WatchMost people don't realize that the bush tax cut will expire Jan 1, 2013. With Obama just newly re-elected and public sentiment, the rich will be soaked, the only question is how much and will they drag the middle class along with it.
In 2010, Obama was in a weaker position, weaker economy, political party was losing ground and he himself was mindful about his own re-election. The republicans was able to extend the Bush tax cuts for all for two more years. Obama, as of 2012 and 2010 wanted them to be extended for the 200/250K household. In 2010, he failed his goal.
That scenerio will not shake itself out in 2012. The Bush tax cut will expire. As openly stated, Obama wants to extend it for the middle class just as he stated for as long as he was president. It's a matter of politics whether he can succeed in extending it for the middle class. There is no scenerio that the rich will not pay more, its just a matter of winning other concessions by dragging the middle class to dilute their prospective pain.
The bush tax cut will be particularly painful for 100K earner which will lose the 10%-15% tax bracket and will end up paying approx 5K more in income tax. Combine that with the expiration of the payroll tax expiration for another 2K and we are talking about 7% gone. For a 300K household, it will cost about 7K-8K as well, but 7K-8K now is 2.5%. The R knows this will anger the 100K earners so perhaps they are banking on don't do it because we will hurt you more strategy.
The bush tax cut will be painful for the wealthy as well, not so much the tax bracket as it is 3-4% across the board, but will be felt in the treatment of capital gains and investment income. Dividends will be particularly painful but capital gains will go up to from 15% to 20%. In the end, that 13% ETR Romney enjoys will be more like 19%, that just increased his tax by 50% and tough to avoid unless we are talking illegal type stuff. They can of course buy tax exempt municipal bonds which will benefit state and local governments.
So I guess my advice to Obama, not that he would pay attention is, do not negotiate with the R's demand to dilute it down. Expiring tax cut will cost me 10K more or maybe a 20% tax increase. Expiring the tax cut for the rich will cost the Romney's 50% on a much higher base.
If it comes down to it, just let the entire damn Bush tax cut expire. There's nothing the house can do to stop that.
Based on my understanding of how the rich works and invests, they will still go after every dollar possible and treat business as usual, stock market will adjust and will be fine. The theory that people/business will stop investing in America is laughable. Business will always invest in America, just as you will see Mercedes, Samsung and other exploit this market. It's a 15T GDP, market business will never ignore America.
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E-man says
Well then, we should support a marriage stimilus. A married two earnings household should enjoy a tax bracket that is wider than two separate filers. That would keep people thinking twice about separating or get people like BMW to double up faster.
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CL says
Rich people and corporations don't have to clamor. They have lobbyists to quietly write the laws in their favour.
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RentingForHalfTheCost says
The marriage penalty is more like 1K-1.5K. That's assuming both BMW and his spouse both make equal amounts (120K to 120K).
If BMW works and his spouse does not (240K - 0K), he actually comes out way ahead, by 5K or so.
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E-man says
That's why I voted FOR gay marriage in Maryland. Now the gays can pay higher income taxes to pay for all the stupid programs that the Democrats they vote for enact. That and now they get to spend some of their disposable income on divorce proceedings, etc.
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Redwood City, CA
E-man says
I was actually surprised at the number of folks who voted *against* Prop. 30. Given the increase affects less than 5% of the highest incomes in the state, you wouldn't expect that 40-something % of the voters voted against it.
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Emeryville, CA
bob2356 says
But that's---classism! :)
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ducsingle5313 says
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” -- J. Steinbeck
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Given the increase affects less than 5% of the highest incomes in the state
The quarter percent sales tax is regressive.
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EBGuy says
Average family with $1000/month in taxable purchases will see a $2.50 rise.
Shit, rents are up 8%, on a $1400/mo rent that's $112 a month.
If you ask me, we need MORE regressive taxes. That's the secret of how Germany is keeping their economy on track. That and not shipping all their jobs to China.
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Dublin, CA
Bellingham Bill says
While it maybe a bit of a generalization, I believe that in Europe/Latin America, the poor tend to despise the rich while in America, the poor want to live like the rich as evidenced by shows like Cribs, Crackdashians, etc. Both are ultimately forms of jealosy and envy and are very harmful to a peaceful life.
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History seems to escape the neocon mind for some reason.
Increasing the personal tax rate makes the business tax rates more attractive. Its a natural incentive for executives to stop enriching themselves and enrich their companies by re-investing in the company instead of another 40,000 sq ft mega-mansion. You grow the company and your wealth grows withing the corporation at a lower tax rate that if you take the money away from the company in the form of profits. It also makes charitable donations more attractive. There are plenty of shelters to take options and such where they can still do nicely and afford their standard of living.
All in all, its a win win. We've been there before and life was good. Good for everyone, the middle class AND the rich.
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ducsingle5313 says
So am I. I thought it was going to pass by a wide margin. The politicians were putting the 5% against the 95%. How could it not passed. Although I'm in the 95%, I voted against it.
What ironic was that Prop. 38 was defeated by a wide margin. Like 78% to 22%.
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SFace says
Well, they should. What's up with $200k for single and $250k for married couple? Shouldn't it be $400k for married coupled?
Anyways, I was debating between getting a 2009 or 2010 740i or a 2009 S550 with the sport package next year. Wife said she wants the GL450 so I'm screwed. I'll by driving her 2007 E350 for another 4 years. :(
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bob2356 says
True. How do you argue with that? :)
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E-man says
39.4% of the presidential vote went to small-government conservatism, both the "severely" conservative Romney and the libertarian dude.
So the yes side had to pick up 75% of the Obama vote. These numbers may be off a bit but that's the idea.
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gbenson says
I remember back in the 90's here in the Silicon Valley. A lot of people got wealthy from stock options. Back dating stock options were quite popular. The management gave out a lot of stock options to their employees too. Since the government imposed strict laws on back dating, the Silicon Valley employees have been suffering. At least that's what I hear from some of my friends, or could it be the good days are behind us?
I was a little punk running my small business part-time in 1994 while attending college. I remember it was so easy to make money. Jobs were everywhere when I graduated in 1998. What the hell happened to us? LOL!!!
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E-man says
Married couples prefer to cohabitate as a rule. Single people do not.
This lowers the married couple's cost-of-living substantially.
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Bellingham Bill says
Well, don't you think the marital rate has been declining is the result of our tax policy? Why marry and be taxed more?
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Emeryville, CA
Bellingham Bill says
I think Debs got 6% and was on the upswing until the Plutocrats started treating the worker as good as cattle. The poor were revolting, and not in the way that Romney says it.
And wasn't the Square Deal really a way to stop the growing Socialist movement from revolting against capitalism?
Today, the oppressed worker eats Cheetos in a recliner, with Fox telling him it's the Government's fault he's a loser.
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Bellingham, WA
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E-man says
it's not all downside, you do get survivor benefits and stuff.
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Bellingham Bill says
I don't work for the government so there's not much benefits for the spouse to inherit or vice versa. Proper planning with a $1M term life insurance will do for the next 17 years. With that said, it might be beneficial for us to be legally married sometimes in the next 10 years. That's how screwy our tax system is.
Here's an example. Instead of dropping $40k to buy a new car. I use $40k to buy a condo in San Jose for $150k and rent it for $1,600/month. I net around $500/month and use it to pay for the car payment. I can practically buy a new $40k car every 7 years. In the meantime, the tenant is paying off my mortgage & I get to write-off on the car. Talking about having your money, OPM and your tenant work for you, and the tax system allows you to reap the benefits. What the hell am I suppose to do when the tax system is set up that way? :)
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E-man says
Damn right.
My wife and were seriously debating NOT sending in the legal paperwork after our marriage 3 weeks ago. Simply because of the marriage tax "penalty." The benefits from being married really seemed to pale in comparison to a potential $10k/year tax hit (if all the tax cuts expire in 2013). We mailed it in anyway since we do trust each other to make executive decisions in the event of the unthinkable, but it looks like a fucking scam otherwise.
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SFace says
This is a winning strategy, but I'm afraid that somehow Obama will fuck it up.
Let everything expire, and then initiate a new (similar tax cut) that's just for the middle class. If republicans fight that, or deny it if it can't be tied to a tax cut for high incomes, then next election cycle it will be their fault that the middle class was fucked over.
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E-man says
In some ways it encourages you to build new housing and rent them. So altogether you provide some social good, employing people and making it all happen. Kudos.
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Los Angeles, CA
marcus says
That won't happen because by the time it does, the middle class will be defined quite differently. I remember back in the late 80's when the democrat controlled congress wanted a 40% bracket....starting at $60K of taxable income.....
And it wouldn't solve the real issue which is high income people using any loophole they can.
A combination of increasing the capital gains tax to 25% and capping deductions at $30K or so would in fact solve this problem.
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marcus says
Clinton tax rates aren't a "fucking over".
We need the Clinton tax rates as a starting point sooner or later.
On top of that we're going to need about double their bite on the top 5%.
I really don't see how we're going to grow our way out of this (pensioning off the baby boom and giving them a quality 20-30 years).
We've become very bizarre about taxes. Do you think the Germans enjoy paying their 40.6% to GDP taxes? Sweden and Denmark pay 48-49%.
How do we think this $850B/yr war is going to be paid for? Inflation?
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SFace says
The Republicans are obviously going to try to make it as painful for the middle class as possible. However, if they don't capitulate, then defense industry spending plummets and all that sucking from the government teat that red states have been doing for the past 60 years suddenly stops. That means mass unemployment in states like Montana and Wyoming.
Red states get a whole lot of jobs at that teat. If republicans senators and representatives cut off that teat, they won't be re-elected in 2014. Those coming up for election have got to be scared. Those not coming up for election might even be recalled if they let those automatic spending cuts occur.
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Redwood City, CA
E-man says
You must be high. Where are you going to buy a condo in San Jose for $150k that rents for $1600/month?
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SFace says
Yeah, i calculated my taxes will increase just about $6000 if the bush tax cuts and payroll tax cuts expire. It will suck, but everyone will be in the same boat atleast...
what's that saying.. misery loves company... Don't have to worry about Keeping Up With the Joneses... when they get a big tax bill too.
That $6K i would definitely pump back into the economy if i had it.. Probably would upgrade the windows or a/c in the house. Vacation plans are on hold until wife graduates, but I'd imagine $6000 is a high proportion of discretionary income for dual $50K income household.
The overall economy would take a massive hit, no doubt about it.
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ducsingle5313 says
Duc, that's the beauty. You buy when others are not looking. You find deals where others are not looking. These deals were plentiful in 2011 and were selling for $115k-$130k at the courthouse steps up till January of this year. They are now selling for $170k-$185k at the steps and $210k-$230k retail on the MLS. Some investors are pushing for $240k-$260k on their rehabbed flips.
We just got lucky. In fact, we will try to rent it out for $1,650/month. It's me and pkennedy, 50/50. Last year, we picked one up for $117k and rented for $1,550/month. This May, we picked another one up for $155k and rented for $1,750. Both units were rented on the 1st day of our open house. Our units are located in 95111, 95126, and 95121 respectively. Yes, we have gained quite a bit of equity on these deals already.
We are currently in contract for another deal. We're still looking for a couple more deals, but they are so hard to come by. In fact, I closed on another deal 1.5 months ago for a relative for $150k. We offered $30k cash over their purchase price, but they turned us down. The window of opportunity is closing fast on us.
Hope things will work out for us. Fingers crossed.
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BoomAndBustCycle says
Well, that's what everyone said. We'll have to wait & see.
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http://interactive.taxfoundation.org/taxcalc/#calculator
Nice little tax calculator i found...
Punch in the Republican/ Democrat scenarios... voila.
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Los Angeles, CA
BoomAndBustCycle says
Yes paying more in taxes does suck.
What sucks worse is seeing someone who is legitimately rich be able to shelter the majority of their income and pay little federal income tax(or in one case I know of, none).
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Bellingham Bill says
I know. But I was talking about politics.
You're probably right, but what I'm saying is that if Obama wants to only have taxes go back up (for now) on high incomes, letting all the Bush tax cuts expire, and then reintroducing a middle class tax cut to congress would be the way to do it.
IF he can't get it, then the republican house can take the blame for insisting that it not happen unless the high income people get theirs too.
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E-man says
Nah, it is because of outrageous divorce laws. you could lose everything and then some. Hulk Hogan had to pay 70% of his fortune and now his ex is shacked up with a 20 yr old in his house. Or in these horror stories in MA-where a woman who makes 95k a year is getting massive amounts of alimony and she wants to retire. The guy turned 67 and wants to retire-but the judge says no and asks him to keep working and take part time jobs and keep paying alimony to his ex who makes 95k a year.
http://www.bostonmagazine.com/articles/2009/06/till-death-do-us-pay/
While MA has since reformed their laws, in CA if you are married for 10 yrs or more, the court has jurisdiction over you for life- till death do us part has changed to till death do you pay.
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lostand confused says
Again, it's the stupid laws and tax system that discourage people to be married although in CA we have common law marriage.
All I can say is that choose your mate carefully. You have no one to blame but yourself. I'm more than happy to give my wife all of it. She has helped me build it since we were dating at the age of 21. So no complaint from me there other than the tax laws. $10k is a lot of money. It can service- $200k mortgage debt. $200k mortgage debt can make you $15k to $20k/year. $15k-$20k can then service another $300k-$400k mortgage debt, which will make you $22.5k-$40k. You get the picture. Money makes the world go around.
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E-man says
That is fine-but that is a choice. You can choose to spend all your money on a trip to the moon. But the govt gets into it and makes mandates. People change and move on. When "traditional" ideas of marraige and genders have moved on-then so should traditional laws that were created when women were considered helpless and just one rung above a child.
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If they took the money and paid off the debts it would be fine. Because every generation should pay off their own debts.
But if they'll take it and spent it on unions and other politically connected friends than I am against it.
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FortWayne says
Yes , lets see where it goes. If they crack down on the prison guards union -that would be great.
http://www.cacs.org/ca/article/44
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Redwood City, CA
E-man says
WRONG. California does not recognize common law marriage.