Is It Unamerican To Have An Optimized Fiscal Setup?

By: ispeculatornew
Date posted: 01.31.2012 (6:00 am) | Write a Comment  (4 Comments)

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I know, this might not be the most “popular” post, and I’m far from a Mitt Romney fan, believe me. That being said, am I the only one that finds it a bit over the top to criticize him for paying 15% of taxes. He’s not the one that put in place tax incentives and tax breaks. Sure, you could blame him for voting against repealing those tax breaks while being in favor of others. Clearly, guys like him are probably not the ones that should be able to escape tax increases in the coming years.

That being said, if possible, please set aside that part of the debate. Let’s only talk about the fact that there is outrage all over the country over the fact that Mitt Romney has been paying less than 15% of taxes on his income in the past 2 years despite being in that “1% group”.

It’s sad to say but there are countless ways to legally avoid paying taxes. With the internationalization, it is becoming much easier for companies to pay almost no taxes as has been discussed in some of my previous posts. As individuals become richer, their income and tax situation can easily become similar to what companies are able to do. I’m not saying it’s fair but it’s the way things are. Until we admit that fact, we’ll be stuck arguing on details. Are there solutions? Yes. But they’re not easy at all.

Mitt Romney is paying less than 15% on his taxes. What does that prove? That he was smart enough to get help to legally diminish the amount of taxes that he paid.

Wouldn’t You Do The Same?

I mean honestly, if you have 2 stocks, one that pays high dividends and another that will accumulate capital gains, you’d be smart to put the one that pays dividends in a tax deferred account such as a 401K or a RRSP (in Canada). That would be the smart thing to do. Trying to get all possible deductions that you are allowed under the tax code is also SMART.

I mean seriously, when is the last time you passed on a deduction in order to do “your fair share”?

“Yes, But He’s Rich”

That would be the common argument. Sure, Mitt Romney is rich. But chances are that you are also much richer than the average American. At what point should you “stop looking for ways to improve your bottom line”? I’m not talking about acting illegally or anything like that. At what point? When you make $50,000/year? 100K? 200K? $1 million? There is no clear answer of course.

Mitt Romney Has Many Issues To Defend

However, I don’t see paying few taxes as being one of them. It simply proves that he is smart and plays by the rule.

Tax Efficiency Is Too Often Overlooked

I personally think that being tax efficient is critical over time and makes a huge difference. Why so many investors spend tons of time on asset allocation, commissions, fees for funds/ETF’s and other areas without even spending a few hours to optimize their tax expenses blows me away. It can end up making a tremendous difference.

Any thoughts on all of this? Am I way off in your opinion?

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  1. Comment by Nate — January 31, 2012 @ 6:55 am

    I think your thesis is valid but your first example may be a little confusing.

    You state, “if you have 2 stocks, one that pays high dividends and another that will accumulate capital gains, you’d be smart to put the one that pays dividends in a tax deferred account such as a 401K or a RRSP (in Canada)”

    Is that always the case? I think the choice depends on an investor’s specific tax situation/jurisdiction. For example: Ontario taxpayer, income $41k: marginal eligible dividend tax rate is 3.77%; capital gains 12.08%. Same taxpayer, income $133k: dividend rate 29.54%; capital gains 23.2%. [rates via].

    If I was (heaven forbid) the $41k earner, it’s not so clear that putting the dividend earning stock into the tax deferred account is the right choice…

    That being said, I would agree with you 100% that people should think about the correct structuring of their portfolio with respect to taxation.

  2. Comment by John Hunter — January 31, 2012 @ 9:46 pm

    I don’t think Romney is to blame for his tax rate. We choose to have a system where the richest pay the lowest tax rate. This has been said over and over again for over a decade. We chose to elect people that make this happen. Romney’s rate is the result of our decisions in electing people that believe the rich should have the lowest rate (unless they are just complete idiots, because that is what you would have to be to keep voting for this system and not understand that basic trait of the system).

  3. Comment by Sam — February 3, 2012 @ 12:42 am

    The point isn’t that he pays such a low rate. The point is that he in the past worked with lobbyists to push the carried interest loophole and he is campaigning on a tax plan that would cut those taxes even further while raising taxes on the poorest people in the country.

  4. Comment by IS — February 6, 2012 @ 7:58 pm

    @Nate – Agreed yes, I was trying to make a point but that would change depending on each person’s situation and where they are. My point was that so many do not pay attention to fiscal impacts of the way they invest.. Thanks for pointing that out!

    @John – Agreed yes, the system is broken and Romney is one that benefits from it

    @Sam – I understand what you mean and that would be a whole other debate, I do think that would make for an interesting post at some point in the future:)

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