[quote=“jaytrader, post:38, topic:1661”]
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.[/quote]I think that what several of us are saying is that you shouldn’t just look at the individual deductions while ignoring the bottom line. Would you care about losing a deduction that currently saves you $5K/year if the other changes would save you $8K, such that on a net basis your annual tax burden would go down by $3K?
Of course, no doubt. But for me, I only have the mortgage interest deduction, property taxes, and state income tax. We dissolved the LLC Jan 1 this year, so that’s out (K-1), I have been smart with my PayPal accounts, so no more 1099-Ks there (of course, I’ll claim the income though–duh). But in these new proposed plans, there is only one thing concerning me, which is the state tax deduction possibly going away. The rest of it, I don’t care about. As I mentioned, with my wife staying home now, we’re back in the 25% bracket, which we would have been in under Trump’s plans if she was still working, I think.
But he preaches to his base. His supporters in NY and CA will likely be his supporters regardless of this decision.
I agree that he is not involved in the details, but he gets these ideas in his head about things he doesn’t fully understand, but that may sound interesting. Then he runs with them. There was a while where he was obsessed with depreciation deductions and made a big stink about how he wanted to get them as the company investing in a project (even though it was specifically disallowed). He didn’t care about the bottom line number, he just wanted the depreciation deductions.
The main problem is that out of the deductions being phased out, most are pretty resilient to accelerate. Take state tax, that’s pretty much linked to state taxable income. In small ways, some of us can shift some income from 2017 to 2018 but that’s a one-time event anyway and likely not to play on very much since there is little time to lower your 2017 income much.
Same for property taxes. Those are most likely paid anyway by this time. And I don’t think you can prepay them. Even if you pay those due in January in December, they will still count towards 2018 tax payments as far as federal income tax is concerned.
For us, I think it’ll result in a slight tax reduction overall (which we don’t really need). But I’m not using that yardstick for measuring whether it’s a good tax reform or not. Bottom line tells me how much of a tax cut it is. If they simply cut everyone a 5% tax rebate, would you consider just the bottom line or what that actually changes for the long term?
In that respect, I don’t see this reform as much of an improvement (or much of a reform if all it does is remove some itemization in favor of higher standard exemption). It does not seem like it’ll make taxes more progressive. Possibly the contrary.
The reduction in number of brackets is tax cooking. It does not simplify the tax code much.
The removal of some itemization is good but I don’t know for you guys, but for me Schedule A was never that complicated to fill compared to other credits, deductions, forms, and schedules. Not being taxed on money I never actually get (state +property taxes) seemed morally fine in the big picture but the case for a higher standard exemption is fine too (we’re ready to give you some credit for state+property taxes but up to a point). So that change seems to me to be a low-lying fruit in terms of simplification of our tax code.
But unless other parts we don’t know yet change things, there will still be plenty of complexity (and loopholes) in it. We’ll see what final version passes (hopefully if something actually passes through Congress this year). But color me a bit disappointed in the scope of the reform. If all we’ve seen so far is it and we have to wait another 30+ years for the next iteration, it’ll take a while to get us a decent system.
As a side point, what will be the impact of removal of state tax and property tax deductions in the long term? I could think of states having to rebalance their budgets but on the other hand if fed tax revenues drop due to overall tax cut, states won’t be getting any more money from the fed government so how likely are they to increase state/local/property taxes to make up for it? Could that lead to housing market recession in those areas? I’m just curious if it could also lead to some migration between states with higher taxes and states with lower taxes.
(disclaimer: I live in a low-tax middle of nowhere cornfield).
I recently read that a non profit was being formed to fund the restoration of Notre Dame Cathedral in France. Notre Dame is owned by the Government of France. If people give to this non profit, donations would be tax deductible under the tax plan, which leaves deductions fro charitable contributions. Why should people who donate to fix the property of another country’s government receive a tax deduction, but people who have their money taken from them through state and local taxes by governments that are part of the United States of America not get a deduction. Also, having mortgage interest deductible is not common in the rest of the world. It was initiated to foster home ownership by veterans returning from World War II and the promote the growth of the suburbs. Why should a special purpose deduction that benefits a special interest, the real estate sector remain?
And, regarding your statement that a state that provides more expensive service to residents be subsidized by other states, okay, for whatever the point. But, why are you promoting screwing the residents of the state.
[quote=“Shandril, post:44, topic:1661”]
It does not seem like it’ll make taxes more progressive. Possibly the contrary.
[/quote]Just to make sure that we are talking about the same thing, a progressive tax is a tax in which the tax rate increases as the taxable amount increases (Progressive tax - Wikipedia). I do not consider tax rate increases in relation to people’s taxable income as a necessary component of a successful tax reform, but people can and do disagree regarding this.
[quote=“cows123, post:45, topic:1661”]
And, regarding your statement that a state that provides more expensive service to residents be subsidized by other states, okay, for whatever the point. But, why are you promoting screwing the residents of the state.
[/quote]I am neither in favor, nor am I opposed to the state income tax deduction. Personally, we itemize and this deduction saves us a substantial amount every year.
All that I was doing was explaining the reasons that so many economists on both sides have been advocating for its removal for many, many years. I also don’t know that it is fair to characterize its removal as “screwing” its current recipients, as the other changes are intended to cause their overall tax burden to go down.
The retention of tax deductions for charitable contributions is giving something to a special interest, nonprofits, and I have to assume that religious groups, including those that support the party introducing this, are an intended beneficiary. And, the mortgage tax deduction benefits the real estate and mortgage industry. As far as I’m concerned, retaining those deductions while eliminating certain others, like state and local tax, makes this a special interest proposal. If they eliminated all deductions, there would be no special interests. I wouldn’t like it, but I would understand it more than retaining certain special deductions.
While it depends where you live, the other proposed changes wouldn’t nearly make up for the elimination of city and state taxes for many middle income people where I live.
You can be for them or against them, but all of these provisions have real reasons for adopting them. I agree the special interest groups are powerful and influential in these laws, but the sole reasons aren’t just “the religious organizations got to Congress.”
It’s a perfectly fair opinion that you want to get rid of itemized deductions entirely, but I don’t think there’s any reason for us to require that it’s all or none.
Yes. There is no reason to require ‘all or none’, but when someone or a group of people pronounce a tax cut for all, with an emphasis that the middle class will benefit, when proposing something that will jack up taxes for a lot of middle class people, that’s bull.
FWIW, I think Trump went about this the right way - try to clean up the complexity and remove a bunch of deductions. Normally the special interests and effected parties will complain loudly and oppose such reform, often successfully, and hence we have this complexity creep and a huge mess of a tax code. Here, by pairing a simplification initiative together with overall reduction in general federal tax rates, you can make the pitch that people will be paying less overall in nearly all cases so they shouldn’t complain or they might have well get stuck with the current, higher tax regime.
I’m not sure it will work out this way, but it seemed like good tactics.
So you think that the right way, or good tactics is top provide tax deductions for voluntary contributions to special interest groups, including religious conservative groups that supported Trump while telling a worker that his involuntary unreimbursed employee expenses, expenses that he has to spend to receive the salary that is taxed, for example, necessary work clothes, or involuntary union dues should not be permuted to be deducted at all (currently these are in the category where only the amount exceeding 2% of adjusted gross income is deductible). It seems to me an involuntary expense required to make income that if taxed should be deductable before a voluntary contribution to special interest groups.
The 2% of AGI cutoff makes most of those deductions worthless for people with a good job/salary. For people without a good job, they tend not to be able to itemize deductions in excess of the standard deduction anyway. So even if they are removed, I don’t think it will impact most people’s tax bill, even those who have these costs.
That was exactly what I was talking about. Moving from a 7 bracket to a 3 bracket marginal tax rate is still progressive but it seems less so considering the lowest rate is higher than the current lowest rate and the highest rate is lower than the current highest rate. It’s too early without knowing the exact brackets to determine the concentration coefficients and other such measures of progressivity but I doubt it’ll move the needle towards a more progressive tax system.
And since income tax is the main source of income redistribution in the US compared to other systems such as in Europe which rely more on cash transfers, without changes to other means of income redistribution, I feel that we need to have an income tax system that stays one of the most progressive in the world. Of course if considerable changes happened to our welfare and social security systems, we would not need to keep the income tax system as progressive but I’m not holding my breath for such changes in the current climate.
[quote=“storm, post:9, topic:1661, full:true”]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.[/quote]Just because a deduction is uncommon does not make it worthless. For instance, if your house is burglarized, the uninsured losses are tax deductible. For obvious reasons, the deduction is rather uncommon, but what’s the problem with the concept?
[quote]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.[/quote]What would be the rationale behind raising or eliminating the capital loss limitation? Whether the following is right or wrong, attempting to do what you’re suggesting would immediately cause an outcry that it disproportionately benefits the “wealthy,” as the “middle class,” has very few, if any, capital gains or losses.
[quote]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.[/quote]There is no mystery there. In Mitt Romney’s case, for instance, most of his earnings come from capital gains, which are tax advantaged, and he donates a ton to charity.
Whether capital gains should continue to be tax advantaged vis a vis labor income has been the subject of intense debate. Here’s one article that outlines the arguments on one side (the other side has its own arguments): Why Capital Gains are taxed at a Lower Rate | Tax Foundation
Just out of curiosity, how much IS his “fair share”? What percentage “should” each person be paying? Is 10% enough? 25%? 90%?
In order for it to be “fair” though, by definition, you should be willing to pay the same percentage (unlike it is today, where, on average, the “wealthy” pay a larger percentage of their income than the average middle class taxpayer)
IMO, a flat tax of, let’s say, 10%, should be implemented. Allow the first XX,000 to be exempt, but anything more than that, you owe 10% on. I’m also in favor of eliminating withholding. Everyone sends a check in on April 15th. That way people will see how much of THEIR money the government is getting.
The problem is that taxes are based on percentage of income, where credits and deductions are fixed dollar amounts (or have fixed ceilings). A $1000 tax credit to someone making $50k is much more substantial than to someone making $300k.
I think the fixed credits can be repealed and that alone will make the system so much more simple and “fair.”
…not to mention personal exemption and standard deductions.
If you exempt the first XX,000 of income (and even if you don’t), the flat tax ends up being a disproportionate burden on the middle class. The middle class would likely see taxes increase under such a plan and that’s one reason it’s not politically popular. Or, it would balloon the deficit if the rate was set too low (10 or 15%).
There’s no free lunch, so the money will have to come from somewhere. The reason some people favor a progressive tax system is that as income increases, the percentage of your income required for necessities decreases significantly, so it is fair, in their view, to place a higher tax rate on higher incomes.
Emphasis mine.
I’m concerned that the idea that had been floated about “Rothifying” retirement accounts appears to have been discarded so quickly. I’m not convinced that’s the case.
I like choice. I strongly believe people should have the option to decide for themselves and make changes as needed as their financial picture evolves. Eliminating the option for employee pre-tax contributions would take that choice away.
My husband’s account is a mix of pre-tax, post-tax, and Roth contributions. He switched among the options over the years at my recommendation as our financial picture evolved. Because of this uncertainty, I recently recommended that he switch from Roth contributions back to pre-tax, plus max it out, which is something that we hadn’t done before.
He’s closer to the end of his working days, maybe 10 years at most, but probably less, with the way his company keeps outsourcing more rapidly in recent years. Any changes made now don’t have a real significant impact in our overall financial picture. It’s more of a protest move, to do it as long as possible in case the option does get taken away.
Someone with more of their working days ahead of them might not come to the same conclusion.
Fairness arguments presume a fixed amount of money for government and try to solve the allocation of costs problem. Arguably people should be looking at why the government costs so much, and waste / corruption / fraud are no doubt a big part of it. Medicare costs are estimated to include 10-20% of the budget in fraud, and that’s just their best guess, which presumably is only based on the criminals dumb enough to get caught.
Personally I think each person who is not desperately poor should pay something at the margin in income tax, even if they still get food stamps / housing subsidy / whatever, so that they know they’re paying more out of their pocket to have the government we do, and so they’ll at least think in the direction of “what could we do to make that cost less and reduce my tax rate”. Instead, you’ve got 40-50% of people paying no income tax and are happy to vote for politicians who will raise it on everyone else to hand out more bread and circuses (an Obamaphone in every pot?). Democracy is unstable to majority abuse like this.
Here’s my problem with the proposed tax reforms. Ignoring all deductions, because that is a subjective matter of “fairness”, my income taxes will go up under the new rules. This is because compressing the tax brackets will cause an increase in taxes to everyone earning in a certain range (offhand it is around $150k to $250k filing individually).
I find that to be completely ridiculous because I am far from wealthy, I am upper middle class in some parts of the country and lower middle class in a place like the bay area or NYC. Why should my taxes go up but everyone below me and above me has their taxes go down?
I understand and support the desire to simply the tax code and reduce the number of tax brackets. But if they did basic math, they could shift the brackets in such a way that no one has their taxes go up based on marginal income levels. Just make the middle tax bracket start at a much higher level. At the very least, keep my taxes the same. But to increase them when this administration is supposed to be pro-middle class is an insult.