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  • bjspokanimal bjspokanimal Nov 28, 2012 5:34 PM Flag

    Understanding the "double taxation" of dividends

    At last January's State of the Union address, the president seated Warren Buffett's secretary in the front row. The reason he did was because he wanted to make a point... a point that would rely on the fact that 95% of americans don't understand the concept of, the "double taxation of dividends"...

    ... in fact, a neanderthal on this bulletin board doesn't either... and he obviously voted.

    In his speech, Mr. Obama emphasized that Warren Buffett's secretary paid taxes of almost 20% of her income, while Mitt Romney paid less than 15% tax on total income that dwarfed hers. It sounded unfair... and it played perfectly on the ignorance of the average american voter.

    For the 5% of americans that understand the concept, read no further. For the other 95%, here is how it works:

    When Warren Buffett pays his secretary, he is able to "deduct" her salary as a "payroll expense". Thus, Mr. Buffett calculates his taxable income by first deducting his payroll expense, and only pays taxes on the remainder. His secretary pays 20% tax on her income so that, in essence, is the only tax that was paid on Mr. Buffett's revenue that was attributable to her salary.

    When a corporation that Mr. Romney owns stock in decides to distribute some of it's profits as a dividend to Mr. Romney, it must pay taxes on that income BEFORE it distributes the dividend... and that tax maxes out at the highest corporate tax in the world... 35%. When Mr. Romney receives it, he must then pay tax on the dividend he receives, at up to 15%. Together, Mr. Romney and his corporation ends up paying a tax that can amount to as much as 50% of the income the corporation earned. Because BOTH are taxed on it, it's essentially "double taxed".

    Again, for the neanderthals:

    Warren's secretary: 20%... Warren himself: 0%... total at both levels: 20%.
    Mitt Romney: 15%... Mitt's dividend paying corporation: 35%.... total at both levels, up to 50%.

    Mr. Obama wants to widen the gap in 2 ways:

    1. Tax dividends as "ordinary income", making the top rate 35% for the dividend receiver.
    2. Raise the top bracket to 39.6% plus the Obamacare surcharge of 3.8% for a max bracket of 43.4%.

    Under Obama's proposal, the max tax on earnings distributed as dividends would be 43.4% at the individual level plus 35% at the corporate level for a total max rate of 78.4%... which compares to just 20% that Warren Buffett and his secretary collectively pay.

    Mr. Obama's speeches typically say that he thinks the wealthy should pay "just a little bit more"...

    ... anybody who thinks a total tax rate of almost 4 TIMES what Buffett and his secretary pay is "just a little bit" should have their intelligence evaluated accordingly.

    Hope this helps... at least for those on this board with an ability to read and understand how it all works.

    Spok

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    • When Warren Buffett pays his secretary, he is able to "deduct" her salary as a "payroll expense". Thus, Mr. Buffett calculates his taxable income by first deducting his payroll expense, and only pays taxes on the remainder. His secretary pays 20% tax on her income so that, in essence, is the only tax that was paid on Mr. Buffett's revenue that was attributable to her salary.

      When a corporation that Mr. Romney owns stock in decides to distribute some of it's profits as a dividend to Mr. Romney, it must pay taxes on that income BEFORE it distributes the dividend... and that tax maxes out at the highest corporate tax in the world... 35%. When Mr. Romney receives it, he must then pay tax on the dividend he receives, at up to 15%. Together, Mr. Romney and his corporation ends up paying a tax that can amount to as much as 50% of the income the corporation earned. Because BOTH are taxed on it, it's essentially "double taxed".

      Again, for the neanderthals:

      Warren's secretary: 20%... Warren himself: 0%... total at both levels: 20%.
      Mitt Romney: 15%... Mitt's dividend paying corporation: 35%.... total at both levels, up to 50%.

      Mr. Obama wants to widen the gap in 2 ways:

      1. Tax dividends as "ordinary income", making the top rate 35% for the dividend receiver.
      2. Raise the top bracket to 39.6% plus the Obamacare surcharge of 3.8% for a max bracket of 43.4%.

      Under Obama's proposal, the max tax on earnings distributed as dividends would be 43.4% at the individual level plus 35% at the corporate level for a total max rate of 78.4%... which compares to just 20% that Warren Buffett and his secretary collectively pay.

      Mr. Obama's speeches typically say that he thinks the wealthy should pay "just a little bit more"...

      ... anybody who thinks a total tax rate of almost 4 TIMES what Buffett and his secretary pay is "just a little bit" should have their intelligence evaluated accordingly.

      Hope this helps.

      ***

      Excellent post. Lemmings are easily swayed to vote for the candidate the lib media makes popular while piling on the candidate who actually had good ideas for resurrecting the economy -- unfortunately, the majority of the voting public is stupid and can be manipulated by race (vote black), abortion scare tactics or immigration promises. America is in decline. Very sad.

 
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