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Taxes on the rich

A quick thought on the idea of taxing people earning over $250,000 per year. I am not a tax expert by any means, so I can only cover this at a high level. However, there are some things that stand out.

Question -- if a person has their money placed in a trust fund, does that individual "earn" money? For example: the Kennedy's, the Rockefellers, Bill Gates, etc. Are they earning money or is their trust fund earning money?

Also, Warren Buffet makes money on the stock market or other investments (as do most of the others mentioned above and/or their trust funds).

Question: What impact does raising the income tax have on investments?

Answer: None. Investment income is taxed only when you sell the investment and then it is taxed at the Capital Gains tax rate which is a lot lower than the income tax rate.

Look at the big dollar figures that CEOs either make or walk away with when they retire or are fired. Is that a pile of income? No, it is all in stock or stock options that are cashed in. None of that is taxed at the income tax rate.

So Barack Obama's suggestion that he is going to soak the rich is not really true. Not unless he raises the Capital Gains tax -- which is really not a good idea when the stock market is tanking.

The people who really are affected by rising income tax rates are those individuals who own small businesses -- the self employed, the Limited Liability Corporations, and the Subchapter S corporations. For those people, the income of the company is treated as individual income and subject to the individual income tax.

The pressure will be on those people to find more tax dodges to reduce their apparent income and increase deductions and credits, or to cut costs of the company -- buy less stuff or lay off staff, neither of which is good for the economy.

If I am wrong on any of these points, I very much invite correction. As I said, I am not a tax expert.

Don't do anything I wouldn't do, and if you do, don't get caught!

Ken

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