Latest updates to GOP tax draft bill

[ko]

Zaphod wrote:

Apparently the ability to pass through is very regulated which means docs will be hard pressed to get a break. No health care deductions for SE individuals which will really hurt, brackets increase for most docs and slight break for high earning ones, no student loan deduction. I think there are too many no gos for widely different interest groups to make this passable as current.

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Another key point on this is that it penalizes people that both itemize and have kids pretty heavily. I'm in this group, so obviously I'm biased, but I really hate this plan.

Right now, the bill would get rid of the personal exemption and double the standard deduction. But if you're like me and you currently itemize (I itemize due to large charitable contributions, high property taxes, and mortgage interest), current law allows you to  take your itemizations and also take the personal exemption. In my case, I've got two (soon to be three) kids, so I get ~$4k x 5 people = $20k in personal exemptions on top of my itemized deductions.

In the new plan, I'd still itemize (so doubling the standard deduction doesn't help me) but they take away that $20k in personal exemptions (justified in the plan by doubling the standard deduction), so people like me would end up with another $20k in taxable income from this impact alone...which is currently taxed at 28% or 30%, but will go up to the 35% bracket in the new plan.

So on the balance, this impact alone will add $7k in taxes to my bill (35% x $20k in newly taxable income).

This sucks. And this is before I look at how my taxes go up with a $10k state/local property tax deduction cap, as well as how a chunk of my income moves from the 28% to the 35% bracket.

And yet, income between $500k and $1M now has a much lower rate for really high earners...

[hightower]

ko wrote:

Zaphod wrote:

Apparently the ability to pass through is very regulated which means docs will be hard pressed to get a break. No health care deductions for SE individuals which will really hurt, brackets increase for most docs and slight break for high earning ones, no student loan deduction. I think there are too many no gos for widely different interest groups to make this passable as current.

Click to expand…

Another key point on this is that it penalizes people that both itemize and have kids pretty heavily. I’m in this group, so obviously I’m biased, but I really hate this plan.

Right now, the bill would get rid of the personal exemption and and double the standard deduction. But if you’re like me and you itemize currently (I itemize due to large charitable contributions, high property taxes, and mortgage interest), you get to take your itemizations and also take the personal exemption. In my case, I’ve got two (soon to be three) kids, so I get ~$4k x 5 people = $20k in personal exemptions on top of my itemized deductions.

In the new plan, I’d still itemize (so doubling the standard deducition doesn’t affect me) but they take away that $20k in personal exemptions (justified in the plan by doubling the standard deduction), so people like me would end up with another $20k in taxable income from this impact alone…which is currently taxed at 28% or 30%, but will go up to the 35% bracket in the new plan.

So on the balance, this impact alone will add $7k in taxes to my bill (35% x $20k in newly taxable income).

This sucks. And this is before I look at how my taxes go up with a $10k state/local property tax deduction cap, as well as how a chunk of my income moves from the 28% to the 35% bracket.

And yet, income between $500k and $1M now has a much lower rate for really high earners…

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Yes.  Exactly.  If this thing passes you will be hearing lots of stories like this.

[FIREshrink]

As a disclaimer I detest Trump and both his insanity and his stupidity.

But the GOP bill is at least not crazy and from a reform standpoint, at least on the personal side, seems a step toward simplicity and therefore, a good step. I can’t believe I’m saying that about a GOP tax proposal.

The mortgage deduction has generally been shown to be one of the least efficient and most expensive tax breaks and capping it at $500k seems very reasonable to me (of course, I won’t be affected by it directly, so easy for me to say).

Reducing and eliminating deductions is generally an improvement. Medical, tax prep, state income/sales taxes, etc. In exchange for fewer and hopefully lower brackets, this is not a bad thing.

I find the idea of an estate tax repugnant. However, I have mixed feelings about it going away completely, given the history of how wealth was accumulated in this country (at least until the last 50 years, largely unfairly and heavily reliant on racist and sexist policy at every level of government). In an ideal and fair society, there should be no estate tax - but we don’t live in an ideal and fair society and at some very high echelon of wealth - ?$50 million? - I think an estate tax is justifiable.

On the individual side, the best and fairest tax would be something broad and progressive but with close to zero deductions. I would propose a logarithmic style progressive tax with only one deduction allowed by everyone - for charitable giving. I would make that deductible above the line, and would adjust brackets lower to eliminate every other deduction. I would remove all refundable and other tax credits and have those fall, as they should, under entitlement systems (ie, child care and EIC credits are forms of welfare and I’m not opposed to them; but they should be administered as such and not under the tax system).

I wish the tax rates were slightly lower and I am 100% opposed to standard deductions. I believe everyone, even someone earning $1000 per year, should pay some income tax. My logarithmic tax brackets might require 1% for the first $1000, 10% from $1000-$100,000, 20% from $100,000-$1,000,000, 30% from $1,000,000-$10,000,000, etc (These are made up numbers). Everyone should contribute something, even if they earn next to nothing, and even if they get a form of welfare outside the tax system that makes their net contribution to governance negative.

 

Does anyone see in writing when this proposal - if passed - would go into effect? I assume 2018, but need to do some planning if it’s 2017.

[Zaphod]

The issue for estates is they are already mostly untaxed, its a big deal about something that when it comes down to affects almost no one in the country. They can shield tons in other structures as well. Further, the majority of assets in these huge estates havent ever been taxed, ie capital gains and real estate that will then get a step up basis.

If there is some rando farmer out there that will lose everything because of taxes, sure, implement some sort of illiquid/ongoing concern provision and fix that issue. To pretend you need to shield 20+M in assets for 99+%non farmers to do that is absurd.

Everyone pays some kind of taxes, and if you’re poor its on everything purchased. Agree on mortgage deduction that is probably an overall good thing even if painful. This is a huge kick in the teeth for those who are self employed in professional endeavors, the brackets arent reduced and you lose most deductions. Will be an interesting shake up in 1099 land for sure, and I’ll probably negotiate for w2 or get a new job it would hurt that badly. For most doctors this is an increase (not huge but pushes to 35% bracket faster), few make over 500k even if they are over represented on the board.

[Rando]

As far as I can tell the new tax proposal is pretty much a wash for me.  With the higher standard deduction I suspect it will help lower and middle class more than it hurts, even losing SALT and some mortgage deductions.

 

If the lower corporate taxes bring back and keep companies in the US that seems to me to be a good thing.

 

This is going to be portrayed in the media as winners and losers, ie if one middle class guy pays more that's bad, if one rich guy pays less that's bad, etc, etc.

[Zaphod]

Rando wrote:

As far as I can tell the new tax proposal is pretty much a wash for me.  With the higher standard deduction I suspect it will help lower and middle class more than it hurts, even losing SALT and some mortgage deductions.

 

If the lower corporate taxes bring back and keep companies in the US that seems to me to be a good thing.

 

This is going to be portrayed in the media as winners and losers, ie if one middle class guy pays more that’s bad, if one rich guy pays less that’s bad, etc, etc.

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I think its ok for the lower/middle class, most dont actually get the mortgage deduction, etc...due to home prices/rates anyway, so the standard increase is really helpful.

[FIREshrink]

Zaphod wrote:

The issue for estates is they are already mostly untaxed, its a big deal about something that when it comes down to affects almost no one in the country. They can shield tons in other structures as well. Further, the majority of assets in these huge estates havent ever been taxed, ie capital gains and real estate that will then get a step up basis.

If there is some rando farmer out there that will lose everything because of taxes, sure, implement some sort of illiquid/ongoing concern provision and fix that issue. To pretend you need to shield 20+M in assets for 99+%non farmers to do that is absurd.

Everyone pays some kind of taxes, and if you’re poor its on everything purchased. Agree on mortgage deduction that is probably an overall good thing even if painful. This is a huge kick in the teeth for those who are self employed in professional endeavors, the brackets arent reduced and you lose most deductions. Will be an interesting shake up in 1099 land for sure, and I’ll probably negotiate for w2 or get a new job it would hurt that badly. For most doctors this is an increase (not huge but pushes to 35% bracket faster), few make over 500k even if they are over represented on the board.

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As I wrote, I agree there is obvious unfairness in how large estates have been accumulated - not in every individual case, but if you are not ignorant of American history then clearly the rules in place for hundreds of years have made wealth accumulation very unfair. But there is also a good argument to be made that confiscation of wealth is inconsistent with liberty. We may not like large estates, they may be bad for society, etc - but seizing them is immoral. This tension is at the heart of the battle for estate taxation.

I think $10M per individual is getting close to a level I can live with, but is still too low in my opinion. The fact that the assets have not been taxed before is a separate problem that may deserve fixing: ie, maybe there needs to be an annual capital gains tax on imputed gains, etc. But the solution is not an estate tax. Maybe they need to go back and do a one time tax on impuated gains and do away with the estate tax (not practically or politically feasible but it might be the most moral option).

Don’t get me wrong, it sickens me to think a man like Trump can rewrite the tax code explicitly to benefit himself and his family and never be forced to disclose financial conflicts of interest vis a vis his tax returns, but I do stand opposed in principle to an estate tax.

The poor do NOT pay taxes on everything purchased. Where did you come up with that idea? Under the federal income tax system the poor do not pay anything. I am leaving states out of this as there is huge variation and not the topic at hand. In fact I see this as one of the greatest immoralities of the current federal tax system. That half the country contributes nothing to the national defense, education, the national parks, homeland security, our interstate highway system, food and drug safety - it’s unjustifiable. Everybody needs at least a little skin in the game. The poor do pay FICA on all their W-2 earnings but the average worker sees a net positive lifetiime ROI on both the Social Security and Medicare portions of their FICA, so that can hardly be called a ‘tax’ in the traditional sense; FICA is more like a fixed savings/rainy day account and low earners do particularly well under SS given the calcuation of PIA and the two bend points. Their major disadvantage for both SS and Medicare is their lower likelihood of being married (thus not receiving SS survivor benefits) and their shorter lifespans (and thus fewer lifetime Medicare benefits). I have separate proposals for how to solve those problems, for another thread.

[Hatton]

Such back and forth. I am waiting to see what passes.  No tax bill will make everyone happy.  Everyone tries to figure out will I pay more or less.  I think I might pay a little less but I am not sure.  The one thing that I am ecstatic about is the 20% corporate tax rate.  If the number had been anything else what do you think the Dow would have done today?  I guess dropping 1000-2000 points would be a good day for a Roth conversion.  I think this will continue to fuel the markets higher at least I hope so.  The markets have been pricing in lower corporate taxes for months now if we did not get it .....Calling Crixus.

[ScientistPhysician]

To everyone who is saying this tax bill is a wash for them: it's not a wash, it's a major loss. This tax bill will create a yearly deficit of about $1 trillion dollars. You are personally getting no benefit for a financial catastrophe for the country. I am not a national debt hawk, but if we are going to go further into debt, it should be for a ************************ good reason. Tax cuts for corporations, pass-throughs, and capital-gains earners is an awful reason.

[FIREshrink]

I’m not sure corporate tax cuts are not a good reason. There is some reason to think lower rates will increase economic growth, which is good for everyone. Don’t get me wrong - I don’t buy for a second any of the ridic projections the CEA publicized when it comes to future economic growth. But some GDP bump should be expected from a large corporate tax cut as money is redeployed from tax compliance and the federal government to capital investment, R&D, and hiring.

In order to meaningfully address the structural deficit, there is only one place to look: health care. Our entire debt structure can be explained by our outsized spending on health care. While the AMA was initially opposed to Medicare, it is abundantly obvious that Medicare has been the greatest gift to the health care industry since the invention of penicillin. Rather than providing a ceiling on expenses, as the AMA predicted, it’s provided a floor. Now we see that gene therapy is going to cost half a million to a million dollars per year per patient. What happens when the next exponential technology costs $5 million per year? What are we going to do when someone invents a “live 20 years longer pill” for $20 million per year? Is everyone going to get that as part of their Medicare plan?

The reality is we have to all agree to spend less on health care and we all have to agree that we cannot afford everything we want, or there is no answer for our deficit. That’s where the money is. You tell me which health care spending you’re willing to cut. You need to cut about $1 trillion per year starting tomorrow and you need to have that number grow at twice the rate of general inflation to keep the deficit from growing.

[Rotish]

And why is it ok to spend 1 trillion dollars on giving billionaires more wealth , but it’s not ok to give joe shmoe truck driver the best medical care there is?

[Zaphod]

FIREshrink wrote:

I’m not sure corporate tax cuts are not a good reason. There is some reason to think lower rates will increase economic growth, which is good for everyone. Don’t get me wrong – I don’t buy for a second any of the ridic projections the CEA publicized when it comes to future economic growth. But some GDP bump should be expected from a large corporate tax cut as money is redeployed from tax compliance and the federal government to capital investment, R&D, and hiring.

The reality is we have to all agree to spend less on health care and we all have to agree that we cannot afford everything we want, or there is no answer for our deficit. That’s where the money is. You tell me which health care spending you’re willing to cut. You need to cut about $1 trillion per year starting tomorrow and you need to have that number grow at twice the rate of general inflation to keep the deficit from growing.

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There is zero reason or even logical thinking to your gdp/corporate stance. Companies are sitting on historically large amounts of cash, unemployment is at 4%, and capex, etc...is rock bottom. Companies are already stuffed with more money than they can find investments for, and theyve been this way for years. Juicero existed due to this, we dont need more Juiceros in the world. There is already little to do but buyback shares or return capital in some way shape or form, a tax cut only increases this issue, it changes nothing nor addresses a growth issue of any company. Maybe you're thinking of some kind of boom or bubble formation?

If we were going to increase the deficit with spending we should have been doing that at an unemployment level of 10% and on things that increase long term economic success, infrastructure, education, etc...Deficits really dont matter that much and people far too often conflate household and governmental budget thinking. Inflation is the issue, which may be peaking its head though long term trends are still deflationary (tech).

Your estate arguments are pretty terrible. No one is seizing estates. Its a tax on assets above 10M (current) that couldnt be shielded by the myriad of legal options available. This is literally a handful of people. A tax is a % of, not confiscation. You may be confusing it with civil asset forfeiture which is a huge problem I agree. The average estate subject to these taxes pays 17%, big deal. This affects almost no one, and it isnt bankrupting anyone.

The effective tax rate on SP 500 companies is already 24%, theres little 'need' for some tax break. Little companies could have used it, but of course are too numerous and too powerless from a lobbying standpoint to cause any issues.

I dont think this bill makes it anywhere close to as written. Real estate and small business lobbies are already very against it. There are definitely good things, but on the whole its bad. What we needed was healthcare reform. The tax situation really isnt that bad in reality, its just people get very excited thinking what they can get from it so it captures attention.

[FIREshrink]

The corporate tax argument is debatable; there is room for differences in opinion. I think the cut will help profits and redistribute money out of the non-productive sector, and thus increase GDP faster than it would otherwise, but not nearly as much as the CEA claim. The fact that companies have cash on hand doesn’t mean a tax cut won’t lead to more spending or investment. If I were given a tax cut, i’d also spend or invest more.

On the estate tax, you are far too sanguine about the impacts of the tax. Citing a 17% average tax rate while ignoring the marginal rate is highly misleading; shame on you for trying to pull that off. The marginal rate is 40%; my state rate is 10% and goes up to 19%. And the moral argument for an estate tax is indefensible. Here I am (hypothetical me), regular guy. Work my whole life, save some money, make it big. Now I want to give it to my son. What right does the government have to any portion of that? Tax the earnings along the way, level the playing field, whatever - but seizing a portion of my life’s work to satisfy some idea of a social greater good is simply not consistent with liberty. When you add the state and marginal rates, the ‘government’ has a right to over half of my life’s work (over $10 million, or over any amount)? My relatives came from communist Vietnam. That government seized their property and their money whenever they felt it was important for a greater societal good. How is an estate tax any different?

[Antares]

Just as I’m reeling from finding out my health insurance premium on the ACA state exchange is going up to $29,000 for 2018 and there is NO better option, I will lose the self-employed health insurance premium deduction and most of the state and local taxes deduction. Please tell me I still get to deduct my property taxes at $25,000 per. No, I don’t this this bill is likely to help me.

It feels like the best strategy for me - at age 59 - is to get to 65, get on Medicare, hopefully have enough stashed away to stop working, and relocate to an area not inordinately affected. Or have the bill fail. That would work too.

 

[hightower]

ScientistPhysician wrote:

To everyone who is saying this tax bill is a wash for them: it’s not a wash, it’s a major loss. This tax bill will create a yearly deficit of about $1 trillion dollars. You are personally getting no benefit for a financial catastrophe for the country. I am not a national debt hawk, but if we are going to go further into debt, it should be for a ************************ good reason. Tax cuts for corporations, pass-throughs, and capital-gains earners is an awful reason.

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Absolutely.  This is the most important thing about this whole tax overhaul that isn't even being talked about much.  We're essentially taking 1.5 trillion dollars and giving it to the ultra wealthy class and letting the working class people pay for it.  It's class warfare at it's finest.  Noam Chomsky's theories are being proven true every day with this administration.  Sad thing is that 99% of citizens are blissfully unaware of what's going on because they're too wrapped up in consumerism, ego-centric social media, consumer debt, etc, etc.