Lower Tax Rate On Taxable Bonds Proposed?

caliguy1 | Dec 16, 2016 | 5 posts since 2016

Hi,

I just saw on the Wall Street Journal that there is a proposal by House Republicans to lower the top tax rate on taxable bonds, such as Treasurys and corporate debt, to 16.5% from 43.4%, a 62% drop (http://www.wsj.com/articles/the-l...-148190416). If that were to pass, does anyone know if that would include CDs and/or savings interest as well? If not and that passes, that would make treasuries a lot more attractive relative to CDs/savings interest.

Thanks.

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Answers

me1004 | Dec 17, 2016 | 1,379 posts since 2010

Lou, you must be new to the game. As always, this tax cut, and what Trump called for in his campaign, was for ONLY the rich with very high incomes. The rest of us get nothing. That top tax rate they are talking of applies to the 1%, not to the rest of us. The rich invest most of there money, they are too rich to be covered by FDIC insurance so go for the higher income in other securities. We already twice lowered the capital gains tax rate, and now they simply want to extend that to bonds too. Other than what they might "earn" from a bloated paycheck, this is where the rich make most of their money, and they don't want to have to pay much, if any, tax on it. Only a relatively small amount of their income is taxed at income tax rates, which they offset with all kinds of deductions. And as Leona Helmsley explained: "Taxes are for the little people."

Inflation_Hawk | Dec 17, 2016 | 107 posts since 2016

And yet, the "little people" keep voting for the Republicans. I can understand rich people like Micheal Moore voting for Democrats. But, the lower and middle classes voting Republican? Moore was pretty condescending about Trump supporters. That voting for Trump was the equivalent of throwing a Molotov cocktail into the political system. My take was that they were cutting off their nose to spite their face. His cabinet picks so far are basically. Who let the dogs out? Woof! Woof! Woof!

Shorebreak | Dec 19, 2016 | 4,039 posts since 2010

Right on the mark me1004. In terms of types of financial wealth, the top one percent of households have 35% of all privately held stock, 64.4% of financial securities, and 62.4% of business equity. The top ten percent have 81% to 94% of stocks, bonds, trust funds, and business equity, and almost 80% of non-home real estate.

Bozo | Dec 17, 2016 | 1,375 posts since 2011

Poster Ally6770 was kind enough to post this: http://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf

lou | Dec 17, 2016 | 1,004 posts since 2010

I can understand why they would want to lower the tax rate for treasuries, but why would they lower tax rates for corporate bonds, too? Do we want to encourage private companies to leverage their balance statements by issuing a ton of debt? Also, it's really unfair for people with earned income. Why should a person who has to work to make a living have to pay much higher taxes than a bond coupon clipper? Lower tax rates for everyone and eliminate all the tax loopholes that needlessly make the tax code a confusing mess.

Bozo | Dec 19, 2016 | 1,375 posts since 2011

Lou, I gave up trying to discern any particular "tax logic" in the tax code long ago. An example dear to my heart is the step-up in basis. Why should the heirs to appreciated assets be able to "wipe out" any capital gains tax on appreciated assets, while heirs to IRAs must pay tax?

Example #1: Mom and Dad own $1M in stocks and commercial real estate, with a cost basis of $200K. Mom and Dad have been depreciating the real property and achieving a tax-savings for many years, as their MAGI has been below $150K. If they sell the stocks and/or the real property before death, they would owe capital gains tax on the appreciation and the depreciation taken on the real estate ("recapture"). They do not sell, but pass all the appreciated property to heirs on death. The heirs owe no capital gains tax, and completely avoid recapture, to boot.

Example #2: Mom and Dad have $1 million in IRA CDs. The interest could be analogized to the appreciation in Example #1. The IRAs are fully taxable to the heirs.

lou | Dec 19, 2016 | 1,004 posts since 2010

Bozo, I used to work in the tax shelter business so I am very familiar with the mechanics of tax legislation and the irrationality of the tax code. The problem is that politicians use the tax code for social engineering, and because any change to the code has a host of unintended consequences, the entire system is almost incomprehensible to everyone but high-priced tax attorneys that charge a fortune advising corporations and industries to avoid paying taxes. In addition, after you take into account the full panoply of special interests fighting over every minutiae of the tax code, it's no wonder that very few people can prepare their own taxes.

It should be very simple: Two people who make the same income should pay the same amount of taxes. Unfortunately, in our system that rarely happens.

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