[Rhodes22-list] Tax Advice? 401k's

[Bill Effros]

Brad,

The poor guy also pays Social Security taxes; Workman's Comp; State 
Taxes; City Taxes; Telephone Taxes; Sales Taxes; Gas Taxes; Cigarette 
Taxes; Liquor Taxes; etc. etc.

Add them all up and it is said both the poor guy and the rich guy pay 
20% of their incomes (roughly) in taxes.

The idea behind VAT is that all these taxes and complexity would be 
removed, netting the government the same revenue.

However, the poor guy would actually pay more, and the rich guy less.  
Your numbers only make this statement more true--however you are not 
taking into account all of the different taxes currently paid by the 
poor guy.

Bill Effros

Brad Haslett wrote:
> Bill,
>
> Assuming the poor guy is married with two kids, and rents, here is 
> what his
> return would look like.
>
> Income        50,000
>
> Std deduct   (10,000)
>
> Exemptions   (12,800)
>
> Taxable inc.   27,200
>
> Tax                 3,354
>
> Child credit     (2,000)
>
> Total tax           1,354
>
> Effective tax rate = 2.7%
>
> ---------------------------
>
> Because of the child credit under the new law, our sample tax payer 
> actually
> pays an even smaller percentage of the total nations tax collection 
> compared
> to the rich guy under the old rules.  That's not the way it gets spun, 
> "tax
> cuts for the rich" and all, but the way it works in reality. It wasn't 
> that
> long ago I was this guy,  I can still relate.
>
> Brad
>
> On 11/12/06, Bill Effros <bill at effros.com> wrote:
>>
>> Rik,
>>
>> Let's say the rich guy earns $1,000,000 a year, and the poor guy earns
>> $50,000.  When all is said and done under the current system, each pays
>> 20% of his income in taxes -- $10,000 for the poor guy.  $200,000 for
>> the rich guy.
>>
>> Now we switch to a flat 20% VAT.
>>
>> The poor guy spends $60,000 a year (using credit cards to make ends
>> meet).  His tax goes from $10,000 a year to $12,000 a year.
>>
>> The rich guy can't buy enough Beamers to spend more than $500,000 a
>> year.  His tax goes from $200,000 a year to $100,000 a year.  But
>> luckily, there are plenty of poor guys making up the difference, so the
>> scheme is revenue neutral as far as the government is concerned.
>>
>> VAT is a good deal for the rich guys, and a poor deal for the poor guys.
>>
>> But hey!  A lot of the really rich people around here actually do roll
>> around in 2 year old Chevys and 4 year old Buicks.  It's only the
>> "nouveau riche" who buy Ferraris.
>>
>> Bill Effros
>>
>> Rik Sandberg wrote:
>> > Bill,
>> >
>> > Hmmm ..... I suppose it would be possible for the rich to pay
>> > less,.... but only if they want to spend money like a poor person.
>> > Seems to me, the sales tax on that new Mercedes or Beemer is likely to
>> > be *just a bit* higher than the sales tax on that 2 year old Chevy.
>> > 'Course, I could be wrong, maybe all the rich people will start buying
>> > 2 year old Chevys (cough cough) ..... Ya think??
>> >
>> > Rik
>> >
>> > Bill Effros wrote:
>> >> Could be.  It's seductive.  Although I think the people with less
>> >> will catch on to the fact that they will pay more, and the rich will
>> >> pay less if this is enacted.
>> >>
>> >> Bill Effros
>> >>
>> >> Joseph Hadzima wrote:
>> >>> Howdy Bill:
>> >>>
>> >>> I'm thinking that we'll have a national sales tax for the government
>> >>> to get back income last through the 401K, and IRA programs.  It's so
>> >>> easy to sell too!  Everyone thinks a sales tax will get the "rich",
>> >>> when it will actually touch everyone!  It also won;t sound like
>> >>> we're taxing people on fixed income, but we will.
>> >>>
>> >>> HADZ (a.k.a. joe)
>> >>>
>> >>>
>> >>> ----- Original Message ----
>> >>> From: Bill Effros <bill at effros.com>
>> >>> To: The Rhodes 22 mail list <rhodes22-list at rhodes22.org>
>> >>> Sent: Sunday, November 12, 2006 12:17:56 PM
>> >>> Subject: Re: [Rhodes22-list] Tax Advice? 401k's
>> >>>
>> >>>
>> >>> Rummy,
>> >>>
>> >>> Slim, of course, must contribute both sides of his 401K.
>> >>>
>> >>> I, too, put aside as much money as possible for reinvestment while
>> >>> others bought Hummers.  This is central to any retirement strategy.
>> >>>
>> >>> By not having money in 401ks I was able to make investments, using
>> >>> money that had never been taxed, in things that never will be taxed.
>> >>>
>> >>> My security comes from investments that are not subject to future
>> >>> taxes.
>> >>>
>> >>> I believe the huge debt that has been incurred will be paid by all
>> >>> segments of the society, not just the young.  Inflation and
>> >>> increased taxes on 401k distributions will force older people to pay
>> >>> for some of the things they awarded themselves at earlier times.
>> >>>
>> >>> (Philip--this is what I mean when I say taxes are always about
>> >>> redistributing wealth.  The young will take this back from the old.)
>> >>>
>> >>> Bill Effros
>> >>>
>> >>> R22RumRunner at aol.com wrote:
>> >>>
>> >>>> Bill,
>> >>>> One aspect of the 401k that you have forgotten is that many
>> >>>> employers match  their employee contributions up to a certain
>> >>>> percentage. This to me is free  money. This also happens to be one
>> >>>> of the few ways that many people, including  my wife and I, are
>> >>>> able to accumulate a small fortune over a long period of  time. I
>> >>>> am not a financial wiz, nor do I want to be one. I have found
>> >>>> better  ways to use my time. Drinking and sailing come to mind.
>> >>>> We have been putting the maximum amount allowed by law into the
>> >>>> 401k for  the past twenty one years. It was hard when we saw
>> >>>> friends and co-workers  driving fancy vehicles, buying new homes
>> >>>> and we drove used vehicles and had  modest living quarters. Many of
>> >>>> these people today have no savings, still owe on  a second or third
>> >>>> mortgage and have car loans that would choke a horse.
>> >>>> We look at our current nest egg and other investments and we're
>> >>>> looking at  a good chunk of change. Odds are that we will never
>> >>>> spend the principal and it  will only continue to grow.
>> >>>> I am strongly in favor of 401k's, especially for a long term
>> >>>> investment.  It's called security.
>> >>>>
>> >>>> Rummy
>> >>>> __________________________________________________
>> >>>> Use Rhodes22-list at rhodes22.org, Help? www.rhodes22.org/list
>> >>>>
>> >>>>
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