How so? Maybe I’m missing your point here but I can’t see how any business would think like that.
I’m talking about a business here. Not an individual.
I believe there is some threshold above which too much spending will have an effect on the electorate to the point that the electorate would vote for the party/person that will reign in spending. We aren’t at that point, but I could see us getting there someday.
It depends on the risk of the activity.
If I have 5 Arby’s and want to expand, I could build 2 Arby’s on one side of town, or 1 Arby’s on the other. If the 2 Arby’s will lead to more profit if successful, but I have no guarantee of being successful, whereas the 1 Arby’s on the other side of town will lead to a smaller profit, but less risk, I’m going to consider my actual profit before I decide which ones to build. If my profit is going to be reduced by 35% after the first new location, it might make sense to only build 1 new Arby’s instead of 2. If I’m only going to build 1, might as well build in the safe area. So the 35% rate just cost people in the less safe area a couple dozen jobs.
And now I want some roast beef and curly fries.
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[quote=“meed18, post:471, topic:1661, full:true”]
The first 3 reports on that page that I downloaded were 4, 11, and 7 pages, so I’m not sure what report you’re referring to that has that info on page 12.[/quote]
WOW.
What part of “It’s NOT on page 12 of the report or whatever, it’s math, a calculation” did you miss ?
Nope. Merely related what the JCT related.
Bernstein has gotten more into the weeds of that and other reports:
[quote]In 2025, when all the bill’s individual income tax provisions are in place, about 79 million households with incomes below $200,000 — or roughly 46 percent of households with incomes below $200,000 — would either lose or gain little from the Senate bill:
22.5 million households with incomes below $200,000 would face tax increases, including 16.5 million facing tax increases of more than $500 apiece.
56.4 million households with incomes below $200,000 would face tax changes (increases or cuts) of less than $100 apiece.
Meanwhile, more than 70 percent of millionaire households would get a tax cut.
In 2027, the picture gets even worse.
Even right out of the gate, in 2018, some families get dinged hard by the plan, according to an analysis from the Wall Street Journal.[/quote]
[quote=“jerosen, post:482, topic:1661”]
How so? Maybe I’m missing your point here but I can’t see how any business would think like that.
I’m talking about a business here. Not an individual.
[/quote]I think that the confusion stems from the fact that you think that businesses only pay corporate taxes on “profits,” so while corporate taxes reduce profits, they do not eliminate them, so a business should not forego an otherwise profitable activity.
It’s more complicated than that, however, as not all expenses that go into generating a profit are immediately deductible, and carrying forward those expenses, to the extent allowed, isn’t always optimal, as the expenses are incurred immediately and have an immediate impact on the company’s bottom line. Further, and more importantly, you have to factor in the risks associated with taking on an activity, so you look at the risks vs. rewards. The taxes reduce the reward side of the equation, and you use marginal rather than effective taxes in the calculation. Any reduction in the rewards side of the equation makes it less likely that the company would find it worthwhile to take on the activity in question.
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The part where I looked at the first three reports on that site and couldn’t find the math you were referring to, so I thought you were being sarcastic and there was a page 12 somewhere you weren’t linking. Where is the $5,300,000,000,000 number coming from? I’m being honest. I can’t find it. Show me!
OK that makes sense.
Yeah I think its more complicated then that. Which is why you shouldn’t look at just the marginal rate and the marginal rate alone doesn’t mean all that much which was the point to begin with…
[quote=“jerosen, post:488, topic:1661”]
Which is why you shouldn’t look at just the marginal rate and the marginal rate alone doesn’t mean all that much which was the point to begin with.[/quote]Noone is looking at just the marginal rate, and effective tax rates certainly matter, which is the reason that I posted a March, 2017 CBO analysis upthread that shows various ways of evaluating effective tax rates. That analysis also shows that the effective corporate tax rates in the US are higher than in most other developed countries.
For the reasons that I explained above, however, marginal tax rates are also an incredibly important consideration, so pointing out that the effective rates are lower does not come even close to ending the discussion. In fact, insofar as our effort to spur economic growth, effective tax rates don’t mean all that much, as we are talking about additional spending and additional earnings. It’s not that different from trying to tell an individual who is considering whether it makes sense to work an extra X number of hours to earn an additional $5,000 that his effective tax rate on the current earnings amounts to 5% or whatever. That’s nice, but if all the deductions and lower tax brackets have already been used up, and the $5,000 would be taxed at 35%, then the fact that all the current income was effectively taxed at 5% doesn’t help and isn’t relevant.
The 22% rate has been mentioned again.
I foresee the Senate corporate AMT being struck in conference. No one is proposing individual AMT be retained.
Extra 2 points (~200 B) would likely just about pay for the corporate AMT being struck (40B) and reducing the corp tax rate in 2018 (150 B).
Maybe the interest deductible mortgages cap would be set at 750k.
Hopefully they can throw out the medical expense deduction.
Except the United States Senate. Why the Senate Brought Back This Hated Tax | The Motley Fool
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[quote=“Mars, post:491, topic:1661”]
No one is proposing individual AMT be retained.
Except the United States senate. Why the Senate Brought Back This Hated Tax | The Motley Fool
[/quote]Right, and the AMT is a huge deal. You are not allowed to deduct property taxes under the AMT (or state income taxes, or take many other deductions), such that the $10,000 property tax deduction that currently appears in the House and Senate bills cannot be taken by the AMT payers.
Most importantly, it effectively negates the regular tax rate reductions that the House and the Senate are trying to pass, as you pay the higher of the regular tax rates or the AMT. As a result, if the regular tax rates go down, but the AMT remains the same, the AMT payers would continuing paying the AMT.
My bigger concern is not the tax impact, but the wealth impact for those in the $50-150k salary range. If the loss of the SALT and property tax deduction combined with the increase in standard deduction causes a loss on their primary wealth accumulation asset (primary residence), that’s a problem for the larger economy more than the changes in the tax burden.
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On the other hand, high housing prices are the biggest drag on economic growth in our coastal cities. So moderating that growth by equalizing the difference between rent and mortgage may be a good thing. At least it may discourage some people from overextending themselves just to get a tax deduction.
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Yeah, who can complain about property values not increasing at nonsensical fast rates?
Am I the only one who would prefer if my house value went down? Property taxes I’d expect to say the same over time or still go up, they’d eventually have to raise the rates or cut services. Lower property values means I could then sell my house and more cheaply move up to a better one if I so wanted to, and less loan/interest/capital required to do so. Win Win. If property values dropped and I wasn’t in the position I am (lots of liquid assets), I could go default on my loan and collect on the put option that I paid for in the interest rate and fees since financing the property too.
*Assuming like properties also went down, so I could always sell and/or move if I wanted to. Not just my property going down by itself.
In tomorrow’s Wall Street Journal, Edward Pinto at the right wing think tank AEI endorses the House bill as the best way to cool housing prices after 62 months of continuous growth.
How would the House’s approach affect the housing supply? In three ways. First, the stock of second homes totals some six million units; eliminating the interest subsidy on second homes would cause demand for the existing stock to decrease. Most second homes could also be used as a primary residence, either for a new buyer or as a primary home for the current owner after retirement. A conservative estimate is that over 10 years 600,000 second homes, or 10% of this stock, will convert to use by a primary resident.
Second, demand for newly built second homes would decrease. I estimate that second homes constitute about 62,000 units annually, or 10% of new-home construction. If demand were reduced by 25%, or 15,000 units, builders, in an effort to maintain volume, would choose instead to build more homes targeted for primary occupancy. That represents another 150,000 units added to supply over 10 years.
Third, the demand for newly built homes costing between $625,000 and $1.25 million would go down, since mortgage interest would no longer be fully deductible (assuming the standard 20% down payment). In the past year an estimated 50,000 such homes have been built. If annual demand were reduced by 25%, or 12,000 units, builders would likely choose to replace these with less expensive homes, adding another 120,000 lower-cost units to the housing supply over 10 years.
In total, it is reasonable to forecast that the House tax bill would create about 870,000 additional available units over 10 years. This represents a boost of 14% (the current build rate will yield about 6.2 million units over 10 years).
Cutting homeowner subsidies out of the tax code provides other important benefits. The percentage of mortgage holders who itemize would drop from about 60% to 12%. This would free nearly half of mortgaged homeowners from a massive federal tax incentive hanging over their financial decisions, thereby greatly reducing the market-distorting impact produced by the interest deduction.
Moreover, the cost per square foot of financing expensive houses would rise as big mortgages lose their tax subsidy. Some households that might otherwise buy such homes will buy cheaper or smaller homes instead, thereby reducing the capital allocation distortion of the subsidy. Others will borrow less to buy their home, reducing the inflationary impact of leverage on home prices.
The doubling of the standard deduction (this is in the Senate bill, too) will have a similar effect on financing homes in the $150,000 to $400,000 range. More buyers in this price range will take the larger standard deduction instead of deducting their mortgage interest. The reduction in the tax subsidy for these homes will once again lead some households to consider smaller or cheaper options, or else borrow less, with the same benefits noted above.
Lower prices due to loss of subsidies will ultimately allow more low-wealth Americans to become homeowners, since less cash will be needed to close a purchase. Rents will remain roughly constant as house prices decline, thus reducing the cost of homeownership compared with renting–another positive outcome. Recent research by economists from the Federal Reserve and American University found that the combined impact of these effects would cause prices to fall and homeownership rates to rise.
I’m not sure I quite understand this line. Can’t landlords still deduct the full mortgage interest? Seems like they’d have incentive to compete more with potential “homeowners” and this will encourcage more homes bought as investment properties since the buy vs rent is low and still maintain a similar equilibrium of this ratio?
Maybe even more of the higher-end homes just change from owners to renters, if it is more efficient?
[quote=“calwatch, post:496, topic:1661”]
Third, the demand for newly built homes costing between $625,000 and $1.25 million would go down, since mortgage interest would no longer be fully deductible (assuming the standard 20% down payment). In the past year an estimated 50,000 such homes have been built. If annual demand were reduced by 25%, or 12,000 units, builders would likely choose to replace these with less expensive homes, adding another 120,000 lower-cost units to the housing supply over 10 years.
[/quote]I don’t think that the authors know much about real estate. Sure, the demand for more upscale homes may go down. What does not follow, however, is the authors’ assumption that the builders would just build cheaper houses instead.
From a builder’s standpoint, you typically cannot just build a $300K house in the same location in place of a $600K house and do so profitably, as many of your costs associated with a more expensive house are fixed, not to mention the fact that in many areas there are restrictions on builders doing that, as existing communities do not want that type of inventory undermining their values. In my previous area, for instance, the area covenants prohibited houses from being built that were below a certain number of square feet, stipulated minimum lot sizes, etc…, such that you couldn’t just put up a small house on a small lot there.
There are numerous reasons that the housing supply of lower priced housing remains constrained in many areas. The Great Recession has essentially wiped out the construction industry, such that builders are having a lot of trouble finding qualified construction crews, and are having to pay them more, which makes it difficult for them to build cheaper houses with smaller margins. Further, as a result of the Great Recession, many banks will no longer finance empty lots, or, if they do, the terms are not particularly attractive. This has made it difficult for many builders to purchase those lots, and has applied additional pressure to their margins. In addition, the cost of materials is up, which further drives up construction costs. In short, the economics out there are such that it is very difficult for homebuilders to build lower priced housing and still make a profit. The House bill won’t change any of this.
[quote]he percentage of mortgage holders who itemize would drop from about 60% to 12%. This would free nearly half of mortgaged homeowners from a massive federal tax incentive hanging over their financial decisions, thereby greatly reducing the market-distorting impact produced by the interest deduction.[/quote]The authors have an odd way of phrasing things. I think we should approach the authors and tell them that their compensation and benefits will be cut next year, which “would free them from a massive incentive hanging over their financial decisions.”
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Am I the only one that would prefer my house value to go down
Can’t say that I’d generally prefer it to go down, but as long as I can exchange a house for a similar house, should I move, then it meets my needs.
You’re right, I misunderstood.
Hopefully it’ll be sinked. What a pain in the arse that is.
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But if they’re both lower that means your carry costs are lower (mortgage interest and/OR opportunity cost on cash purchases), all other things being equal. Plus it can be more difficult for local taxing authority to raise your property taxes 10% every year if the sales aren’t going up 5%-10% a year.