The Online Investing AI Blog

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Taxation with representation turns out to be pretty bad, too. And Investors and traders have enough to worry about in the taxation categories. They also have enough to complain about.

There’s capital gains tax and income tax for starters.

Then, there’s the ever-controversial double taxation of dividends.

According to an article from Yahoo, governments are just getting warmed up and while investors won’t necessarily bear the brunt of most of these taxes, they won’t escape them either.

In the ever-expanding need to buoy struggling governments, politicians are discovering some weird ways to bring in money.

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Business Strategy, Investing, Money, Online Investing AI, US Economy depression, Great Depression, income tax, Money, recession, revenue, taxes, wealth

Most people are so used to paying income tax that they never think about it. Well, actually most people complain about it, but they are unaware of how new income tax actually is.

This country was actually founded to escape from excessive taxation. “Taxation without Representation” was the motto. And, America did not have any income tax until 1913. But those days when independence was highly valued are over. Now, it’s best for the government if people pay taxes without protest and make no effort to reduce them.

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Money, US Economy government, income tax, independence, taxation, united states

Can you imagine the following scenario:

You go to the bank with a couple thousand bucks and you decide you’ll open up a certificate of deposit. You ask the teller, “What’s the interest rate for my account?”

“Oh, zero.”

“The interest rate is zero?” you ask again, incredulously.

“Right. Zero. Nada. Null. Nothing. None. El Zippo.”

Then the teller adds, “We keep your money for a year and then we’ll give it back to you.”

If you’re smart, you’ll leave the bank and this surreal scenario in quick order. But, actually, in real life, most people do the very same thing when they treat their tax return as some sort of annual magic windfall. In truth, they just gave a no-interest loan to the government.

But, people who don’t have the discipline to save, use it almost like a Christmas club account. And, when they receive the check, they sort of act like mini-lottery winners; they waste it.

There’s a simple reason how this no-interest loan became a financial tradition.

Most people don’t want to end up owing the government money in one lump sum at the beginning of the new year. And, most people don’t want to trust their interpretation of the rather extensive tax code to figure the right saving amount to cover their tax liabilities.

Some tax experts suggest that you have your employer deduct the minimum amount necessary. Then, take advantage of every legal deduction you may qualify for. Then, each month, set aside an amount in an interest-bearing account that would cover any possible amount you might owe. (One way to do this is to take last year’s return and divide it by 12. Save that amount each month.)

If you can do this, you can be both a good citizen and a smart investor.

This is the third post in a series about financial myths that make you poor. For more information, you might want to read the previous article in this series. It’s called: Myth: Falling Markets Threaten Your Wealth.

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Investing, Money, Online Investing AI, US Economy government, income tax, IRS, no interest loan, return, savings, tax, tax day, taxes

I don’t mean to turn this blog into a political soapbox, but I think there have been some issues missed by the media, who seem always to boil down arguments to the simplest and most divisive denominators. So, I thought I would explore.

By now, we all have met Joe the Plumber. Joe says that a tax hike on people making over $250,000 would hamper his ambitions to expand his company.

But there’s a more direct impact of new tax plans. I call him–and her–Joe and Josephine Investor. Capital gains and dividend tax increases will be levied against all investors, not just rich ones. For those who reinvest dividends, the tax is a triple whammy. Corporations are taxed. Their dividends are taxed. And then when the money is re-invested, this is taxed as “income,” although technically it’s not being used as such.

In other words, taxing investment income will hurt all investors, not just the rich it’s aimed at.

The middle class investors, who are hoping to one day rely on his trading and investment incomes to become financially independent, would find the barriers to that entry perhaps not stopped, but hindered.

So, maybe they could take solace in the fact that this money would be redistributed to help the nation’s poor. After all, we’re constantly told that the wealthy are getting wealthier and the poor are getting poorer. The government would use this money to “spread the wealth around.”

Unfortunately, a quick look at the statistics suggests that this isn’t true. Tax receipts have steadily climbed with economic expansion, right along with this “income gap” between rich and poor. Similarly, the budget–and, despite this increase in funding, the deficit–have rapidly increased.

From this, we can deduce that the real problem doesn’t seem to be redistribution of wealth, but that the redistributors, i.e. the government, aren’t doing such a great job. In fact, they’re doing a lousy job.

The solution, I feel, isn’t to increase taxes.

An initial solution is to move beyond looking at the economy as a zero-sum game between classes and unleash the exponential investment power of the entire population. The wealthy have become wealthier in large part due to the investment choices they have. The poor and middle class don’t have the access to exponential-type investments, like hedge funds and private equity firms.

This will take improved education and better investment vehicles (which we’re trying to work on).

Obviously we need to remove the middle man (or middle bureaucracy) from the equation; or at least improve the redistributors. Investing directly into people might be a start. Whether it’s a corporation or a web of government agencies, mindless bureaucracies have less of a chance to improve conditions like wealth disparity, but direct investment and individual action will.

Business Strategy, Dreams Come True, Investing, Money income tax, Investing, redistribution, tax, taxes