taxing unrealized gains

[AR]

The lower capital gains taxes are to encourage investment & saving.

Then I guess lower marginal income tax rates, should encourage working. Is that bad?

Nevertheless, as I said, it's easy to argue they shouldn't be the same. How you justify the massive difference between the two when you get to high earned income levels makes no sense to me.

Especially here where such income levels aren't uncommon, I would love to see someone try. If you are some doctor working really hard and pulling in a 7 figure income, you should be at almost 2x the marginal tax rate of someone who makes the same amount investing in VTI? How does that make sense? I'll accept that there are reasons we might want to make the capital gains lower than income earned from labor, but that difference is hard to swallow.

Also, this money has been taxed (as Hatton said) and now they are changing the rules mid-game.

As I mentioned in my response to Hatton, it's always going to be mid-game for someone, so if that's your beef we could never change the tax code. Also presumably there are ways to phase in something different to pacify the Hattons of the world,

Also "this money has been taxed" is really just a matter of how you look at it. The basis was taxed, the earnings on that never were. I get that many people would prefer not to look at it that way, but it's not untrue.

[Lordosis]

In my opinion the best argument to having a lower capital gains tax rate is that a decent chunk of capital gains is just inflation.

Discounting the long-term gains promotes long-term investments which I would imagine is stabilizing for economy.

If you had to hold an asset for 5 years to make it a long-term gain? I would be okay with that.

[AR]

In my opinion the best argument to having a lower capital gains tax rate is that a decent chunk of capital gains is just inflation.

Discounting the long-term gains promotes long-term investments which I would imagine is stabilizing for economy.

If you had to hold an asset for 5 years to make it a long-term gain? I would be okay with that.

I think that is all reasonable. But it would seem like we could apply similar arguments to labor. Lower income taxes encourage labor, which is good for the economy.

Nevertheless, I'm not opposed to having capital gains being taxed somewhat less than labor. It just seems that the differential that has been arrived at with the current tax code is too high.

I think that we would have been better off if income tax rates were a bit lower and capital gains taxes were a bit higher. This is mostly a thought exercise, since I'm unaware of any real world policy initiatives to address this specific problem.

[Hatton]

When does Congress care about being fair. It wouldn't be the first time Congress changed the rules:

• When Social Security (SS) was first introduced. Congress justified not granting a deduction for for SS taxes by promising that SS benefits would not be taxed.
• So much for that promise. SS benefits have been taxed over very low limits* for ~4 decades. Not to mention, those limits are not indexed for inflation.
• For most WCI forum members, 85% of their SS benefits will be taxable. Let's see, no deduction for contributions (via mandatory taxes) and withdrawals (benefits) taxable.
• How is that any different than suddenly deciding to tax Roth withdrawals.

• Up until 1991 Medicare was subject to the same maximum taxable earnings limit as SS. From 1991 - 1994, the limit was phased out.
• In 2003 the income-related monthly adjustment amount (IRMAA) was added to Medicare Part B premiums. In 2011 Obamacare extended that to Medicare Part D premiums.
• Non-IRMA Medicare premiums are ~25% of the attributable program costs. IRMAA premiums can be up to 85% of the attributable program costs.
• So high income individuals can now pay far higher Medicare taxes and still pay far higher premiums for benefit.

• For ~four (4) decades, the law of the land was that non-spouse beneficiaries of an owned IRA could opt for lifetime RMD distributions. Many individuals did significant estate planning based on this.
• None of this stopped Congress with blowing up many estate plans by eliminating lifetime RMDs of non-spouse beneficiaries except for an eligible designated beneficiary (EDB)

etc...

Beautiful summary. I was initially reluctant to utilize Roth accounts because I feared a tax law change.

[Tim]

Beautiful summary. I was initially reluctant to utilize Roth accounts because I feared a tax law change.

I had a similar fear. Taxing gains at marginal rates for Roth rather than capital gains for taxable. I thought the Stretch for IRA’s was invincible.
Shows what I know about the insurance lobbyists!