The middle class doesn’t want a tax cut. It wants better government
washingtonpost.com
washingtonpost.com
The article is basically saying, those who aren't paying any income taxes are quite happy with their income tax rate. Meanwhile, anyone who lives in a more expensive part of the country like CA/ Bay area is paying higher taxes: 30%-40% for most people, not counting all the taxes paid on the employers side as well as all the taxes you pay with the remainder of your paycheck.
Still, you might think, that's enough to live off. But, if you are working in high tech with a decent salary, you've only got so many years before you get aged out of the work force ~ 50 according to the other article: http://www.businessinsider.com/stressful-lives-of-older-tech....
Of course there are exceptions to this and any generalization, but that doesn't make this generalization less valid or less interesting.
The standard deduction isn't the only deduction available.
If you're filing as a married couple and maxing out your 401k and/or IRA you're suddenly saving money and gasp down a couple of tax brackets. A married couple making $100k jointly, and both working jobs with benefits, could put away $36k/year in 401k money alone, which is more than enough for a comfortable retirement after 30 years (and I didn't even take into account any potential employer matching). A couple with one earner can save 23.5k (18k + 5.5k traditional IRA).
If you pay for health insurance, more deductions. Ditto for FSA benefits.
If you have eligible educational expenses (kid in school/college, spouse getting another degree etc), same thing.
If you have receive commuter benefits through work (buying a parking or public transit pass)...you guessed it. (weirdly this is the only deduction you can take for FICA, which is otherwise calculated on gross income).
If you're itemizing deductions, there's mortgage interest, state tax, property tax, charitable contributions, car registration fees. I'm sure I'm missing more here because I don't itemize.
The point I'm making is, no one takes just the standard deduction. If you're going to add all the other taxes in, you really should count all the deductions you can take too. Add all that in and there's no way you should be paying anywhere close to 30%.
It's like the mortgage interest deduction, which doesn't even help homeowners: it feels like a middle class giveaway and people don't want to lose it. Chopping it would make everybody (except real estate brokers) better off, but the innumerate majority would shriek.
I think a compromise that might work is similar to what happens with the mortgage interest deduction: a cap. Maybe you only get to deduct state and local income tax up to the top federal tax bracket.
The mortgage interest deduction helps mortgage lenders by subsidizing mortgages, which increase demand for them; and it helps people who owned homes when it was passed by increasing the market-clearing price of homes. It doesn't help people become home owners, and people who become homeowners while it exists are hurt as much as helped by it, but would face a one-time additional hit if it ended (both from increased total mortgage cost and the decreased home value because buyers would no longer be subsidized.)
Essentially, the deduction increases the nominal price of homes by encouraging (compared to not having the deduction) getting into and remaining in debt to own them.
Even if you don't go for that argument...
- It disproportionally helps richer people (you get a bigger benefit if you have a $1m house than a $100k house).
- It encourages riskier borrowing.
Even though my taxes are quite low here in California when compared to other places I've lived (France, Germany, Australia), I find overall it costs more to live here. Taxes + medical expense total more here than in those other countries. Fuel is cheaper but I have to drive more to get around easily. The schools are dreadful (and Palo Alto schools are supposedly the best in CA) so I paid a lot to get around that. Telecom is expensive (well, cheaper than AUS!). Etc. Not to mention that a strawberry doesn't taste like strawberry.
Americans seem to put up with huge transaction costs (both in time and money) to get some "savings" which seems backwards.
- Tax code loopholes used by the rich to pay nothing should be simplified / removed.
- Decamillionaires and up should pay more than zero, i.e., Alternative Minimum Tax (AMT) isn't working except to snare the upper-middle class.
- Corporate income taxes are far too low, and need to return to 1950's levels.
Unfortunately, doing any of this requires difficult-but-worthy fundamental changes first: campaign finance reforms, lobbyist reforms and basically a purge of corrupt politicians in DC.
I don't like removing the state tax deduction from federal tax. With federal income tax not being marginal anymore it is the real percentage deal, and then you have to throw state tax on top of that? Yikes thats a big tax increase.
I LOVE the lowered corporate flat tax for entities. For some reason he throws in pass through entities like single member LLCs, which suggests that all the personal income tax brackets are a complete red herring since anyone can just form an LLC and get taxed at 20% instead. How is that not the main discussion?
It could all be balanced by the trillions in repatriation. Even though the US government could not count on getting trickled down tax revenues from all that money back in the economy, they could count on a lot of being parked right back in US treasuries, which is basically the same money in a different account.
It's my impression that the US government is fairly incompetent by first-world standards. I'm not just talking about the presidency, but about the total overall governance. Is that accurate? Or is it just that US news reports US problems more than they report problems in, say, Netherlands or Switzerland, so I hear about our problems and don't hear about theirs?
Let's just say it's not a great idea.
Also, it's pretty important for social cohesion and source diversity that almost everyone pay some tax and receive some explicit benefit. For example if tax is something other people pay, why not set it high? And if everyone gets social security, not just means-tested folks, then support for the program will be solid; if only those people get it, then why not cut it?
On the source diversity side: CA gets too much of its tax from rich people. (As a lifetime believer in progressive taxation it hurts me to say this, since they are the folks who can afford it the most easily, and mostly they are happy to pay it). But most of the highest payers get their income through cap gains; when the economy sags (so more spending is needed) such taxes sink aggressively, while the wage taxes fluctuate more smoothly. So again, a wider tax base works better.
If humans were perfect little machines none of this would matter as saving and borrowing could be countercyclical. Ha.
Appreciate the out of touch media speaking for me as usual though.
If you're concerned about state taxes, well, nobody is forcing you to live in that particular state. I'm not sure what your point is but even in SF if you can live off of $200k+ a year you're leading a fairly excessive life on average.
If you get hit with 30% by one institution, another 2% by the same institution in another category, and then another 10% by your state, people are going to say they got taxed 42%.
I have lived as a resident in 3 states. The combination of city, county, and state taxes has always been around 10% for me. You are right though, I could have emancipated myself while a minor and moved to Florida where there is no income tax. I could have chosen a different university where I didn't have a scholarship. And subsequently I could have lived anywhere after that and enjoyed the lowest tax brackets because of my lower salary.