Among the Tax Bill’s Biggest Losers: High-Income, Blue State Taxpayers
nytimes.com
nytimes.com
I cannot see this bill as anything short of theft. Why do I have to pay double-digit percentage more on my taxes to give the ultra rich a tax cut? In what fucking world does that make any economic sense.
My rent isn't tax deductible. Why is yours blessed with such a status (In the form of a mortgage, and property tax deduction)?
All that mortgage tax deductions do, economically, is increase the overall price of homes, and have non-homeowners subsidize home-owners.
We want taxes to be fair, no?
I agree with the sentiment though. The realtors have arguably the most effective lobbying efforts, and to be able to tie their industry in with the "American Dream" has been very effective.
I was out in DC earlier this year speaking with my congressional representatives about some changes to the bankruptcy code. We were working with a lobbyist who said something along the lines of "everybody knows when the realtors are in town. Nobody tries to get meetings that week because they have such a great mobilization effort, everyone gets booked up."
As someone who knows many landlords: Completely wrong.
They buy properties with a loan. They pay interest on that loan. The money the renter pays goes towards the interest payments. Renters are essentially buying the properties for the owners.
And landlords can keep deducting it, no matter how many properties. Homeowners can deduct only for two houses. And renters deduct none of it. The landlords literally deduct what their tenants are paying (interest, which is part of their rent).
And not sure about your other comment, but rarely do renters of similar size houses/apartments pay less than homeowners. As an example, my house I bought only a few years ago: I pay just a little more than some 3 bedroom apartments (which are much smaller than my house). Most 3 bedroom apartments in desirable areas in my city pay more in rent than my monthly payment.
And then with all the deductions I was getting, I was effectively paying less than most 2 bedroom apartments, and some single bedroom apartments. And if I take into account the amount going towards the principle, I'm paying about the same as most single bedroom apartments in my area.
I did not put in a huge down payment. Less than 20%, in fact.
Accordingly, I'm not sure it makes sense to discuss landlords when discussing the mortgage interest deduction.
Renters already are paying a piece of the property tax. It's built into the rent. They just can't deduct it.
In general, I'm not sure how great it is that we favor home ownership over renting in our tax policy. My bigger issue is being able to deduct mortgage interest but not rent. Mortgage interest is essentially rent on money, so I've always thought it'd be fair to make rent (or a percentage of it at least) deductible as well. Or, even better, eliminate the mortgage interest deduction entirely.
Full disclosure, I'm a homeowner. Fuller disclosure, my home is paid off, so it's easy for me to say these deductions shouldn't exist. I would gladly give up the property tax deduction if that additional revenue was used for something other than cutting taxes for the wealthy, though.
However if a landlord is like a business owner, and property tax is a business expense, why should they not be allowed to deduct it (just like any other business expense)?
Amazon has expenses too related to storing products in warehouses, which they can deduct. Part of that cost is priced into the product. So in theory, customers should be able to deduct a portion of every product they buy from Amazon?
We built a broad middle class by favoring home ownership, allowing regular folks to build wealth in the form of their primary residence. I think we need to get back to that, and that does mean making policy decisions that eats into the margins of landlords.
Sometimes that's true, sometimes it isn't. Sometimes people wind up with underwater mortgages, rather than building wealth.
I would favor eliminating all business deductions, combined with lowering the tax rate enough to make the change revenue neutral.
Oh wait! You didn't think you were rich, right?
Oh wait! They didn’t think wealth was relative, right?
I love that a factual statement is getting downvoted, btw. Get a grip on your frame of reference, HN.
But, we're talking about taxes and mostly about a couple specific provisions: SALT deduction, mortgage interest deduction, and the higher-end tax rate. Relative wealth is definitely not relevant to the SALT and mortgage interest deductions. (To review, the mortgage interest deduction subsidizes the rich and the SALT deduction forces people in low tax states to subsidize people in high tax states)
The only one left is tax brackets. You could argue that tax brackets should take into account cost of living. So, if you earn 100k in Nebraska you'd pay a higher percentage of that than a similar person living in SF. But, I think that doesn't take into account the fact that SF is such an in-demand place to live. You don't have to live in SF. Basically, I'm not convinced that cost of living differences should play a role in taxes.
We dev folks will be fine, it's the classic american middle-management folk who will be put through the ringer with this bill.
It's a product of of irrational anti-tax dogmatism.
But this “tax reform”, in net, does exactly the opposite.
Also tax is on income, not wealth. Unless Bill Gates sells his stocks, its pretty much untouchable.
Most people don't understand this. When they are talking about 'the rich' or 'the 1%', they are really talking about your every day doctors, managers in most software companies, lawyers etc.
Its very hard to notice how poor and how many poor there are in the remainder of the world.
How exactly is this a tax increase on the rich?
I'm not sure of that, though, because that only seems true if you're filing single. MFJ at the same income level puts you in a lower bracket than today. I know there are more single filers than married, and that married filers pay close to 3/4 of all income taxes, but I'm unsure if that results in an overall increase.
Besides, this whole tax plan seems to lighten the tax burden on wealth. The estate tax exemption gets larger (and eventually eliminated in the house plan), and the small business tax rate drops to 25% (S-Corps, LLC, Partnerships, Sole Proprietors) - that's almost entirely going to benefit entities used to manage passive income/wealth like PE, hedge funds, etc. The house plan is a little better here since it reduces taxes on small businesses who don't make enough to benefit from the senate version.
Put another way, if this were really a tax increase on the rich, why are we projecting that the deficit (and national debt) will increase as a result? With income distribution the way it is right now, the only way you arrive at the deficit number is to tax the rich less, not more. The issue here is that everyone is getting a tax cut, and that seems unwise to me without some adjustment to spending.
I don't want to pay more tax and cut medicare just to subsidize corporations and billionaires.
I'm not really, for or against this bill. I used to live in Alameda, CA and thought the taxes were insane. The bag tax, the income tax, the property tax, literally if you didn't have deductions out of $100k you might have a $30k take home. That's the crazy part.
Perhaps we should rethink the government being the biggest employer, and actually make taxes simple and uniform.
That is just not true. Up until very recently, I had ZERO deductions I could take. I made over $100k in San Francisco and my take home was about 65% of my income.
That hardly even merits the word "effort"...and if you are using tax prep software instead of filling out the forms by hand it isn't even that...it's just entering one number in one field.
False; the tax reform creates a whole host of new targeted tax breaks; it's not about simplification, just moving the tax burden. And, in net, moving it to the poor.
It might also turn out that the pension plans for state employees, teachers, prison guards and police have been underperforming, and unless those pension funds loaded up on Bitcoin at the right time, the California taxpayers are on the hook to make up the difference.
There’s a silver lining, of course - once the high-speed rail is completed, the ticket revenues for the masses excited to go between LA and SF will surely pay for everything.
More like they award themselves pensions that can be funded through these means. For eg: http://www.mercurynews.com/2016/11/01/bart-janitor-grossed-2...
There are many such articles written over the years, including those by Arnold Schwarzenegger, about the impossibility of paying pensions the tune to half a million dollars a year per person, for decades(Given how long people live these days).
Unions graciously award over time to employees to inflate their net compensation package in the last few years(as that is what decides the pensions).
Even productive people, who are at the peak of their performance struggle to make $500K/year. Paying that kind of cash for every single person disproportionate to the value they create/created is possible by only one means- Taxes.
And pensions.
Pretty much bulk of the tax money collected goes out to pay pensions and various other social security benefits, which people awarded themselves way back in time assuming the coming generations will happily pay for with taxes.
Nobody and nothing can satisfy people who think they are entitled to free money.
I also strongly suspect that you are overestimating the magnitude of the tax increase you will see but if course it's very hard to know without the details of your particular financial situation. In particular I will note that the mortgage interest deduction is grandfathered in for current homeowners and the elimination only applies to loans over 500k (and that's only in the house bill. the deduction remains completely in the senate bill. it remains to be seen what happens in reconciliation).
They could have passed a bill that eliminated those deductions and gave corresponding tax breaks to the middle class. They could have passed a bill that skipped the tax breaks for the super-rich and actually cut the deficit. I'm OK with paying my fair share if we were actually solving problems.
But no. We've gotta pay higher taxes while still blowing a hole in the deficit? In what world does that make sense?
The net impact is a tax increase on the very poorest in the short term; and on pretty much the whole segment up to a bit above median income over the 10 year period. Yes, there are individual provisions that, taken in isolation, benefit the working class, but in net it's a loss not a gain.
If we're only talking about taxes paid, then you are wrong there.
2) I think that the whole "over the 10 year period" is a bit of a red herring. The US tax system isn't getting set in concrete with the (potential) passage of this bill. Numerous things will almost certainly change over the next 10 years. Tax breaks set to expire will get extended. Rates will get tinkered with. It's hard to know what might happen. Because of this I think the short term effects matter much much more than what is theoretically set to happen in 10 years.
This tax law has specifically baked in expirations of some portions. When they come up for renewal the GOP will whine and moan about the unbalanced expenditures and they'll either lapse or be supplemented with additional cuts, the corporate side of these cuts is not subjected to this.
It's fine to say "Oh, things may change down the road" but today they designed a tax cut that will benefit the rich, I do hope we're saved from this ridiculous hand out down the line, but that will be by the actions of other people, these politicians have written the bill as they desire it.
But that's later! Right now it's a red herring to call the mess a mess.
They didn't do this in 2013 when some of the Bush tax cuts expired. There is little reason to think that they will do so in this case.
What does this mean? Rent that the home would go for?
I wonder how that would work out in LA where we already have high rents, high houses prices, and lower wages.
I don't quite know how much one can deduct off their mortgage in taxes but I would assume the imputed rent would be a similar amount in such a market?
Could you show at least one? When I look for this, I don't see articles supporting your position.
How does _that_ make sense? Shouldn't the richer areas help pay for the poor? Why not do something about the high taxes in your state instead?
Except those generally rich states are, in fact, currently net federal tax subsidizers of the rest of the country; this tax reform will actually reduce that because the rich people who are concentrated on those states will get huge tax cuts, whereas poorer people in the rest of the country will get big tax increases.
> Shouldn't the richer areas help pay for the poor?
So, what you are saying is we shouldn't adopt a tax “reform” that massively reduces progressivity transferring tax burden from the rich too the poor?
If so, on that much we agree.
If you want to lower your State tax bill then lobby your State representatives. If you want to lower your property taxes then lobby your local officials. Or vote with your feet and move somewhere that doesn’t subscribe to those high tax policies.
They aren't. The high tax states generally are net contributors to the federal treasury, the low tax states are generally net drains.
No one asks this question, because the premise is completely flawed.
http://www.businessinsider.com/the-states-the-most-and-least...
High tax states tend to pay in more than they see back in benefits.
That said, it's always been a little odd to me that we could deduct our mortgage interest and property taxes, but a renter cannot even though they're paying a good portion of that on our behalf.
I'm not going to suggest that it is as simple as the following, but the underlying rationale is that the renter benefits from lower rent than it would otherwise be because the landlord has lower expenses.
I'm under the impression that it's the corporations getting the biggest big tax cut in this bill -- so possibly your employer.
>This tax bill utterly fucks me, to the point I'm considering selling my house to get ahead of the inevitable housing crash.
Can you imagine any type of reasonable tax reform that would not cause someone's tax to go up? Just the fact that some folks' taxes will go up does not make it a poor plan.
If your deductions are about $60K, then whether you feel like it or not, you are rich. And most tax overhauls would likely tax wealthier people more. This bill is a bit problematic as it taxes people in the upper middle class the most - whereas the rest of the lower/middle class and upper class get a break.
You are confusing income with wealth. They are somewhat causally related to be sure, but totally different. Case in point: I started receiving a high income at the age of 40 in SF, where before I earned a poverty wage. At 42, I have much less wealth than your average SF school teacher of the same age.
Welcome to libertarianism ;)
Deduction used by GOP voters? Keep! Deduction used by Democrat voters? Remove!
This bill is a weaponization of the tax code against majority Democrat voting states.
People harp all the time on this site about the plight of the poor, the undeserved, and more but damn you guys don't suck. You are damn generous when it comes to some other person's money but have you pay more and it is Armageddon. Quit bemoaning the wealthy and recognize you are one of them. It doesn't take millions to be wealthy in this country and certainly not billions.
As with the city/state tax issue, all deductible taxes favor the wealthy. This takes an otherwise overly progressive tax system to steals it back by slight of hand. Politicians can show the poor who the exploit "see these high rates" and then bury a myriad of breaks in the system to give back to those who provided the funds needed for election.
Hell i am going to get walloped and I will adjust. I qualify for the 7500 EV rebate for my purchase in 17 and I am glad it is going; though for two reasons the first being the rich don't need help buying cars and the second manufactures late to the game should not get the benefit born out by the early adoption manufacturers.
The Joint Committee on Taxation finds no reason to not favor the bill. Deficits we experience don't come because of tax cuts, it comes because baseline budgeting out paces inflation and GDP growth.
Guess what guys, its time we pony up and pay for what we want. We don't get to pontificate on forums all day long. We have to pay the piper just like everyone else and many of us will benefit from the cut as well as suffer some losses but in the end those on the lower brackets will see nearly all their tax burden decreased and isn't that what we all keep saying we want, to help them up?
Go read the CBO report. This is blatantly false. If you believe this and are not a troll, please educate yourself.
However, it's quite possible you won't have a crash but simply a consolidation as homeowners who can't afford the taxes are replaced by ultra-rich landlord-speculators.
And of course, this makes sense to the ultra-rich.
You should consider complaining to your local and state government about your high taxes. Why should workers in other states subsidize local taxes for higher cost of living areas through federal deductions? Force your politicians to justify what you are paying.
Because those workers do not in fact subsidize my local taxes. As a Californian, I subsidize those low tax states as CA residents pay more in federal taxes than the state gets in federal benefits.
This bill is just a GOP assault on states' rights.
Same with housing. The rich see single family homes as a good investment at any price. The poor see anything other than BMR as not for them. No one wants to house yuppies other than a constituency which is too privileged to have liberal credibility and too poor to leverage policies driven by the rich.
According to: https://www.investopedia.com/news/how-much-income-puts-you-t... "The top 5% of households earn an annual income of $214,462 or higher"
Most folks in the US, or the world would consider you rich and deserving of paying more taxes.
For comparison, "the U.S. Census Bureau reported in September 2017 that real median household income was $59,039 in 2016".
I have not looked in depth at the tax changes (ie read the changes in detail), but I do think there's more to the changes than just giving the ultra rich a tax cut.
It seems to me that those living in high tax states, with expensive housing, appear to be negatively impacted.
Two families both make $250,000 a year. One is in New York and one is in Texas. The family in Texas is carrying more of the federal tax burden than the family in New York. Why? Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes.
If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions.
If we taxed people based on the benefits they receive from the government, then the homeless would pay a fortune.
This is a comical simplification. The public and legal infrastructure in America overwhelmingly helps companies and investors make money. Where would UPS be without public roads? Where would Warren Buffet be without a stable legal framework for investment? That's not to mention the military spending that secures all of these fortunes against foreign aggression.
To claim that the poor disproportionately benefit from government spending is missing the forest for the trees.
This is provably and patently false. Homeless people don't have their good protected by the police, don't get fire protection, don't drive, don't get deductions for businesses, don't get inheritance from their wealthy, millionaire parents, don't get lobbying influence. The entire system is set up to the benefit the rich with a few social stability benefits for the poor, which in turn keep them from uprising and storming the gates of the wealthy.
If my taxes were going up to pay for something like single payer, I wouldn’t complain for one minute. However, in this instance, my taxes are going up to increase Ivanka Trump’s inheritance when that stuttering idiot father of hers dies. That’s some bullshit.
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1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not?
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2. How do you feel about the mortgage interest deduction? A very similar question could be asked.
Two families both make $250,000 a year. One took out a $750k mortgage and one took out a $300k mortgage. Why should the second family carry more of federal tax burden than the first?
I don't have the right answer, but it's something to consider.
The Mortgage Interest Deduction is simply a wealth transfer from people who don't own homes to people who do own homes.
[1] https://www.theatlantic.com/business/archive/2014/05/which-s...
Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms.
Morw to the point, normal homeowners who have trouble with the setup cost of such an arrangement would pay higher taxes to subsidize the rich, who do not have trouble with the cost of setting up such a tax avoidance scheme.
Perhaps more to the point, not deducting them mathematically creates structural incentives for inefficient local decisions.
Either way, if you want to tax wealthy people then you can introduce a wealth tax.
It's the same thing - the house you can afford is one for which you can afford monthly payments. Unless you buy cash, which on the average almost nobody does for low-mid-range market.
Often times this also gets a bonus racist angle since minorities have a harder time securing a mortgage which traps them into overpaying for housing while struggling to save to pay less for their housing.
Guess what happens to rent if cost of ownership rises due to interest not being deductible?
On the long term, this could depress the housing market and thus lead to lower prices. That would depend on the overall market state - in markets with housing shortage that probably won't happen anyway.
Not sure I understand. If expenses rise, housing prices fall, not increase.
And yes, a landlord might say "my expenses went up so rent will go up as well". However, the market sets prices, not landlords. He might raise the price, the tenant leaves and his place sits empty.
There are plenty of people out there losing money as landlords because their rents are higher than what people will pay.
There's no objective reason why it should be. But since deductions are largely arbitrary policy instruments anyway - because property tax deduction encourages and makes easier home ownership (at least this is the theory) and the government wants more home ownership. State tax deduction does not really have such goal (unless you see moving people to high-tax states as a goal, but I don't think federal government identifies such goal).
> 2. How do you feel about the mortgage interest deduction? A very similar question could be asked.
Same as above. Only much bigger - given 20% down mortgages, mortgage interest - especially for new mortgages on standard equal-payment plan - is very substantial. So, tax deduction makes owning home easier - and, on the reverse, removing this deduction would seriously hurt current mortgage owners and discourage new ones.
The difference here is that with property-related taxes there is a policy goal linked to it, and also long-term choice individuals make based on this policy, which would make them very upset if the policy changes. With state taxes, there's no real policy goal (for federal government at least) and most people don't choose state to live it because of state tax deduction.
Wouldn't you agree that choosing to live in particular state is just as much of a long term decision as choosing to live in a particular house?
State tax deduction has an even better goal: avoiding discouraging tax and spending decisions that pay for themselves and provide additional returns before considering federal tax distortions.
New York gets about $0.80 for every $1 of taxes paid. Texas gets about $1.50. [1]
[1] https://www.theatlantic.com/business/archive/2014/05/which-s...
That isn't correct. Pork spending and state-targeted spending to bribe lawmakers has been a traditional political activity since the founding of the US.
That's a bit of a stretch, no? The EU has higher tax rates than the US coastal states and their economies generally lag the US.
And Texas has been one of the fastest growing states in the US, yet has some of the lowest taxes.
Should I go on?
This right here is the issue: removing the SALT deduction discourages public investment that is a net win before considering the distorting effect of federal taxation, while preserving the deduction means that federal taxes don't have a distorting effect. I've written up a very simplified scenario illustrating this:
You could argue that the family in Texas is getting more services for their tax dollar. But, that is almost certainly false, because people who actually make enough to pay taxes don't tend to consume the kind of services that cost tons of money (aka. social services).
And there's a good reason to eliminate most deductions. A lot of deductions complicate the tax code, and many likely exist to create loopholes by which people can avoid taxes.
The purpose of a deduction usually is to promote a certain type of activity (buying homes, giving in charity).
>Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction.
While it may be politically motivated, I should point out that interest on mortgages and property taxes were both considered at some point, but ultimately ruled out as being politically untenable. So it's a bit of both.
The GOP house Ways and Means head is from Texas which is a red state, relies heavily on property taxes and has no income tax.
Coincidence? I think not.
This is all a crazy moot discussion anyway, because it's not even a balanced cut - its a cut that put the whole nation into a huge deficit while increasing taxes on labor-based incomes. So some already very wealthy capital owners are getting a very massive transfer.
This is actually the one portion of the tax cut that I'd like to see retained... but I am really struggling as to why they wanted to remove the SALT exemption except to punish blue states. The party of states rights just removed the ability for individual states to try and innovate on budgetary matters and optimize spending into certain sectors of their economy they find particularly relevant - repealing this is a federalist policy which doesn't really meld with their messaging.
This assertion isn't true. Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart.
https://taxfoundation.org/federal-taxes-paid-vs-federal-spen...
5 of 24 years (1981-2005) CA has received less. And if you look up the scattering (but less concentrated) stats from 2005-2017, CA has been getting less than 80% of its money back from the Federal government. So its really 31 of the past 36 years that CA has been drained to help red states.
https://taxfoundation.org/states-rely-most-federal-aid/
> If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions.
That is a strawman.
Progressive taxation has nothing to do with aggregate wealth and everything to do with individual wealth.
Much of that funding goes to subsidies (farming, energy, etc) for which the whole country enjoys the benefits, if not proportionally. A state like SC that has a disproportionate amount of military bases is going to receive far more per capita government funds, though the local SC taxpayers only get marginally more benefit than the rest of the country.
That's not to say you are wrong that rural states get better de facto tax treatment than urban-focused states but it's a bit more intertwined than it sounds.
I wouldn't agree its marginally more benefit. Those bases being shut down would crush SC's economy within 50 miles of every base.
Economically, they enjoy 100% of the benefit and pay less than 5% of the costs.
The US is not, in any real sense, threatened militarily that I benefit from a large defense budget. Similar is true of food and energy subsidies. They have strategic value but they don't benefit me economically. There is a reason food and energy imports are still competitive despite the subsidies.
The benefits of what you mention is it helps broaden the US's foreign policy options, not actual economic value to the average American.
The same reason legitimate business expenses (including, of course, state and local taxes paid by businesses, which are not affected by this reform) should be and are, and the same reason lots of personal expenses (some of which are, some of which are not currently) should be: expenses which are essential prerequisites to or consequence of earning income should be netted against income before taxing it.
My state and local income, property, and sales tax are the support payments for the physical and social infrastructure that allows me to earn the income I do. With the federal deduction (and assuming state taxes with a marginal rate below unity), it's in my interest to engage politically to optimize for my net return before federal taxes; without the federal deduction, it becomes worthwhile to sacrifice income (before and after) state taxes for lower state taxes, so long as the reduced federal tax cost of the lower pre-state-tax income is enough to offset the reduced net-of-state-tax-but-before-federal-tax income.
This encourages producing less market value when the net after state taxes is equal, encouraging economic contraction.
For illustration, suppose, for simplicity, a federal flat marginal tax rate of 30% percent, and the ability to make $100K with a state tax rate of 10% or $94K with a state tax rate of 5%, and no other deductions.
Ignoring federal tax, the optimum choice is to choose the $100K income with the 10% tax: it provides an $90K net (of state taxes) income, compared to $89.3K in the lower-base-pay regime.
If you deduct state taxes from federal taxes, the incentives are unchanged, the net becomes $63K vs. $62.51 with the high-income, high-tax choice providing the higher net income.
But if you don't deduct the state taxes, the incentives are flipped: producing less market value even after the cost of local infrastructure becomes preferable, with the net being $60K vs. $61.10K.
Supporters of this proposal say it punishes people in high-tax states for bad political decisions; but the math is that it punishes them for good political decisions—for choosing increased taxes when the increase in market value produced that those taxes enable is greater than the value of the taxes.
Roughly: if I work 6 hours, I have to work an additional hour a day just to earn money to give to the state; you're suggesting I should work an additional 15 minutes to earn money to give to the feds just because I earned the money to give to the state.
Absolutely I shouldn't be paying taxes on money earned just to pay taxes. It's not like I'm "shielding my earnings", because those earnings are earned specifically to get confiscated - you want me to earn more just because someone else took my money.
Reasonably necessary ones should be, or a value to cover them rolled into blanket deduction everyone gets, sure.
> You need to eat to live - should food expenses be deducted?
That's why there is a medical costs deduction. (It only cuts in at costs above 10% of AGI, which is a bit wonky, though.)
> You need to be clothed to go on the street - should clothing expenses be deducted?
Same answer as for food.
[1] - exactly how the transition from "below poverty line" to "above" should be handled, to mitigate the tax cost transition, will require a bit more thought than this casual comment. Suffice to say we pay representatives to sanely figure out such things.
That gets into a rabbit hole pretty quickly. What's mundane? Am I allowed to shop in Whole Foods or only eat at McDonalds? What if I care about my health - should I be penalized by taxes for wanting to eat heathy (and therefore more expensive) food? What if I don't eat a lot but I must buy very expensive clothes because of peculiar set of allergies? Managing all those would make each tax return like a PhD thesis and make handling 300M of those infeasible.
> If you're functioning at that level, you shouldn't pay taxes
That is what is happening for low income people in US right now. Lowest quintile pays virtually no federal income tax.
> , all documentable taxes paid should be refunded if your income is below the poverty line
Since it's impossible to prove who bought certain thing, this would be huge motivation for abuse. Do you want to pay 10% sales tax on $100K car or pay a poor person $500 and have them "buy" that car, get the tax refunded and save $10K? Of course, you say, there are title records. For cars. Which need now to be checked (welcome another thousand of government employees, with their salaries, pensions, etc.). And how many expensive things don't even have formal ownership registration? These things get very complex and expensive to handle very quick.
> That's basically what the poverty line is
Poverty line is usually defined as percentage of median income. This is largely arbitrary and handwavy, and used because people need to use something. But it's a flimsy base for the tax policy.
> exactly how the transition from "below poverty line" to "above" should be handled,
This is called "poverty trap". It's a well-known phenomenon, especially in a welfare state.
> Suffice to say we pay representatives to sanely figure out such things.
We do pay them, and pay them very well, but their delivery on the "sane" part is very short of the desired, so far.
Not in the US. The main US measure is based on three times the cost established for a ”minimun food diet” in 1963, adjusted by the standard inflation measure (CPI-U) since then.
That's essentially how business taxes work, so why not?
Second, it's interesting to see people who were in favor of tax increases suddenly change their mind when it hits them. While I agree that tax cuts for the rich seem unnecessary, some tax hikes for the upper middle-class aren't out of line compared with a Democrat led tax plan. I wonder how much our own personal interests in our money affects how we view tax plans? Most people, no matter how rich they are, seem to want those just richer than them to be taxed more.
Finally, although the removal of the SALT deduction will cost me significantly, I'm not sure I understand how the deduction makes sense. Why should a state raising their taxes mean you have less of a federal obligation? It only makes sense to me if states with higher taxes use less federal resources.
"It only makes sense to me of states with higher taxes use less federal resources." Which is entirely the case.
I'm very much in favor of increasing taxes, if that tax increase went to taking care of some societal problem (I don't care what it is, so for the sake of argument, let's just stipulate that it's a problem we both agree needs funding to solve). In this case, anyone paying more in taxes is just subsidizing those who are seeing a cut. It's more of a shift, given that it's projected to increase the federal debt by quite a bit. I'd be okay with that if we were actually putting more spending money in the pockets of the lower and middle classes, but I'm not sure that's the case. If this is really about cutting taxes across the board, I'm okay with that too, but we need to cut spending and I'd like us to take a look at the defense budget before going after social programs.
> Finally, although the removal of the SALT deduction will cost me significantly, I'm not sure I understand how the deduction makes sense. Why should a state raising their taxes mean you have less of a federal obligation? It only makes sense to me if states with higher taxes use less federal resources.
Deducting SALT makes sense in order to avoid double taxation. To me, it makes sense to pay the local govt first, then the state, then the fed, in that order. In theory, they will provide services to us in that order.
Mortgage interest and property tax deductions don't make sense to me, though. I don't really see why I should be able to deduct these, but my hypothetical tenant can't deduct their rent. None of this should have been deductible in the first place.
Not sure if I understand the double taxation argument though. Say local/state/federal tax is 1%/5%/20%. Without the SALT deduction of any form, you get taxed 26% on each dollar which seems intuitive and fair. I think this model makes more sense than exempting certain amounts of money from each subsequent tax-level, but discounting the actual economic implications, I suppose which model seems more intuitive is somewhat subjective.
It does seem intuitive and fair, but I could (to myself at least) conclude it's intuitive and fair to not tax the money I use to pay taxes to someone else. To me, it's more that the taxes just keep coming - after those income taxes, I'll pay sales tax, property tax, etc.
I will say that part of my argument is probably a little irrational, and that stems from the fact that I don't agree with how my taxes get spent at the federal level. For what my town takes in property taxes, I feel they do a great job - the roads are in nice shape, the snow is cleared before my morning commute, services are timely, etc. The state does a pretty good job, even if we do pay one of the highest state income tax rates in the US and have a ridiculously bad governor (Maine), and I agree with a lot of where it's going even if we've needed the ballot box to do some of these things (like expand Medicare). My disagreements at the state level to what we're not spending money on, but that's a slightly classier problem than not liking where the money does go. The federal government, by contrast, seems to light a good portion of our money on fire, and then borrows some more and lights that on fire too.
Deep down humans just optimize for personal profit.
Which is why one must always see themselves as temporarily embarrassed millionaires and not exploited proletariat.
In this case, it looks like the tax reductions are reduced in states that have higher taxes. Well that makes sense, because the states with lower taxes have less to write off (as they have 0% in some cases). Of course Texas would be impacted less, because they have no state income tax. New York and California have a state income tax, so the amount that loop holes help people in those states is much higher. So they effectively will be paying higher taxes. Complain to the state governments, who have crazy high taxes (part of the reason I left California)!
This article honestly just seems to be trying to draw a correlation where there really isn't one. They are simplifying the tax code, that means reductions go away. Perhaps, we should lower taxes? I'd be in favor of that, but I'm also in favor of making it simpler to do my taxes.
This is a very, very, very bad bill, drafted in secret, and being rushed through without hearings or debate. The people in support of this bill should be ashamed of themselves.
Bingo, remember that the next time some politician tells you they are in favor of state's rights.
But putting those aside, I agree with you in principle. Of course the bill hurts people the most who are in high tax states. They want the high taxes, and they got it. Why should the rest of the country subsidize their federal taxes because they are paying more state income taxes? (Actually, there are some good reasons for this, but they should be debated rather than merely dismissing it as a bias against people in those states).
And while I'm not 100% sure, the majority of the population is getting a tax cut - most people could not itemize with a $12000 deduction, and now they're getting another $3-4K ($12K - minus the personal exemptions they're losing).
For years I've been concerned about the increasing geographic gap between rich and poor in America. All talent, capital, and entrepreneurship is increasingly concentrated in coastal cities. This is impoverishing the interior and at the same time driving real estate hyperinflation on the coasts.
The middle class and the young get caught in a vice here. You either live somewhere with affordable real estate but no career opportunities or you live somewhere where you can advance your career but can never afford a decent home and can never escape ever-increasing rent. Either way you are screwed. Rot in a backwater or spend everything on real estate and never accumulate savings.
I'm tempted to support anything with the potential to reverse this horrible trend.
At the same time I also see this as unfair. Coastal blue states already collectively pay more in taxes than they receive from the Fed.
I'm a bit torn on this. I'm also torn on the corporate income tax cut.
The rest of the tax bill seems mostly bad, so on balance I am not supporting it.
To illustrate the point, if the carrying cost (i.e. property tax) of real estate was extreme, say 90%, nobody would want to own property and the price would plummet. Losing the deductibility for interest and property taxes is nowhere near that extreme but the direction of the effect is the same.
It could be argued, the rich people in blue states were paying less federal tax because of the SALT discounts, and now they have to pay the feds whole irrespective of the case at State.
[1] https://www.theatlantic.com/business/archive/2014/05/which-s...
People who make over $200k aren't getting as big a tax break? I don't feel bad about that.
According to the CBO, people who make less than $75k get a tax increase by 2027 (on average). People who make between 75K and 500K get a very small tax deduction on average. Blue state residents get a tax increase almost across the board at >200K<1M. Almost anyone who makes more than a million a year gets a sizeable tax deduction.
Because that's when the cuts expire. Incredibly dishonest framing here.
Techies and bankers pay more in taxes.
People in fly-over states get a small tax cut, and maybe can buy a few extra weeks' groceries for their kids.
I'm old enough to remember when we couldn't afford the stimulus and auto-bailouts when we were in recession, even though the economy is currently chugging along well at near full employment.
And where are you getting this? It is demonstrably untrue by 2027. Read the CBO report.
A commenter in another thread posed a hypothetical about a family in CA vs. TX making $250k. Why should the one in CA get a big writeoff because CA has high taxes?
Of course, a state is free to tax it's citizens as much as it likes. But, that tax should not be deductible from state taxes, because it leaves families in other states to shoulder the burden.
Meanwhile, the mortgage interest deduction subsidizes people who can afford houses (in fact it incentivizes buying larger houses, which is also bad IMO). These are not the people who should be getting tax breaks.
The weather outside California is not great, unless there are places that have warm weather, not too much rain/snow, not too much humidity, no issues with tornadoes, hurricanes, flooding.
Maybe there’s some real gems I don’t know about. Would love to hear of them!
Why should we explode the deficit if we need to make CHIP funding revenue neutral?
Why do we need stimulus in a booming economy?
In fact, according to my calculations, almost every one will be paying less, except a miniscule population that will have their taxes raised by a couple of hundred per year. And even that might get legislated away in the conference.
http://www.washingtonexaminer.com/gop-donors-in-new-york-sou...
That said, there is also an animous towards the rich Democratic states, which this disproportionately hurts. The short game is to stick it to the libs. The long game is to try to eliminate state income taxes.
https://jsfiddle.net/381rkrsq/
The AMT changes are a huge tax benefit, even to those in California. Especially if you're married
With a National average salary for software developers of $109k(per Glassdoor), a family of 2 tech professionals across the nation will see their tax liabilities significantly increase