Manchin Drives a Dagger Through the Heart of Another Hare-Brained Biden Scheme

[mystery-ak]

Manchin Drives a Dagger Through the Heart of Another Hare-Brained Biden Scheme

by Kyle Becker
about 13 hours ago

Senator Joe Manchin (D-WV) has consistently proven to be a nemesis to the Democrats’ radical agenda. The West Virginia centrist has refused to sign onto the ‘nuclear option’ of ending the Senate’s filibuster rules, thereby halting such extreme measures as the Democrats’ planned federal takeover of U.S. elections.


On Tuesday, the senator put an end to Biden’s proposed tax on millionaires’ unearned income, which has been roundly criticized by tax experts and by the administration’s critics.

Biden’s plan was projected to raise $360 billion in revenue by imposing a 20 percent minimum tax on billionaires. The president formally unveiled the measure in his budget request to Congress on Monday.

The Hill reported that “Manchin says he doesn’t support the president’s plan to tax the unrealized gains of billionaires, which would set a new precedent by taxing the value an asset accrues in theory before it is actually sold and converted into cash.”

“You can’t tax something that’s not earned. Earned income is what we’re based on,” he told The Hill. “There’s other ways to do it. Everybody has to pay their fair share.”

“Everybody has to pay their fair share, that’s for sure. But unrealized gains is not the way to do it, as far as I’m concerned,” he added.

more
https://trendingpolitics.com/manchin-drives-a-dagger-through-the-heart-of-another-hare-brained-biden-scheme-knab/

[catfish1957]

On Tuesday, the senator put an end to Biden’s proposed tax on millionaires’ unearned income, which has been roundly criticized by tax experts and by the administration’s critics.

I am thinking this is just a pause in the socialist wealth confiscation plan.

I was dying to know how the dims were going to get the regulated citizens to do ongoing annual worksheets, to calculate these unrealized gains.  Just think how much longer it's gonna take to prepare that 1040.

How about in the case of a farmer who with 160 acres may have a captital base of $800K- $2M.  So when his real estate rises in annual value, how is he going to pay tax on the incremental gains, when he may be scrimping a decent but meager profit on his crops.

And thirdly how was this going to interphase with existing captial gains laws.  Will they go full stupid, and double tax gains at sale?

One thing I was very suprised is that the dims didn't insist that Estate Tax exclusion wasn't dropped back down from present $11M back to the old days, of $1M

These stupid democrats can't think for  more than one step at a time.  Help us all.

[SZonian]

So if my 401k takes a hit like it has been thanks to this clownshow, do I get to claim the capital losses?

[catfish1957]

So if my 401k takes a hit like it has been thanks to this clownshow, do I get to claim the capital losses?

Haven't seen the details, but like I have mentioned on other threads, you are only allowed to carryover $3K of capital losses annually, and carry over $3K per year till complete.  I have a habit of disposing of dogs, when they start underperforming.  Thus, that $3K is perpetual fixture on my Sch. D.

Also realize that when you take a distribution from your 401K (pre-tax contributed part) , it generally won't be a capital gain, but a full taxable distribution.  The IRS just loves double-taxing you.

[Kamaji]

So if my 401k takes a hit like it has been thanks to this clownshow, do I get to claim the capital losses?

No, for the simple reason that, unless the 401(k) is a Roth account, or contains after-tax contributions, you have no cost basis in the account and therefore no deductible loss.

[catfish1957]

No, for the simple reason that, unless the 401(k) is a Roth account, or contains after-tax contributions, you have no cost basis in the account and therefore no deductible loss.

I get a cost basis in my pre-tax 401k (and post tax) insert every quarterly statement.  Unless your account  was with a bankrupt, or defunct company, that data probably resides somewhere.

Which is one of the reasons I am wildy squawking.  Depending...  theoretically the IRS could tax you for unrealized gains, and later tax you again  fully on distributons.  UNLESS, they change the tax laws, and only retroactively up to the amount up that the new requirement invoked.  Can you imagine the record keeping nightmare of doing that? 

[Kamaji]

I get a cost basis in my pre-tax 401k (and post tax) insert every quarterly statement.  Unless your account  was with a bankrupt, or defunct company, that data probably resides somewhere.

Which is one of the reasons I am wildy squawking.  Depending...  theoretically the IRS could tax you for unrealized gains, and later tax you again  fully on distributons.  UNLESS, they change the tax laws, and only retroactively up to the amount up that the new requirement invoked.  Can you imagine the record keeping nightmare of doing that? 

You only get cost basis in your 401(k) to the extent that you have after-tax contributions in there, either because it was a Roth account, or because after-tax contributions were allowed to remain in it for whatever reason.

It's not unheard of, but the typical 401(k) that consists only of pre-tax contributions by the employee and matching pre-tax contributions by the employer, will not have a cost basis greater than zero for the owner of the account.

The underlying investments are probably reported to you at cost - i.e., there is a basis in those underlying assets - because that is good accounting by the custodian, but that cost basis doesn't give you any benefit because (a) the account itself is not subject to tax on its gains (and cannot deduct its losses), and (b) the inside basis doesn't affect the tax treatment of distributions you receive from the account, which are typically treated as ordinary income and are subject to the normal graduated rates that apply to ordinary income and not the lower rates that apply to long-term capital gains.

And that was the basic principle behind the tax-exempt treatment of qualified plans - allowing the individual to forego current income taxation on the contributed amounts, which would have been taxed at the ordinary rates, in exchange for taxing the distributions as ordinary income when ultimately distributed.

[catfish1957]

You only get cost basis in your 401(k) to the extent that you have after-tax contributions in there, either because it was a Roth account, or because after-tax contributions were allowed to remain in it for whatever reason.

It's not unheard of, but the typical 401(k) that consists only of pre-tax contributions by the employee and matching pre-tax contributions by the employer, will not have a cost basis greater than zero for the owner of the account.

The underlying investments are probably reported to you at cost - i.e., there is a basis in those underlying assets - because that is good accounting by the custodian, but that cost basis doesn't give you any benefit because (a) the account itself is not subject to tax on its gains (and cannot deduct its losses), and (b) the inside basis doesn't affect the tax treatment of distributions you receive from the account, which are typically treated as ordinary income and are subject to the normal graduated rates that apply to ordinary income and not the lower rates that apply to long-term capital gains.

And that was the basic principle behind the tax-exempt treatment of qualified plans - allowing the individual to forego current income taxation on the contributed amounts, which would have been taxed at the ordinary rates, in exchange for taxing the distributions as ordinary income when ultimately distributed.

Agree with your premise.  Because in our present tax world, pre-tax contribution cost basis is pointless, since distributions are fully taxable.  But.....   what we are seeing from the democrats seems to be counter to our normal thinking.  And since my company for some reason does provide a cost basis for my pre-tax contributions, the IRS with our companies help, could come up with some way to determine how to tax it.

No one is releasing the details of this plan as far as I know, so we really don't at this point what the dims have up their sleeves.

[Kamaji]

Agree with your premise.  Because in our present tax world, pre-tax contribution cost basis is pointless, since distributions are fully taxable.  But.....   what we are seeing from the democrats seems to be counter to our normal thinking.  And since my company for some reason does provide a cost basis for my pre-tax contributions, the IRS with our companies help, could come up with some way to determine how to tax it.

No one is releasing the details of this plan as far as I know, so we really don't at this point what the dims have up their sleeves.

I'm not sure what the point of the question is.  Assuming arguendo that tax-advantaged plans like 401(k)s were still around, there would be no need to subject them to a new tax regime because the entire amount is taxable as and when distributed.  Basis is irrelevant.

If, for some reason, the treatment was hybrid, so that contributions were still pre-tax, and gains were taxed on a mark-to-market basis within the fund, then only a portion of the distributions would be taxable when subsequently made, because the taxation of the accruing mark-to-market gains would give you a basis in the account (assuming that the tax on those gains was imposed on the account holder).

But most of this is beside the point because the main thrust of Bidet's proposal is not to go after 401(k)s, but to go after the accruing but unrealized gains in assets that are held long-term in a regular investment portfolio.  The basic premise is to put affected individuals onto a mark-to-market regime for their investment assets, so that they have to pay tax (at ordinary rates) on the gains that have accrued during the year in their investment portfolio.

Where the whole proposal would get really hairy would be if they tried to extend that sort of a regime to non-traded assets - i.e., assets for which a market value at year-end is not readily determinable - because that would require extensive use of valuation experts to provide opinions as to value.

[IsailedawayfromFR]

No, for the simple reason that, unless the 401(k) is a Roth account, or contains after-tax contributions, you have no cost basis in the account and therefore no deductible loss.

I would never bank on that Roth account being tax-free when taken out.  That is the law now, but that can always be changed and you just get snookered.  One reason I will not do Roths.

[DefiantMassRINO]

20% of what?  Unrealized gains.  Do they get tax deductions or credits for unrealized losses?  What the market giveth, the market also taketh away.

[catfish1957]

20% of what?  Unrealized gains.  Do they get tax deductions or credits for unrealized losses?  What the market giveth, the market also taketh away.

That's the crust of the whole deal, it seems the dims are sllnging socialist mud, and we have no details on the matter.

[Kamaji]

20% of what?  Unrealized gains.  Do they get tax deductions or credits for unrealized losses?  What the market giveth, the market also taketh away.

The article linked in the OP is a bit unclear.  It's my understanding that there are two salient proposals being made.  One is to impose a minimum 20% tax on the income of billionaires - which would probably involve denying them the foreign tax credits that have been available almost since the income tax was enacted - and the second is to tax billionaires on the unrealized gains in their assets.

The second would affect the first in practice, but logically they are two distinct proposals.

With respect to the proposal to tax unrealized gains, it would probably end up being something like the mark-to-market regime that a taxpayer who owns marketable shares of stock in a PFIC can elect to apply to those shares under IRC 1296.  Basically, market gains that have accrued during the year are reported as taxable income, and market losses that have accrued during the year are allowed, but only to the extent that the taxpayer has previously reported unrealized gains with respect to the asset that is now giving rise to the loss.

So, for example, assume an affected individual buys a stock for $100 on January 1 of Year 1.  If the market value of that stock is $150 at the end of Year 1, then the individual would report $50 of unrealized gain income for Year 1 and would pay tax on it (most likely at the ordinary rates).  That should result in the individual having an adjusted cost basis in the stock of $150 at the end of Year 1/beginning of Year 2.  If, at the end of Year 2, the stock's value has dropped to $130, then the individual would probably be allowed to claim a loss of $20 for Year 2 since the individual's cumulative net inclusions for all prior years are $50.  This loss would most likely (under current principles) be treated as an ordinary loss, not a capital loss.

If, at the end of Year 3 the stock had further declined in value to $90, then the individual would be allowed to claim a further loss of $30, because that is equal to the amount of prior-year unrealized gains the individual had previously reported as income.  The remaining $10 of loss would not be allowed.

If, however, the individual were to have actually sold the stock for $90 during Year 3, then the individual would be allowed to claim the loss of $30 as recapture of previously reported unrealized gains, and - depending on the policy choices actually made - would then have a further $10 loss which would most likely be characterized as a capital loss and therefore subject to the $3,000 limitation on capital losses that exceed capital gains for the year.

Basically, the system would be unfair.  It would tax an affected individual on all of the gains in his assets at ordinary rates, not at the lower capital gains tax rate, and would only allow actual capital losses to the extent those losses either offset other capital gains, or allow them to offset up to $3,000 of unrelated ordinary income.

[IsailedawayfromFR]

The article linked in the OP is a bit unclear.  It's my understanding that there are two salient proposals being made.  One is to impose a minimum 20% tax on the income of billionaires - which would probably involve denying them the foreign tax credits that have been available almost since the income tax was enacted - and the second is to tax billionaires on the unrealized gains in their assets.

The second would affect the first in practice, but logically they are two distinct proposals.

With respect to the proposal to tax unrealized gains, it would probably end up being something like the mark-to-market regime that a taxpayer who owns marketable shares of stock in a PFIC can elect to apply to those shares under IRC 1296.  Basically, market gains that have accrued during the year are reported as taxable income, and market losses that have accrued during the year are allowed, but only to the extent that the taxpayer has previously reported unrealized gains with respect to the asset that is now giving rise to the loss.

So, for example, assume an affected individual buys a stock for $100 on January 1 of Year 1.  If the market value of that stock is $150 at the end of Year 1, then the individual would report $50 of unrealized gain income for Year 1 and would pay tax on it (most likely at the ordinary rates).  That should result in the individual having an adjusted cost basis in the stock of $150 at the end of Year 1/beginning of Year 2.  If, at the end of Year 2, the stock's value has dropped to $130, then the individual would probably be allowed to claim a loss of $20 for Year 2 since the individual's cumulative net inclusions for all prior years are $50.  This loss would most likely (under current principles) be treated as an ordinary loss, not a capital loss.

If, at the end of Year 3 the stock had further declined in value to $90, then the individual would be allowed to claim a further loss of $30, because that is equal to the amount of prior-year unrealized gains the individual had previously reported as income.  The remaining $10 of loss would not be allowed.

If, however, the individual were to have actually sold the stock for $90 during Year 3, then the individual would be allowed to claim the loss of $30 as recapture of previously reported unrealized gains, and - depending on the policy choices actually made - would then have a further $10 loss which would most likely be characterized as a capital loss and therefore subject to the $3,000 limitation on capital losses that exceed capital gains for the year.

Basically, the system would be unfair.  It would tax an affected individual on all of the gains in his assets at ordinary rates, not at the lower capital gains tax rate, and would only allow actual capital losses to the extent those losses either offset other capital gains, or allow them to offset up to $3,000 of unrelated ordinary income.

Some comments:

1.  A lot new IRS agents would need to be employed to keep track of the added complexity of estimating wealth and ensuring taxpayers adhered to the new, much more complex rules.

2. 7-10% inflation would be a bonanza for the tax collectors in a wealth tax grab as your assets would have a higher dollar amount, but be in inflation-adjusted terms be worth far less.  Winner is only the tax collectors.

3. The unrealized gains would most certainly be taxed, but I would be skeptical on counting on unrealized losses being used to offset income.

Reason?  Same rationale I do not trust the govt to recognize tax-free withdrawals from Roths.  A new law can take away  that tax-free treatment at the drop of a hat, even make it retroactive.

[DefiantMassRINO]

Mark-to-Market accounting accelerated the 2008 deflationary death spiral.  I trust it will be different this time.

[Kamaji]

Some comments:

1.  A lot new IRS agents would need to be employed to keep track of the added complexity of estimating wealth and ensuring taxpayers adhered to the new, much more complex rules.

2. 7-10% inflation would be a bonanza for the tax collectors in a wealth tax grab as your assets would have a higher dollar amount, but be in inflation-adjusted terms be worth far less.  Winner is only the tax collectors.

3. The unrealized gains would most certainly be taxed, but I would be skeptical on counting on unrealized losses being used to offset income.

Reason?  Same rationale I do not trust the govt to recognize tax-free withdrawals from Roths.  A new law can take away  that tax-free treatment at the drop of a hat, even make it retroactive.

I see no reason to be skeptical that losses would not be allowed; however, I believe that they would use the existing paradigm of the PFIC rules - which a number of American taxpayers are already familiar with - to frame out the mark-to-market system, and there losses are only allowed to the extent of previously included MTM gains.

[IsailedawayfromFR]

I see no reason to be skeptical that losses would not be allowed; however, I believe that they would use the existing paradigm of the PFIC rules - which a number of American taxpayers are already familiar with - to frame out the mark-to-market system, and there losses are only allowed to the extent of previously included MTM gains.

You have a lot more confidence in the DC critters than do I.

Best to remove one's assets as far away from their grubby hands as one can.

And I do recall that at one time not all that long ago that income received on Social Security was not taxed either for that matter and then, lo and behold, taxes were imposed that gradually got bigger and bigger.......

[Kamaji]

You have a lot more confidence in the DC critters than do I.

Best to remove one's assets as far away from their grubby hands as one can.

And I do recall that at one time not all that long ago that income received on Social Security was not taxed either for that matter and then, lo and behold, taxes were imposed that gradually got bigger and bigger.......

Why shouldn’t social security payments be taxed?   They are income, after all, and since they aren’t means-tested, they go to poor and wealthy alike. 

[IsailedawayfromFR]

Why shouldn’t social security payments be taxed?   They are income, after all, and since they aren’t means-tested, they go to poor and wealthy alike.

Because when Social Security was first passed into law, it was stated it was a means of providing individual economic security.

To impose income taxes on it defeats that objective.

Also and more importantly, removing any taxes on it was the only way Congress was able to approve its passage.

The goalposts have been moved by them, once again.

And it will do so once again on other items passed as tax-free such as Roths or IRAs/401ks.

[Kamaji]

Because when Social Security was first passed into law, it was stated it was a means of providing individual economic security.

To impose income taxes on it defeats that objective.

Also and more importantly, removing any taxes on it was the only way Congress was able to approve its passage.

The goalposts have been moved by them, once again.

And it will do so once again on other items passed as tax-free such as Roths or IRAs/401ks.

The underlying problem is that it isn't means-tested.  Taxing it is, in effect, a backwards way of means testing it - if the recipient has sufficient other income, then that person's social security benefits are also subject to tax.  I don't see the problem with that.

[catfish1957]

The underlying problem is that it isn't means-tested.  Taxing it is, in effect, a backwards way of means testing it - if the recipient has sufficient other income, then that person's social security benefits are also subject to tax.  I don't see the problem with that.

In most cases, anyone has any kind of income prodcuting savings retirement  will be paying tax on 85% of the SS benefit.  So at least in my eyes, social security is pretty much a tax on something already taxed.  Governemnt has gotten really good at that.

[IsailedawayfromFR]

The underlying problem is that it isn't means-tested.  Taxing it is, in effect, a backwards way of means testing it - if the recipient has sufficient other income, then that person's social security benefits are also subject to tax.  I don't see the problem with that.

You went right past the answer that you were looking for.

Congress moved the goal posts.

[Kamaji]

You went right past the answer that you were looking for.

Congress moved the goal posts.

No, Congress reconsidered a policy that was providing an unintended windfall to people who did not need social security.

[Kamaji]

In most cases, anyone has any kind of income prodcuting savings retirement  will be paying tax on 85% of the SS benefit.  So at least in my eyes, social security is pretty much a tax on something already taxed.  Governemnt has gotten really good at that.

Well, since there is a finite supply of money, and the velocity of money means that the entire supply gets recirculated several times a year, then everything has already been taxed multiple times, so the entire system is systemically unfair.

[IsailedawayfromFR]

No, Congress reconsidered a policy that was providing an unintended windfall to people who did not need social security.

That is BS.

Congress could only pass SS to begin with as it promised that it would not be taxed.

There would never have been a law authorizing SS if that would have been the plan to begin with.

Go back to what you were originally seeking:  Congress's proclivity to change the rules on taxing.

This is an example pure and simple.

You call it 'reconsidered'. I call it moving goal posts.