Ask An Ex-Banker: Tax Loss Harvesting

Q. We have a number of investments through Vanguard – small, mid and large cap, some real estate and bonds. All have low costs. Our advisor (from another provider) recently suggested we rebalance, moving some small and mid-cap to large-cap funds. She said we should do this via “loss harvesting.”  I have tried to read up and look at the funds online to figure what funds would be smart to sell.  But the information provided is confusing (and seems to change) and it seems somewhat complicated. Any advice on how best to proceed such as what metrics to base the decision on?

B. Dempsey, San Antonio TX

A. The goal of tax loss harvesting is, through a careful series of sales, to offset some gains you might have from selling an asset with losses you might incur in the same calendar year. Losses that offset gains can leave you with a smaller tax bill. This is especially relevant if you have highly appreciated assets, or assets that were gifted to you that were bought at a much lower price. (Having a “low basis” in investment lingo.)

That’s the theory. 

Tax loss harvesting is easiest to understand on individual stocks.  Let’s say your Google stock appreciated by $50K based on where you sold it and you owed $7,500 on the gains because of the 15% long term capital gains tax rate. And then let’s say you also sold Pepsi in the same year, and you lost $10 thousand between where you bought it and where you sold it. The $10 thousand loss on Pepsi can be netted against the $50 thousand gain on Google if the sales occur in the same year. The result: you are only taxed 15 percent on $40 thousand in capital gains, and your tax bill drops by $1,500. Which is cool. 

But frankly it isn’t probably as important a factor for your long term net worth than the decision in the first place to own, or not own, Google or Pepsi. And in what proportions, and for how long.

The biggest choice is the investment itself, not the taxes

As always when people decide to get clever about saving on taxes, my very strong instinct is to remind them that taxes are the tail, stocks are the dog. Do not let your clever tax strategy (the tail) determine your investment asset allocation (the dog).

You can do this same netting of gains and losses on short-term stock holdings as well, which usually incur a higher tax rate since short term capital gains taxes match your income tax rate. Probably something above 15 percent.

If this seems confusing so far, I think that’s a good sign you don’t want to do it on your own and you may either need to hire an advisor or deputize your existing advisor to do it for you. 

I’m usually somewhere between skeptical and opposed to introducing investment complexity and additional advisors to one’s investment life, so I’ll try to offer a bit more about the narrow set of situations you might consider this for, as well as ways to accomplish this over time.

Tax loss harvesting is something you’d only do in your taxable (non-retirement) accounts, since it’s supposed to address the potential problem of capital gains. You won’t ever pay any capital gains in your tax-deferred retirement accounts.

I think it’s also worth saying up front that the most tax-efficient strategy you can do with your taxable investment portfolio in every case is: never, ever sell. 

Under current law, assets you never sell produce no capital gains taxes at the time of your death for you or your heirs. While your advisor is suggesting you “do something” (rebalancing) and then “do another something” (tax loss harvesting) as a result, my instinct is usually to tell people to “do nothing,” especially if you want to be tax-efficient. 

If you do go ahead and reposition your portfolio anyway, it becomes relevant at the end of the year in which you might pay capital gains to think about whether other sales you can do might produce tax-offsetting losses. 

In 2023, it would not have been surprising if you had losses in your bond portfolio, for example. Individual securities that went down from the time you bought them would be other candidates for locking in losses, although I again would not advise selling something just “for the taxes.” 

As for tax loss harvesting by selling a small-cap or medium-cap mutual fund, that seems too difficult for an individual to undertake on their own. You probably need to engage with an advisor if you want to do that, and that’s going to cost you money, which will raise the issue of whether a tax loss harvesting strategy is overall worth it. (more on that below) 

Another skeptical note, from me: Does incurring taxes by selling your existing low-cost mid-cap and small-cap index funds, and then doing tax-loss harvesting after the sales, truly improve your portfolio? In most market environments indexes of different capitalization are very highly correlated, so you are getting questionable improvements while upping your tax bill and maybe upping your management fees? 

There are at least two other ways to rebalance in a more tax efficient way. One would be to direct new purchases from the bond interest payments and stock dividends into larger cap funds. It would take a longer period of time but without any capital gains taxes. Another would be to just decide any new purchases go into large caps, but without selling the existing positions. A third way is to make the reallocation through changes to your non-taxable portfolio (like within a retirement account), as that doesn’t create a tax bill. Obviously I don’t know the positions of your portfolio and I don’t know your specific financial situation. I’m just a skeptical guy asking whether this advisor is really helping, or is this advisor making suggestions that just look like they are helping?

Going slightly beyond your question, there also exists the relatively new idea in investment management of actively tax-loss harvesting your existing taxable portfolio, not for rebalancing but specifically for tax efficiency.

Brokerages offer tax-loss harvesting strategy as a service within a portfolio that can act like a mutual fund. Fidelity for example offers something that should offer the performance of the S&P500 index, but at any given time they buy and sell individual stocks in ways that minimize capital gains taxes through tax loss harvesting. Since they charge 0.2 to 0.4 percent for this service, they would need to deliver some after-tax outperformance.

Fidelity and other brokerages offer tax-managed investing. For a fee, of course.

An academic research study from 2020 suggests that a tax loss harvesting program like this could save between 0.8 and 1.08 percent per year on your portfolio.

Since tax loss harvesting adds complexity to your investment life, I think it only becomes relevant if you have a large – probably multi-million dollar – taxable portfolio. 

At that scale, paying an advisor to generate an additional estimated 0.6 per year on your taxable portfolio may make sense.

A version of this ran in the San Antonio Express News and Houston Chronicle.

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The Capital Gains Tax Cut Proposal – Dead Letter?

About two months ago the Trump Administration floated the idea of a new tax break on income from capital gains, requesting a review by the US Treasury of the idea.1 The tax break would in effect protect investors from having to pay capital gains taxes that result from inflation.

The response from the lamestream media – of which I am a proud member – was swift and condemnatory. “Unilateral Tax Cut for the Rich!” said the New York Times headline. “$100 billion tax cut for the rich” wrote Vox, and “Huge Windfall For The Richest 1%” said The Washington Post. The Times followed up with an Op-Ed questioning its legality, “Trump’s Crony Capitalists Plot a New Heist.”

As a general rule, I enjoy new income tax proposals. They’re fun and instructive. That doesn’t mean I think we should frequently enact new tax laws willy nilly. I just mean that, because taxes are the means by which government leaders most clearly enact their philosophy of what makes for a good society, tax proposals are a great way of figuring out what our leaders care about, and also what we care about.

In reviewing tax proposals, generally we should ask the following questions: Is it practical and enforceable? Does it reward or discourage economic behavior that we want? Is it fiscally prudent? Finally, is it fair? I’m interested in all these questions.

So how would the tax break work?

Capital gains occur when you buy an investment – a business, a stock, some real estate – and then sell that for a gain. If you made a profit of $100,000 on buying and selling your investment, the money you make gets taxed, generally at 20 percent, or $20,000. The proposal would allow you to avoid taxes on the portion of your gains attributable to inflation. But if inflation accounted for half of that $100,000 gain then under this new proposal you’d only owe taxes on half the gain, or $10,000. So yes, this represents a potentially big tax cut.

The tax cuts would be especially beneficial under two scenarios. First, if inflation is high, and second, if the investment is held over a long period of time, such that inflation accounts for a significant portion of the gains. One theory floated by proponents of the tax cut is that wealthy people holding highly appreciated stock, for example, would be motivated to sell if they faced a lower tax bill. Texas Representative Kevin Brady, Chairman of the House Ways and Means Committee is reported to favor this reform, because “I think we ought to look at not penalizing Americans for inflation.”

Beyond those ideas, what’s the main case for this tax break? If you ascribe to the idea that investment and risk-taking is the engine of the economy, then rewarding risk-taking should lead to a more revved economic engine. Lower taxes might mean higher rates of investment, which should mean more economic growth. It’s a theory.

More than a theory, it’s an axiomatic beliefs of Republican leadership, currently in charge of the executive and legislative branches. These beliefs drove the tax changes of December 2017. Larry Kudlow, the top economic advisor to the White House, favors lowering capital gains through inflation-adjustment.

Is it legal?

Critics object to the idea that the US Treasury would enact this inflation-adjustment rule, rather than have Congress pass a tax reform law. Traditionally, constitutionally, the power of taxation resides with Congress. In practice however, the executive branch often leads the charge in proposing changes to tax laws.

What has taken some commentators by surprise is the Trump administration’s proposal that they enact the tax break through executive means. Hence the claims of illegality.

Smaller-scale capital gains on home ownership, small commercial properties, and small businesses – already benefit from targeted tax breaks and tax deferrals like homeowner exemptions and Section 1031 exchanges. Middle-class owners of stocks would tend to own them through tax-protected IRA and 401(k) retirement accounts. so would not pay capital gains taxes, and would not benefit from this change. This proposal seems specifically calibrated for larger-scale investments and the wealthiest taxpayers.

So is it fair?

This is where societal context matters the most, at least to me.

This proposal, theoretically sound or not, legal or not, smacks of class warfare from above. Here’s the context.

If we started from a relatively equal society then I’d be open to the theory of juicing investment through a targeted capital gains tax break. That’s not where we are.

The trend of the last 30 years has sharply increased inequality.

An estimated 65 percent of the gains from the 2017 tax law change will go to the top 20 percent of earners, who will benefit from the drop in corporate tax rates.

The Washington Post – citing a Wharton School study – found that 86 percent of the estimated $100 billion tax cut over the next 10 years would benefit the highest earning 0.1 percent of Americans, the top one-in-a-thousand wealthiest folks. $95 billion of the $100 billion tax cut would benefit the highest earning 5 percent of Americans. So, yeah, this tax cut overwhelmingly favors the people who are already well off.

We already have an income tax system that greatly favors “capital” over “labor.” What I mean by that is that if you are well off and primarily make money from your money – from investments in stocks, businesses or real estate – you generally pay a 20 percent tax rate on the money you make each year.

When you make money from your labor, however your tax rate increases with your salary but above about $50,000 your tax rate on labor will range between 22 and 37 percent.

Finally, can we afford it?

We are far from fiscally sound. The 2017 tax change is likely to increase the deficit by $1 trillion. By comparison, with a price tag of only $100 billion over ten years, this proposal is only a small bad thing, but definitely not a move in the right direction.











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  1. This week, President Trump floated the idea of yet another tax break, although Congress – the folks who write tax laws – claims it has no idea what he’s talking about

Clinton Proposal on Capital Gains Tax: I Like It

hillary_stormbornI’ve written before about carried interest taxes, estate taxes, and real estate tax policy using the contrasting lens of what is ‘fair to me,’ (typically, If I don’t have to pay it, it’s fair to me) versus what is ‘fair to society,’ (My attempt to take the broad view, even if it hurts me personally.)

Another common way of thinking about tax policy – today’s way – would be to think specifically about what behaviors the policy would encourage and discourage.

Now, I understand you may resent the idea that Big Brother imposes its will on you via tax policy. I don’t have a big problem with it myself. The way I figure it, behavior-modification is one of the main things that determine good or bad tax policy.


My state and local governments already discourage me from using tobacco and gasoline through targeted sales taxes on those products. The federal government discourages me from working for a living through income tax policy. In addition, the federal government encourages me to be born into a wealthy family via the $5.43 million estate tax exemption.[1] All of these behavior modifications are just part and parcel of tax policy, forming part of what we use to think about what makes for a good or bad tax.

Democratic Party candidate Hillary Clinton recently proposed behavior modification through changes in the capital gains tax.

I expect I’ll have plenty of critical things to say in the future about Clinton as she moves from candidate to President, but I actually dig this proposal.

Before getting into her tax proposal, however, I’m troubled by the insufficiency of the title I just used, “Democratic-Party candidate.” Because she is far, far more important than that title implies.

Can we instead go with something like “Hillary Stormborn, First Lady of the House of Clinton, Democratic Senator from New York, Secretary of State, Encourager of Benghazi Jihadists, Webmaster of, Queen from Across the Narrow Sea, First of the Andals, and Unburnt Mother of Dragons?”


I think that about covers all of her past experiences accurately, no?

Anyway, back to tax policy.

Clinton’s campaign proposes capital gains tax changes for the highest income tax bracket that would step down each year that an investor holds securities.

Currently, taxpayers in the highest tax bracket pay 39.6% in taxes on gains for securities held less than a year, and 20% for holdings held longer than that. Taxpayers in lower tax brackets currently pay their regular income tax rate for holding securities less than a year, then 15% for anything held longer than one year.

Clinton’s proposals would incrementally lower the capital gains tax rate on the highest taxpayers, for each year that those investors hold securities. The tax rate on capital gains would drop to 36% by year 2, then step down to 32%, 28%, 24%, and finally to 20% by year 6.

clinton_capital_gains_proposalHave I lost you yet? I’m not trying to. Here’s the deal. If you make a lot of money each year, the Clinton proposal would encourage you, via tax incentives, to hold on to securities for a long time horizon, of at least six years or more.

This behavior modification tax has two explicit targets. The first target is investors, who would be rewarded for holding stocks for six years or more. If investors find they can lower their taxes by holding stocks for a longer amount of time, they likely will approach stock ownership with a greater emphasis on long-term wealth creation.

The second target is public-company managers.

“It’s time to start measuring value in terms of years – or the next decade – not just next quarter,” she announced in her speech proposing these changes, according to the Wall Street Journal.

Longer-term investors, the idea seems to be, will encourage longer-term thinking among the management of public companies. Without the pressure to perform on a quarterly basis, maybe, public companies will avoid short-termism in their decision-making.

By the Clinton campaign’s own telling, the capital gains tax modification would not raise much additional federal revenue.

One reason is that her proposal only affects investors already in the highest tax bracket, earning above $464,850 for married couples, or $411,500 for singles, or somewhat fewer than 1% of all income earners in the United States.

The second reason this would raise limited revenue is that many investors hold a majority of their investments in tax-protected accounts such as IRA and 401Ks, Investors do not need to pay taxes on capital gains on securities held within these accounts.

So again, the entire point of this is behavior modification, not revenue generation. If you already hate behavior modification via tax policy, you’re not going to like this idea as much as I do.

Since I feel so strongly that the correct time horizon for equity investments falls somewhere in the range between five years and forever, I think Clinton’s on to something good here in encouraging a six-year minimum holding period for securities, via tax policy.

One criticism I have of the proposal is that it doesn’t apply to the bottom 99% of earners. Since the point here is behavior modification of both investors and public company managers, I don’t see why the rules wouldn’t equally attempt to modify their behavior as well.

Everybody should have a six-year-or-greater time horizon with their investments, so everybody should be subject to the rule.


Please see related posts on taxes:

Can we have an adult conversation about income tax policy?

Real estate tax – Agriculture exemption rant

Carried interest tax rant #1

Carried interest tax rant #2

Estate taxes


[1] Think about it: Heavy taxes on income if you work to earn it, but a tax free $5.43 million if it comes from Daddy!

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The View From The Fiscal Gorge

fiscal gorgeHappy Fiscal Gorge[1] Day!

Guess who’s really happy from last night’s tax deal? Heirs, financiers, and people who live off their piles of money.

Guess who’s not saddened by the Fiscal Gorge tax deal? The top 2% of earners that Obama spent his campaign promising would pay a larger share of federal taxes if he won.

Let me explain what I mean.

All along this Fiscal Cliff discussion our leaders have focused our attention on top marginal tax rates and top income thresholds for taxing ordinary income, as if that was the most important way to raise revenue while simultaneously addressing growing societal inequality.[2]  The sticking point in discussions, at least in so far as most media followed it, appeared to be whether top income earners would pay the existing 35% income tax rate or Obama’s preferred 39.6% income tax rate, and where in the range between $250K and $1million in income that higher rate kicks in.

Why do wealthy folks celebrate the Fiscal Gorge?  Just this:  If you’re Sheldon Adelson[3] you really couldn’t care less about ordinary income.  What matters most are estate taxes, dividend taxes, and capital gains taxes.  Adelson makes $1 million a year in ordinary income, now taxed at a higher rate.  No big deal.  He makes billions of dollars in dividends and capital gains, now permanently taxed at 20% for Adelson.  Now that’s a big deal.  Now that’s cool.[4]

Did you notice what happened to those taxes?

Estate Tax: The estate tax exemption rises to $5 million, up from the $1 million it would have been without a Fiscal Cliff deal, and up from $675K when George W. Bush came into office.  The tax rate on inheritance locks in at 40%, down from 55% at the beginning of the Bush Administration.  Throughout the Bush administration the estate tax exemption stepped up each year or two, and the estate tax rate stepped down every year or two.  Under the Obama administration, with the new Fiscal Gorge law passed, the W. Bush-era generous estate tax rates become permanent. Richie Rich is so happy.

Dividends Tax: If you were Sheldon Adelson – which you are not, but let’s pretend you were – right now you would be celebrating a Happy New Year because you just took a special dividend payout in December 2012 from Sands Casino of an estimated $1.2 Billion, based on your ownership of 431.5 million shares and a declared dividend of $2.75 per share.  Adelson took the dividend in December fearing that his 15% dividend tax rate might rise to something like the 35% or 39.6% ordinary income tax rates, which would cost him close to $300 million in additional taxes in 2012.  He needn’t have worried.  The Fiscal Gorge law makes a 20% dividend tax rate permanent for folks in Adelson’s income range, a pillar of the Bush administration’s tax cuts.  The dividend rate stays at the 15% rate for those earning less than $450K.

Capital Gains Tax – This tax rises from 15% to 20% under the Fiscal Gorge law.  Given that top earners and top wealth holders benefit substantially from capital gains, the permanence of this change represents another victory for Bush-era tax cuts.

My logical mind tells me that political leaders and the media underplay the importance of these taxes because, firstly, they only somewhat affect the highest earning 10% of American citizens, and secondly, these taxes only substantially affect the highest earning 1% and above.  So the majority of the electorate and the majority of the media-consuming public doesn’t really know or care about these taxes.  It’s only logical they would ignore those taxes that are irrelevant to the majority of people, right?

My more paranoid mind[5] tells me that it’s convenient for political leaders on both sides of the aisle to ‘hide the ball’ when it comes to tax discussions because you can enact a devastatingly effective ‘win’ for Republicans while at the same time allowing Obama and the Democrats to point to higher marginal taxes on ordinary income as if they scored something important.

They didn’t.  They got rolled, at least when it comes to tax policy.

When it comes to spending, of course, they delayed any cuts in government spending.  Which I suppose makes Democrats feel smug as well.[6]

Which leads to the larger critique and larger structural issue highlighted by the Fiscal Cliff process.

  1. The Fiscal Cliff was an invented political crisis technique – which managed to hold the economy hostage – to force compromise and hard, responsible, fiscal choices from elected leadership.
  2. The resulting Fiscal Gorge law, in the end, involved no significant compromise.  Republicans got overwhelming tax cuts, permanently enacted, and Democrats got all their desired spending continued for a little while longer.  So we got the crisis, but no real compromise.  Thanks guys, awesome job.
  3. It’s easy to cut taxes.  Everyone’s happy.  It’s also easy to spend a lot of money because, again, everyone’s happy.[7]  The hard part is cutting spending or raising taxes, the two things required to, you know, pay our extraordinary debts.
  4. Hard choices like raising taxes or cutting spending require compromise and long-term thinking, of which we received no evidence of either throughout the Fiscal Cliff crisis.


One additional point about tax policy and my use of Sheldon Adelson as an example of a wealthy citizen.

I pick on Sheldon Adelson because, in the new era since the Supreme Court’s Citizens United decision, which allows for unlimited campaign contributions as a First Amendment-protected ‘free speech right,’ Adelson represents the paragon of a stated willingness – and most importantly ability – to use money to tilt the political process in his favor.  Multiples of those same campaign contributions then return to him through favorable tax treatment.

Adelson has become – for me at least – a short-hand way of pointing out a glaring structural flaw in our electoral democracy.  I’ve got no particular animus against his wealth accumulation, and I really don’t blame the guy personally for pursuing his self-interest as he understands it.  But we haven’t figured out a way to prevent, for the sake really of systemic integrity, guys like him from tilting the table too far in their favor.

While acknowledging that I’m re-stating the incredibly obvious, I like to talk about Sheldon Adelson simply because he’s my way of showing we’re light on the whole ‘checks and balances’ thing when it comes to the influence of money in politics.

[1] My friend “The Professor” who recently wrote a guest post about Sheldon Adelson, deserves credit for the “Fiscal Gorge”, which naturally follows when you go over the Fiscal Cliff.  The actual name for the legislation passed yesterday by the House and Senate to address the Fiscal Cliff is The “American Taxpayer Relief Act of 2012.”

[2] I know, we don’t talk about growing inequality in a straightforward way when discussing tax policy.  But that is clearly what Obama had in mind when he campaigned on raising taxes on people who make more than $250,000 a year.  Yes, it would have a small effect on fiscal solvency, but it would have a larger effect on our notion of what’s fair in an increasingly unequal society.  One simple illustration of the increase in inequality in the United States is captured by the picture of the historical increase in the US’ Gini Coefficient measuring income inequality from 1947 to 2007.

[3] Obviously I’ve written about him already, but he’s an incredibly convenient stand-in for wealthy Americans and their successful capture of the political process.

[5] What!?  You don’t have multiple voices in your head debating tax policy at all times?  Am I over-sharing?  Why won’t you answer me, damn it?

[7] Which reminds me of one of my favorite Jack Handey quotes: “It’s easy to sit there and say you’d like to have more money. And I guess that’s what I like about it. It’s easy. Just sitting there, rocking back and forth, wanting that money.”

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Adult Conversation About Income Tax Policy

With the Fiscal Cliff1 looming, kids, it’s time for “The Talk.”

By ‘The Talk,’ I mean yank our minds into the grown-up world.  We have been innocent about how money really gets made, and kept, and taxed.  The ‘adults’ know, but they haven’t felt comfortable sharing the real truth.  We didn’t know, and we didn’t think we could talk about it.  It seems embarrassing for some reason.  Almost dirty.  Maybe it’s the way we were brought up.  Nevertheless, now’s the time for ‘The Talk.’

Here it is in a nutshell: The way the ‘grown-ups’ – our elected officials – set tax policy tells us how they value different ways of making money.  They see three different ways to make money, and they clearly favor the first two.

Inherited Money

According to our tax code it turns out the very best way to make money is the old-fashioned way:  Inherit it.

As of this writing, the first $5 million from a deceased individual can pass to you tax free.  Our elected leaders want you to know that the best way to get rich is to be born into a rich family and have the right people die at the right time.2

Stated that way, it seems a bit un-American, no?  A bit, well, aristocratic.  Nevertheless, that’s far and away the best way to earn your first $5 million.  Our leaders want you, Richie Rich, to have your first $5 million tax free.3  Mwah!

Make money with your money

The second best way to get wealthy, according to the tax code, is to already have a lot of money, and then earn money on your money.

If you already have a lot of money, then a significant proportion, probably a majority of your income, will come from three sources: Tax Free Bonds, long-term capital gains on your investments, or corporate stock dividends.4

The best of these investments, tax wise, is Triple Tax Free municipal bonds, which are exempt from local, state and federal income taxes.  You earn just about 0.5% interest5 these days, but if you’ve got $100 million in triple tax free muni bonds then you’ve got yourself $500,000 a year, tax free!  That pays for quite a few golf outings a year, with money left over for the lobster roll at the club and a tip for the valet.

The next best way to make a living from your investments, according to the tax code, is to buy and hold stocks for at least 18 months before selling at a profit, so that your earnings will be taxed at a rate of only 15%, the long-term capital gains rate.

Should you be so fortunate as to start out in life with a massive stock portfolio, your elected officials say to you: “Good Job!  That’s an excellent way to make a living!  Let us incentivize you to earn the majority of your living by having your pile of money do all the work, while you join that swell municipal bond fellow at the club.”

The third best way to earn money from your money is to hold stocks for at least 60 days, thereby earning qualified dividends, likewise taxed at a comfortable 15% rate.6

I interpret all of these three tax policies combined as our elected officials’ way of saying that the next best way of making a living – after being born into a rich family – is to sit around like Scrooge McDuck investing money, and only paying 0% and 15% on one’s income.7

Mitt Romney’s 14% effective tax rate in 2011 derives from this tax advantaged way to ‘earn’ a living, just as your elected officials would like you to.

Working for a living

The ‘grown-ups’ who make tax policy tell us this is the worst way to make money.  You see, if you work for a salary, that income is liable to be taxed at the maximum income tax rate.

If you can make less than $35,350 a year, fine, they’ll tax you at a 15% rate.

But over that, you’re looking at 25%, 28%, 33%, or up to 35% for those making over $388,351.  The lesson of the tax code is that people who actually work for a living, rather than inherit from Daddy or live like Scrooge McDuck, should be taxed the most.  “Working for a living?” they taunt us, “that’s for chumps!  Tax that man at the maximum possible rate!”

That’s “The Talk” about our tax policy which creates better and worse ways to make money in this country.  No, Virginia, there is no Santa Claus, but there is a Richie Rich and a Scrooge McDuck.  And our elected officials just love them!





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  1.  Is it weird that I love the sound that the phrase ‘Fiscal Cliff’ makes in the mouth?  Its poetry, really.  To mangle a bit of Nabokov:  “Fis.Cal.Cliff.  Taking a trip of three steps through the split fricative to tap front teeth, at three, on the lower lip.”
  2.  Yankees owner and billionaire George Steinbrenner famously died in 2010, the one year in recent memory during which the Estate Tax was wholly repealed.  George was worth an estimate $1.1 Billion, so the fact of the Estate Tax repeal in 2010 made the Steinbrenner heirs $500 million richer than they would have been had he died in 2009, as the estate tax rate was 45% of inherited wealth that year.  As a Red Sox fan, I’m just so happy for those boys, Hal and Hank.  It couldn’t have happened to a nicer family.
  3. We will hear, or we should hear, quite a bit about the estate tax in the coming weeks, as the limit exemption on tax-free inheritance reverts back to $1 million and a 55% rate in 2013, if Congress does not take action. “Death Taxes on Small Businesses” is how one political side always describes the Estate Tax, but that’s mostly a load of bull.  The real implication of the estate tax is to what extent our leaders signal that the best way to get $5 million is to be born into the right family.
  4. If you’re not making any money through tax free munis, long term stock holdings and dividends, well then you can just skip to the third section, you working stiff.  Our elected officials can’t be bothered with you, if you can’t take a hint about how to make money.  Jeez.
  5. On 5 year municipal bonds, for example.
  6. The low 15% ‘qualified dividends’ tax incentive ends in 2012, unless Congress acts to extend or modify it, as Congress did, with Obama’s approval, in 2010.
  7. The other great advantage to being Scrooge McDuck from a tax perspective, is that – unlike a working-stiff salaryman – you can choose what year to harvest stock market gains.  Scrooge McDuck can end up with virtually no taxable income in any given year should he choose to sell no appreciated stock.  Or Mr. Duck can match up investment losses with investment gains to have no net taxable income, or even to trigger a tax refund.  In a related story, did you know Mitt Romney got a $1.6 million tax refund last year?