a question about the Capital Gains Tax....is it fair?

[clarice]

I've been doing a little research on this subject and while we can all agree that millionaires
need to pay it, how about the "little folk" like union members, lower salaried employees, or just the
plain old Joe on the street? Often, their 401k is tied directly to the stock market, or another investment
vehicle. Should there be an income threshold where UNDER a certain income, no Capital Gains tax would apply?
Would this help the average worker?

[leftofcool]

1. We are middle class and we sure have to pay capital gains.

Our 401K is piddly compared to a millionaire's but that is our retirement. I don't have an easy answer for you on this.

[clarice]

2. Thanks. nt

[NoJusticeNoPeace]

3. Capital gains tax is a tax invented to allow the rich to GAME the game, so to speak

You DO want a capital gains tax because it is LOWER than income tax.

Well, it is lower if the gain is over a certain amount.

If you are saying wouldnt it be nice if someone who makes $75,000 a year household income who has a one time capital gain from stocks or selling a rental, for instance, should be no tax or reduced tax, then I agree.

But the tax you speak of is a tax created so the rich will pay LESS than they would have otherwise.

[clarice]

5. I understand that...I was thinking not of the rich, but your average Joe. nt

[NoJusticeNoPeace]

7. I know you were, I was just saying that the only way to get where you and I want to get

is to have no tax for the little guy, which is OK with me at least on a one time basis, maybe.

[clarice]

9. cool! thanks. nt

[tech3149]

14. As a former working class individual the CG rate for someone like me is fine

I could never survive on that modest income so an increase in rate would be like dropping pennies on the sidewalk and not picking them up.
For someone whose income is over a few million from dividends, I think a progressive rate is justified. The change in income would be about the same as my dropping pennies but could have a serious impact on tax revenues.

[dawg]

4. Long-term capital gains are already taxed at zero for people in the 15% bracket and below.

But the capital gains portion of distributions from a 401(k) or similar retirement account are taxed as ordinary income.

[clarice]

6. aHHHHH That makes sense, thanks so much. nt

[on point]

8. Simplify tax code. Treat all income the same. Lower income people pay less than higher income people

Unless the distinction between the types of income is eliminated, the wealthy will game things to push their income into least taxed type. Also this distorts economic activity.

[clarice]

10. Like a flat tax? nt

[on point]

13. No. All income taxed at progressive rates. Just don't treat wages, dividends, capital gains,

dividends, carry trade, etc differently.

They are all 'income' and get taxed at whatever the progressive rate is for that income level.

[clarice]

15. I get it. Thanks nt

[tech3149]

17. Fine, simplify the tax code, I'm all for that

Just remember, simpler isn't necessarily better. For me, tax policy should promote economic activity that has a positive social benefit. That may be just a bit too complicated to put into practice unless you distinguish between incomes earned by labor (productive input to the economy) and rent seeking. After that you have the issue of liveable wages. Should you subsidize companies that are not willing to pay living wages? Right now we have a system that subsidizes low wages with government assistance. Those payouts or credits are about 10 times what we pay in "welfare" to the poor.
Since we all pay those incidental taxes on most everything we buy, and payroll taxes, the poor are already paying a higher percentage of their income to support government. Let's give all those working stiffs a break. Anything under $100K is not subject to income tax, adjust the figure to what you feel comfortable with but I think it would give some very well off in certain areas a huge wet kiss.
I don't have anything against high income individuals other than they believe they earned it without profiting on the efforts of others.

[nykym]

11. 401K's are deferred earned income

And do not qualify as capital gains.
Capital gains taxes apply to gains you generate on investments not in a retirement plan.

http://finance.zacks.com/should-401k-capital-gains-taxes-paid-8675.html

[clarice]

12. Ask and Ye shall learn. Thanks. nt

[PeteSelman]

16. If we have to get money from it to live, there should be no penalties.

I've been unemployed for so long a couple times in the past seven years that I had to tap my annuity just to cover basic living expenses. Every time I got crushed with taxes and penalties for early withdrawal.

In those cases there should be reduced taxes and no penalties.

There's a difference between someone taking it to live and someone who lives off off their take.

[nykym]

18. There are hardship exemptions

and other exemptions that apply.
We took out some cash from a IRA to pay my daughters tuition and avoided the penalties
because it was for educational expenses. You still have to pay the taxes
because the monies are tax deferred until you withdraw. Then your prevailing tax rate applies.
It takes a bit of checking to see what qualifies to avoid the penalties.

[jberryhill]

19. What do 401k's have to do with it?

[clarice]

20. What do you mean? nt