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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76082  
Subject: Tax Cut Bill Date: 11/19/2005 3:08 PM
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Wall Street Journal today makes clear that the 15% Capital Gains tax rate (extension to 2010) and middle class AMT tax relief (through 2006) are the two main aspects of the tax cut bill under discussion in Congress.

I think Capital Gains is the main aspect of interest in Fooldom, especially for those investing in taxable accounts.

The House Bill includes the capital gains exclusion, but the Senate is essentially recessed for the rest of the year. Hence, no action until January at least.

The Senate Bill includes the AMT provision.

The political discussions we hear about "the tax cut bill" are mostly about the capital gains tax.

Congressional leaders hope to get a compromise bill through that includes both of these provisions, but it looks iffy. The conflict is with efforts to pay for Katrina and reduce the deficit.
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Author: valuefanRLA Big red star, 1000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48260 of 76082
Subject: Re: Tax Cut Bill Date: 11/19/2005 5:22 PM
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I'm including a link to a discussion about this, which is written in, what I consider, easy to understand english. That said, my job is tax - so I could be wrong. I recommend taking a look at this, if interested - one to understand what took place in coming to what stands now, what was considered and discarded, and what really is included in the solution as it stands:

http://www.deloitte.com/dtt/cda/doc/content/us_tax_reform_report_110405.pdf

You mention 2 "tax cuts" above. I think it's important to remember that with the government in a deficit, I don't think they can just get 2 cuts - without having some additional provisions. Obviously, you and I probably hope for the cuts at the individual level and the increases at the corporate level. Maybe I'm being presumptious... :-).

That said, it would be good to know that Charitable Contributions will be pared back. Currently there is a limit to charitable contributions at 50% of adjusted gross income. That doesn't effect me, because I need the little money I make in order to live...I can't afford to give away 50% of my income. However, the new proposal would create a 1% floor on charitable contributions. Therefore, the deduction I currently get for the not-so-small contributions I am able to make will get a little "haricut".

Another thing to look at is the change to the deduction for mortgage interest. This won't effect most people. But what about those who live in an area where the housing is terribly expensive...they aren't rich just because they live there...to the contrary, many of us are living right around the lower-middle class line, because we live here. The folks who have a mortgage over, say 400K will likely be in for a little surprise.

My only point here is that we are realistic about tax cuts, knowing that there will have to be other things that are increased if any cuts are to take place.

All this said...what are the chances of any of this passing? History shows us that the chances are very small.

Ryan

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48261 of 76082
Subject: Re: Tax Cut Bill Date: 11/19/2005 5:38 PM
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Ryan,

I think the OP was talking about the bill recently passed, and not this one that's just a report and is being discussed. What was passed a few days ago is much more modest than the big changes in the report.

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Author: valuefanRLA Big red star, 1000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48262 of 76082
Subject: Re: Tax Cut Bill Date: 11/19/2005 7:29 PM
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Well, that's embarrassing. :-)

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48263 of 76082
Subject: Re: Tax Cut Bill Date: 11/19/2005 8:09 PM
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Thanks for the Deloit summary. That is helpful.

Yes, its seems the current "tax cut" discussions are somewhat different from the longer term "tax reform" goal.

Capital gains extension and AMT are short term goals.

I am glad to see that the Deloit report does not mention deductibility of state and local taxes (like property taxes paid and state income taxes). The mention mortgage interest and sales tax deductibility.

To many of us loss of property tax deductions would be a major hit.

We shall see where this all takes us. A tax bill is never done til the fat lady sings.

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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48264 of 76082
Subject: Re: Tax Cut Bill Date: 11/19/2005 9:19 PM
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Wall Street Journal today makes clear that the 15% Capital Gains tax rate (extension to 2010) and middle class AMT tax relief (through 2006) are the two main aspects of the tax cut bill under discussion in Congress.
----------------------------------------------

Of the two, I am more infavor of the 15% capital gains.



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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48266 of 76082
Subject: Re: Tax Cut Bill Date: 11/20/2005 8:29 AM
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While I benefit from the current cap gain/dividend tax rates, it's the AMT that scares me. If the current law expires, AMT will begin snaring tens of millions of middle income taxpayers. Just shows how stupid it is to set any limit without indexing it for inflation. Unfortunately Congress seems unwilling to deal with it until a crisis develops. Safe to say that those millions who suddenly find themselves subject to AMT are not going to re-elect incumbents, so Congress better get off their asses or they will have lots of free time in a couple years.


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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48272 of 76082
Subject: Re: Tax Cut Bill Date: 11/20/2005 1:20 PM
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While I benefit from the current cap gain/dividend tax rates, it's the AMT that scares me.

What I don't get, is why instead of talking about eliminating AMT, they just don't retro-actively re-rate it for inflation (for all future years). That way it serves it's original purpose, and maybe they can drop some stupid ideas like putting a minimum on charitable deductions.

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Author: Matt1344 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48273 of 76082
Subject: Re: Tax Cut Bill Date: 11/20/2005 2:30 PM
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"Just shows how stupid it is to set any limit without indexing it for inflation."

Stupid???? I just thought it was their way of raising taxes without having to take responsibility for having done so... I don't recall much of anything that was indexed until many folks found themselves in higher tax brackets even though they had no increase in buying power thanks to inflation... How many years was the standard deduction for kids $600??? There's no way Congress was ignorant of the fact we were being moved into higher brackets even when just keeping up with inflation...

Regards, Ken

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Author: Matt1344 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48274 of 76082
Subject: Re: Tax Cut Bill Date: 11/20/2005 2:39 PM
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"What I don't get, is why instead of talking about eliminating AMT, they just don't retro-actively re-rate it for inflation (for all future years). That way it serves it's original purpose,..."

Hi DeltaOne81,

Guess it's my morning for cynicism... To do as you so rightly suggest would do what they don't want to do... take it back to affecting only their rich friends... of course I may be wrong ;-)

Lose the middle/upper middle class taxpayer being hit with ATM and they have to increase taxes somewhere... my goodness, they want to get re-elected so it can't be too obvious that they are taxing and spending folks money as if there was no end to the depth of their pockets...

Regards, Ken ( Time for a walk... )

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48285 of 76082
Subject: Re: Tax Cut Bill Date: 11/21/2005 9:19 AM
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If the current law expires, AMT will begin snaring tens of millions of middle income taxpayers...Safe to say that those millions who suddenly find themselves subject to AMT are not going to re-elect incumbents, so Congress better get off their asses or they will have lots of free time in a couple years.

Depends on what you consider 'middle income taxpayers'. According to the following adjusted gross income percentages, 'middle income' is about $30K per year:

If your adjusted gross income was....

- $295,495 or more = top 1% of US taxpayers
- $130,080 = top 5% of US taxpayers
- $94,891 = top 10% of US taxpayers
- $57,343 = top 25% of US taxpayers
- $29,109 = top 50% of US taxpayers


http://boards.fool.com/Message.asp?mid=23231195&sort=whole#23239461

It's difficult for me to swallow the line that 'millions' of folks in the $29,000-$57,000 income range will be hit with substantial AMT rate increases.

2old


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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48342 of 76082
Subject: Re: Tax Cut Bill Date: 11/23/2005 8:31 AM
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<<<Depends on what you consider 'middle income taxpayers'. According to the following adjusted gross income percentages, 'middle income' is about $30K per year:

If your adjusted gross income was....

- $295,495 or more = top 1% of US taxpayers
- $130,080 = top 5% of US taxpayers
- $94,891 = top 10% of US taxpayers
- $57,343 = top 25% of US taxpayers
- $29,109 = top 50% of US taxpayers

http://boards.fool.com/Message.asp?mid=23231195&sort=whole#23239461

It's difficult for me to swallow the line that 'millions' of folks in the $29,000-$57,000 income range will be hit with substantial AMT rate increases.

2old>>>


Congress has been, in effect, indexing the AMT through special legislation each year. This year they have refused to extend the legislation and it looks like they may not due to their sudden concern over hurricane spending and political hard feelings. Estimates are that in 2005 about 4 million will pay AMT. If Congress doesn't act, more than 20 million will pay AMT in 2006. And by 2010 the number exceeds 30 million. (My source is tax experts on CNBC but I'm sure a Google search will provide plenty of discussion on the subject.)



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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48365 of 76082
Subject: Re: Tax Cut Bill Date: 11/23/2005 5:20 PM
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If Congress doesn't act, more than 20 million will pay AMT in 2006. And by 2010 the number exceeds 30 million. (My source is tax experts on CNBC but I'm sure a Google search will provide plenty of discussion on the subject.)

The population of the U.S. is approximately 300 million. 30 million is 10% of that. The great majority of those 30 million are more than likely in the top 10% of taxpayers due to their above average incomes. Which was exactly my point, they certainly can't be considered 'middle income' taxpayers if they're in the top 10%.

2old



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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48366 of 76082
Subject: Re: Tax Cut Bill Date: 11/23/2005 5:40 PM
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>> The population of the U.S. is approximately 300 million. 30 million is 10% of that. The great majority of those 30 million are more than likely in the top 10% of taxpayers due to their above average incomes. Which was exactly my point, they certainly can't be considered 'middle income' taxpayers if they're in the top 10%. <<

I see where you are going with this, and if it were simply the top 10% of earners, I'd not be concerned about it either. But there are two reasons I don't think that's right:

1. If the reference is to 30 million *taxpayers* and not 30 million *people*, then the number of households subjected to it by 2010 is considerably more than 10%. A family of five with three dependent children is only one household, and arguably considered two taxpayers. So if there are (say) 150 million taxpayers, that would be 20%, not 10%. And to get down to the top 20%, you're down to what, less than $100,000 per year? The middle class is large enough that I'd consider someone in the 80th to 85th percentile in household as "middle class" (albeit upper middle class).

2. The AMT doesn't merely snare the top incomes. It's convoluted enough, and the add-backs arcane enough, that someone earning $70,000 could get snared by it whereas someone earning $150,000 is not. It depends on the type of writeoffs and such, not all of which are illegitimate tax dodges.

#29

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48385 of 76082
Subject: Re: Tax Cut Bill Date: 11/24/2005 12:01 PM
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ziggy 29,
You've hit the problem exactly in post #48366. First, the AMT projections do refer to taxpayers, which means a whole household. That means 30 million out of 120-140 million returns. Second, the AMT is a convoluted thing that doesn't just snare the top incomes. And it's particularly nasty if you're filing single rather joint return.



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Author: valuefanRLA Big red star, 1000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48389 of 76082
Subject: Re: Tax Cut Bill Date: 11/24/2005 1:15 PM
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And it's particularly nasty if you're filing single rather joint return.

I think we're getting a little too caught up in the hype. To be sure no one likes the AMT, including me - simply because it means that I could end up paying more tax. However, I have prepared many a tax return and have not seen that many cases. True, the number of people subject to AMT will go up. Let me explain...

AMT itself is not a bad thing. AMT resembles (in a loose way) a flat tax, which so many people SEEM to be in favor of. I say seem because the minute you take away a person's "deductions" they throw their hands up in frustration. AMT basically takes away a lot of your "special" deductions, and re-calculates your tax at 20%.

Then, this tax is compared to your regular tax, which includes all your deductions. If the AMT is higher, you basically pay that amount. With the tax brackets coming down, more and more people will end up being subject to AMT. It doesn't mean that they are going to pay more tax than they did last year. It just means that the tax rate cuts won't have as much effect.

Finally, whenever someone is subject to AMT, the amount of AMT which is above your regular tax becomes a credit against your future regular tax, when you are no longer subject to AMT. (sorry, that wording is terrible - but I'm to lazy today to try and fix it). :-)

I guess what I'm trying to get at here is that AMT is not the end of the world. The media is hyping this thing, just like they do the flat tax. Oh, and don't get me started on the flat tax proposed by Forbes. What they don't tell you is that Forbes would basically pay NO tax under that system. But that's another story for another board.

Happy Thanksgiving.

Ryan

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48394 of 76082
Subject: Re: Tax Cut Bill Date: 11/24/2005 2:05 PM
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<<< Oh, and don't get me started on the flat tax proposed by Forbes. What they don't tell you is that Forbes would basically pay NO tax under that system.>>>

Hey, you weren't supposed to figure that out. But you're basically correct. Forbes exempts interest, dividends, and capital gains from all tax. Well, guess where someone who inherited billions gets most of his income. Nice of him to let the poor guys who work for wages pay his share.



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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48483 of 76082
Subject: Re: Tax Cut Bill Date: 11/28/2005 8:38 AM
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If the reference is to 30 million *taxpayers* and not 30 million *people*, then the number of households subjected to it by 2010 is considerably more than 10%. A family of five with three dependent children is only one household, and arguably considered two taxpayers. So if there are (say) 150 million taxpayers, that would be 20%, not 10%.

Yes, my bad (comparing apples to oranges).

The AMT doesn't merely snare the top incomes. It's convoluted enough, and the add-backs arcane enough, that someone earning $70,000 could get snared by it whereas someone earning $150,000 is not. It depends on the type of writeoffs and such, not all of which are illegitimate tax dodges.

I understand. OTOH, an average family of four earning $70K, IMHO is not likely to have the requisite amount of capital gains in a taxable account to trigger the AMT (unless they're dealing with inherited money). It seems to me that most families of four in that income range have a hard time scraping together enough funds to maximize their 401k and Roth contributions. How much would they have left over to contribute to taxable accounts?

Of course, my observations are biased. After hearing all the hype about the AMT I performed the calculation based on my own personal situation. I happen to be one of those in the top 10% who would not be subject to AMT unless my capital gains exceeded $50K in any one year. My totally biased feeling however is that if I had somehow managed to stash away enough in my taxable accounts, and was lucky enough to generate a $50K capital gain on it in one year, I wouldn't be crying into my soup about paying a slightly higher tax. Just MHO,

2old



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Author: riverfloat One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48484 of 76082
Subject: Re: Tax Cut Bill Date: 11/28/2005 9:19 AM
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Depends on what you consider 'middle income taxpayers'. According to the following adjusted gross income percentages, 'middle income' is about $30K per year...

It's difficult for me to swallow the line that 'millions' of folks in the $29,000-$57,000 income range will be hit with substantial AMT rate increases.


I live in the Washington DC suburbs (Loudoun Cty, VA) where $30K qualifies most families to live in subsidized housing (rarely available). Rent an apartment for $1100 to $1500 per month, rent a 3 bedroom house -$1800.+. To buy...condo-$200K-$300K...town house $300K+...single family(dump) $400K, etc

I realize there's no effective way to put COLA into the formula, but us "middle-class" around here feel poor and paying AMT is insult to injury.

My $0.02,

Andy

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48487 of 76082
Subject: Re: Tax Cut Bill Date: 11/28/2005 9:42 AM
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I live in the Washington DC suburbs (Loudoun Cty, VA) where $30K qualifies most families to live in subsidized housing (rarely available). Rent an apartment for $1100 to $1500 per month, rent a 3 bedroom house -$1800.+. To buy...condo-$200K-$300K...town house $300K+...single family(dump) $400K, etc

I realize there's no effective way to put COLA into the formula, but us "middle-class" around here feel poor and paying AMT is insult to injury.


Are you saying that you are earning ~ $30K, living in a high-cost area, and have performed the requisite AMT calculations, and that you are subject to the AMT? If so, I would have to assume that you inherited the money which is generating the capital gains. I don't see how else anyone earning $30K and living in a high-cost area could have amassed enough money in a taxable account to trigger the AMT. By your own quoted costs above living expenses alone (ordinary income taxes, housing, food, utilities, etc.) would eat up the $30K salary.

COLA is already built into the ordinary income tax rates to avoid tax-bracket creep as was experienced during the high inflation period of the 1970s.

2old





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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48496 of 76082
Subject: Re: Tax Cut Bill Date: 11/28/2005 12:35 PM
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>I live in the Washington DC suburbs (Loudoun Cty, VA) where $30K qualifies most families to live in subsidized housing (rarely available).
--
Maybe if more people paid AMT there would be better subsudized housing!


>>Rent an apartment for $1100 to $1500 per month, rent a 3 bedroom house -$1800.+. To buy...condo-$200K-$300K...town house $300K+...single family(dump) $400K, etc
--
It looks like; if you are in a AMT (Top 10% at $94,891) required position, you could probably afford to live in this area quite easily. Especially if you LBYM and don't buy a McMansion. Even if they dip down to $75,000 or about the top 15% I am still feeling OK because it typically gets rid of "loopholes" (Interest on HELOC not used to improve the home - i.e. A VACATION!)



>>It's difficult for me to swallow the line that 'millions' of folks in the $29,000-$57,000 income range will be hit with substantial AMT rate increases.
--
Yep, me too especially if I think about the $58,000 AMT deduction!


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