Republican bill passes, opening path to debt deal

[Phelonious Ponk]

Sorry Tim, I'm not following your logic. Salary and benefits are subtracted from the income statement before taxes. Dividends are paid out of post tax monies.

I get that, doc. But it all comes out of the same puddle -- the gross income of the corporation. If they pay less in corporate taxes, theoretically they have more to pay out in salary, benefits, dividends and shareholder equity in the form of rising stock prices (unless we want to theorize that stock prices rise with higher corporate taxes...). So I fail to understand why my company's corporate tax payments represent double taxation for the guy who gets his income from capital gains but not for me. My company pays taxes, I pay income taxes on the money my company pays me: Double taxation. The company I own shares in pays taxes. I pay taxes on the income I make on those shares: Double taxation. Not to mention we all turn around and pay sales tax and numerous taxes in the form of fees on the money we and our employers and/or stockholder companies have already paid taxes on: Triple taxation.

It's all so confusing. The only part that is clear to me is that these days, if I have capital gains to pay taxes on, I'm happy. Others, it seems, are not pleased by their good fortune.

Tim

 

[jazdoc]

Tim,

Salary and benefits are a pretax corporate expense. As compensation rises, net taxable business income (the money available for dividends) falls. As an aside, this is one of the reasons Mr. Buffett correctly argues that stock options are compensation and should be accounted for in the income statement.

If you invest in a stock or bond, you do so with dollars which have already been taxed as income (earned or dividends) or capital gains. When you receive interest from a bond, dividend from a stock or take a capital gain; the money is taxed again. Whether capital gains should be taxed at the same or higher rate than earned income, interest and dvidends is a different issue.

 

[Phelonious Ponk]

If you invest in a stock or bond, you do so with dollars which have already been taxed as income (earned or dividends) or capital gains. When you receive interest from a bond, dividend from a stock or take a capital gain; the money is taxed again.

No, it's not. When I receive interest from a bond, dividend from a stock or take a capital gain, I'm not taxed on my intitial money invested, the principal, the part I already paid income taxes on. I'm taxed on the interest, dividend or gain from that investment. I'm taxed on new income.

Whether capital gains should be taxed at the same or higher rate than earned income, interest and dvidends is a different issue.

Nope. It's income. Whether or not it should be taxed at same rate I pay on the rest of my income is exactly the issue. This is an old game of semantics designed to tax investment income at a much lower rate than salaried income. Why would we play such a game? Follow the money.

Tim

 

[jazdoc]

Tim,

As above, the money you use to make a new investment has already been taxed. We seem engaged in a circular argument. Probably best not to clog this thread and take further discussion off-line.

It's an entirely different question as to why there are differing tax rates for dividends, earned income and capital gains. I think we can agree that it is an example of the needless complexity of the tax code.


Best,
Mark

 

[Gregadd]

...needless complexity of the tax code.

The tax code is complex for two reason: (1) to give breaks to everyone;(2) to catch cheaters.

The average person just does not have the capacity to "cheat" as the rich.

A flat tax on income would declare open season on defining income.

 

[Phelonious Ponk]

As above, the money you use to make a new investment has already been taxed. We seem engaged in a circular argument.

Correct. The money I use to make an investment has already been taxed, and is not subject to re-taxation under capital gains. The income I make from that investment has not been taxed. And that is what is subject to capital gains taxes. There's no circle here doc.

Tim

 

[jazdoc]

Correct. The money I use to make an investment has already been taxed, and is not subject to re-taxation under capital gains. The income I make from that investment has not been taxed. And that is what is subject to capital gains taxes. There's no circle here doc.

Tim

OK, one last try. I have included a copy of Robert Half's most recent income statement for illustration (sorry the columns don't line up):

ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
SUMMARY OF OPERATIONS
(in thousands, except per share amounts)
Quarter
Ended March 31,
2011 2010
(Unaudited)
Net service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $880,869 $737,173
Direct costs of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542,780 469,045
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,089 268,128
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293,686 255,668
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 269
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (212) (74)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,576 12,265
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,871 3,790
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,705 $ 8,475
Net income available to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,293 $ 7,626
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .18 $ .05
Shares:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,653 144,239
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,136 145,673

The amount available to shareholders is $26,293, AFTER $17,871 in tax has been paid by the company on the taxable income of $44,576; a tax rate of 40.1%. If the entire $26,293 was distributed to shareholders as a dividend, an additional $3,944 dollars in tax would be paid (15% x $26,293). The total take by the government is therefore $21,815 ($17,871 + $3,944) on pre-tax income of $44,576; a combined tax rate of 48.9%. The government doesn't care where the money comes from. Again assuming all of the amount available to shareholders is distributed as dividends, you could have a 0% corporate tax rate with a 48.9% dividend tax rate or a 48.9% corporate tax rate and 0% dividend tax rate and the net tax collected is the same.

If you purchase $1,000 of Robert Half stock, it is purchased with post tax money. For sake of discussion let's assume you use income from your job. Before you can invest, the government takes it's share as income tax. If the value of the stock rises to $2,000 and you sell the stock, you also pay tax on your $1,000 capital gain.

 

[Phelonious Ponk]

OK, I'll try one more time too...

If you purchase $1,000 of Robert Half stock, it is purchased with post tax money. For sake of discussion let's assume you use income from your job. Before you can invest, the government takes it's share as income tax. If the value of the stock rises to $2,000 and you sell the stock, you also pay tax on your $1,000 capital gain.

You're absolutely right, I pay income tax on the money I invest, before I invest it. But I don't pay taxes on that money twice, I only pay taxes on the gains that investment generates, and I pay it only once. I've never paid taxes on that money before; it didn't exist (in my financial life, anyway) before I made the gains.

You keep illustrating my point for me, Doc. I'm not sure how it can make it any clearer. I invested a thousand post-tax dollars and gained a thousand dollars income from it (I must have bought Apple). If the government charged me capital gains on two thousand dollars, that would be double taxation (well, half of it would be) But they don't. They only tax the gain, the one thousand dollars that I have never paid taxes on.

Has the corporation I'm investing in paid taxes? Sure. Different issue; not my income. If I pay my gardener $1,000 to put in a planting bed for my herbs, does the anti-tax crowd think he shouldn't have to pay taxes on his income because I've already been taxed on that $1,000?

Tim

 

[Gregadd]

Tim I think doc does not want appreciation (capital gain) to be income.

 

[Phelonious Ponk]

Tim I think doc does not want appreciation (capital gain) to be income.

He's not alone. But it wasn't my money and then it is my money. And it came in from someplace else, it didn't just materialize. What? It should be special because I didn't work for it? Come to think of it, I'm not so sure it shouldn't be taxed at a higher rate. (just kidding Uncle Sam)

Tim

 

[Mark (Basspig) Weiss]

I don't know about where you live, Mark, but where I live (Oakland, CA), many, many people would ask what you are smoking. So in the spirit of your philosophy, and also since my hometown is harboring far more than its share of have nots, I propose we embrace and designate New Milford, Connecticut as safe haven for them.

While we're at it, just how does one *earn* anything in a society which by the rules of its very existence produces haves and have nots?

Supply side voodoo economics is a proven failure, so if we're now proposing to expand this failed economic policy to charity, i.e., redistribute the wealth to give the rich even more money and surely they will spend more on charity than what is being spent now, well, like I said, pass the jo!nt so I also can escape reality.

At this point in our society, Socialism has so badly corrupted businessmen and the school system has destroyed any remnant of moral principles in our youth, it's simply not going to be easy to give Capitalism a try. But it's working pretty well in Taiwan. Another good example is the night view of the Korea Peninsela. Under Communism, it is dark. Under Capitalism, it is light. You see, the problem is, no nation that I know of, has ever had Capitalism. It's always been a mixed economy, and once you have controls on an economy, ie, burocratic idiots who know nothing about the industries they purport to regulate, you have distorted the market and it is no longer a free market. Mixed economies have always suffered to various degrees, and we're seeing the ultimate example of it right now in the US.

California? Is that still a US state? I thought it was annexed by Italy or Sweden. It certainly doesn't resemble an American state, as far as it's government is concerned. Just a bunch of idiots throwing their weight around, stifling business, killing the energy industry, complaining about the rolling blackouts that result, and choking itself to death. I'll be glad when CA has completely collapsed and gone back to Mexico. It's a failed experiment in pure Socialism. Some people just don't learn from history.

Fifty years ago, we used to have a middle class. At that time, the youth did not riot. People treated eachother with respect. One income earner was enough to pay the mortgage. People lived in nice, spacious homes. Making ends meet was a matter of working and doing well at your employment. The government was a fraction the size it is today. But the seeds of destruction were being sowed already, as they have been sowed several times in the past. It's amazing how abruptly the culture devolved.. I remember the first Great Blackout (1965) and how peaceful and decent people in NYC were during the whole event. Just a little more than a decade later, the second blackout (1977), people rioted and looted shops and NYC was in turmoil. Just 12 years of progressive education had done this much damage to the culture. Now the whole country is slowly coming apart. San Francisco, Kansas City, Philadelphia... the youth are realizing there is no future in a Communist nation, and they have been taught no values, so a moral vacuum has nothing to offer but violence and destruction.

The real tragedy is that the people who know what went wrong are being called 'selfish' and 'inhumane' and their message being ignored.
Well, to all in America who think this way, I say, BROTHER, YOU ASKED FOR IT.

 

[Mark (Basspig) Weiss]

Where does that 92% number come from?

From the sum total of taxation via inflation, fees, regulatory burdens on corporations (higher prices) and the many ways in which government raised the cost of simply being alive within US borders. It's a complex analysis that only someone with a serious education (Eastern block nation) in mathematics could have the metal acuity to figure out. The Lotus 123 spreadsheet that he built on these figures was mind-boggling. It was also an ephiphany--I never realized the true cost of tyranny-sized government until he illuminated my thinking with this information. That was in 1987, mind you. I'd hate to see what that figure was today. Sure does explain why the guy who earns $8K a year and pays no taxes, seems to be able to afford all sorts of electronic goodies, while the guy who earns $100K a year and pays taxes, can't.

 

[Whatmore]

It's a complex analysis that only someone with a serious education (Eastern block nation) in mathematics could have the metal acuity to figure out. The Lotus 123 spreadsheet that he built on these figures was mind-boggling.

That's a relief. I was going to worry my pretty little head about it but now I feel a whole lot better .....

 

[es347]

I guess there's more to worry about than the THD of my amps eh? So it really isn't "all about the music?"....damn

 

[Mark (Basspig) Weiss]

I guess there's more to worry about than the THD of my amps eh? So it really isn't "all about the music?"....damn

Your ability to "enjoy the music" (©Bob Carver) depends on having a free society to live in, and one that has enough free enterprise that electricity to run the audio gear is affordable.

 

[Steve williams]

Anyone willing to predict what Bernanke and the Fed will have to say Friday from their meeting at Jackson Hole, Wyoming

 

[Randy Bessinger]

Denmark seems to do nicely. My daughter-in-law is from there. Very high taxes.. Interesting observation in Copenhagen was that I didn't see any large mega hospitals. I asked my daughter-in-law about it and she said they are in other buildings. People seemed happy and I loved their transit system. They even make nice speakers.

Doesn't South Korea have a single payor universal health system?

I am 64 almost 65 and I grew up in a middle class home and agree with some of the descriptions of life but we also vacationed in Florida and I saw terrible poverty on the drive down not to mention the "colored" only bathrooms. Not quite the picture of domestic tranquility. Capitalism is a great wealth maker but I don't think it is intrinsically "moral', it just "is". It is not going to reward the mentally or physically handicapped or those who are somehow "different" from what their culture expects. Just my opinion. I am willing to try a very small govt as long as those that support it "gaurantee" it will make things better. Not sure what the penalty should be if it fails but there should be one. That goes for either side of the debate of big vs. small govt as well (I am a moderate seeing things govt does well and things they could do better or stay out of).

 

[es347]

Anyone willing to predict what Bernanke and the Fed will have to say Friday from their meeting at Jackson Hole, Wyoming

Yeah Steve, here comes another wad of Monopoly money..

 

[Randy Bessinger]

You got that right....although I would take it if they gave me some.

 

[RBFC]

QE3 seems to be one of the only ways "out" of their spiral. Gold & Silver, baby....

Lee