What's up taxes, it's graham here so normally i don't talk about topics that could get politicized or taken out of context, but i got ta say there is so much confusion and misinformation surrounding some of the new proposals aimed at taxing the rich that i want to Set the record straight coming from the perspective of someone who this directly impacts on almost every single level. In the last week there have been multiple new announcements about eliminating retirement account contributions, increasing tax brackets, adding a surcharge on personal incomes and taxing stock buybacks. To help offset the cost of the three and a half trillion dollar infrastructure package, and i have to say there are several items on here that i think absolutely makes sense. While others leave me scratching my head wondering how on earth did anyone think that would be a good idea and don't worry, even though i'm gon na break down every single proposed change here and its impact on the entire economy? I do not go into politics.

I don't take sides, i just look at the facts: analyze the data behind them in terms of how it impacts everybody. And then i let you come to your own conclusion. Although before we talk about the expectations for taxing the rich and how excited i am that taco bell is testing out a new subscription service, it would mean a lot to me if you could come to your own conclusion to tax that, like button for the youtube Algorithm by paying it a gentle tap doing that helps me out tremendously, and if i see this video topic do well, i'm more likely to make others like it in the future. So thank you guys so much now with that said, let's begin alright! So before we talk about the major shortcomings throughout the entire tax system and why look like a talking head? Let's first talk about the rich throughout most of these proposals.

This is defined as an individual or a household earning more than 400 000 a year, and they make up 1.8 percent of the us population. The central argument is that this group benefited the most throughout recent history and because of that, they should pay a higher tax to help fund the programs that benefit the rest of the population and, from an objective point of view, they aren't exactly wrong. The federal reserve reported that since 1990, the top one percent of household wealth saw the largest increase across all brackets, and this group also experienced the highest wage growth across all incomes. However, before we dive into the new taxes being outlined, the potential impact for everybody, it's important to differentiate between the terms, income and wealth, because when it comes to taxes, the two are far from being treated equally, when you hear the word income, this refers to money.

Being earned from your labor, a job dividend, payments, rental, income or any other money, that's actively deposited to your bank account, but wealth, on the other hand, is calculated by the value of the assets you own, like a house stocks, artwork, collectibles and anything else. That might go up in value over time and in this case, it's just as possible to be high income living paycheck to paycheck, as it is to be totally jobless while sitting on a portfolio worth a hundred million dollars and growing. I think that's really important. To mention, because when it comes to these tax policies, income is the main point of discussion, and even though a wealth tax has been floated around for these last few months.

Today we should focus on the most burning topics of discussion and that would be the elimination of what's called the backdoor roth ira contribution, and i hate to say i told you so but two months ago i said this the biggest risk right now to the roth Ira is most likely going to be the elimination of the backdoor roth ira contribution which allows high income people to get around the income limitations congress - hey if you're watching this. I would at least hope that you get your free stock down below in the description. That's worth all the way up to a thousand dollars when you use the good gram anyway. For those unaware, roth ira is really just a retirement account that lets.

You contribute up to six thousand dollars a year of after-tax money and then anything you make within that account is completely tax-free after the age of 59 and a half but there's a bit of a problem see the roth ira was originally set up to help the Middle class save for retirement and because of that, there are income limitations as to who can and cannot get the tax-free benefits. Well: here's where things get interesting, there's a loophole that allows you to get around those pesky income requirements by contributing to a traditional ira first, which doesn't have an income limit and then immediately converting that to a roth and voila. You can now contribute to a roth ira, regardless of how much money you make. However, this new proposal would close the loophole by disallowing roth conversions after december 31 2031, and they would also disallow mega back door roth ira contributions, regardless of how much money you make.

Essentially, this would enforce the current limitations in place and make sure that no one is able to contribute to a roth ira if their income is above that threshold and you would be limited in terms of how much money you're able to contribute. As far as my own thoughts on this on the surface, i get it the roth ira income restrictions never made much sense to me, given how simple it was to get around. It was basically the equivalent of locking the front door of a house, but leaving the side door wide open for anybody to use. But calling for this loophole to be closed in 10 years is basically just an open invitation for as many people to use it and pack away as much money as possible until then, at which point there's plenty of time for future lawmakers to change it back.

I can only assume the reason for this is because they generate a significant amount of tax revenue up front on roth conversions, so they'd, rather not miss out on immediate tax revenue and instead just push it off as a future event and to me that doesn't make A lot of sense to do, but it is what it is, although it doesn't just stop there. In fact, this is the very beginning, and there are some other restrictions we got ta talk about as well. In addition to closing out the roth ira backdoor contributions, congress also wants to eliminate accredited investments from being placed within an ira and, if you're confused here's what this means and why this could be such a big deal. Like i mentioned earlier, the roth ira was originally set up to help the low and middle class save for retirement, so it would make sense that investments held within this account would be available for anybody right.

Well, not quite some private non-publicly traded companies could raise capital by issuing stock to accredited investors who either have a net worth above a million dollars or make more than 200 000 a year. Why well the sec determined that private companies who are not openly registered and regulated are riskier investments than those available in the open market and because of that, they have a high potential of one day being worth absolutely nothing. So, by placing a net worth and income limitation on these investments, the sec is ensuring that average everyday people don't buy into investments where they have a high chance of losing at all. But given the high risk high reward nature of these companies, accredited investors are able to buy them and place them within their roth iras so that if they eventually go public bam, they're worth a mini fortune, and all of that is tax free.

This is exactly how peter thiel was able to accumulate a 5 billion fortune within a roth ira. All started from a 2 000 investment in paypal when the company was first founded. So, under these new rules, if an investment requires you to be accredited in order to participate, it's no longer going to be allowed within a roth ira. In addition to that roth ira accounts who currently hold these investments would lose their tax-free status, meaning they would have to get them out of the roth ira over the next two years.

At the end of the day, i do think it's a reasonable request, but it might be tricky to retroactively, apply this to past investments without grandfathering them in. After all, imagine you spent the last 25 years holding on to an investment, growing, a tax-free and then all of a sudden. You owe a tax based on a brand new rule, even though you followed everything to a t in the past and finally, if the total value of your ira accounts are above 10 million dollars, you would be required to withdraw 50 of anything above that amount. If your income is higher than 400 000 a year, in addition to that, if the total value of your ira is more than 20 million dollars, you would be required to set up a distribution plan to bring the total back down to 20 million dollars.

So they're. Basically, suggesting that you need to withdraw 50 of anything above 10 million dollars each year and 100 of anything above 20 million dollars each year in an effort to put a hard maximum on the amount of money that could be sheltered from attacks. They also aim to eliminate, what's called self-dealing, which means you invest in a company that you own, a portion of. As of now, it's legal to invest company shares in a roth ira that you own 50 or less of but under this new provision.

That would be adjusted down to 10 for investments that are not tradable on an established securities market, regardless of whether or not the ira owner has a direct interest or not so overall, if this were to pass, they would aim to keep the roth ira only available For the people it was intended for, with broad investments only available to the general public, i would say for the vast majority of the population. This is not going to make any difference to you whatsoever, but it certainly does set the precedent that if these changes could be retroactively applied at what points could these thresholds be lowered to the point where eventually it impacts you, although in terms of other potential changes, There's more right now there's a proposal to increase the top tax bracket from 37, where it is now back to the previous thirty nine point: six percent for incomes above five hundred and twenty three thousand dollars a year according to the tax foundation, this aspect of biden's Proposal would raise about 110 billion dollars over the next decade. In addition to that, the top capital gains tax rate would be increased from 20 to 25, which would likely apply to incomes above 445 000 a year. This would also include a 3.8 investment sur tax for incomes above a million dollars a year, which would put the total capital gains tax rate at 28.8 percent.

Now. What i actually found really interesting was that previously the tax foundation conducted a study and they found the optimal capital gains tax rate to be 28. They found that this was the point to maximize cooperation and tax revenues without just causing people not to sell or try to find loopholes, and this new rate is said to generate an additional 123 billion dollars over the next 10 years and finally incomes above 5 million. A year would be subject to an additional 3 sur tax, bringing the total top federal tax rate to more, like 42.6, plus any state or local taxes, which would push that even higher on a broader scale.

Part of this tax aims to implement a 2 tax on stock buybacks, which is generally used to boost the price of company stock. For those not aware, if a company has excess profit, they could usually do one of three things. They could invest that money back into the business. They could issue a dividend to all their shareholders or they could buy back their stock, which incrementally increases the price of each share.

It would be no different than a 100 stock, paying a one dollar dividend, or not paying a dividend and using that money to buy back their shares and increase the price of the stock to 101, in both cases, you're still gaining that exact same one dollar worth Of growth, but in the case of stock buybacks you're not taxed up front on that one dollar worth of growth until you sell and that is what's coming under fire. Over the last 10 years, companies have engaged in a record amount of buybacks as a way to increase the price of their shares and generate a tax efficient return to investors. But a new proposal would charge a two percent tax on stock buybacks in an effort to encourage companies to reinvest that money back into their workforce. Instead, however, the tax foundation analysis argues that anytime, a company has more cash on hand than they reasonably know.

What to do with they either hold on to it or return that value to shareholders. In this case, companies make investments within themselves and their workforce first and when no other options are available, they then use that cash to buy back their shares, helping out investors, not the other way around, not to mention if the capital gains taxes were increased to 25 Stock buybacks would actually lead to more tax revenue as share prices rise, so you would almost want to encourage more stock buybacks, because that leads to more taxes or if you tax, stock buybacks, then companies would be more inclined to issue a dividend instead and that kind Of just defeats the purpose so either way, it's probably not the best attempt to increase taxes, if that's the main objective. As far as my own perspective, for whatever that's worth, i find most of these policies reasonable now i'll be honest. As an investor, the 25 capital gains tax seems to be a little bit aggressive because just like an onion, there are layers to rich people, and i don't really think people understand the varying levels of magnitude when it comes to wealth.

Just consider this when most politicians and headlines lump everyone together in the top one percent tax, the rich person category, if you're doing a massive disservice by placing a very diverse group of people together that when you zoom in have very little in common with each other. For example, in most of these policies, the person earning 400 000 a year is treated the exact same as somebody else earning 500 million dollars a year, but just for reference. If each of these dots represents a hundred thousand dollars a year. This is a person who the media calls rich, but there are several hundred people who make more than 50 million dollars a year in wages alone.

And when you put that side by side, you realize just how big of a number that really is. But don't get me wrong, i'm not dismissing the significance of 400 000 a year, but the difference between that and 50 million dollars a year is the exact same difference between someone earning a thousand dollars and a hundred and twenty five thousand dollars. Let that sink in the most difficult part of my end is that we very much have a growing disparity between the rich and the poor that was exacerbated by a k-shaped recovery that brought to light a lot of issues. Unfortunately, as a result of that, it seems like there's this narrative that rich people are greedy, that they're extracting as much value as possible from everybody else and they're otherwise demoned for taking something that could have belonged to somebody else, although i have to say with money.

It's never a zero-sum game. One person making a dollar is not always at the expense of somebody else losing a dollar and for the vast majority of transactions you are either paying or getting paid for providing a skill or service not taking at the expense of somebody else. This applies whether you're earning 30, 000 or 30 million dollars, unless, of course, you're running a ponzi scheme, in which case that's bad. But really, i think, a lot of the mistrust towards the rich is a totally separate topic from whether or not each tax bracket pays their fair share.

I've seen some people mention the fact that 60 percent of us households paid no federal income tax in 2020. Will the top 10 percent pay 70 and have also seen articles about how rich people pay a lower tax rate than their secretary, but much of that comes down to wealth being treated differently than income and what your net worth is tied to unrealized company stock. That fluctuates in price by the minute that makes it impossible. The tax same also applies to capital gains as an investment, even though it seems odd that this tax rate would be lower than earned income when you break it down even further you're investing money that you've already been taxed on into a volatile investment without any guarantee Of a return on your money, while inflation eats away at the higher value, while you pay tax again when you sell so even though i'm in favor of higher taxes, i do think that two things need to happen.

One. Let's separate the people earning four hundred thousand dollars a year from the other people, making 40 million dollars a year and two there should be a higher progressive tax policy that raises these percentage points over time. Depending on how much money you make not to mention the reality is no matter how much we tax the rich, we spend so much money as a nation that it's barely gon na, make a difference and that's not to say what's the point, why even bother, but Until we more efficiently spend our resources, it'll be like filling up a leaky bucket with water. That'll constantly need to be replenished even more and more and more, and that's why i don't think we're going to be able to fix our problems with just taxes alone.

I really believe that financial education is probably the best weapon against poverty, and the more people know about personal finance, the better - or at least that's just my take on things. But you know what we've gotten too serious here. Let's lighten up the mood, because taco bell is now testing out a new 30-day taco subscription across arizona to gauge customer interest if you're local and want to try it out. Let me know how it is because i would hope one day they bring this to las vegas.

So with that said, you guys thank you so much for watching. I really appreciate it as always make sure to destroy the like button. Subscribe button and notification bell also feel free to add me on instagram, and i got a brand new financial app down below in the description. It's called the hungry bull, it's totally free, it's something.

We've been working on for well over a year now it's got a daily newsletter. You could track all of your stocks and cryptocurrency on there. So if you want to be a part of it, the link is down below in the description where you could also get your free stock worth all the way up to a thousand dollars when you use the code, gram on public enjoy all of that free stuff. Thank you so much for watching and until next time,.