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I have searched through the news reports, and could not find anything about this -- does the Bush tax cut proposal include anything about cap gains taxes?

My reading of the proposal is that, if enacted, a lot of us will pay *more* on cap gains than on income, if the big middle bracket rate is reduced from 28% to 15%.

Anyone have any details?

*>UncaMikey
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"My reading of the proposal is that, if enacted, a lot of us will pay *more* on cap gains "

I can't say I'm well informed, but I've heard nothing on that, in fact what I've heard suggests a further reduction of cap gains, or at least not touching the additional reductions starting this year.

However, one analyst I heard on TV pointed out that the effect of any cut is minor without an adjustment of AMT, and I've heard nothing about that at all.

Without an AMT adjustment, the critics who say Bush's tax cut only helps the rich are fooling themselves...little "f" there.

I fully expect the new tax cut to provide me with as much as one extra tank of gas this year.

Mark
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I have searched through the news reports, and could not find anything about this -- does the Bush tax cut proposal include anything about cap gains taxes?


The Bush plan does not reduce capital gains taxes, but recently some Republicans in Congress have said that they would like to add a capital gains tax reduction also. Here's one article:

http://www.cnn.com/2001/ALLPOLITICS/stories/02/06/bush.taxes.ap/index.html
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recently some Republicans in Congress have said that they would like to add a capital gains tax reduction also. Here's one article:

http://www.cnn.com/2001/ALLPOLITICS/stories/02/06/bush.taxes.ap/index.html


Interesting, thanks.

Many people are now in the 28% bracket. If the marginal rate is reduced to 15%, without any other changes, then those people will pay *higher* taxes for capital gains than for regular income.

If the proposal in the link above (reducing cap gains rate to 15%) is added, then the difference in tax treatment for cap gains is effectively eliminated.

I am still puzzling over what all this might mean, both now and at RE time. I think many of us were expecting that cap gains would have lower tax rate than regular income.

Wouldn't this also affect so-called 'tax efficient' mutual funds?

*>UncaMikey
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I know there was stuff on the web yesterday about dropping the 28% rate to 15%, but the Washington Post has a completely different take on this. 28% would drop only to 25%, so it would still be higher than the capital gains rate at 20%.

http://www.washingtonpost.com/wp-srv/onpolitics/articles/bushtaxcut020601.htm

arrete
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Many people are now in the 28% bracket. If the marginal rate is reduced to 15%, without any other changes, then those people will pay *higher* taxes for capital gains than for regular income.

I may be wrong about this, but I seem to recall that there are actually two capital gains tax rates right now: 10% and 20%. The 20% rate is for people in the 28% and above marginal tax rate and the 10% rate is for people below that. I have this sort of fuzzy memory about this from when the capital gains tax rate was reduced from 28% in about 1997. Am I wrong?
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UncaMikey:

<<<<recently some Republicans in Congress have said that they would like to add a capital gains tax reduction also. Here's one article:

http://www.cnn.com/2001/ALLPOLITICS/stories/02/06/bush.taxes.ap/index.html >>>>>

"Interesting, thanks.

Many people are now in the 28% bracket. If the marginal rate is reduced to 15%, without any other changes, then those people will pay *higher* taxes for capital gains than for regular income.

If the proposal in the link above (reducing cap gains rate to 15%) is added, then the difference in tax treatment for cap gains is effectively eliminated.

I am still puzzling over what all this might mean, both now and at RE time. I think many of us were expecting that cap gains would have lower tax rate than regular income.

Wouldn't this also affect so-called 'tax efficient' mutual funds?"


It has been my understanding that if a person is in the 15% bracket, then the LTCG rate is only 10%, at least until that person fills the 15% bracket.

As a result of my understanding (or misunderstanding), I am very confused by this series of posts.

Can someone clarify?

Regards, JAFO
(who has been fortunate to be outside the 15% bracket for awhile now)

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It has been my understanding that if a person is in the 15% bracket, then the LTCG rate is only 10%, at least until that person fills the 15% bracket.

As a result of my understanding (or misunderstanding), I am very confused by this series of posts.

Can someone clarify?

Regards, JAFO
(who has been fortunate to be outside the 15% bracket for awhile now)


Your understanding is quite correct.

--Boffo
(who has an intimate acquaintance with the 15% bracket as he only recently left graduate school)
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Can someone clarify?

My confusion started this, so here goes.

I read the reports on Bush's tax cut proposal. The 28% bracket would be reduced to 15%.

Since no mention was made in the reports about cap gains tax rates, I was not sure if the present rule about 10% LTCG would apply to the *new* bracket, which would now cover vastly more people and vastly more incomes.

If LTCG automatically goes down to 10%, as a result of the bracket change, then that would make sense. But I could not find any info on this, and the potential effects for those of us investing and planning RE seem rather large.

In any event, I am sure there will be many changes to the proposal along the way. It was just curiosity on my part.

*>UncaMikey
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This is why, while I am conscious of taxes and have nothing against tax-deferred plans, I have never really spent too much time on them. I don't let the tax-paying tail wag the investor dog. I just want to make some money. All the best laid plans can gang agli and then gang back again for all we know, especially when I'm trying to figure what my taxes will be in 30 yrs. Can drive a guy crazy.


Uncamikey..

>>>Many people are now in the 28% bracket. If the marginal rate is reduced to 15%, without any other changes, then those people will pay *higher* taxes for capital gains than for regular income.

If the proposal in the link above (reducing cap gains rate to 15%) is added, then the difference in tax treatment for cap gains is effectively eliminated.

I am still puzzling over what all this might mean, both now and at RE time. I think many of us were expecting that cap gains would have lower tax rate than regular income.

Wouldn't this also affect so-called 'tax efficient' mutual funds?

*>UncaMikey
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"I may be wrong about this, but I seem to recall that there are actually two capital gains tax rates right now: 10% and 20%. "

You are right. If you stay at or below the 45k bracket, then your ordinary tax rate is 15%, and your cap gain rate is 10%. Soon it will be down to 8% I believe...starting this year.

You have to keep your eye on the ball though, the differing types and amounts of income taxes are a mine field.

Mark
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If you stay at or below the 45k bracket, then your ordinary tax rate is 15%, and your cap gain rate is 10%.

That is my question -- under Bush's proposal, the 15% income tax bracket goes all the way up to $106K. Will the cap gains rate for people in that bracket stay at 20% or automatically be lowered to 10% or 8%?

*>UncaMikey
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UncaMikey:

<<<<Can someone clarify?>>>>

"My confusion started this, so here goes.

I read the reports on Bush's tax cut proposal. The 28% bracket would be reduced to 15%.

Since no mention was made in the reports about cap gains tax rates, I was not sure if the present rule about 10% LTCG would apply to the *new* bracket, which would now cover vastly more people and vastly more incomes.

If LTCG automatically goes down to 10%, as a result of the bracket change, then that would make sense. But I could not find any info on this, and the potential effects for those of us investing and planning RE seem rather large."


This is a question better directed to TMFexRo or the other tax pros on teh Tax board, but here goes anyway:

I believe that will be the result ("LTCG automatically goes down to 10%, as a result of the bracket change"), unless the tax cut act fiddles with these provisions. IOW, I believe that default result of simply changing the brackets preserves the 10% rate for those in the 15% bracket for regular income. BWTFDIK

In any event, I am sure there will be many changes to the proposal along the way. It was just curiosity on my part."

Agreed.

Regards, JAFO


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Many people are now in the 28% bracket. If the marginal rate is reduced to 15%, without any other changes, then those people will pay *higher* taxes for capital gains than for regular income.

Those in the 15% tax bracket pay 10% LTCG tax.
Those in the 28% tax bracket pay 20% LTCG tax.


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... under Bush's proposal, the 15% income tax bracket goes all the way up to $106K.

Not true, though we can hope and pray :-)

Bush's proposed rates are as follows:

TAXABLE MARGINAL RATE
0-12k 10%
12k - 45k 15%
45k - 166k 25%
166k - 33%
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Here is a link to the complete Bush Tax Plan:

http://www.georgewbush.com/issues/taxes.html

It does not include any change to capital gains taxes.
Remember that this is the Candidate George W. Bush plan 
and not the President George W. Bush plan. I thought the 
table (chart 7 of http://www.georgewbush.com/Media/PDFs/tax.pdf) 
was very interesting. It outlines the current and proposed 
income tax burden by income barcket.


Tax Burden by Income Bracket for 2004

                      Current   After Bush Cuts     
Less than $10,000      -0.9%      -1.1%      
$10,000 to $20,000     -1.0%      -1.4%     
$20,000 to $30,000      2.2%       1.9%     
$30,000 to $40,000      4.1%       3.8%     
$40,000 to $50,000      5.4%       5.1%     
$50,000 to $75,000     14.6%      14.2%     
$75,000 to $100,000    13.6%      13.4%     
$100,000 to $200,000   22.8%      23.2%     
$200,000 and over      39.1%      40.9%     
Total, All Taxpayers  100.0%     100.0%

Note: Distribution assumes that the Bush Plan is fully phased-in. 
Does not include the charitable deduction or the expansion of 
the education savings accounts, but does include EIC payments.

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"
... under Bush's proposal, the 15% income tax bracket goes all the way up to $106K.

Not true, though we can hope and pray :-)

Bush's proposed rates are as follows:

TAXABLE MARGINAL RATE0-12k 10%12k - 45k 15%45k - 166k 25%166k - 33%
"

This does not reflect the graphic I've seen which indicates the 10% rate going up to about 43k.

mark
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<<Bush's proposed rates are as follows:

TAXABLE INCOME MARGINAL RATE
0-12k 10%
12k - 45k 15%
45k - 166k 25%
166k - 33%

>>

This does not reflect the graphic I've seen which indicates the 10% rate going up to about 43k.


The above came from http://www.washingtonpost.com/wp-srv/onpolitics/articles/bushtaxcut020601.htm
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prometheus helpfully posted: Tax Burden by Income Bracket for 2004

That's about what I expected...In my bracket, I'll save about $12 per month...

Gee, what will I do with all that money?

I hope I don't spend it all in one place and stimulate the economy too much!

Chuck
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So basically it doesn't mean diddly unless you are in the very highest bracket or the lowest. For me, there will be about zero difference unless AMT is reformed. Thank you President dumbass!
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For me, there will be about zero difference unless AMT is reformed. Thank you President dumbass!

brewer12345, you certainly seem to be no fan of President Bush. Perhaps Al Gore was your guy. Gore supporters don't want a tax cut anyway so if they end up with none they will be happy. A few months ago I sent this to a friend as a tongue-in-cheek suggestion for Bush:

During the campaign Gore, Lieberman, and all the Democrats kept saying that Bush's tax cut plan was risky, unneeded, and unwanted by most people. I think Bush missed a great opportunity in the debates to respond to that and if he becomes the next president it might not be too late. Soon after taking office he should make a speech that has this in it:

"The country has been through a very divisive time recently and in order to start the healing I am offering this olive branch to the Democratic Party. I pledge that when I submit my tax cut proposal to Congress, which my opponents abhor, I will have a provision that allows any American to continue to use the old, higher tax rates when they file their income tax return. Since we know that former Vice President Gore, Senator Lieberman, former President Clinton, all the Democrats in Congress, Barbra Streisand, Jesse Jackson, and others are 100% against this tax cut I will direct the Internal Revenue Service, as a service to them, to carefully check their income tax returns to ensure that they have not mistakenly used the new, lower tax rate. I expect that this proposal will be received with cheers by my opponents and will pass Congress unanimously. I believe the healing has begun."

I think this would be a first, giant step to gaining support from the Democrats. This will decrease the total cost of Bush's tax cut significantly, since we know that approximately 50 million Americans prefer
the old and higher tax rate.

One other interesting note. The friend I sent this to a few months ago recently contacted me and told me that his father-in-law, who was a big Gore supporter and had been dead-set against lowering taxes during the campaign, sold some stock a few weeks ago. He was disgusted when he realized how much he would have to pay in U.S. and New York state capital gains taxes and spent close to an hour complaining about the g**n government taking so much of his money. It was all done with no sense of irony at all. My friend and I concluded that for his father-in-law high taxes were good as long as someone else had to pay them.
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brewer12345 writes,

So basically it doesn't mean diddly unless you are in the very highest bracket or the lowest. For me, there will be about zero difference unless AMT is reformed. Thank you President dumbass!

My Bush tax cut won't even be enough to buy one of those mufflers Dick Gephardt had on TV this morning.

intercst
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hr1975 said:

brewer12345, you certainly seem to be no fan of President Bush. Perhaps Al Gore was your guy. Gore supporters don't want a tax cut anyway so if they end up with none they will be happy.

**************

Actually, I have no use for either Gush or Bore. The older I become, the more my sentiments learn toward libertarianism. Will I become the next Ted Kaczynski in retirement?

I guess my real beef is that the proposed cuts will mean very little to most of us (despite the promises), and will likely end up pushing us into deficits. OTOH, if cuts don't go through, it seems quite likely that fiscal discipline will go out the window anyway, and there goes the surplus and debt reduction.

Hence my distaste for politicians and politics of pretty much every stripe...
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<<So basically it doesn't mean diddly unless you are in the very highest bracket or the lowest. For me, there will be about zero difference unless AMT is reformed. Thank you President dumbass!>>

My Bush tax cut won't even be enough to buy one of those mufflers Dick Gephardt had on TV this morning.


Intercst, this tax cut isn't for you, Bush specifically is targeting working people.

Though, if a reduction in the LTCG tax rate gets added to this tax proposal, it might reduce your taxes somewhat.
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>> So basically it doesn't mean diddly unless you are in the very highest bracket or the lowest. For me, there will be about zero difference unless AMT is reformed. Thank you President dumbass! <<

This particular "prong" of his tax plan is aimed at *earned* income.

Of primary note for *most* working stiffs is that the 28% bracket is knocked down to 25%. For every $10,000 you earn in this bracket, $300 would be returned to your pocketbooks.

The other major issues are cap gains and the AMT, the latter of which should not be forgotten in all this -- except that it will likely encounter more opposition from Congressional Democrats than even the income tax cuts at the high end of the scale.

Of course, the "bastard stepchild in the closet" with respect to tax policy -- the one no one wants to talk about -- is to end the double taxation of dividends. That one, more than just about any of them, would be of interest to early retirees.

#29
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My Bush tax cut won't even be enough to buy one of those mufflers Dick Gephardt had on TV this morning.


That's probably because you don't pay very much tax now. Those of us who do will get (a little) welcome relief.

raddr
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