Billionaires dumping stocks

[TURBO2GO]

Good point Vegas most of the average investors stocks are purchased after already passing through thier income tax bracket.

Except that... that is not how it is at all. The majority of wealth in this country is inherited. You are painting a picture of some hard working dude who makes it big after paying taxes for many years, and so are saying a break for him afterwards when he simply invests his millions is OK. While that scenario happens, it is just a fraction of how the money circulates. My close friend paid roughly 14% last year overall. He doesn't know what work is. He was given a hundred million dollars by his grandfather. The only thing he does for work is press the stocks button on his iphone to see how his $100K a share berkshire hathaway stock is doing. When you talk about the ultra rich, this is pretty much the scenario a lot of the time.

Furthermore, even if it wasn't, tell me why you should pay less because you are really rich and earn most of your money from your money. Why should you suddenly get special treatment? Why should you pay a smaller percentage than the hard working stiff who works 60 hours a week? Good for you if you earn more and it is through investments, I am not saying you should be punished, but why not pay the same rate as everyone else?

 

[TURBO2GO]

2) He's invested it somewhere where it has been infused back into our economy, like a stock or bond.

Or most likely, an offshore account where he pays nothing.

 

[sahtt]

Except that... that is not how it is at all. The majority of wealth in this country is inherited. You are painting a picture of some hard working dude who makes it big after paying taxes for many years, and so are saying a break for him afterwards when he simply invests his millions is OK. While that scenario happens, it is just a fraction of how the money circulates. My close friend paid roughly 14% last year overall. He doesn't know what work is. He was given a hundred million dollars by his grandfather. The only thing he does for work is press the stocks button on his iphone to see how his $100K a share berkshire hathaway stock is doing. When you talk about the ultra rich, this is pretty much the scenario a lot of the time.

Furthermore, even if it wasn't, tell me why you should pay less because you are really rich and earn most of your money from your money. Why should you suddenly get special treatment? Why should you pay a smaller percentage than the hard working stiff who works 60 hours a week? Good for you if you earn more and it is through investments, I am not saying you should be punished, but why not pay the same rate as everyone else?

Turbo, I think* I see where you are coming from but I do not understand your logic on this one (usually you and I see eye to eye). It makes no difference how your buddy got his 100m dollars as long as it was legal. I couldn't care less. It's none of my business. It's no one's business. Earning your own way in life has its own value and money by itself does not even correlate with happiness IMO.

Let us not forget his grand father, he paid taxes on that 100m and instead of buying sixteen chateau's across Europe, he decided to give it to his kids/grand kids. This is America and it is his right to earn it and his right to give it to his kids if he wants (most wealth transfer taxes are avoidable with proper planning). Many of them blow it all or end up worse off anyways - again it's none of my business.

If you want to institute a tax for those with 99m or more, go for it, it won't be affecting me any time soon. But when your buddy changes citizenship to Switzerland and pays NO taxes to the U.S. instead of "only" 14% of his capital gains, you are absolutely, undeniably, shooting yourself in the foot.

Remember - whether you make 10k a year or 10 million, your actual cost to the government (which does not exist, the government is the tax payers) is not all that different. Convincing yourself you are doing the world a favor by "taking it to the rich guy" is counterproductive. We want as many rich people making as much money as possible so their taxes can support the lower class. If your buddy makes 5% on his 100m portfolio, that is $750,000 in taxes in one year. Focusing on the percentages is irrational at these levels of income. In one year, your buddy pays more in taxes than ENTIRE ZIP CODES of poor areas. Who's the one getting screwed now? Did the military, army core of engineers, or medicare provide 10,000 times more services to your buddy than the guy making minimum wage? Quite the contrary most likely.

Is it unnerving and make you (and I admittedly) a little jealous that your buddy doesn't have the same type of money problems as you and I do? Hell yea it is. But we have to think smart about this. I don't know about total wealth and won't pretend to, but I do know most millionaires in this country earned it and were not given it. By the time you get to a few million in net worth, you've paid a lot of taxes. Way more than any rational person could conceivably say is your "fair share." Your "fair share" is total government spending / 330,000,000 (+/- adjustments obviously as a small business owner may benefit from infrastructure more than an employee but you get the idea).

The entire premise of "lowering" and "raising" taxes is a misnomer. We aren't raising the actual amount of taxes paid - what we should be focusing on because the dollar value is what actually matters - we are changing percentages. I am far from rich and don't complain about my tax bracket (not the highest), but this whole 'unearned' income debacle is annoying. I worked my ass off for the modest portfolio I have and paying taxes on the AAPL I sold recently is not going to feel good. Nobody has so much as given me a used car and I haven't received a penny from the federal government so if society wants to "take it to the rich guy" and raise capital gains substantially, A) Don't make me pay more in the process and B) Don't be so short sighted that this "grudge" against the wealthy results in a net DECREASE in tax revenue. I do not come from a wealthy family if that wasn't already obvious and want to help the lower class desperately. But education and overall economic growth is the key, not wealth transfers. Okay, that's all I've got.

 

[jond]

Furthermore, why punish the guy for doing the right thing and saving that money for retirement or a rainy day so that he won't need to live off of government aid in the future.

In a consumer based economy, saving hurts the economy.
Our government definitively doesn't want anyone saving right now.
They can't outright say that though.

 

[TURBO2GO]

Sahtt, when did these words come into play... "take it to the rich"... "wealth transfer"... "grudge againt the wealthy"....

To me these are just terms that really really wealthy people who want to pay as little as possible pay some Harvard marketing MBA to come up with, feed it to the public, and then try to make it sound like I am either asking for a handout, wanting to steal their wealth, redistribute their money, etc. The bottom line is just lost in all these emotionally charged sentences that actually mean nothing.

I am not telling the wealthy to pay more, I am just asking why do they pay LESS. If we devised a tax code and said that you pay a percentage of your income... you make $10,000 a year, you pay $1000. You make 100K a year, you pay 10K. So that the guy making 10K a year doesn't also have to pay 10K in taxes and have nothing left.... if we came up with this tax code, why do we make special rates for those at the very top?

I just don't get why this is an unfair thing to ask. I am just saying if a law applies to me, it should apply to you. And the next guy. Right now, it is extremely tilted, and I guess I have a hard time understanding how some people see that as OK.

Does it really matter how you earn? One guy drives a schoolbus, another shuffles paperwork in an office. America, right? you choose and get to do what you want. I'm cool with that. Tell me why if I earn my money by having it in a hedge fund I should pay half the percentage of the guy that drives the bus.

 

[TURBO2GO]

Another thing I wanted to say... most of what we are talking about here with capital gains taxes has nothing to do with granny's retirement account. Retirement accounts already have lower tax rates. We aren't talking about your piggy bank. We are talking about billions and trillions made that pay 15% and down.... down to near zero in some cases.

 

[Vega$ NSX]

Turbo, I think* I see where you are coming from but I do not understand your logic on this one (usually you and I see eye to eye). It makes no difference how your buddy got his 100m dollars as long as it was legal. I couldn't care less. It's none of my business. It's no one's business. Earning your own way in life has its own value and money by itself does not even correlate with happiness IMO......

Again. Everything he is saying is 100% true.

Or most likely, an offshore account where he pays nothing.

But you understand that a higher capital gains tax only encourages people to put more money into offshore accounts. The purpose of an offshore account is to avoid having to lose all you money to taxes. Anyone will tell you that offshore accounts are horrible investments. They pay a paltry interest and have a horrible rate of return. If you had the choice, ideally one would want to put it into domestic stocks, metals, real estate etc. But if all of the profits of putting it domestically gets eaten up by taxes then it makes forces me to put it elsewhere.

Except that... that is not how it is at all. The majority of wealth in this country is inherited.......

Except that... that's completely false and one of the most common misconceptions. Research it and you will find that most millionaires and billionaires are self built. Bill Gates, Michael Dell, Warren Buffet, Sam Walton, Rupert Murdoch, Mark Zuckerberg, Steve Jobs, Oprah Winfrey, Bill Cosby the list goes on and on. Do a search of the Forbes top 400 and see how many came from poor upbringings; here's a hint: most of them. It's been proven that the average length of an inheritence has been shown to be less than 2 generations. Meaning any lump sum of money lasts two generations before it's completely wasted. That's because in this capitalistic economy it takes a fire and a burning desire and hard work to make money and when you a trust fund, it's very hard to find that motivation. That's why the kids of most successful people turn into nothing aka Paris Hilton. Research it and I think you will be plesantly surprised that most fortunes rarely last a couple of generations and that most multi-millionaires today started from very poor backgrounds.

 

[Vega$ NSX]

In a consumer based economy, saving hurts the economy.
Our government definitively doesn't want anyone saving right now.
They can't outright say that though.

You are mis-understanding saving. You are thinking of "saving" as cash stuffed under the mattress. However, that wouldn't be subject to capital gains taxes anyway. Not to mention a horrible form of savings since it will lose money to inflation year after year.

"Saving" that is subject to capital gains tax, which is the topic of this discussion, refers to money put into stocks, bonds, real estate etc. In that term, it IS putting money back into the economy. It's funding companies and paying for government projects.

 

[Vega$ NSX]

I am not telling the wealthy to pay more, I am just asking why do they pay LESS. If we devised a tax code and said that you pay a percentage of your income... you make $10,000 a year, you pay $1000. You make 100K a year, you pay 10K. So that the guy making 10K a year doesn't also have to pay 10K in taxes and have nothing left.... if we came up with this tax code, why do we make special rates for those at the very top?

Here is the thing you aren't quite understanding. They aren't paying less.

This is the most common misconception people have of the "rich". They think they aren't paying their "fair share." But here is why that is wrong.

Take two equal guys who start off with absolutely nothing. $0.

The first guy makes $50,000 per year for 50 years and pays 15% in taxes every year. That's $7,500 per year times 50 year for a total of $375,000 for his entire lifetime.

Now the second guy invents something, or builds a company, or whatever and makes $1,000,000 a year. If he were to pay taxes, he would pay roughly 30% for the next 50 years. That's $300,000 per year times 50 years for a total of $15,000,000.

So in that example, you can clearly see that the second guy pays way more than the first guy. And do you think the first guy actually uses $15M worth in public and government services? Of course not, he, in fact is using far less and as such is subsidizing the cost for everyone else who pays less than him.

So why does it seem like he pays less taxes then? That's because often when someone is able to make $1M/yr, they don't need to work for 50 years like the guy who only makes $50,000/yr. So here is what they do:

For 10 years they make $1M/yr and pay 30% on that $1M. That's $300,000 per year times 10 years for a total of $3,000,000 paid in taxes; still way more than the guy making $50K/yr. They save some amount, say $500,000 for the 10 years and have a nest egg of $5,000,000 after 10 years. They then live off of the $5M they saved. But in order to keep up with inflation, they put it in investments like stocks, bonds and real estate to get some rate of return, say 7% back on their investment, which still comes out to $350,000/yr. That $350,000 is then taxed at a capital gains rate of 15%. So in a snapshot people think they are paying at lower tax rate, but only because they already paid $3,000,000 in taxes at the the higher 30% tax rate on the initial money they earned. They only see the current 15% tax rate, but ignore the fact that they paid 30% of $1M for 10 years.

 

[docjohn]

Dave the guy you know with the 100m dowery and the many other "inheritors" of lots of money,aka the "families" the "old" money ect are only a pimple on the huge backside of our federal reserve....it has been shown numerous times that taxing those individuals up to 33-35% on thier stock or investment earnings would move the debt or federal reserve acounts nowhere,an infintesimal amount....what we need is a total tax code redo.

 

[TURBO2GO]

Vegas, I understand the total dollar amounts. I still don't know why someone that earns a lot more, should pay a lower percentage. I mean this is the area that we seem to differ in opinion. I am saying the rules seem to not apply across the board. Don't even get me started on corportions who maneuver money and shuffle it around.

Shouldn't everyone pay the same percentage of their income? I don't understand what is so "unfair" about that. Why should the harder working lower earning bus driver pay a higher percentage than the guy that parks his millions in hedge funds? why is what I am asking so unreasonable?

 

[TURBO2GO]

Dave the guy you know with the 100m dowery and the many other "inheritors" of lots of money,aka the "families" the "old" money ect are only a pimple on the huge backside of our federal reserve....it has been shown numerous times that taxing those individuals up to 33-35% on thier stock or investment earnings would move the debt or federal reserve acounts nowhere,an infintesimal amount....what we need is a total tax code redo.

Doc, I just can't believe this to be true. I have seen evidence to the contrary. When the wealthiest don't pay the same rate, when they pay 10% or 5% or a corporation pays 0%, it increases the burden on the entire middle class. You have the very low class who are for the most part exempt. So it leaves the middle class.... guys like you and me to carry that load.

What is this boogeyman that oh no, they need to pay a lower percentage or else the economy will fall apart? I have never seen ANY concrete evidence of this, only snipits of commentary on these magazines that act like news channels and on "investment" channels and it is usually some representative for a corporation saying so.

I am not saying let the poor or middle class guy pay 8% and the Uber wealthy hedge fund guy or the mega corporation pay 30. I am saying EVERYONE PAY THE SAME RATE. Does that really sound unfair to you?

 

[TURBO2GO]

And talk about investing.... take me and my friend... I start a company, I hire people. They pay taxes, I pay payroll tax, corporate tax, personal income tax, state tax, federal tax, and at the end of the day for years I've paid a really high percentage. And I created 5 jobs in my small company.

Then my friend, what did he create, really? He has his money in some obscure shit where no one, and I mean no one not even himself has any clue as to where it is. It could be in a Pakistani bank for all we know. At the end, he pays less than HALF the rate I pay. How is that not messed up? I mean we laughed about it but how is that funny?

The irony is that if he took his money out of the hedge fund and invested it in my company and I actually hired another 10 people, he would pay a higher rate.

 

[sahtt]

Vegas, I understand the total dollar amounts. I still don't know why someone that earns a lot more, should pay a lower percentage. I mean this is the area that we seem to differ in opinion. I am saying the rules seem to not apply across the board. Don't even get me started on corportions who maneuver money and shuffle it around.

Shouldn't everyone pay the same percentage of their income? I don't understand what is so "unfair" about that. Why should the harder working lower earning bus driver pay a higher percentage than the guy that parks his millions in hedge funds? why is what I am asking so unreasonable?

Because it just doesn't work that way for 99.999% of cases. The guy pulling serious cash is paying 3x% income tax while he's working. The bus driver is probably paying close to zero after his standard deduction. When the rich guy retires and lives off his savings, the taxes paid on the income he already paid taxes on at a higher rate than the bus driver does not also need to be taxed at some stratospheric rate to make it "even." The rich guy already lost by an order of magnitude. Your point on retirement accounts is valid, but I can't even put 1k a month into retirement accounts outside of my 401k. Poor people are net receivers of tax revenue. They are not being over taxed in any way. If you want to be more "fair" to the poor, remove tabacco, gas, and alcohol taxes and shut down the state lottery since it's a tax on the stupid/poor (to fund schools oddly enough). Those taxes are extremely regressive; the capital gains tax is not the problem.

I am not attempting to prove what you said doesn't happen. There are certainly people that "only" pay 15% taxes because of the way they structure their business. I know exactly how it's done. Doesn't work in many circumstances though and there are trade offs to doing that way. So few people do this it is pointless to discuss as some sort of solution to any of our problems. Regarding your friend, I know a lot about finance and I have a few trading buddies that made serious money and have some over seas. That being said, there are serious risks to consider when parking money over seas in most cases. Just because your buddy has it in a swiss bank account (or even better is Iran, they have 20% inflation) doesn't mean he is cheating the system. People are getting slaughtered with shady over seas accounts for perhaps the very first time. I follow Credit Suisse and many other swiss banking institutions very closely. They have all agreed to hand over information to the IRS and the IRS is absolutely going to town. Not to mention all the geopolitical and potential currency risks that come along with it. Not many free lunches anymore but that doesn't mean people are aware of it.

 

[RYU]

Maybe some of you would find this to be a worthwhile read.
http://online.wsj.com/article/SB10001424052702303561504577497442109193610.html

 

[TURBO2GO]

When the rich guy retires and lives off his savings, the taxes paid on the income he already paid taxes on at a higher rate than the bus driver does not also need to be taxed at some stratospheric rate to make it "even." The rich guy already lost by an order of magnitude.

You are saying the same thing docjohn was saying earlier. In that the 100 million dollar guy "paid his dues" of sorts, and now he needs to be left alone and pay a lower percentage and that is OK.

So basically, you, vegas, and docjohn all feel that everyone should NOT pay the same rate. And that if you are really rich, its OK to pay a lower percentage because you already started out poor, worked your way up, paid your dues, and now you should get a break.

When you say 99.9999% of the time, I would have to say that I think your figures are off. The MAJORITY of the wealthiest people in this country earn most of their money from capital gains, and therefore pay a significantly lower percentage than the standard middle class guy. It isn't that this happens 0.000001% of the time, it is actually more like 80% of the time. The facts and numbers are there.

 

[TURBO2GO]

Maybe some of you would find this to be a worthwhile read.
http://online.wsj.com/article/SB10001424052702303561504577497442109193610.html

Ryu not sure how that is related to what we are talking about. Personally I don't put a lot into WSJ but that article is really just some rant on the deficit and not about capital gains tax.

 

[RYU]

Ryu not sure how that is related to what we are talking about. Personally I don't put a lot into WSJ but that article is really just some rant on the deficit and not about capital gains tax.

I meant to reply (and agree) to Vegas' statement here. Though, I can see you have a different opinion. The WSJ article was something I meant to add as someone's more macro opinion on where we're all headed.

So in that example, you can clearly see that the second guy pays way more than the first guy. And do you think the first guy actually uses $15M worth in public and government services? Of course not, he, in fact is using far less and as such is subsidizing the cost for everyone else who pays less than him.

 

[TURBO2GO]

The reason I don't agree with it because years ago capital gains used to be taxed at the same rate as any other income. Then suddenly it became a "burden" and it's rate was reduced much to the delight of many of the wealthiest Americans. These are not retirement accounts for the hard working guy who came up from nothing as is being implied here. It is a way to pay a lower tax rate than everyone else.

Vegas's argument of paying for what you use doesn't make sense to me either. That just isn't how we base our tax code. The way we base our tax code, supposedly and not in reality, is we say everyone pay this percentage, we pool all the money together and we use it to provide certain services for everyone like roads, schools, a military, etc.

Whether one guy is somehow entitled to more or less road or school doesn't really apply to the subject here. The subject is, we have agreed to a code, but that code has been changed and rearranged. That rearrangement significantly benefits a very small precentage of people at the top. The question is... is the rearrangement a correct thing to do.

 

[jond]

For capital gains there's an extremely simple solution....
Have it progressive.
$0-50,000 /yr of dividend income gains is 15% tax
$50,0001-$200,000 is 35% tax
$200,000-$800,000 is 45%
$800,000+ is 55%


Done

 

[sahtt]

You are saying the same thing docjohn was saying earlier. In that the 100 million dollar guy "paid his dues" of sorts, and now he needs to be left alone and pay a lower percentage and that is OK.

So basically, you, vegas, and docjohn all feel that everyone should NOT pay the same rate. And that if you are really rich, its OK to pay a lower percentage because you already started out poor, worked your way up, paid your dues, and now you should get a break.

When you say 99.9999% of the time, I would have to say that I think your figures are off. The MAJORITY of the wealthiest people in this country earn most of their money from capital gains, and therefore pay a significantly lower percentage than the standard middle class guy. It isn't that this happens 0.000001% of the time, it is actually more like 80% of the time. The facts and numbers are there.

You lost me Turbo. We are not claiming that (at least I am not). 99.999% of the time refers to people that paid regular income taxes to build the wealth they then grew and paid capital gains on those specific gains. This is the average millionaire and a simple google search prooves it. Self made the hard way. It is very difficult to go from nothing to 100m and only pay 15% on the way as an individual (it is possible, but as I stated before, it's very very rare). Do rich people benefit from the 15% tax rate, absolutely! Vast majority? I hope so or they are complete idiots.

The surgeon paid 3x% through is working years. The lawyer paid 3x% through his working years, as did the small business owner, engineer, most corporate execs, etc. Your thesis seems to completely ignore this over and over again and focus entirely on the end result of lower capital gains taxes. Is it bothersome that so much wealth is concentrated in the top .5%? Yes. Do they pay a hell of a lot in taxes? Yes. Does the percentage really matter? Not unless you are in politics. The 16 trillion and rising debt is not in percentages, it's in dollars. Tax them at 100% and you won't make a dent it in.

 

[Midnight_Raven]

Here is the thing you aren't quite understanding. They aren't paying less.

This is the most common misconception people have of the "rich". They think they aren't paying their "fair share." But here is why that is wrong.

Take two equal guys who start off with absolutely nothing. $0.

The first guy makes $50,000 per year for 50 years and pays 15% in taxes every year. That's $7,500 per year times 50 year for a total of $375,000 for his entire lifetime.

Now the second guy invents something, or builds a company, or whatever and makes $1,000,000 a year. If he were to pay taxes, he would pay roughly 30% for the next 50 years. That's $300,000 per year times 50 years for a total of $15,000,000.

So in that example, you can clearly see that the second guy pays way more than the first guy. And do you think the first guy actually uses $15M worth in public and government services? Of course not, he, in fact is using far less and as such is subsidizing the cost for everyone else who pays less than him.

So why does it seem like he pays less taxes then? That's because often when someone is able to make $1M/yr, they don't need to work for 50 years like the guy who only makes $50,000/yr. So here is what they do:

For 10 years they make $1M/yr and pay 30% on that $1M. That's $300,000 per year times 10 years for a total of $3,000,000 paid in taxes; still way more than the guy making $50K/yr. They save some amount, say $500,000 for the 10 years and have a nest egg of $5,000,000 after 10 years. They then live off of the $5M they saved. But in order to keep up with inflation, they put it in investments like stocks, bonds and real estate to get some rate of return, say 7% back on their investment, which still comes out to $350,000/yr. That $350,000 is then taxed at a capital gains rate of 15%. So in a snapshot people think they are paying at lower tax rate, but only because they already paid $3,000,000 in taxes at the the higher 30% tax rate on the initial money they earned. They only see the current 15% tax rate, but ignore the fact that they paid 30% of $1M for 10 years.

One thing I would like to point out is that regardless if they are paying more at 15% at 10M/yr vs the guys paying 25% at 40K/yr the impact of the tax hit on each individual's life is enormously different. 10K from someone only earning 40K leaves them in a situation where they can't be stupid with their money and have to make sure they make sound decisions, limit themselves to their spending. 1.5M from someone whose earning 10M leaves them in a situation where they can still can go crazy and still be making money by the end of the year. Hell even with a 50% tax they would still be living the life of luxury with no worries of how they are going to make it by next year. Not saying that is the exact scenario but just using it as an example.

Let me ask you this if someone came up to you and were seriously depressed that they were getting a 4M dollar tax hit on their 10M/yr income would you really feel bad for them? I wouldn't, they are still making 6 Million a year which is way more than I could ever want.

 

[blue_myriddn]

Shouldn't everyone pay the same percentage of their income?

No. A graduated system where tax % increases with income makes more sense than a flat tax in my opinion.

Why should the harder working lower earning bus driver pay a higher percentage than the guy that parks his millions in hedge funds?

He isn't, its the other way around because the $$ parked in the hedge fund is being double taxed (because it is earned $$ that is being reinvested). The bus driver is paying lower taxes.

This concept will never be widely understood though, which is why increasing the capital gains tax is always going to be a popular platform for politicians to pitch to the masses. Unfortunately, the politicians (or at least their advisors) DO understand and will riddle any legislation full of holes to leave things pretty much untouched.

Just my 2 cents (taxed)

 

[docjohn]

So Dave I think the crux of your issues reading your posts are that the rich and powerful got the fed to lower capital gains tax to 15% from what, ordinary rates?That the system as a whole is unfare because the ultraweathly pay a lower percentage of thier "income" in tax....what is your suggestion?

 

[TURBO2GO]

No. A graduated system where tax % increases with income makes more sense than a flat tax in my opinion.

Forget increase, although I agree with it... How about at least the SAME?