Tax changes / proposals - discussion

Tax changes / proposals - discussion
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#1

Taxes are a big expense for most successful people and good tax planning matters a lot. I want this thread to discuss possible changes to the current tax system so we can be aware of these and consider how one might want to plan/adjust for them. For example, changing marginal rates influence many retirement saving strategies, various investments are more or less attractive based on their tax treatment, early retirement is more or less feasible based on your current after-tax savings rate and your future expected retirement tax costs, etc.

Suggested guidelines:
There are plenty of political angles here, but to keep from getting into non-constructive political debate, let’s try to focus the political side of this discussion on relevant aspects like

  • is this proposal likely to pass or not based on political considerations, or
  • what types of compromises might be expected based politics.

As for the kind of things to avoid,

  • It goes without saying that any party or politician who proposes raising taxes on you personally is a jerk (and even moreso if they succeed!), so that doesn’t need to be said.
  • try not to make arguments about tax “fairness”. Nearly always these come down to “A fair tax law is one that cuts taxes on you by raising them on others”.

The tax code is just a bunch of rules. It doesn’t have morals, intent, or fairness. It doesn’t have to “make sense”. Approach it as an optimization problem rather than mixing in value judgements and hopefully you’ll save yourself a bunch of stress and some money too.

griz EDIT : Here’s a copy of the current framework for your perusal: https://waysandmeansforms.house.gov/uploadedfiles/tax_framework.pdf


#2

Now that Trump and Congress are turning their focus to tax reform, here’s an article on what we might expect, at least as a starting point for personal income taxes:


Briefly, tax rates are supposed to be the same or maybe lower, standard deductions are larger, and itemized deductions are largely removed (charity and mortgages excepted). AMT and estate tax would be gone. No word on dividend or capital gain rates yet.

One effect of this, if it passes as proposed (unclear to me, Congress hasn’t been accomplishing much lately), would be to increase the effective tax rate for people in states with high income taxes since the state tax deduction would be eliminated. For example, if you pay 10% state tax (and it’s enough to itemize for) and a 30% federal marginal tax, you get a 3% reduction in your federal tax rate currently and that would go away this proposal.


#3

i’m in favor of lower taxes overall and a balanced budget. quite simply, the government is grossly inefficient and most of the money is wasted.

as for actual rates, details… i don’t know. the rich will always have their loopholes. average joe always ends up paying the most (as a percentage of gross income). the rich pay their taxes at the end of the year. otoh, the government takes their cut from joes’ paychecks at the beginning of every pay period.

you guys are really gonna hate me now… i pay around $1000/yr in income taxes, thanks to offshore havens, a plethora of writeoffs/loopholes, and a badass cpa.

and for the rest of you rich people who are secretly giggling while i take all the hits from the haters, you’re welcome.


#4

I’d respect your desire for a balanced budget more if you paid your share of taxes.


#5

it’s all legal. why would i pay more?


#6

Moral/logical consistency.

For example, it’s legal to lie (in most instances), but I would be a hypocrite if I railed against other people lying, while lying all the time.

Also, it’s legal to have a same sex relationship, but I would be a hypocrite if I railed against the morality of such relationships while secretly having a same-sex relationship.


#7

i don’t see how that relates to me and my taxes. i pay what’s legally required. my cpa has been in business for over 30 years. why would i “give” the government more money, what do i look like an idiot?


#8

Here are my thoughts. As always, the devil is always in the details. The details won’t be available until quite some time later.

What Trump has stated, is that two things will remain: the mortgage deduction and the charitable deductions. Both of these deductions heavily favor the rich. They are more likely to take advantage of them, and the benefits they receive from them are higher, since they are in higher tax brackets. Both of these deductions are unfair IMO.

I do support the idea of simplifying the tax code. I am not aware of any other country that has such complex tax laws, and so many loopholes that the rich can take advantage of.


#9

I would like to see the limit on capital losses per year ($3,000) be raised or eliminated altogether. I have a lot invested in P2P lending, so my interest income is high, but I can’t fully deduct loan charge-offs which are treated as capital losses.

My second wish is simplify taxes as much as possible and eliminate any special loopholes and credits. I get mad when my tax software asks me if I qualify for a long list of exemptions/deductions/credits, and then says these are uncommon. If they are uncommon, get rid of them.

Third, someone should analyze tax returns released publicly by wealthy folks (i.e., Mitt Romney, Warren Buffet, Presidential candidates, etc.) and figure out why their effective tax rate is lower than most in the middle class. Then, change tax laws, so they pay as much if not more than the middle class.

Finally, I propose corporations only qualify for lower tax rates if and when they hire more American workers.

Frankly, I’m expecting the current proposal to go down in flames just like the ACA repeal.


#10

Can I respectfully ask that we get to the main point of the thread? This thread is not intended to be a wishlist, a soapbox, or a place to boast. The intention of the thread is this: given changes that can happen in the tax code and their relative probability, how should someone prepare their assets and income appropriately.


#11

Thank you, beatme. Agreed.


#12

Here’s what someone in a higher tax bracket probably should not do this year: Roth IRA conversion.
Since it’s unlikely that their marginal rate will be higher with any changes.


#13

I love how I finally bump back down a tax bracket, which under Trump’s proposed plan, I would have been in anyway. So much for “sticking it to the man” for a year, since my wife is now a SAHM.

Anyway, I think the proposed changes are “decent” but not fully baked yet. I think there needs to be some more reform/refactoring. I don’t understand why they’d eliminate the state tax itemized deduction. Would someone care to explain to me, in layman’s terms, why this is “good” or why it’s desirable for Trump (& co.) to do this? Especially because this is probably a large deduction that “rich” folks take advantage of too.


#14
  1. Most states with high state taxes didn’t vote for Trump. He wants to stick it to them.
  2. Tax reform will be passed under the process known as reconciliation. The Byrd rule blocks changes under reconciliation that would increase the deficit beyond 10 years. So, some deductions have to be eliminated in order for the ostensible math to work out.

#15

That’s enough reason right there to just hate “the system” IMO. It’s a shame.


#16

There are almost always “winners” and “losers” in political decisions and certainly when it comes to tax reform. Even if #1 is the reason, I’m not opposed to eliminating deductions & loopholes even ones that would affect me (like the mortgage & state tax deductions) if the end result is a simpler, more fair system. The problem is most people’s definition of fairness is “more for me, less for you.”


#17

Honestly, I think not being federally taxed on taxes you pay to the state is “fair” and the current system should remain in place.

Or, get rid of the standard deduction altogether and let everyone itemize everything. THAT’s fair.


#18

Only “fair” system would be a flat tax on gross income from all sources. Other than that, you are still picking favorites.

I don’t see why federal shouldn’t be on gross regardless of what is paid in state and local taxes. If people don’t feel they are getting benefits from the state/local, then move. No reason income tax-free state folks should be paying more (on federal level) than someone living in a state with higher taxes and presumably more services, job opportunities, higher salaries, etc. Two separate systems which shouldn’t have a bearing on one another.


#19

But to your point, if you feel as though your local infrastructure isn’t up to par in a tax-free state, then move to a state with better infrastructure, and possibly state/local taxes. The same point can be made for the inverse of your statement.

I can move if I dislike taxes, but that may be at the sacrifice of roads, highways, schools, parks, etc. Or I can move to a place with taxes which provides all of the above, and possibly better than a tax-free state.

Or am I missing your point? I admit, I’m not a tax aficionado.


#20

Yeah, you seemed to have missed it. One’s decision to live in a certain state (either high, low, or no tax state) should have no bearing on how much you pay in federal taxes is my point/opinion.