I get that the elimination of the MID would make homes drop in value (Fed reserve paper on it says 6-7%). I don’t get why some countries impute rent on homeowners…and why I should consider it a tax savings.
They do it because they can, and you can consider it savings because it could be done, but is not 
.
I think it’s a stupid idea and I’m surprised it even exists. The simplified graphic in the article shows two people who buy two homes and rent them from each other, then pay income tax on the rental income, which wouldn’t exist if they lived in their own homes. I suspect the reality would be quite different, at least under current tax laws in this country, because there are certain expenses that aren’t deductible to homeowners but are deductible to landlords, like property maintenance and property taxes (I know these are itemizable for homeowners, but landlords can just deduct them, so bear with me). These expenses could be huge, and the landlords could charge each other artificially low rent (or even market rent if there’s enough mortgage interest to deduct), so they could actually pay less income taxes as landlords than as homeowners. I floated this idea on FWF ~9 years ago – two close and trusted friends/relatives living in substantially similar (in terms of value and rent) properties would be better off financially if they rented from each other than if they lived in the unit they owned.
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Eliminating the mortgage interest deduction also hurts new/prospective homeowners a lot more than longer time homeowners. Because mortgage interest is much higher at the beginning of a mortgage, the deductions are greater. The longer you’ve had your mortgage, the less interest you are paying and the smaller deduction you have.
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I’m thinking I should have taken a 401k loan this year instead of reducing my contributions for home renovations. Oh well. Bumped up my contributions for the last few paychecks of the year to get me close to the max.
Or it helps prospective new homeowners because the home prices drop 6% to 7% per Fed paper mentioned above.
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Absolutely. It could help prospective homeowners over time. However, those price adjustments will take time to happen. I was more referring to short-term prospective homeowners.
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I’ve read through most of this thread.
Very little discussion about what this bill is really about…and that’s cutting corporate taxes. That’s really the meat and bones of the entire thing.
Knowing that just cutting Corp taxes isn’t very politically palatable…the generic talking point of “cutting middle class taxes” has to be somehow included.
But then you’ve got to get the numbers to somewhat balance…because they are attempting to pass this via Reconciliation…so there is a limit to what they can add to the deficit.
You don’t need to be a math or tax major to realize that tax burdens are going to have to go up for certain segments of the population to make all of this work. And that’s why you are going to see things like the 401k caps come way down being included.
I’d venture to guess this plan will be a net negative for most people on this forum…just a hunch. But be prepared for some unpleasant details when this is released next week.
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It actually could be, but the problem is they aren’t willing to pay for it in one of the more logical ways. Let’s say for simplicity that corporate income tax revenues are $330B. Capital gains benefits cost about $100B. Step up at death costs about $50B. I’m making these numbers up, but it’s something similar to this. The effect of dropping statutory rates down to 15% would cost less than $150B.
Of course, there are other reasons for the capital gains preferential rates, but just pointing this out as an example. Since corporate income taxes only account for ~10% of federal tax revenues, decreasing the corporate tax rates can be made up relatively easily by eliminating a couple personal deductions or just slightly increasing personal income tax rates. I’m actually a fan of eliminating corporate income taxes, imposing small net worth taxes, and increasing personal income tax rates, but there is basically no support for this because no one in Congress is willing to consider actually changing the system - they just want to play around with rates and specific deductions.
+1
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Does no one believe in the Laffer curve anymore? Cutting corporate taxes may serve to increase tax revenue.
At 0% tax rates, there is 0 tax revenue collected because there’s just simply no tax.
At 100% tax rates, there is 0 tax revenue collected because no business/person would operate in a free market, to hand over all of their profit to the government.
As you start to increase the tax rate from 0% to 1%, you see an uptick in tax revenue.
As you start to decrease the tax rate from 100% to 99%, you see an uptick in revenue because someone will work for the ability to keep at least some of the profit.
A parabolic curve forms between 0% and 100% tax rates whereby the maximum tax revenue is collected at the top of the curve, and either raising the tax rate or lowering the tax rate serves reduce tax revenue collected.
There’s billions of dollars of cash held overseas in Ireland by US corporations who don’t want to pay 35% income tax. By reducing the corporate tax, companies may repatriate funds back into the US. This will be a gain in tax revenue collected.
Of course, the tax rate is lower, so a smaller portion is created, but depending on how much money is repatriated, and how many future jobs are retained domestically (versus offshoring to Ireland), we may have an increase in overall tax revenue. We may not, no one knows. But to look at the pure numbers of corporate tax collected in 2017, and then estimate for 42% less of that in 2018 (42% of a 35% tax rate is 20%), is ignorant and foolish.
Or it might be brilliant if the government raises taxes on individuals to offset for the amount expected to be lost, and now the government gets an “unexpected” windfall in overall tax revenue.
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Certainly the Laffer curve is real, but find me an economist who can tell me exactly where the vertex is. Maybe taxes need to be higher?
I’m not sure repatriation of money will make any real difference. Those companies with money overseas have plenty of capital here. And, if they don’t, they can certainly borrow against the money they have overseas at rock bottom rates.
If we lower rates, who’s to say Ireland doesn’t lower it’s rates even further? It’s a race to the bottom in which no one wins
I’m not saying you’re wrong. It’s just that there’s a reason economics is referred to as the dismal science.
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That would be incredible if Ireland lower rates further! And then all countries compete and lower taxes. It’s a race to the bottom where every taxpayer wins! At the expense of government bureaucrats and people on the government dole.
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I’m sure you don’t believe the peak of the Laffer curve is near zero, but this is where rates will be if countries keep lowering rates.
Correct, I do not believe the peak of the Laffer curve is near zero, however, my goal is not to maximize the Laffer curve (which maximizes government revenue). My goal is to maximize the quality of life of individuals and economic freedom. I believe reducing taxes increases individual freedom.
Want to support a war? Donate money to whichever side you believe in or volunteer to fight. Want to end poverty? Donate to that charity or volunteer at a soup kitchen. With lower taxes, we’d all have greater freedom in deciding what causes to support, rather than which causes were supported by lobbyist groups.
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The natural way that government spending occurs is that the government will spend every single dollar it takes in PLUS however much extra the population is willing to let them. This being the default means my default stance on tax rates is automatically lower = better.
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Fair enough, and maybe you’re right, but with your proposal, we would never be able to go to war. How much money could we have raised to fight Germany and Japan in WWII? Who would have given? How much? Considering how little people save, there would be nothing there for the war effort.
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IN WWII we sold war bonds totaling $185B which financed most of the war costs.
Thats equivalent to nearly $3 trillion in todays dollars.
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Perhaps if American didn’t front the bill then Europe would have figured out how to do it themselves. Similar to a 31 year old still living at home with his parents. If his parents kicked him out, maybe he’d figure out how to get a job and rent his own apartment. It’d be a struggle, but he’d figure it out.
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Why wouldn’t we have been able to go to war? Congress actually declared war in 1941 (unlike today). Why assume that a congress willing to declare war isn’t also willing to adjust tax rates to raise more revenue?
And of course jerosen points out the proliferation of war bonds as well.
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I think the youngins would say I just got schooled.
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