I guess not only do I disagree, but I also don’t understand. If I earn $100,000 and pay a state tax of 10% (simple math example), I bring home $90,000. Why should I be taxed federally on $100,000 when I was only able to utilize $90,000 of that, given the 10% off the top to my state? I’m effectively being double taxed on that. If there was no commingling of federal and state funds, that’s another story, but we all know that’s FAR from the truth.
1 Like
Depends on your definition of fair. Most people think a flat tax is regressive.
7 Likes
Why shouldn’t you be double taxed? If you weren’t given the break at the federal level, you would be less willing to live in the state charging you 10% to live there. My original point was that it is just another carve-out for those that live in the affected states. You mentioned it would be “fair” and I was merely countered. Not going to beat this horse much more, so I guess agree to disagree.
3 Likes
Ok fair enough, it would be an equal system where everyone pays and has skin in the game even if it wasn’t considered “fair” by most people. I think we should go to a flat system for taxation and then incentivize behavior with direct checks from the government.
Too many people get assistance from the government in various forms, but it is hidden in their tax returns so they don’t notice/appreciate the fact they are getting it. People wanting deductions for various things should have to go get it from the dole and be judged like those there for welfare/other assistance that so many have disdain for (while getting their assistance via refunds and deductions).
4 Likes
While I understand your point, my individual case couldn’t be farther from the truth. If it weren’t for my wife’s family, I wouldn’t live in NYS at all, even at 0% state tax. Even still, I’m trying to convince her to get out of dodge.
3 Likes
I agree, there’s no general rule against double taxation by different jurisdictions.
However, I think a lot of the challenges to the SALT deduction fail to note one big thing - for the most part, those places with higher state taxes have higher costs of living. This results in a (close to) requirement that companies pay higher salaries. Those who earn higher salaries are pushed into higher brackets and pay higher marginal federal rates, all while keeping the same/similar style of living to those who earn less (and thus pay less in federal income taxes) living in low cost of living states. The idea of the SALT deduction is that it puts those individuals on a bit of a level playing field.
On the other hand, of course there’s many arguments against the SALT deduction. I think the “those in low tax states subsidize the costs of those in higher tax states” is a poor argument. High tax states are generally paying into the federal government more than they receive back, while low tax states are generally the reverse. Therefore, these states are actually subsidizing the low tax states. I don’t think this is the result of the different tax rates, but it is the case nonetheless. I think the argument against the deduction can’t be about subsidizing the high tax states. It has to be about poor vs. wealthy individuals. The wealthy individuals benefit disproportionately, even when comparing those in the same state. CA tax bracket for income from ~50k - ~250k is about 9%, but net of federal benefit is maybe 6.75% if they itemize. However, people with $50k income generally don’t itemize. Which means CA tax structure is not actually progressive if the marginal rate for a $150k earner is 6.75% but the marginal rate for a $60k earner is 9%. That’s, in my opinion, how you need to approach this if you’re against the SALT deduction. It allows states to disguise their regressive tax structure as a progressive tax structure. If they want to win politically, they need CA and NY, so this is how the republican congressmen in those states (and everywhere) need to spin this.
1 Like
[quote=“jaytrader, post:13, topic:1661”]
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.
[/quote]Economists on both sides tend to favor eliminating or limiting this deduction, as it effectively subsidizes higher income tax states.
In other words, if State A wishes to provide more expensive services to its residents and to pass along the associated tax burden to its residents, it can, but it should not be subsidized for doing so by the other states that are spending less and, therefore, have lower taxes.
Sure, the cynical view is that more D’s live in higher tax states, and the R’s don’t care about those, but the reality is a lot more complicated than that. Here’s a Forbes article that explains some of this: Tax Reform Is Hard: State And Local Tax Deduction As Case In Point
10 Likes
Nobody is currently being federally taxed on taxes you pay to the state. You are taxed on your taxable income by everyone – federal, state, and sometimes local. The state income tax deduction helps offset a small portion of the state tax liability by reducing your federal tax liability. It may be considered “fair” from the stand-point of the total individual tax burden (“I’m already paying a lot, I shouldn’t have to pay that much”), but not fair if you consider that the rest of the country is subsidizing high income individuals in high income tax states.
2 Likes
[quote=“nasheedb, post:8, topic:1661”]
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.
[/quote]For what it’s worth, the mortgage interest deduction is limited to $1MM of the first mortgage debt, so the truly rich already have a cap on the deduction. The problem with eliminating it at this point is the fact that it is baked into the house prices, so there is a concern that suddenly eliminating it could cause another housing crash, which would have a dramatic effect on the economy.
The argument for maintaining the charitable deduction is that it saves taxpayers money, as the federal government essentially gets a roughly 3X multiplier effect on this deduction that the taxpayers would otherwise be paying out of pocket.
2 Likes
I have no doubt in my mind that this is Trump’s motivation. That said, I don’t personally know where I come out on this issue, and the motivation is less important to me than the effects.
3 Likes
Since we do not yet know the exact structure of the tax reform, the only viable strategy that I can think of is to accelerate whatever deductions you can into this year, as they are likely to be worth less or nothing next year either because the deductions themselves will be eliminated, or because the standard deduction is very likely to be much higher and the tax rates lower.
By the same token, if at all possible, it would be best to defer income from this year to 2018.
7 Likes
Right but by eliminating the ability to deduct state income taxes against your federal liability causes that to happen. Right now, I can deduct the money I pay to NYS against my federal liability. If that goes away, I am paying taxes on full income to both the state and the federal government.
Would you rather be federally taxed on $100k income or $90k income?
1 Like
I am. I have been paying AMT for many years and I am certainly being federally taxed on the taxes I pay to the state.
4 Likes
That isn’t the point. I would rather not pay taxes at all, but I know that would not be fair.
2 Likes
Good advice, although if (big IF) they manage to pass a tax bill, they will proabably make it retroactive for 2017. So it may be too late to accelerate your deductions at this point. If things drag on but seem to be going in the same general direction as these proposals, accelerating deductions into 2017 seems like a good plan.
2 Likes
[quote=“Full_Disclosure, post:30, topic:1661”]
I have no doubt in my mind that this is Trump’s motivation. That said, I don’t personally know where I come out on this issue, and the motivation is less important to me than the effects.
[/quote]There are plenty of very wealthy Trump supporters in both NY, as well as in California, so I am a lot less certain about the motivation, not to mention the fact that just like with Obamacare, Trump himself does not appear to be involved in the details.
I do wholeheartedly agree with you that motivation is a lot less important than the effects. Overall, if a person’s tax make-up changes, but the overall tax burden goes down, it’s hard to complain about that. Personally, I think that it would be very nice to end up with meaningful tax reform, as opposed to merely a tax reduction, as the former is likely to provide a much more significant economic boost than the former.
4 Likes
Really? Has this ever been done? I thought most tax changes (except things like natural disaster relief) take effect in the future.
1 Like
It is 100% the point that I’m talking about, which is what I questioned upthread. It may not be “the” point of the thread, or your point specifically. But it is exactly my point, because it’s going to hurt me. I paid somewhere around $20k in taxes to NYS last year and I’d hate for the $5k benefit to go away. When you quantify it into real dollars against a tax liability, it can be substantial for some families. That’s almost $500 per month that I’d have to start “paying” if I lost that deduction–a car payment or two.
To add: no one cares about your money more than you do. If a deduction was going away that I didn’t use right now, why would I care? This whole “for the greater good” is a waste of time. You gotta do you, not anyone else.
1 Like
[quote=“xerty, post:35, topic:1661”]
Good advice, although if (big IF) they manage to pass a tax bill, they will proabably make it retroactive for 2017. So it may be too late to accelerate your deductions at this point. If things drag on but seem to be going in the same general direction as these proposals, accelerating deductions into 2017 seems like a good plan.
[/quote]Absolutely, if they pass tax reform in 2017, I have no doubt that it’ll be retroactive to the beginning of the year. With no specifics on the table, however, is there even enough time left for them to still pass it this year?
3 Likes
[quote=“scripta, post:37, topic:1661”]
Really? Has this ever been done? I thought most tax changes (except things like natural disaster relief) take effect in the future.
[/quote]It’s done all the time. The AMT patches, for instance, used to always be done at the 11th hour.
4 Likes