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Reading various social media sites it strikes me how uninformed so many people are about money and economics. No, I’m not being a snob. I make no claim to expertise on either subject, but I do make an effort to obtain a basic understanding and check facts before I comment or initiate a post.
Billionaires and the wealthy are frequent targets. Did you know billionaires pay lower taxes than middle class taxpayers? They pay only 8% according to some sources or that’s what many people choose to believe. The problem is that is based not on earned income, but the unrealized growth in net worth (investments). No matter, it plays well for people who believe they are over-taxed despite the fact the effective federal tax rate for the bottom 50% income wise is 3.7%.
I often ask if people pay taxes on the growth in their 401k or IRA before withdrawals. I’m told that’s not the same, yup it is.
But one comment stated “thanks to the Tax Act of 1986 which requires us to pay tax on unrealized gains in mutual fund holdings.” I checked that and could not find any such thing. I never paid taxes unless I received a 1099 and I received the cash or it was reinvested.
Try and posit the relationship between tariffs, interest rates and tax cuts with inflation and deficits and you are besieged with denial.
I covered Social Security perviously so I’m not going there again, but the misinformation remains monumental.
Taxes too have been covered extensively on HD by me and others, but I am still struck by the number of people who see no need for taxes (especially property taxes), no apparent understanding of their connection with schools, and community services.
I often think of the likely reaction if a value added tax (VAT) is proposed as is used by European countries. 😱 Yikes, what about raising the FICA?
i don’t want to cast a pall on this subject, but like a lot of things that are wrong with our society and culture, you cannot fix the problem.
If you could collect a panel of 100,000 people who represented a true cross-section of US population in terms of age, gender, race, ethnicity, wealth, intelligence etc, and who would be willing to honestly answer questions about what they believe on a wide range of topics, you would find every wild, crazy, even idiotic idea represented within the group. From thinking that the world is flat, that the government is hiding little alien green creatures somewhere, etc, someone in the group would hold that notion dearly. Furthermore, if you then tried to offer evidence to the group on any of these off-the-wall ideas, you would find the believers in the group very resistant to change.
People believe what they believe, and when they see information that confirms their belief they feel vindicated, and when presented with contrary information they disbelieve that.
Most folks are against government waste and fraud. The problem is that some project that deals with vaccines, is necessary health measure to some, and waste to others. If you think that there is discrimination in the employment of seniors you support spending to address the problem, and if you don’t, it is waste.
You can pick almost any issue, and you will find a wide range of views, even to whether or not the issue is real. Just making a list of such issues would be too political for HD i think…..
From Paul Simon’s “I know what I know”
She looked me over
And I guess she thought I was all right
All right in a sort of a limited way
For an off-night
She said, “Don’t I know you
From the cinematographer’s party?”
I said, “Who am I
To blow against the wind?”
The best story wins. Not the best idea. Not the right answer. Just whoever tells a story that catches people’s attention and makes them feel good. George Packer wrote: “The most durable narratives are not the ones that stand up best to fact-checking. They’re the ones that address our deepest needs and desires.” This drives you crazy if you assume the world is swayed by facts and objectivity because it clearly isn’t.
As I view the various sites I am more overwhelmed each day at the anti-tax comments, the misinformation, the outrageous claims and most of all the failure to see the connection between taxes and the services and programs they pay for.
The worst group seems to be seniors who sincerely believe that making it to 65 somehow gives them a free ride on any obligations.
I think of my four children now all in their 50s. What right do I have to shift an additional tax burdens to them because I paid “my share” for the last 60 years or so?
I know one of my favorite real life examples was a co-worker who wouldn’t work overtime because they thought OT was all taxed at 50% 🤦 Needless to say I had plenty of extra income at that time 😂
I had a number of employees who would not participate in our 401k because someone told them the company used their money.
Amazing. Whoever started that rumor did some serious damage to people’s retirement 😬
I once gave a presentation to a group of workers at a small company we had acquired. I was explaining their benefits. When I explained their cost for health insurance they broke out in yelling and shouting about the costs. The owner of the company stood up and said. “Hellas, that is less than half of what you are paying now”. All was quiet. They didn’t even know what was taken from their paycheck.
But if you actually understand finance and economics, you can do very well. One man’s credit card interest is another man’s bank stock dividend.
Brilliant and true!
Ah, what a compassionate take…
The IRS is a whipping boy for the masses. It is easy to raise the ire of the public with comments about the IRS. Personally, I would like to see stronger enforcement of the tax laws, as long as it is not politically or ideologically motivated. I pay my taxes and want everyone to do likewise. There are too many tax cheats who cause us honest taxpayers to pay more to compensate for their tax evasion.
Tax collectors have always been hated throughout history. The IRS is simply the latest iteration of that centuries long trend.
It probably all started with Zachaeus, the wealthy tax collector from the Bible story found in Luke 19 1:10.
The IRS needs to enter the 21st century to be able to do what it should do but there is little support for that now.
We all pay our taxes both Federal and State/County, but when someone decides to check for fraud and waste, part of the country is in an uproar. This makes less sense to me than those that would rather not pay the tax at all. We all want the maximum impact for our tax dollars, so let’s get that before we send more dollars.
And it seems that same someone decides not to check for fraud by laying off IRS staff.
It is bit misleading to say part of the country is in an uproar about checking for waste and fraud. I take it you are referring to DOGE and the news it has created. I think most are OK with the concept of DOGE. I would argue that the execution has been poor and the claims of saving two trillion were fantasies. I am in an uproar about a lot of things, but cutting waste and fraud is not one of them. I still don’t have a clue what the savings from DOGE are YTD. We may never know.
One of the problems with DOGE is that it is not at all transparent. It has saved billions of dollars, but is it from contracts that were already cancelled or from laying off new hires which creates massive problems in a few years? Also, there is that catch phrase “waste, fraud, abuse”. Which is it? Anyone prosecuted yet? DOGE should be a continuous process. Every administration should be evaluating all programs. Waste is in the eyes of the beholder. Is basic research waste because it does not produce a consumer product? Some of it turns out that way, but you never know.
Waste depends on whether the money goes for research for a specific cancer or to house illegally deported immigrants in a banana republic like El Salvador.
You say this (or something close to it) fairly regularly. It can’t be all that surprising to you. Especially considering the general level of numercy on social media.
So, what makes this phenomenon interesting to you?
“One comment stated “thanks to the Tax Act of 1986 which requires us to pay tax on unrealized gains in mutual fund holdings.” This commenter was likely referring to this:
Per Google AI: “The Tax Reform Act of 1986 didn’t directly mandate that mutual funds distribute 98% of their income, but it did strengthen the rules requiring mutual funds to distribute a large percentage of their income to avoid being taxed at a high rate. This incentivized mutual funds to distribute their income, rather than retain it and pay a 4% excise tax on the undistributed income. ”
Mutual Funds effectively pass through Capital Gains realized in a year to their shareholders, and they are taxable to shareholders in the year realized. This does not impact qualified accounts.
Per Fidelity’s website:
Capital gains distributionsCapital gains distributions are paid by mutual funds from their net realized long-term capital gains and are taxed as long-term capital gains regardless of how long you have owned the shares in the mutual fund.
Mutual funds may keep some of their long-term capital gains and pay taxes on those undistributed amounts. You must report your share of these unpaid distributions as long-term capital gains, even though you did not actually receive a distribution.
Investors receiving 1099-Div forms frequently have Cap Gains distributions in Box 2a that are taxable.
All the talk below is a great lesson in why people should no longer invest new money in mutual funds in their brokerage accounts. Because of how ETFs are structured they have little to no capital gains to be taxed annually. I’ve read explanations of the concept of their structuring, but can’t wrap my head around it.
In addition to index funds generally incurring less in capital gains because of low turnover, Vanguard’s special mutual fund structure, which now can be copied by other firms, allows avoiding most if not all capital-gains distributions. Vanguard’s Total Stock Market Index Fund Admiral Shares (VTSAX) has not paid a capital gain (short-term or long-term) since 2000. In contrast, State Street Core Equity Fund, an active mutual fund that looks a lot like the S&P 500, has dumped huge capital gains on investors in recent years.
I just looked in my Fidelity account and each time there was a long- term capital gain I received the cash and that’s what is on my 1099. What am I missing?
You may be right Rick. Now I’m confused. If I didn’t receive the distribution, I get a 1099 div?
on the 1099DIV, box 2a is the capital gains distribution Rick speaks of. Very common to hear folks say “but I never got anything”. And yes, these numbers are often higher on down years due to profit taking, adding to peoples consternation come tax time.
Mutual Fund taxation is confusing. You likely receive a distribution of dividends based on the income the fund earns. That is reported on a 1099-DIV and is taxable. But funds often buy and sell shares of the underlying stocks in the fund. In doing so they may realize capital gains and losses. By law they pass those gains on to shareholders for tax purposes only. Funds that do a lot of active trading can realize significant gains during the year; this can happen even if the fund is down in a year. I’ve seen 1099-DIV forms with many thousands of $$ of CG that gets taxed at the LTCG rate. It confuses many people who have a tax due because of investment income they were not expecting. Vanguard has a good primer on fund taxation.
So this may not apply to index funds as much?
I think that is correct. Index funds don’t create trade a lot so no big CG gain distributions. For example, Vanguard SP500 fund VFINX had no CG distributions in 2024.Their Wellington fund distributed about 8% of their NAV in late December. So depending on the fund you may see large, or no CG distributions in a 1099. It would be interesting to know what the commenter meant. Per the reference from Fidelity that I posted above, there are some funds that don’t distribute all their CGs as a distribution, but still pass the CG tax liability to shareholders. I want to investigate this some more.
quote Mark Cuban….”I’m happy to send $275 million for my taxes”
I agree 100%. If people were better educated on money, many would not live paycheck to paycheck and would be able to afford to buy a home. My parents were immigrants who came to the U.S. worked hard at minimum wage jobs and they bought a home for cash within three years of arriving. Granted it was a two bedroom row home in Baltimore but they scrimped and saved until they could do it. my mother who knew how to work hard and also manage very well the money that came in was the reason and my father trusted her and her money decisions.
My parents lived P to P all their lives and only bought a house when my father was in his sixties and then only because they shared it with my sisters family.