Why cut taxes?

[PaloAltoCougar]

The selection of a $500K cap on deductible mortgage loans is interesting but I wonder about the logic. In the UT troll tradition, I'd go with $250,000, which is tied to the current median cost of a house in the U.S. ($320K), times 80%, since we want to discourage overleveraging on home purchases.

Tax discussions remind of the occasional votes we have in the Bay Area to raises bridge tolls. When the bridges were first built, the $0.25 charge was intended to last only as long as it took to pay off the bridge bonds. Then it was extended to pay for maintenance. Now, with tolls at $6, or more, most of the money collected is used for general road maintenance and other bridge-unrelated costs. I don't think a vote to raise bridge tolls has ever lost, because only 9% or so of the area's commuters use bridges, so why not?

People are usually willing to increase taxes they won't pay or eliminate deductions they don't take. Keen insight on my part, I know.

[Topper]

If you say so, Marie.

I thought Marie was Austrian.

[Topper]

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.

This is where I fundamentally disagree with wealth redistribution as an intent and purpose. Tax policy should not be about redistributing the wealth, it should be about raising revenue for necessary government expenses. There will be times when as a secondary effect, wealth will be redistributed because no collection of tax revenue ever takes from each socio-economic group equally. But designing to do more than raise revenue feeds into class warfare. This doesn't mean we shouldn't be mindful of certain segments seeking to escape from participating, such as generational wealth escaping capital gains or any taxation through certain planning devices. Those are legitimate concerns.

However, if large groups have no skin in the game in paying taxes that also creates many inefficiencies that ultimately make the system unfair.

[Jarid in Cedar]

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.

I took my 2016 return and recalculated it based on the new proposal. My federal tax will go up $5800.00 to $9300.00, depending what actually happens with charitable donations(what is counted and what isn't).

Yeah, I am a big fan

[Bo Diddley]

Won't you be out of a job when the libertarians take over? Being most of my clients are public transit agencies, I guess I will too.

Actually, I'd think that under Libertarian rule, the National Guard's role would be expanded. Even so, I would gladly move on to something else if it meant improving the country as a whole.

I'm actually excited about simplifying the tax code, even if it means that I have to pay a little more. I think it's a step in the right direction.

[Jeff Lebowski]

And you sound like a French rebel...

If you say so, Marie.

[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...

[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

[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.

[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]

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]

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

This is a helpful visual:

[Jeff Lebowski]

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

No comprende.

[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.

[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.