west@mormps.dec.com (07/21/86)
In reading the tax bill, I find that, for anyone making over like $25K or $30K per year, the new capital gains rate will be 27%. Now, I see a lot of people say that this is no big deal, because it is an increase of only 7% from the current maximum rate of 20%. I'm confused. If you are a middle-income person in the, say 33% bracket (you can adjust this for your own) you now pay tax on capital gains at the rate of .4*.33 = 13.2%. Thus, for most middle income people, the new tax law will ABOUT DOUBLE your capital gains rate (27/13.2 `=2). Now, we all know that straight interest-producing instruments (money-market funds, T-bills, and the like) aren't what they used to be, so that currently a good and heavily used place for significant investment is stocks & bonds (whether directly or thru mutual funds). Isn't this going to be quite a blow to the economy? I mean, if the middle class has its tax rate on legitimate investment (as opposed to tax shelters, etc) doubled - what will that do to savings, investment, the stock market and the like? Have I misunderstood something here? Or is this really bad news that the press has overlooked?
jld@ulysses.UUCP (Jeff David) (07/22/86)
> In reading the tax bill, I find that, for anyone making over like $25K or $30K > per year, the new capital gains rate will be 27%. Now, I see a lot of people say > that this is no big deal, because it is an increase of only 7% from the current > maximum rate of 20%. I'm confused. If you are a middle-income person in the, > say 33% bracket (you can adjust this for your own) you now pay tax on capital > gains at the rate of .4*.33 = 13.2%. Thus, for most middle income people, the > new tax law will ABOUT DOUBLE your capital gains rate (27/13.2 `=2). > Now, we all know that straight interest-producing instruments (money-market > funds, T-bills, and the like) aren't what they used to be, so that currently a > good and heavily used place for significant investment is stocks & bonds > (whether directly or thru mutual funds). Isn't this going to be quite a blow to > the economy? I mean, if the middle class has its tax rate on legitimate > investment (as opposed to tax shelters, etc) doubled - what will that do to > savings, investment, the stock market and the like? Have I misunderstood > something here? Or is this really bad news that the press has overlooked? I'd say you understand everything perfectly. There is such journalistic myopia concerning the 27% tax rate,that you never here what is really going to happen to the investments of the "less than rich." In fact, the situation is just as bad for 2 income couples that will be hit with a 5% surtax once their GROSS (not taxable) incomes get over $75000. The 5% surtax will give them an effective marginal rate of 32%. If these folks are currently in the 42% bracket they are paying an effective rate of 16.8% on LTCG so their tax on LTCG will also double. It's the same old story. If you are already on top, you don't get hit too badly; but if you're climbing up, UNCLE is there to kick your ass back down the ladder.