This is a bad argument because there are plenty of homes in the Bay Area which are in decent locations that are less than $800k - single family homes even, in places like Hayward, San Leandro, El Cerrito. https://www.redfin.com/city/8439/CA/Hayward/filter/max-price=800k,viewport=38.01371:37.95052:-122.33781:-122.46003,no-outline You’re still within the inner ring of the Bay Area and you are not coming in from Antioch or Tracy. BART has gotten more unreliable over the years but you can still get to San Francisco in under an hour. State income taxes are steeply progressive and while most professionals are in the 9.3% tax bracket, the income tax on their first $52,000 or so was only 4.4%. Sales taxes are excessive but can be avoided to a certain extent. Property tax rates are lower than average and are essentially fixed for the lifetime of the property, under Proposition 13. While it sucks to buy into a property near its peak, Prop 13 has kept many seniors in their homes, and has also enabled many people to become petty landlords (which can be a good or bad thing).
Since when did a “middle class lifestyle” require owning a house with multiple bathrooms? I feel worse for the people who are working at Starbucks or driving the buses, not those making $150k. Most of those are either scraping by or are still living with their parents in their late 20’s and 30’s. People feel trapped because if they leave they can never get back in.
I have friends who live in those places and it takes them about 1.5 hours to commute each way to their job in San Jose.
Choosing between needing to commute 3 hours a day or to live closer to work in a run down apartment with 4 roommates does not make someone middle class in my mind.
A middle class household used to be able to comfortable buy a 1400 sq foot 3/2 home in a respectable area, pay for 2.5 children, and have a stay-at-home mother. Good luck doing that on less than $300k/year gross income in the bay area.
You can still do that in places like Kentucky on $150k per year but not in the bay area.
To drag us back on topic: I just listened to the planet money episode about corporate tax and I really do hope they figure this out, stabilizing the tax code is helpful not just to us regular people who will spend less time dealing with it but also it encourages innovation because people don’t feel like they have to hire star accountants and lawyers to just compete with the big boys when starting a company.
It would also encourage the very smart people who find tax loopholes and fancy offshore corporate structures to do something useful. As for needing top tax lawyers, I’ve always liked this Dilbert:
Are you open to the idea of being affected by the planned reforms, as in you currently take advantage of the loopholes and will always look for more but you don’t take the libertarian view of “taxes are theft?”
[quote=“Full_Disclosure, post:75, topic:1661”]
A spending problem. A funding problem. Both. Who cares? Tax reform should be more about determining what you want the tax base to be. You can work out percentages, brackets, etc. afterward. Obviously they’re all intertwined so you’ll have to tweak certain areas, but whether we’re spending too much is not significantly relevant to how to change the base.
[/quote]It is not appropriate to work out the percentages, the brackets or any other details of the tax reform without figuring out the revenue targets that you are trying to get to. That’s the reason that the spending vs. funding issue is so critical. If you are wasting money, and are able to eliminate at least some of the waste, the revenue target goes down, which then causes you to modify the structure of the tax system accordingly.
[quote=“Full_Disclosure, post:66, topic:1661”]
As you noted, we have a progressive tax system because it’s the only type of system that can work. [/quote]A progressive tax system is not the only one that can work. Flat tax systems can and do work, and are being used by a number of countries out there. You can also have a single consumption tax (typically with a “prebate”), with the concept being popularly referred to as “fair tax,” which would replace the income tax system. You can also implement a VAT (Value Added Tax) based system, which is already used by every OECD (Organization for Economic Cooperation and Development) member country, other than the US.
I am not here to debate the merits of each such system vis a vis our current tax system, as it’s a highly complex issue. All that I am saying is that in factual terms, other tax systems can also work.
There are a few different ways of working. I think you are referring to the technical definition of working, i.e. can a flat tax generate enough revenue to fund a government. I believe other people are referring to the political definition of working, i.e. can it get enough political support to become law. It’s hard to imagine the latter happening/working.
The largest economy using a flat tax is Russia. Most of the rest of the countries that have a flat tax have really small economies compared to the US.
[quote=“admiral, post:87, topic:1661, full:true”]
It is not appropriate to work out the percentages, the brackets or any other details of the tax reform without figuring out the revenue targets that you are trying to get to. That’s the reason that the spending vs. funding issue is so critical. If you are wasting money, and are able to eliminate at least some of the waste, the revenue target goes down, which then causes you to modify the structure of the tax system accordingly.[/quote]
I’m not talking about the percentages and brackets or intricate details as I stated in my post. As I specifically stated, “tax reform should be more about determining what you want the tax base to be.” I agree that it is not appropriate to work out the percentages, brackets or other details without figuring out revenue targets. But the broad structure of the system should not be based on how much revenue we need.
[quote=“admiral, post:87, topic:1661, full:true”]
First, I’m not arguing that a flat tax system cannot be implemented in any situation. When I say a progressive system is the only kind that can work, I’m referring to what can work in the US. The fact that other countries have implemented a flat tax system is not particularly relevant. Xerty already pointed out that non-progressive systems can work in undemocratic countries.
Just as an income tax is not progressive or regressive, a consumption tax (e.g. VAT) is also not a progressive or regressive tax system. It’s a method to measure the amount to be taxed and can be designed as either progressive or regressive.
I’m with you on that. Having the choice to basically have some tax diversification built-in your retirement portfolio sounds like a decent idea.
But I could see how it would be appealing for this tax reform considering it looks to be a deficit-adding plan by cutting taxes for most people and corporations.
In that case, Rothifying makes sense because it will make the short-term tax revenues look better and then you make the argument that by the time you’re going to feel the effect of Rothifying now, growth will have made up for the future loss of tax revenues. I’m not buying the growth argument to be solving all tax revenues issues (at least not at the levels of growth improvement required to pay for it all) but it’s also something that will look better now than it will later (when it’ll be other politicians’ problem to solve anyway). So I’m not totally convinced that to satisfy the deficit hawks (Corker and others), Rothifying will not come back into this reform.
I think people are missing the problem I have with the proposed plan.
I’m going to use rough numbers here since the exact numbers are not final and I’m basing this on the numbers previously revealed months ago.
If you make less than $150k, your taxes go down.
If you make more than $300k, your taxes go down.
If you’re a business, your taxes go down.
If you make between $150k and $250k, your taxes increase by a few thousand dollars.
This is completely ridiculous and absurd and is either an oversight on their part, or an intentional cost shifting to the middle-middle class. I don’t understand why my taxes have to go up in order to cut taxes on the wealthy and poor.
It’s certainly mathematically possible to compress the tax brackets so everyone’s taxes go down, if the plan is reducing taxes. So that either makes them incompetent for not realizing basic math or possibly most $150k to $250k earners were Hillary supporters and he doesn’t care about them.
The few thousand dollars of tax increases paid by each of the $150k to $250k tax payers will not be anywhere near enough to offset the tax breaks given to every other group of tax payers. So it almost feels vindictive, which is odd because I was a Trump supporter (if only because I despised Hillary).
That’s why I think there is mixed support for this tax reform. A lot of people on both sides agree that something needs to be done to simplify it and close loopholes but when it comes to specifics about the actual wealth redistribution, the picture is not as clear. And it’s not an easier problem to solve than healthcare (which makes me nervous about prospects for this Congress to get it done lol).
I’m not sure the optics are very good currently for the proposal, at least for the larger middle class tax base. But it’s only a rough draft and that can and hopefully will change as it goes through Congress and CBO evaluations for each iteration.
[quote=“TripleB, post:92, topic:1661”]
If you make between $150k and $250k, your taxes increase by a few thousand dollars.
[/quote]This doesn’t sound correct. The overall intent of the tax reform is to reduce the overall taxes paid by all groups of taxpayers, so, although there will be some outliers that end up being disadvantaged due to their specific situations, a large group of upper middle class taxpayers making $150K to $250K should see their taxes go down, not up.
The exact structure of the tax reform is still being negotiated, as are the actual income thresholds, so I’d really like to see the source suggesting that a huge number of upper middle class taxpayers will see their taxes increasing by a few thousand dollars.
I’m not talking about loopholes or tax deductions. I use the standard deduction. I’m specifically referring to tax brackets. Ignoring all loopholes or deduction eliminations, the tax bracket proposals are compressing in such a way that people in lower tax brackets pay less. People in the highest tax brackets pay less. People in the middle tax bracket ($150k to $250k) pay more.
The tax brackets are being compressed down at the lower and higher ends but being “compressed up” in the middle end. So ignoring any kind of deduction changes, my taxes go up. That’s bonkers for something pitched as a tax break. It would be trivial to both compress the brackets and reduce taxes for everyone. Just raise the limit where the new middle tax bracket starts. Then my taxes go down, too.
Look at the 28% band. It goes from being 28% to 33%. If you make $112,500 to $190,150, your taxes go up 5% on all income above $112,500. Literally everyone else has their taxes go down. The 10% bracket goes up to 12% but the standard deduction goes up alongside this so the lower income earners will do better under new rules.
Whereas someone making $190k AGI will pay an extra $4k in income taxes.
[quote=“TripleB, post:96, topic:1661”]Look at the 28% band. It goes from being 28% to 33%. If you make $112,500 to $190,150, your taxes go up 5% on all income above $112,500. Literally everyone else has their taxes go down.
[/quote]The actual income thresholds have not been set yet, and we also do not know exactly what deductions are being phased out and in what way, so the picture above is highly misleading.
By the way, the income figures that go into each tax bracket are based on your taxable income, meaning income after you apply all the deductions. The standard deduction is going up substantially, which means that a smaller portion of your gross income will be taxable, so the above pictures are misleading in a number of different ways, as for a lot of people the taxable income will be going down.
In other words, suppose that your gross income amounts to 100 widgets per year and your tax rate is 15% on this entire amount, which is 15 widgets. In this instance, a tax reduction can be accomplished in a couple of different ways. First, if you reduce the tax rate to 12% but leave everything else the same, this tax reduction will have saved you 3 widgets. Alternatively, if you are given a deduction of 25 widgets, but the tax rate goes up to 16%, you have the exact same tax reduction in the amount of 3 widgets, because the new higher tax rate is now being applied to a smaller portion of your gross income.
You’re ignoring the increase to the standard deduction and the changes in the lower bands.
Right now if you make $175,000 and just claim the standard deduction your bill will be $40,258
WIth the proposed changes in the chart the bill will be $39,915.
At $190k income its a $406 increase with $44,458 now and $44,865 after.
@admiral@jerosen Are you factoring in the elimination of the personal exemption?
The standard deduction in 2017 is $6350 and the personal exemption is $4050.
The new tax proposals double standard deduction and eliminate personal exemption. So the net benefit of the deduction is only about another $2,000 of taxable income reduced which is $600 in tax savings at the 33% bracket.
Given taxes go up $4,000 in my target band, the $600 tax savings is fairly meaningless.
