Why cut taxes?

[BlueK]

My take:

Reduces income tax brackets: Overall it's a reduction across the board, which is fine with me. Tax brackets need to either grow with inflation or be adjusted every once in a while and this is one way to do it. It does impact me and reduces my tax bill, so I guess I'm happy.

Nearly doubles the standard deduction: I haven't used the SD in a long, long time so personally I don't care. I do think it's a good thing for many people that have lower incomes. Most people that itemize are in larger income tax brackets so this is a benefit for the lower income earners. Is it a good thing overall? I'm a proponent of everyone paying something, or most people paying something so I'm not a huge fan. I'd prefer a lower tax rate (maybe 2-5%) for those poeple over a higher SD, but whatever.

Eliminates personal exemptions: Not a fan personally or in general. While I don't think taxes should incentivize people to have kids, you also shouldn't be hurt for having a larger family and this one hurts larger families. It might be a wash for me with the lower tax rates, but I like the personal exemptions applied per person/child. I'm sure older people will like this one as will most Americans with 2 or fewer kids.

Expands child tax credit: This is good and so is the increase in the phase out level, which levels should be adjusted every year based on inflation. I also like that the increase is not refundable. A refundable child tax credit is dumb, IMO. This makes up a bit for the loss of the personal exemptions

Eliminates tax exclusion for dependent care assistance accounts: Honestly have no idea on this one. Most publications say this is used mainly by higher income families, so I'm fine with it going away. I like tax-exclusions for things like HSAs or Child Care (not a huge fan of this but I see the benefits), but I think it's been taken a bit overboard and this pull back is a good thing.

Repeals state and local tax deductions, but preserves property tax break: I'm sure my state lobbied hard for the property tax break to stay in. I pay over $10K/year in property taxes so the elimination of that deduction would have hurt me, but it would have really hurt Texas real estate. However, it makes no sense to eliminate state/local tax deductions but keep the property tax deduction. This may continue to draw more people to states that have higher property taxes to make up for the no income tax. So while this helps me, I'm overall not a fan and think the palying field should be evened out among state/local taxes.

Limits deductible mortgage interest: I think I'm with Wuap on this one. I don't mind the full repeal of this deduction. I have a mortgage and find myself disincetntized to pay it down/off due in part to this deduction. I'd rather stick my money in the market and ride that wave because while I pay a bit in mortgage interest, the deduction reduces my effective interest rate on my mortgage. I saw one publication say this would reduce people taking the deduciton to 4% of total filers, mainly due to the increase in the standard deduction but also because the cap would be lwoered to mortgages under $500K. Crazy, but if people aren't really using it, get rid of it. I got a feeling the realtor coalition is going to be ticked abou

Repeals many other deductions: I support this one. Too many random deductions and the thresholds are too high (7.5% of AGI, really?).

401ks not touched: It's crazy this was even considered. This is a huge savings vehicle for middle income families and taking it away would be ludicrous. People move jobs all the time now and having a 401k with a decent limit ($18K in 2017) is a great way to save without the access to pension plans or other outdated retirement type plans.

Repeals the Alternative Minimum Tax: Support. AMT is dumb and needs to go away. If you simplify the deductions, AMT is no longer needed.

Repeals the estate tax: Don't support. I'm a big supporter of the estate tax and think it should be expanded to trust funds and other vehicles used by the rich to stow away money. Generational wealth is one of the problems in the US and inhibits some class mobility. I actually support lowering the threshold to lower than $5mm but finding a way so that small/family businesses aren't impacted (such as family farms/ranches).

Other stuff I wish was in there: I'd prefer to eliminate the automatic withholding by employers and require people to pay taxes by themselves. That would change a lot of the perception of how much is paid. I also support raising the SS tax ceiling, however the ceiling shouldn't be elminated. SS was never meant to provide a luxurious retirement so I wish all thse old people would stop complaining about barely surviing on SS. Um, that's the point of it, to keep you alive. If you want to go on cruises and travel then you should have saved your own money to do that.

In other words, the upper middle class is about to get socked.

Let me amend that: the upper middle class with young kids where both parents work is going to lose with many or most of these changes.

[Omaha 680]

Thanks for the detailed breakdown, Moli. I was just looking at the proposed brackets yesterday and thinking "well I don't like tax cuts in our current long term fiscal crisis, but at least I'll be getting something out of it." Now I'm not sure. I don't own any property, so the elimination of the state and local tax deduction will affect me. That combined with eliminating exemptions will raise my taxable income. The child tax credit increase means nothing to me as I assume I still don't qualify given my fake New York salary.

[BlueK]

Thanks for the detailed breakdown, Moli. I was just looking at the proposed brackets yesterday and thinking "well I don't like tax cuts in our current long term fiscal crisis, but at least I'll be getting something out of it." Now I'm not sure. I don't own any property, so the elimination of the state and local tax deduction will affect me. That combined with eliminating exemptions will raise my taxable income. The child tax credit increase means nothing to me as I assume I still don't qualify given my fake New York salary.

Does fewer tax brackets mean some people might get pushed up into a higher one?

[Omaha 680]

Does fewer tax brackets mean some people might get pushed up into a higher one?

I'm not an accountant, but it looks like for those families (married filing jointly) with taxable income below 260,000 the answer is no. Those between 260,000 and 500,000 will get bumped to a higher bracket. But this is if all else is equal, and as Moliere pointed out, it isn't. A lot of people will see their taxable income go up even if they didn't earn significantly more.

[BlueK]

I'm not an accountant, but it looks like for those families (married filing jointly) with taxable income below 260,000 the answer is no. Those between 260,000 and 500,000 will get bumped to a higher bracket. But this is if all else is equal, and as Moliere pointed out, it isn't. A lot of people will see their taxable income go up even if they didn't earn significantly more.

Just the FSA childcare elimination adds $5000 to my family's taxable income. So unless that gets made up a different way my income tax is going up, and it already seems very high as it is. Taking out the 401k benefit would have been a lot worse. I don't have state income tax, but those states get to deduct sales tax, so I'm assuming that goes away also.

[chrisrenrut]

Will pushing more people out of itemizing deductions dis-incentivize charitable contributions?

[cowboy]

Understood. I'm just skeptical that it has that much of an influence on home ownership. A lot of people don't even use the deduction because they don't itemize. It is a great benefit for pepole like me but I'd own a home regardless of the deduction. I'd probably just pay off my home faster. But I definitely see where you are coming from.

I think it only makes a difference in expensive areas, which is why I think totally eliminating it is a bad idea. I'm okay with a cap, but it should be market-adjusted, and I think $500k is reasonable in most places. When rates rise, though, a 7% mortgage on an 800k house in the Boston area will be much more affordable for the restaurant owner who is trying to keep the family seafood joint going. On the other hand, you are right that few people will use it, and it may be reflected in the market to the extent that it doesn't matter.

Totally not condescending as I'll admit that this is a more macroeconomic argument and I'm not really qualified to give an informed opinion on it. I'm just not a big fan of trust fund babies, which is why I'd like the tax expanded in some way to hit them. Not as punishment, but to equalize the playing field a bit. We do differ on this and I respect that.

Here's the problem: Trust fund babies aren't affected by the estate tax. Anyone with a sizable, multi-generational estate has their assets in vehicles that will never be taxed. Also, there aren't enough of them to affect anyone else's opportunity to acquire wealth. They are a very small proportion of the population, and they don't hold enough assets to be like the English landholding aristocracy. Even in Middle America where the primary asset is land, there is enough asset turnover to allow people to become landowners. For sure, there are large blocks held by big money, but over time everything will come up for sale.

The estate tax affects first, second, or maybe third generation wealth that is trying to find a way to build a legacy. To make matters worse, the generation affected has probably played a significant role in helping build the wealth, but the prior generation didn't reward them with equity over time as compensation. The result is a child/children who work their whole life to build a business, only to have to give all the value they've added over their lifetime back to the government. A very small proportion of even the most successful people and businesses will survive more than three generations even without the estate tax.

I've worked with a lot of estates, and one thing that is universal is that kids will fight with each other over any size of estate. Family infighting dissolves lots of estates. If family fights don't kill estates, just dividing them among the kids creates a nearly insurmountable hurdle to keeping assets together. Then, if all the family stuff doesn't kill family businesses, business cycles and incompetent management by heirs take a huge toll. In short, there are so many hurdles for an estate to overcome that the estate tax isn't really necessary to keep capital and assets turning over. The only winners are the attorney's, accountants, and appraisers. I've made a substantial amount of money helping people avoid estate taxes, I should be all for the status quo, but the capital spent on attorneys, etc., would be much more efficiently allocated elsewhere.

As an aside, I think it's fundamentally wrong to take money even from the Kennedys just because they have more than they need and didn't earn it. That's another conversation for another day. As another aside, it's incredibly frustrating to me that Congress can't work together like the general public. We have a lot of diverse opinions on this board, and would manage to compromise enough to pass reasonable legislation on at least some things. Congress, on the other hand, is so busy pandering to their money sources and trying to villify the other side that nothing good happens. I hate politics.

[BlueK]

Will pushing more people out of itemizing deductions dis-incentivize charitable contributions?

In general, yes -- or at least for a lot of people. If the higher standard deduction makes it so your charitable contributions as they are don't push you over that number, than yes. If the new standard deduction is still going to be below what you were deducting already, then no.

[Jeff Lebowski]

What did Frank go the way of IPU and commit hari-kari?

No comprende.

[Crockett]

Does fewer tax brackets mean some people might get pushed up into a higher one?

This is a helpful visual:

[BlueK]

Just the FSA childcare elimination adds $5000 to my family's taxable income. So unless that gets made up a different way my income tax is going up, and it already seems very high as it is. Taking out the 401k benefit would have been a lot worse. I don't have state income tax, but those states get to deduct sales tax, so I'm assuming that goes away also.

4 years ago when my youngest was a baby, my family was paying around $2,300 every month for child care. That's where having a portion of that paid with pre-tax dollars helps. Yes, we both have pretty good jobs, but expenses like that make you feel like you're just garden variety hard working middle class, rather than "rich," which is fine. It wouldn't have made sense for my wife to stop working as she was still paying down some student loans. Both of us got married a little older than most LDS do, so she was well into her career when we got married. It's what we signed up for and we were happy to do it. I just think a lot of people in other situations have no idea what it costs to get good child care for your kids. And we didn't feel like that was an area where we would have wanted to pay less for crappy care.

[Crockett]

In other words, the upper middle class is about to get socked.

Let me amend that: the upper middle class with young kids where both parents work is going to lose with many or most of these changes.

No so sure. The lower rates and the repeal of the AMT could still benefit upper middle class.

[BlueK]

No so sure. The lower rates and the repeal of the AMT could still benefit upper middle class.

I may be in that one sliver that gets hit then. My tax bracket stays the same according to your graphic. Naturally this proposal will probably be changed by the time it comes to a vote, and who knows if the Senate and House will ever come to an agreement with how dysfunctional the process currently is.

[Jeff Lebowski]

Here's the problem: Trust fund babies aren't affected by the estate tax. Anyone with a sizable, multi-generational estate has their assets in vehicles that will never be taxed. Also, there aren't enough of them to affect anyone else's opportunity to acquire wealth. They are a very small proportion of the population, and they don't hold enough assets to be like the English landholding aristocracy. Even in Middle America where the primary asset is land, there is enough asset turnover to allow people to become landowners. For sure, there are large blocks held by big money, but over time everything will come up for sale.

Help us understand how this is done. And why we shouldn't be closing the loopholes that allow this to happen.

Sure it is a small number of people. As of 2014, the wealthiest 160,000 families owned as much money as the poorest 145 million in America.

http://fortune.com/2014/10/31/inequa...lth-income-us/

As an aside, I think it's fundamentally wrong to take money even from the Kennedys just because they have more than they need and didn't earn it. That's another conversation for another day. As another aside, it's incredibly frustrating to me that Congress can't work together like the general public. We have a lot of diverse opinions on this board, and would manage to compromise enough to pass reasonable legislation on at least some things. Congress, on the other hand, is so busy pandering to their money sources and trying to villify the other side that nothing good happens. I hate politics.

You sound like a British aristocrat. I am going to side with Thomas Jefferson and Alexis de Tocqueville and agree to disagree here. One of the better arguments against people decrying the huge and ever-increasing imbalance in the ownership of wealth in our country is that there is a reset provided by estate tax.

Also, what about unrealized capital gains that pass to the next generation? Doesn't that eliminate the tax for the wealthy heirs?

Some raise a related concern: that an estate tax represents taxing someone’s earnings a second time. But, as Stelzer also noted, the inheritor is the one paying the tax on the windfall, not the deceased. And in any case, the CBPP estimates that 55 percent of the value of estates worth more than $100 million is made up of unrealized capital gains—which haven’t yet been taxed and never will be taxed under current estate-tax rules.

https://www.theatlantic.com/business...te-tax/470403/

Whoopee! Tax break for super-rich heirs.

And if you know any farms lost to estate tax, you need to contact this economist (and the Farm Bureau):

Neil Harl, an Iowa State University economist whose tax advice has made him a household name among Midwest farmers, said he had searched far and wide but had never found a case in which a farm was lost because of estate taxes. ''It's a myth,'' Mr. Harl said.

Even one of the leading advocates for repeal of estate taxes, the American Farm Bureau Federation, said it could not cite a single example of a farm lost because of estate taxes.

http://www.nytimes.com/2001/04/08/us...pagewanted=all

[Uncle Ted]

You sound like a British aristocrat. I am going to side with Thomas Jefferson and Alexis de Tocqueville and agree to disagree here. One of the better arguments against people decrying the huge and ever-increasing imbalance in the ownership of wealth in our country is that there is a reset provided by estate tax.

And you sound like a French rebel...