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Trump Individual Tax Plan Outlined - Biggest Tax Reform Since 1986

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  • #16
    I'm disappointed in Trump on the individual income rate side. If the top personal rate is way above the pass-through business rate, we'll all just be wasting our time and effort finding the best business structure to shelter our income. Seems like the opposite of tax simplification.

    Why should a high income professional partnership, LLC, or S corp pay 15% but a high income hospital W2 employee pay more than double. Sigh....

    I think Cohn misspoke on not mentioning the retirement account deductions. Many forget that one since it is taken out pre-W2.

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    • #17
      Very Trump Probusiness friendly reform.  There's some red meat for middle class america on the double standard deductions while maintaining the sacred cows of home mortgage; retirement, and nonprofits.

      It's doable, but let's see the devilish details on the savings.  Will we see more CCorps instead of LLC pass through or they reclassify LLC K1 as a 15% (which would be insanely business friendly).

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      • #18
        This is the exact same thing they had all through the campaign with a tiny bit of discussion to give a crumb to those who complained everyone and their brother will form an S corp. They then left a loophole that distributions are 15% or something so effectively the same thing.

        Appears to be just bluster to keep people happy and to stymie the talks of nothing getting done in the first hundred days which happens this week. They still have to do something on healthcare or this will unlikely go anyhwere as stated. They can settle for something like 25 probably without a big deal from anyone and may pay for itself I hear. However, this wont go anywhere.

        It was an outline, as per their usual the admin seems to think you can print a broad outline and somehow it magically becomes a bill.

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        • #19
          Executive Orders that played in the margins or undo what Obama did.  -  Check

          Executive Order that overreached and 3x over been stayed by the courts and 'see you in court' statements.

          One failed repeal/reform proposal  that didn't get a vote

          One wall in name with no funding.

          --Only highlight is a confirmed Supreme Court Justice via the nuclear option

          --Let's see if the dealmaker can do something here as the cornerstone of his business legacy and his Goldman Sachs advisers will get through Congress.

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          • #20




            I haven’t seen any indication of which income levels fall into which of the three proposed tax brackets. My initial feeling is dread that the mortgage interest deduction and the state income tax deduction would go away. State alone is 8% here. And not allowing the retirement contribution deduction ($106,000 for me this year as a MFJ two-self-employed physician couple) would be a disaster.
            Click to expand...


            A) You are correct--the devil is in the details and we don't know what the bracket levels will be.  We won't know that for months.

            B) There is NO indication that anything is going to change regarding tax-advantaged retirement accounts.  I'd say that's 99.9% safe since these are popular savings vehicles widely offered via employers all across the economy and they are, despite lots of ink being spilled on the need of the American people to SAVE MORE, still vastly underutilized.  I really wouldn't worry about it.

            C) SALT deductions--state and local taxes--are definitely on the chopping block.  Although this hurts me personally (state income tax and 2 property tax bills are the only major deductions or credits my household qualifies for every year), I am in favor of eliminating them.  Why?  Because making them deductible in effect shields voters & politicians in high tax jurisdictions somewhat from the consequences of their own actions and policies.  High income earners, and deductions always preferentially benefit those in the highest brackets the most, in effect get 30-40% of their SALT expenses rebated to them in the form of a federal tax break.  If you choose to live in a high tax location (for "government services" for instance) then pay the full bill.  If you don't like that, then "vote with your feet" (ie, move) or vote in candidates who pledge to cut taxes.  IMHO, the federal government, ie, the rest of the country, should not be subsidizing high SALTs.  The same argument applies to federally tax-exempt muni bonds.

            D) The mortgage interest deduction (MID) doesn't appear to be in any danger and that's a shame.  It's yet another well-intentioned but ultimately counter-productive program.  The net effect is that those who take out large mortgages in the highest federal brackets get 30-40% of their interest costs rebated to them and are subsidized by those with small or no mortgages.  It's politically popular for obvious reasons so eliminating it has become all but impossible.  It should however be at least pared back to something like interest only on the first $200k of mortgage debt or $1000/yr cap or such.

            In a larger sense I am for eliminating as much as possible all distortions, preferences, and complexities (credits, deductions, surtaxes, phaseouts) in the federal tax code.  Politicians love these "special rules" though because they are a way of rewarding one group of voters at the expense of others in an opaque and largely hidden way.  The whole thing could be simple and transparent:  income - personal/family exemption X tax rate.

            You could do your tax return in a few minutes with little hassle and expense.  But then how would politicians buy votes?

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            • #21
              Some of my partners live in a state with a high state income tax.  They always "brag" about the fact they can deduct it from their federal taxes.  Never really understood why they pay less than me for federal expenses (say, F-35 airplanes, UN ambassador salary, etc) because their state chooses to spend liberally.  Now, if they want write out a check for $50k to their state government, well, they should be allowed to list that when they itemize.

              Too bad we can't have a Fair Tax, a la Neal Boortz.

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              • #22
                Agree with both of you. Even though it hurts me personally, I'm for eliminating ALL deductions except retirement (which doesn't really count because taxes will likely come due later). I'd even advocate for getting rid of the charitable deduction as it creates its own distortions.

                The most important deduction to eliminate is the standard deduction that will prevent almost 50% of Americans from having any skin in the game.

                That said, with the trillions in savings from eliminating all these deductions, we can do a lot better than a 10%/25%/35%. If we're not yet ready to accept a flat tax, I was hoping for more like 10%/15%/20% with a pass-through rate of 20% and a corporate tax rate of 15%.

                Economists and the CBO can guess all they want about the effect of this on revenue. All it will be is a guess. Personally, I think were far right of the peak on the Laffer curve and lowering rates while eliminating deductions, distortions, and incentives to offshore profits will be massively revenue positive, but I'm not blindly partisan enough to bet the ranch.

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                • #23
                  I moved this over from another thread.

                   

                  Until 1981 there was at least 70% top tax bracket. 90% bracket until 1964.

                  Federal Individual Individual Income Tax Rate, Adjusted for Inflation.  (In 2013 dollars)

                  https://www.scribd.com/mobile/doc/190500966/Federal-Individual-Individual-Income-Tax-Rate-Adjusted-for-Inflation#fullscreen&from_embed

                   

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                  • #24
                    Listing a few talking points from Republican wet dreams over the last thirty years hardly qualifies as a 'tax plan'. Negative trillions of dollars over the next decade is a non-starter; in fact, if that's a 'tax plan', why isn't this a better 'tax plan':

                    - eliminate all income taxes

                    - eliminate all FICA taxes

                    - eliminate all estate taxes

                    - eliminate all corporate taxes

                    - "everything will just work out"

                    His "tax plan" is no such thing, any more than this post is a "PhD dissertation".

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                    • #25
                      This is what Trump does.  Throws an extreme plan on the wall, see what sticks.  The senate won't vote for something that is so net revenue negative.  Give it time to pan out.  This is very much in the early stages of things.  And agree completely with eliminating the deductions.  But that would be politically unpopular.  We could easily close the deficit (and then some) by eliminating them.  But before that I would be a fan of our government actually spending our money efficiently.  Stopping deductions before fixing a grossly inefficient system is unlikely to be a successful long-term strategy.  Take the DOD study that was buried, for example, that stated we could save something like $500 billion over 10 years by eliminating redundancies.  A system that buries that information and doesn't act on it for the good of the taxpayers doesn't deserve more money.

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                      • #26
                        That same DoD is getting 50B more this year.

                        Big government, little government arguments.

                        Giving a tax break is fine with me, and a financial forum, we should also expect a relatively balanced budget to account for that cut, and not VooDoo economics of sustained GDP 4% growth.  Heck, all our financial planning would get green lights with that planning assumption.

                        Budget hawks will hold this one down.

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                        • #27
                          Even the smartest economists in the world have trouble predicting the effect of tax policy on revenue. When we cut the top rate from the insane 70%-90% levels of the past, revenue went way up. Not a shocker, who's gonna keep working, invest capital, or take risk if they lose 90%!

                          What isn't up for debate is that if you cut spending, you will reduce the deficit, a near proportional amount.

                          We don't have a revenue problem, we have a spending problem. Our country is drunk on spending. We could literally fire 90% of the redundant beaurocrats without much harm.

                          If I were Trump I would relocate the top 50 government agencies out of Washington DC, and put one in each state. Let all the fat cat govt workers move to Nebraska or New Mexico. 75% will likely quit. Great. Rehire only a small handful of the best (or don't and keep the hiring freeze). Skyrocket D.C. property values will go down, but it will be a major boost to the economies of every other state. Policy and political winner.

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                          • #28
                            We DID have a Proof on Concept a few years ago with sequestration across the board cuts -- it actually didn't really hurt too bad for many areas.

                            The fat was culled and didn't quite cut to the bone.

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                            • #29
                              We may have a spending problem, I'm not arguing that, but where do you make cuts specifically?  Here's how we're spending money each year.

                              Where would you "cut the fat?"  For instance, I think its terrible how little we spend on things like education and scientific research yet those are exactly the kinds of places that Trump is trying to gut (like the EPA, Department of Education, National Park Service, etc).  Those kind of cuts do virtually nothing to help our spending problem and cause a lot of harm to the greater good (we all have to breathe the same air, children need education, and we should all get to enjoy our beautiful parks).

                              I honestly don't know where the fat is.  Not sure what "Safety net programs" are?

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                              • #30
                                My honest answer. Pass a balanced budget amendment allowing for spending up to prior years revenue plus inflation. Let Congress battle it out each year what gets funded, and what gets cut.

                                Assuming no BBA. 1% cut across the board for all non SS/Medicare spending every year. Congress may cut extra from one program to give to another but must equal 1% reduction each year overall.

                                Deal with Medicare and SS separately. Thread for another day.

                                If you don't think there is a ton of waste, then we're too far apart to have a constructive conversation.

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