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Subject:  Re: Could your retirement survive this? Date:  5/10/2008  2:43 PM
Author:  fleg9bo Number:  13058 of 22172

what I read from your recent posts is that you have a relatively high income, but you don't believe you should be taxed on it. What I (and AM, and presumably Obama) are saying is that everyone should be taxed the same on their income. YOu are saying that some income is "different". Unearned income should not be taxed, while earned income should. What am I missing? Is this where we diverge?

My investment portfolio generates more income than we need to live on. The majority of that income is not really for living on anyway. My stocks are in managed accounts and the managers do more buying and selling than index funds do, with the gains being reinvested in new purchases, not sent to me except for what I need to pay in tax on the gains. In spite of this management activity, my returns have beaten the indexes even after the higher fees and cap gains taxes of 15% (+9% state). If Obama near doubles the tax on cap gains (to 28%), I don't know if I will be able to continue with this investment strategy, as it may not beat the indexes after the new, higher tax burden. That's a threat to my retirement, having to take lower returns on my investments.

The taxes I pay now are fine by me. 15% on cap gains and dividends doesn't hurt too much, although I believe the economy would do better if those taxes are lowered, since it would stimulate more investment activity, which is exactly what happened when Bush lowered the rates on those two items. (Just as the cut in cap gains taxes that Congress forced on a reluctant Carter helped set the stage for the long bull market that followed and the cut in cap gains taxes enacted in 1997 helped keep the bull market humming along.)

And consider: Unearned income has already been taxed. The money in our portfolio was originally taxed at 39.6% federal + 9.3% CA + 1.45% Medicare = just over 50% when it was earned. And then that money gets put at risk in the market and taxed again if the risk pays off. And when I go to spend some of it, it gets taxed again to the tune of 8-9% (but not for me because OR has no sales tax but most people don't live in OR). So when is enough enough?

If I thought higher taxes were good for the country, I would support them. Paying more tax each year would be more than offset by the increase in my portfolio if higher taxes were good. But everywhere I look around the world, I see that cutting taxes (and regulation) boosts economies, even turns them around--from Ireland to Peru to Egypt to Slovakia to everywhere. Britain converted itself from a stagnant economic backwater into a prosperous country when it finally booted the socialists and elected Thatcher and her tax-cutting conservative party. And they just did that again, and just in the nick of time what with British companies fleeing to low-tax Ireland and taking their jobs with them.

Last item: I'd like to see everyone pay at least some tax, so everyone has some stake in responsible government. When you pay nothing or even get the earned income credit (= welfare), you have every incentive to ding the small percentage of people that pays the vast majority of taxes for even more handouts. I don't think it's good to have almost half the taxpayers getting a free ride on the wagon pulled by the other half.

--fleg
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