The "Bush taxing teens" issue. Gimme your insights.

[MercutioATC]

It seems to me that what we're talking about here is taxing investment income earned by 14-17 year-olds.

I realize there are exceptions, but isn't the vast majority of "investment income" earned by 14-17 year-olds the result of parents putting money into investments in their children's names as a way to avoid taxes?

Aren't the vast majority of the people who have the resources to do this the very same people we'd call "the wealthy"?

Aren't we pissed about "the wealthy" getting so many tax breaks?


It appears that this is the closing of one of those "tax loopholes for the rich" that most here oppose to vehemently. Isn't that a good thing?

[lindisfarne]

1. Have you read up on the issue?

see this thread: http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x2297572

Lots of parents who aren't above the "middle" of the middle class are putting money into college funds for their kids ...
and doesn't it only apply if you sell investments? (granted, sometimes it makes sense to sell and re-invest; not sure if 529s provide special treatment for such sales; i guess the lesson is: sell before the kid is 14?)

"The $69 billion tax cut bill that President Bush signed this week tripled tax rates for teenagers with college savings funds, despite Mr. Bush's 1999 pledge to veto any tax increase.

Under the new law, teenagers age 14 to 17 with investment income will now be taxed at the same rate as their parents, not at their own rates. Long-term capital gains and dividends that had been taxed at 5 percent will now be taxed at 15 percent. Interest that had been taxed at 10 percent will now be taxed at as much as 35 percent"
http://www.nytimes.com/2006/05/21/washington/21tax.html?_r=1&oref=login

[MercutioATC]

2. I have, and I don't see 529s being applicable.

Money put into 529s wouldn't generate any "investment income" that I can see. Is there any evidence that 529s are an issue here?

[lindisfarne]

3. In any case, the NY Times mentions college savings funds (perhaps not

529s are affected). But college savings funds are (as I said before though, these taxes should only kick in if investments are sold, no? So don't sell them while the kid is 14-17. Wait until they're 18). I've thought of setting up something for my niece and nephew - although the tax headaches for their parents would be big. (529s are often *not* recommended as the best college savings approach because their fees eat up a lot of their increases in value).

[elehhhhna]

6. Beware Unioted Gift to Minor act Accounts, regardless of percieved

& now gone tax benefits: when the kid's 18, they can legaly claim it all. Period. If they want to buy a Harley or join the circus versus going to college, it's their money. Careful.

[Yupster]

7. Agree elehhh

In Texas it's 21 when the kid gets the money no questions asked, but I agree you should be very careful what money you put in an UTMA account. For many young people, giving them $ 40,000 on their 21st birthday might be no favor to tem at all.

This seems to be the type of account the story is talking about, and UTMA acounts are absolutely NOT college savings plans.

The 529 wouldn't apply to this law as investment income is ot taxed year to year in a 529.

BTW, the 529, college savings account is only apt until 2010 I believe. It's a tax cut that does need to be made permanent in my opinion.

Whenever someone says rollback all of Bush's taxcuts, I always try to add, "come on, you don't mean the 529 too. Do you?"

[dsc]

4. It may well be good public policy

as would increasing the marginal rate on highest income taxpayers. But both are clear breaks of his promise.

[Thor_MN]

5. My nephews and niece inheirited some money when their greatgrandmother

passed. The grandparents died a couple of years earlier and when she saw how my ex-brother in law pissed away his parents money, she decided to skip his generation. It wasn't a huge amount, probably won't cover more than a year of college, but it's all they have.

Maybe they are an "exception" but Bush is screwing them. Wonder how my sister, who voted for the asshole because she thought he was moral, thinks now?

[Yupster]

8. If it's not enough to pay for one year of college, then

it isn't creating enough interest or capital gains income to the youngsters to have to file a return, so they wouldn't be applicable to this change anyway.

[Thor_MN]

9. I don't know the actual amount, but they had to file.

They each paid about $14 in taxes this year.