Should millionaires pay the same % of tax as middle income taxpayers?

[Starcraftmazter]

Correction on my part.

$1000 Grossed up dividend.

$1000 Rent boy.

I'll answer for you, in both cases it is $480

Okey, so do you see my point though? Why do I pay $480 in tax for an amount of money which was already taxed once?

What's next, are they going to tax it a third time when I spend it somewhere?

OH WAIT HAHA THAT'S PRECISELY WHAT THEY DO, HOW SMART OF THEM.

 

[wayneL]

Don't be such an idiot. You said the shareholder's marginal rate is 45%, so if he were to get a dividend of $700 and if he was double taxed, he would pay an additional $315 in tax. But he is only paying an additional $150. Why? Because the NET EFFECT of dividend imputation is that he ends up being taxed as if the company profits were taxed just once at his marginal tax rate of 45%. So, as per your figures, the company paid $300 tax and he paid just $150 tax, which is 45% of the company profits of $1000.

What you in your idiocy is now trying to say is that because the process goes through 2 iterations, company is taxed and shareholder is taxed, that it is double taxation. But the shareholder is reimbursed the company tax paid, so it is not double taxation, just single taxation at the shareholder's marginal rate, as your figures show.

If your issue is that you do not want to have to report dividends received because they are already taxed, then that is not the same as double taxation. The reporting is needed to ensure that the shareholders are taxed at their marginal rate, rather than the company's rate. Individuals are not companies, so they pay their taxes at their respective rates.

Reimbursing the company tax means you are only taxed ONCE, not DOUBLE TAXED.

It is similar in effect to GST, which might go through several iterations before reaching the final consumer, yet the net result is 10% no matter how many iterations (although value is added on the way through).

 

[wayneL]

Okey, so do you see my point though? Why do I pay $480 in tax for an amount of money which was already taxed once?

Oh FFS!

You do not pay $480 on an amount already taxed. You receive $700 because $300 has already been paid. Your additional taxation (or credit as the case may be) is to bring the total tax into line with your marginal rate as an individual.

 

[wayneL]

OH WAIT HAHA THAT'S PRECISELY WHAT THEY DO, HOW SMART OF THEM.

And here is the only point where I concur.

 

[Starcraftmazter]

Oh FFS!

You do not pay $480 on an amount already taxed. You receive $700 because $300 has already been paid. Your additional taxation (or credit as the case may be) is to bring the total tax into line with your marginal rate as an individual.

Why? What does does my company's profit have to do with my marginal tax rate?

 

[wayneL]

Why? Does does my company's profit have to do with my marginal tax rate?

Because dividends are personal income, just like your income from Kings Cross.

If the company retains earnings, they are only be taxed at the company rate.

 

[Starcraftmazter]

Because dividends are personal income, just like your income from Kings Cross.

If the company retains earnings, they are only be taxed at the company rate.

It seems to me that "income" is a magical word that the government slaps onto any money you are capable of receiving so that you get less and they get more (for doing nothing).

My chief difference of opinion is that because the money is already taxed, I do not see why it has to be taxed further. I do not see what benefit or service the government provides in between the point where the company income is taxed at 30% and where it is taxed a further 18% points at the individual level. Do you?

 

[wayneL]

It seems to me that "income" is a magical word that the government slaps onto any money you are capable of receiving so that you get less and they get more (for doing nothing).

My chief difference of opinion is that because the money is already taxed, I do not see why it has to be taxed further. I do not see what benefit or service the government provides in between the point where the company income is taxed at 30% and where it is taxed a further 18% points at the individual level. Do you?

That is entirely another can of worms, perhaps company and individual tax should be closer.

But don't forget company tax is flat, individual tax is progressive.

Would you be happy for instance, if your main income was taxed at the flat company rate?

For all but the highest earning Australians, this would mean a greater tax burden.

 

[bellenuit]

Yes I understand this - but why? How is that fair or logical? I just don't get it. He did not make this money - the company did - and the company was already taxed for it.

Why should he then be taxed so that the total amount of tax is equal to his marginal rate? What is the justification for that?



I agree - individuals are not companies. So why are individuals taxed for company profits? It is nonsensical. I don't see how it's not the same as double taxation. What do you call it?

Basically because the shareholder is a part owner of the company. So what the dividend imputation system is saying is that the portion of profits distributed as dividends is income for the end recipient, the shareholder.

Your example was based on a shareholder who had a marginal rate of 45%, so the net effect is that shareholder paid an extra 15% of the company pre-tax profit so that his portion of pretax profits were effectively taxed at his rate of 45%, rather than the company's rate of 30%. This to you may seem unfair as the company has already paid tax. But for shareholders whose marginal rate is 30% or less, they effectively pay no extra tax (for those on 30%) and actually get additional tax reimbursed for those whose rate is less than 30%.

So, using your example, if a taxpayer was in the lowest tax bracket (0%) and they remained in that bracket after receiving the $700 dividend, they would actually get a tax rebate of $300. The ATO would assess their tax as Other Income + $1,000, tax due is $0, tax paid = $300 (e.g. the imputation credit on the dividend), so they get $300 back. How can you call this double taxation when they are getting an additional tax rebate rather than paying more.

The ATO effectively taxes dividends at the shareholders rate to ensure that the system isn't abused. For example, those on the top marginal rate would abuse the system by only paying the company rate on dividends, rather than their marginal rate. Ditto for overseas investors. It seems pretty reasonable to me and a hell of a lot better than before the dividend imputation system was introduced (than you Paul Keating for introducing it).

You mentioned that the company already paid 30% so why should the shareholder pay more (for those on a higher marginal rate than 30%, as those on less get reimbursed). One reason is you do not want people setting up companies purely as an investment structure to avoid tax. If a 45% marginal tax individual were to set up a company to hold his investment assets, then that person would only pay 30% on dividends received through the company (on your preferred system) than if he held the investments in his own name. That is clearly inequitable and favours those who are wealthier and can afford accounting resources and professional advice. The dividend imputation system ensures that the end recipient receives the same tax treatment irrespective of whatever intermediate structures may exist between him and the investments.

 

[jancha]

Cant believe someone who supposedly has had a good education can be so thick. It has taken how many posts in order to get the gist of it?
I'm glad you brought up the point of getting a rebate on the company tax if your personal income doesn't meet the criteria but what if the following year you made a profit would you then have to pay back the 30% + the 15% from the previous year?

Setting up a company in Singapore to pay 4% tax is just a way of laundering money ( it's illegal) unless your living or going to live in Singapore in the near future the ATO would be looking very hard at you. Risky business.

 

[McLovin]

I don't recall anyone having paid for my degree. Last time I checked, I paid for all of it.

That's pretty dumb. You plan on moving overseas, wouldn't you have been smarter to have used HECS and then once you left you'd never have to pay it back?

I'm glad you brought up the point of getting a rebate on the company tax if your personal income doesn't meet the criteria but what if the following year you made a profit would you then have to pay back the 30% + the 15% from the previous year?

No. It would be like having to return your tax refund.

 

[Chasero]

Your example was based on a shareholder who had a marginal rate of 45%, so the net effect is that shareholder paid an extra 15% of the company pre-tax profit so that his portion of pretax profits were effectively taxed at his rate of 45%, rather than the company's rate of 30%. This to you may seem unfair as the company has already paid tax. But for shareholders whose marginal rate is 30% or less, they effectively pay no extra tax (for those on 30%) and actually get additional tax reimbursed for those whose rate is less than 30%.

@starcraft
Yep, such a great system to capture tax for rich individuals.

Dividends are grossed up by 30/70. Then everyone gets a rebate of the franking credit (30/70).

i.e. if you are on a tax rate >30%, you will be taxed once only as your marginal tax rates are higher.

Everyone earning less than $80,000 in 2011 will be on the 30% tax bracket. Meaning they will get the full franking credit offset.

Everyone earning more than $80,000 will still get the 30% franking credit offset, however since you have grossed up the dividends, a portion will be paid at the 38% tax rate or the 45% tax rate.

These individuals are already rich... pay up!! (they are only paying an additional 8-15% tax anyway due to the imputation system)

I've done tax returns for individuals only having passive income. e.g. have >2m share portfolio.

They should be taxed at 45% no?

Tax is already paid at the company level for dividends, meaning they only have to fork up another 15%. Sounds right to me.

Let's not forget about medicare level +1.5%
And floody levy in 2012 +1 to 1.5%? Means that rich australians are paying tax close to 50% of their taxable income.

Not really fair comparing out system to the U.S.

 

[Starcraftmazter]

That is entirely another can of worms, perhaps company and individual tax should be closer.

But don't forget company tax is flat, individual tax is progressive.

Would you be happy for instance, if your main income was taxed at the flat company rate?

For all but the highest earning Australians, this would mean a greater tax burden.

I would be happy, it only seems fair. Does an individual use more government services if they make more money? Probably not, they are in fact more likely to use private healthcare, private education, private infrastructure, etc. If anything they should pay less tax.

So, using your example, if a taxpayer was in the lowest tax bracket (0%) and they remained in that bracket after receiving the $700 dividend, they would actually get a tax rebate of $300. The ATO would assess their tax as Other Income + $1,000, tax due is $0, tax paid = $300 (e.g. the imputation credit on the dividend), so they get $300 back. How can you call this double taxation when they are getting an additional tax rebate rather than paying more.

This is just a crazy side-effect of the current system, and only shows how insane it is. This side-effect could be removed with the removal of company tax.

You mentioned that the company already paid 30% so why should the shareholder pay more (for those on a higher marginal rate than 30%, as those on less get reimbursed). One reason is you do not want people setting up companies purely as an investment structure to avoid tax. If a 45% marginal tax individual were to set up a company to hold his investment assets, then that person would only pay 30% on dividends received through the company (on your preferred system) than if he held the investments in his own name. That is clearly inequitable and favours those who are wealthier and can afford accounting resources and professional advice. The dividend imputation system ensures that the end recipient receives the same tax treatment irrespective of whatever intermediate structures may exist between him and the investments.

I disagree here, I think it would be great if I could do that in Australia and not have to move to Singapore just so that I can avoid paying tax on money which the government did not earn, and through the taxation of which, it provides me with no services at it's federal level which I require.

That's pretty dumb. You plan on moving overseas, wouldn't you have been smarter to have used HECS and then once you left you'd never have to pay it back?

Who said I have HECS debt? And no it wouldn't be dumb, it would be the responsible thing to do. I didn't ask the government for anything, and I want nothing from them but to go away and leave me free to conduct my private affairs as a private citizen.

These individuals are already rich... pay up!!

Why? Also, I don't consider $80k+ rich in the world's most expensive country, with the world's most overpriced property.

And that's just for a single guy like me. What if you had someone with a wife and 3 kids?

They should be taxed at 45% no?

Why?

Tax is already paid at the company level for dividends, meaning they only have to fork up another 15%. Sounds right to me.

Why?

 

[Ferret]

with the world's most overpriced property.

Wait till you get to Singapore. You'll change your mind on that one.

 

[Starcraftmazter]

Wait till you get to Singapore. You'll change your mind on that one.

I know, but here's the thing - Singapore has a valid excuse for expensive property, the lack of land. Australia does not.

And Singapore makes up for it with extremely low taxes - Australia does not.

 

[wayneL]

I would be happy, it only seems fair. Does an individual use more government services if they make more money? Probably not, they are in fact more likely to use private healthcare, private education, private infrastructure, etc. If anything they should pay less tax.

Ideological considerations aside, it would mean although those on say $200k would pay only $60k in tax, someone on 60k would pay 18k and someone on 30k would pay $9,000.

That doesn't strike me as reasonable for those on the lower pay rates.

Also, the rich do have means to minimize tax which the poorer do not.

Right or wrong, they are the facts.

 

[rumpole]

How much 'risk' to the Clive Palmers & Co actually take ? Mostly they build businesses with borrowed money either from the banks or the shareholders. I wouldn't lionise them for taking risks, they are doing it with your money.

 

[Smurf1976]

Ideological considerations aside, it would mean although those on say $200k would pay only $60k in tax, someone on 60k would pay 18k and someone on 30k would pay $9,000.

That doesn't strike me as reasonable for those on the lower pay rates.

I think that effort expended in order to gain that income also ought to be taken into account somehow.

Eg Person A works 35 hours a week in a well paid job and earns $140K a year.

Person B works 80 hours a week and earns $140K a year.

I'd argue that person B has already made a massive sacrifice in order to earn that money and that, relative to hours worked, $140K is not a high income in that context whereas it clearly is for someone who works 35 hours a week. I think the tax system ought to reflect this (And before anyone says "nobody works 80 hours a week" - I've been there, done that and I'm certainly not the only one).

 

[Glen48]

Every one seem to think a millionaire is rolling in money and living the life of a movie star and by them paying more all the world problems will be solved.

Even if all the millionaires did pay more than their share nothing would change the feds have more money to waste:

I've been in the US for a little more than 24-hours. And having flipped through the TV channels trying to figure out what useless drivel big media is passing off as 'news', I realized that I'm going to vomit if I hear the word "fair" one more time.

This concept of 'fair' seems to be dominating discussion of the US government's dismal fiscal condition. The talking heads say that it's 'fair' for wealthy Americans to pay higher taxes and bail the country out... or that everyone needs to pay his/her 'fair' share.

The whole logic is absurd: you do not 'fix' the country's fiscal imbalances by giving the idiots in charge even more resources to squander... it's like dumping gasoline on a forest fire. Somehow the debate seems to have missed this point.

This 'fair' nonsense is also very dangerous. Just ask any three-year old-- 'fair' is completely arbitrary. It's like a Wiki version morality... if enough people agree on it, it's fair.

In this case, 'fair' is defined in the sole discretion of those who are the direct beneficiaries of confiscating other people's money. But let's look at the numbers:

According to the IRS statistical database, the top 1% of income earners in the United States pays roughly 40% of all US individual income tax. They also get audited at least 5-times more than anyone else. Fair?

The other major complaint seems to be that the wealthy are 'abusing' capital gains rules in order to pay a 15% rate instead of a 35% rate. Duh. That's why they're wealthy, and stay wealthy... they don't WORK for a living, they OWN assets which are subject to capital gains.

It seems so bizarre that a country once regarded as the freest, most economically enviable in the world would treat its productive citizens with such hostility.

This is where Eduardo Saverin comes in. The Facebook co-founder, who finds himself a few billion dollars richer this week, recently renounced his US citizenship. And, to the intelligentsia, it's not 'fair'.

'Saverin needs to pay his fair share! He owes America more,' they whine, completely ignorant that the 30-year old is already forking over a $500+ million exit tax (which may end up in the billions).

Apparently it's not good enough that the company Saverin co-founded has created tens of thousands of jobs, spawned entire industries, and produced oodles of new millionaires. Oh yeah, it's also made things damn easy for the CIA, NSA, and FBI. You'd think Uncle Sam would pin a medal on his chest.

But no. Saverin left behind a lot of value and decided to move on to greener pastures in Singapore. Now the do-gooders in Congress are cooking up new legislation (the EX-PATRIOT Act) designed to permanently bar 'renunciants' like Saverin from re-entering the United States.

It's interesting that, rather than change their ways of doing business and introducing legislation that provides incentives for productive people to come here and stay here, they maintain policies that chase people away, and introduce new ones to lock the door after they're gone.

The lesson here (especially for natural-born citizens) is this: simply by accident of birth, you are born with a lifelong obligation that you never signed up for to finance the corrupt misdealings of the political class. And if you choose to abandon this obligation, they will bar you from ever entering your homeland again.

Regardless of what the propaganda says, this is not how a free society treats people. It might look and feel like a representative democracy on the surface, but under the hood it's the modern day equivalent of feudal serfdom.

The land of the free has certainly fallen a long way.
Until tomorrow,
from Simon Black

turns out MR Saverin has decided to stay ,more fool him when 750 yanks are leaving each day.

 

[Joules MM1]

Super rich hiding up to $32 trillion offshore
Up to $280bn is lost in tax revenues as wealthy individuals park financial assets in offshore tax havens.
22 Jul 2012 16:35

excerpt

The study estimating the extent of global private financial wealth held in offshore accounts - excluding non-financial assets such as real estate, gold, yachts and racehorses - puts the sum at between $21 and $32 trillion.

This amounts to roughly the US and Japanese GDP combined. Roughly 10 million people worldwide have offshore accounts, with 100,000 people owning half of those secreted assets.

http://www.aljazeera.com/news/europe/2012/07/2012722145418435676.html