  What kind of perverted theory justifies a system where half the nation are freeloaders?

 

Incorrect.  That number is only correct if you ignore local and state income taxes, medicare, social security, etc.

 

http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html

[Myth465]

Ericopoloy I always said that minimizing taxes was fair game. I may be able to eliminate mines should I take a position abroad. If I do I will convert my 401k that year and pay very few taxes on the conversion. If that falls through than I was going to buy real estate as a tax shield.

 

I also always said that you werent average, and that there werent many people like you.

I also always said you can find ways to compound wealth without paying the taxes.

 

This isnt really about you or I. I am guessing if the rate goes up. Companies will still pay billion and the hole in the budget will get smaller. The goal is to not get you to pay some sort of tax, its to generate the most revenue with the least pain for the economy. I think the raise in Dividends rates will do that. The US doesnt need a hidden VAT taxation system on top of the millions of other taxes that are collected. Americans need to know that the Government they desire costs X and they will have to pay X. Americans have to make choices relating to spending and will have to collectively pay for those choices.  

 

Loans arent taxed, and should never be. I think your strategy sounds great, depending on your portfolio size though I think it may reduce your gains going forward.

 

The social contract is implicit.  And it's not a real contract, of course, but a theory that explains how society maintains social order.  If you don't like the idea of paying taxes in whatever country you're from, you should leave and find one that lets you get away with not paying taxes.  Good luck with that.

 

I found one.  Its called America.  In 2009, 47% of Americans paid no income taxes whatsoever.  Whats more, the bottom 40% recieve cash & benefits (EETC, unemployment benefits, S-CHIP, Medicaid, housing subsidies, food stamps, welfare, etc.) paid from reciepts of those who paid their share of this 'social contract'.  What kind of perverted theory justifies a system where half the nation are freeloaders?

 

That 47% stat is such bullshit. Not even worth responding to.

 

 

[rmitz]

I'm not saying such a place exists, to my knowledge it doesn't, but that doesn't mean taxation is not theft.  There was a time where you'd be hard pressed to find a place in the world that didn't practice chattel slavery, or where you could live without being a surf under some landed aristocracy.  That didn't mean these practices were just.  It just means most people have been brainwashed into thinking these things are OK and even necessary by the people who benefit from these abominations.  Taxation is the same.  Humanity will one day look back upon taxation the same way we today look smugly back upon chattel slavery and think we're so morally superior then our ancestors.  You have a million reasons in your mind why coercive government is necessary, and they are all false.  Just because you personally can't imagine the solutions to these problems you envision doesn't mean there are none.   And - I don't beleive this to be so - but if you are correct, and it takes violence and slavery to produce roads and bridges, then I'd rather live without them. Just as, if it took violence and slavery to produce cotton and tobacco, I'd rather live without them.  Fortunately it no more takes violence to produce convenient modes of transportation than it does to produce cotton or tobacco.

 

--Eric

 

Actually, just move to Qatar.  I lived there for three years.  No personal income taxes.  The country is run based on petroleum revenues and some minor tariffs and low business taxes.  They don't actually need the income from the latter things.

[onyx1]

I found one.  Its called America.  In 2009, 47% of Americans paid no income taxes whatsoever.  Whats more, the bottom 40% recieve cash & benefits (EETC, unemployment benefits, S-CHIP, Medicaid, housing subsidies, food stamps, welfare, etc.) paid from reciepts of those who paid their share of this 'social contract'.  What kind of perverted theory justifies a system where half the nation are freeloaders?

 

Incorrect.  That number is only correct if you ignore local and state income taxes, medicare, social security, etc.

 

http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html

 

A tortured 1200-page essay from the NY Times, (or any other elitist dismissal for that matter), doesn’t change the basic fact that 47% of American taxpayers receive all the benefits of the federal government without paying a dime.  Anything you get for free is not properly valued and waste is guaranteed. Our government is no exception.  Without simple incentives we sink deeper into an already unhealthy culture of entitlement.  

[ERICOPOLY]

 

http://www.simplyhired.com/a/salary/search/q-plumber/l-seattle,+wa

These salary figures are for 2010...  I'm not sure what your last year of employment was but if it was a while ago then the numbers might not be an apples to apples comparison due to inflation.

 

 

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour.  If they can only make $50k per year maybe they are playing golf half the week.

 

I can only make $65 an hour for my labor if I start my own consulting business.

 

$100+ > $65

 

[ERICOPOLY]

Loans arent taxed, and should never be.

 

Of course they're not taxed and of course they shouldn't be.  That's not the point.

 

Think about Buffett's teaching for a minute here.  Focus your mind on "owners earnings".  I am the owner, those are my earnings.  Those are the earnings I should be taxed on. 

 

Thinking about the dividends as my earnings is ridiculous.  Dividends are a declared distribution of my earnings.  There are other forms of distribution of earnings, like share buybacks.  Share buybacks fortunately are not taxed -- people haven't yet recognized that this is how we tax evaders return cash to shareholders without people noticing that we are taking a distribution of our earnings.  This forces the share price up at an above-average rate over time (relative to paying dividends) which is why it's possible to tap those earnings via margin loans.

 

Stick to taxing owner earnings if you are trying to fill holes in the budget.  I wish Mr. Buffett would mention that he is taxed on his owner earnings at a much higher rate than his secretary.  He talks about owner earnings when he's thinking about how he buys shares, and he encourages every shareholder to think of their shares as pieces of the business as if they were wholly owned.  But then sadly he carries on with this idea that his earnings are taxed at a lower rate than his secretary.  Mr Buffett -- are these owners' earnings really your earnings or not??  Which is it?

[rmitz]

A tortured 1200-page essay from the NY Times, (or any other elitist dismissal for that matter), doesn’t change the basic fact that 47% of American taxpayers receive all the benefits of the federal government without paying a dime.  Anything you get for free is not properly valued and waste is guaranteed. Our government is no exception.  Without simple incentives we sink deeper into an already unhealthy culture of entitlement.  

 

Look, you're just plain distorting the facts.  1) You never qualified that as "federal" anything.  2) Medicare and Social Security don't count as federal taxes in support of federal services now?  They aren't part of the "federal income tax", but clearly they are part of the federal tax regime.

 

Sound bites make for good TV (Pretty much all TV at this point is entertainment; you can't make money presenting facts in a responsible way), but while repeating falsehoods over and over again may sway the Hoi Polloi, you'll find us "elitists" are a tougher nut to crack.

 

And keep in mind here you're talking to someone who hates taxes!  I would love a smaller central government.  Scale back/change the war machine, first of all.  We can make all sorts of suggestions, but it's inherently a slow process, and politics make certain things impossible.  War, for example, has a HUGE lobby behind it, on multiple fronts.

[rmitz]

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour.  If they can only make $50k per year maybe they are playing golf half the week.

 

I can only make $65 an hour for my labor if I start my own consulting business.

 

$100+ > $65

 

I don't know what you do in IT, I work in the field too, but $65 seems pretty low to me for a consulting arrangement.  It would be almost reasonable if you knew you would get full-time style work, but that isn't reality.  A rule of thumb I used to calculate what I'd need for a consulting rate would be to take your current rate, slap on 33% for benefits (true where I work), and then adjust it for a 50% utilization ratio, i.e. double it.

[ERICOPOLY]

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour.  If they can only make $50k per year maybe they are playing golf half the week.

 

I can only make $65 an hour for my labor if I start my own consulting business.

 

$100+ > $65

 

I don't know what you do in IT, I work in the field too, but $65 seems pretty low to me for a consulting arrangement.  It would be almost reasonable if you knew you would get full-time style work, but that isn't reality.  A rule of thumb I used to calculate what I'd need for a consulting rate would be to take your current rate, slap on 33% for benefits (true where I work), and then adjust it for a 50% utilization ratio, i.e. double it.

 

They charge a lot less in China you see.  The stuff I do telecommuting can just as easily be contracted out to people there.

 

They don't outsource plumbing to China. 

 

How much do you pay for a visit from your plumber?  I only pay the pizza delivery person a few bucks, so I know it isn't the onsite visit alone that costs money -- it's the labor.

[rmitz]

They charge a lot less in China you see.  The stuff I do telecommuting can just as easily be contracted out to people there.

 

They don't outsource plumbing to China. 

 

How much do you pay for a visit from your plumber?  I only pay the pizza delivery person a few bucks, so I know it isn't the onsite visit alone that costs money -- it's the labor.

 

And it's not just the labor, it's the know-how.  But yeah, I agree with you; if you're working in a very defined space then there is some outsourcing capability.  The outsourcing projects I heard of and worked on generally didn't go really well because of cultural differences, as well as issues with communications.  They ended up costing more money than just hiring competent local people in the first place. 

[ERICOPOLY]

rmitz,

I earned $35 an hour cash compensation at Microsoft for the amount of time they ultimately required of me.  Perhaps it's as much as $45 if you include benefits.  I think people waiting tables (at a busy restaurant) do better than that -- better, than can pocket most of their income in cash (tips) and not report it to the IRS.

 

Consulting at $65 is better than Microsoft at $45.  Even after the self-employment tax it works out better.

[Guest kawikaho]

 

http://www.simplyhired.com/a/salary/search/q-plumber/l-seattle,+wa

These salary figures are for 2010...  I'm not sure what your last year of employment was but if it was a while ago then the numbers might not be an apples to apples comparison due to inflation.

 

 

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour.  If they can only make $50k per year maybe they are playing golf half the week.

 

I can only make $65 an hour for my labor if I start my own consulting business.

 

$100+ > $65

 

 

Distortion of facts. 

 

http://www.bls.gov/oco/ocos211.htm#earnings

 

 

[Guest kawikaho]

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour.  If they can only make $50k per year maybe they are playing golf half the week.

 

I can only make $65 an hour for my labor if I start my own consulting business.

 

$100+ > $65

 

I don't know what you do in IT, I work in the field too, but $65 seems pretty low to me for a consulting arrangement.  It would be almost reasonable if you knew you would get full-time style work, but that isn't reality.  A rule of thumb I used to calculate what I'd need for a consulting rate would be to take your current rate, slap on 33% for benefits (true where I work), and then adjust it for a 50% utilization ratio, i.e. double it.

 

Yeah, I was about to say that is low.  The short term consulting gigs I've done on the side were in the neighborhood of $125-150/hr.  Although, the consulting company usually got half of that.  :-)

[Guest kawikaho]

rmitz,

I earned $35 an hour cash compensation at Microsoft for the amount of time they ultimately required of me.  Perhaps it's as much as $45 if you include benefits.  I think people waiting tables (at a busy restaurant) do better than that -- better, than can pocket most of their income in cash (tips) and not report it to the IRS.

 

Consulting at $65 is better than Microsoft at $45.  Even after the self-employment tax it works out better.

 

I don't know anyone in the hospitality industry working for tips that make $100k/year.  I used to work as a server back in college at busy 4 star hotels in Waikiki.  You just don't get enough hours or consistency.

[ERICOPOLY]

 

http://www.simplyhired.com/a/salary/search/q-plumber/l-seattle,+wa

These salary figures are for 2010...  I'm not sure what your last year of employment was but if it was a while ago then the numbers might not be an apples to apples comparison due to inflation.

 

 

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour.  If they can only make $50k per year maybe they are playing golf half the week.

 

I can only make $65 an hour for my labor if I start my own consulting business.

 

$100+ > $65

 

 

Distortion of facts.  

 

http://www.bls.gov/oco/ocos211.htm#earnings

 

 

 

 

You should rely on your eyes more.  What price do you pay when you call the plumber?

 

Further, college workers get paid shit.  So your college wage has no value to this discussion.  When I was in college, I worked an IT job for $10 an hour.

 

My wife and I go out to dinner every week and the bill is about $100.  I pay a 20% tip and the server is making $20 from my table alone.  She probably averages 3 tables at least per hour, so we're talking about some serious compensation.

 

Your government statistics website... man, you can lie with statistics can't you?  How much do they say that I made in my IT job?  Was it $100k average?

 

 

[Guest kawikaho]

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour.  If they can only make $50k per year maybe they are playing golf half the week.

 

I can only make $65 an hour for my labor if I start my own consulting business.

 

$100+ > $65

 

I don't know what you do in IT, I work in the field too, but $65 seems pretty low to me for a consulting arrangement.  It would be almost reasonable if you knew you would get full-time style work, but that isn't reality.  A rule of thumb I used to calculate what I'd need for a consulting rate would be to take your current rate, slap on 33% for benefits (true where I work), and then adjust it for a 50% utilization ratio, i.e. double it.

 

They charge a lot less in China you see.  The stuff I do telecommuting can just as easily be contracted out to people there.

 

They don't outsource plumbing to China. 

 

How much do you pay for a visit from your plumber?  I only pay the pizza delivery person a few bucks, so I know it isn't the onsite visit alone that costs money -- it's the labor.

 

I don't know what kind of work you do in IT, but outsourcing programming to China and India is not quite the same as consulting.  Companies looking for consulting work still want people local and on site.  Depending on the skills required, they can still pay quite a good deal.  Although, half of that will go to the contracting company.  You could start your own company and do all the marketing, recruiting, and building up your own skills to match the marketplace (good luck with that), but it's brutal.  I know some folks in the industry that tried to start up their own consulting businesses.  They usually end up back in some large IT company.  I've done lots of side consulting gigs with VARs as the contracting company.  Some were local and on site, others were telecommute.  The stints weren't that long.  

[Guest kawikaho]

 

http://www.simplyhired.com/a/salary/search/q-plumber/l-seattle,+wa

These salary figures are for 2010...  I'm not sure what your last year of employment was but if it was a while ago then the numbers might not be an apples to apples comparison due to inflation.

 

 

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour.  If they can only make $50k per year maybe they are playing golf half the week.

 

I can only make $65 an hour for my labor if I start my own consulting business.

 

$100+ > $65

 

 

Distortion of facts.  

 

http://www.bls.gov/oco/ocos211.htm#earnings

 

 

 

 

You should rely on your eyes more.  What price do you pay when you call the plumber?

 

Further, college workers get paid shit.  So your college wage has no value to this discussion.  When I was in college, I worked an IT job for $10 an hour.

 

My wife and I go out to dinner every week and the bill is about $100.  I pay a 20% tip and the server is making $20 from my table alone.  She probably averages 3 tables at least per hour, so we're talking about some serious compensation.

 

Your government statistics website... man, you can lie with statistics can't you?  How much do they say that I made in my IT job?  Was it $100k average?

 

 

 

As a server, I made just as much as guys that were working 10+ years.  Server wages don't go up with experience at most places.  And your own anecdotal experiences are greater than a range of data collected by the gov't?  All you're about is anecdotes.  Haha.  Lord.