States should be able to set their own levels of taxing and spending, but I see no reason why a Walmart cashier in Tennessee (which has no state income tax and low property taxes) should be subsidizing a hedge fund mogul in New York or a studio executive in Hollywood. It’s fine if blue states want to have higher state and local tax rates, as they do, but they shouldn’t be encouraged to do so by federal tax giveaways. And it’s the urban, coastal areas that have done best over the past 25 years, so it seems time for them to pay their fair share now.Of course, it's not just hedge fund moguls and studio executives. A lot of middle class people — myself included — itemize their deductions and get a pretty big number on the state and local taxes line. And rich people lose the value of that deduction because of the AMT.
The Trump tax proposal eliminates the AMT, by the way, but more importantly, the Trump plan raises the standard deduction. So a lot of us middle class people who are now itemizing state and local taxes may be better off than before because we will switch to the new standard deduction:
The existing standard deduction Americans can claim is $6,300 for individuals and $12,600 for married couples filing jointly. The precise level of Trump’s new proposal could not be ascertained, but it was significantly higher, the two people said, who spoke on the condition of anonymity because the plan has not yet been made public.The big change — as I understand it — is that the people in states like Tennessee who did not have a big number to itemize will now be just as well off as many of the people who currently have a large deduction. The WalMart cashier — who makes $31,200 a year — will get a new, much higher standard deduction, and people in high taxing states who've been itemizing largely because of that state and local tax deduction will be left with deductions that that are no longer worth itemizing. If the new standard deduction is more than their old set of deductions, they are better off.
During the campaign, Trump proposed raising the standard deduction to $15,000 for individuals and $30,000 for families.
Anyway, I just wanted to clarify that. I do agree with Glenn that the politics of the high-taxing states have been skewed by this ability to shift the impact of their taxes onto people in states that are sparing their citizens high taxes. That is a glaring political dysfunction that should be corrected.
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Depending on how the math works out, it seems like this may hit the upper middle class hardest, those with 6 figure incomes, while the increased standard deduction will benefit the middle-middle class, which probably comprises most of Trumps voting base.
I'm in deep blue California and I'm for it. Stop subsidizing high-tax states with the Federal deduction. Because I'm not one of the 400,000 millionaires the state relies on for revenue, my deduction is small anyway. But people in high-property tax and high-state and -local tax states, well this is going to mean tens of thousands in AGI adjustment they won't get. Those are exactly the people that need to be angry about the taxes they pay. This is such a beautiful jujitsu move on blue states that I can't believe Trump actually put it out there.
Damned Republicans better not screw this up!
I remember when I was in Law School (Class of 68) my federal tax prof made the point that deductions are worth more to high income tax payers than to those with lower incomes, because they pay a higher marginal rate (this was pre-AMT). He suggested that for reasons of "fairness" it might be appropriate to consider eliminating some deductions. I think the top marginal rate was then 70%, so I wasn't impressed by the argument that the richer were being treated too generously. Also, I anticipated becoming rich.
I think Trump's proposal, from what little there is to understand about it, will be a boon for most middle class taxpayers. Their tax reporting will be far simpler and the larger standard deduction will more than offset the loss of the ability to deduct state and local taxes. That won't be true for all middle class taxpayers, but it will be the case for the overwhelming majority of them. It is the upper income earners that will be hurt by the loss of the state and local income tax deduction.
For example, assume an income of $100,000. Even in California, the state income tax on that income is going to be less than $10,000. Since Trump's plan increases the standard deduction by more than $10,000 (some estimate it will go up by more than $20,000), you'd have to have a fairly large income before the amount of state income taxes exceeds the amount of the increased standard deduction.
"The big change — as I understand it — is that the people in states like Tennessee who did not have a big number to itemize will now be just as well off as many of the people who currently have a large deduction."
And yet, the Dems are still out there claiming the plan gives tax cuts to the rich on the backs of the poor and middle class. I listened to Schumer this weekend making exactly this claim. The claim has no basis in reality but their followers will still believe it.
Wasn't Peanut Butter telling us just yesterday that Trump's policies would benefit rich people like himself and not the poor hicks who voted for him?
Further dishonesty on the part of the Democrats: The state and local tax deduction is hugely "expensive" to the Federal government. This is a big step toward "paying for" the rate cuts. Yet the Dems will fight this tooth and nail, all the while claiming that the plan blows a hole in the deficit.
"Wasn't Peanut Butter telling us just yesterday that Trump's policies would benefit rich people like himself and not the poor hicks who voted for him?"
He's as dishonest as they come.
I assume that the deduction for home mortgages also benefits the rich more than the middle class, yes?
The divisiveness of the last few months makes this an excellent time to try it.
a) Allows Trump to select blue states (which won't be voting for him anyway) as a scapegoat to win support from key on-the-fence demographic groups.
b) Sends a message that the "Resistance" is not consequence-free.
c) Takes a page out of Alinsky -- making the opposition live up to their own rules.
d) Shows Republican lawmakers the art of fighting back.
Removing the Hollywood tax credit would be another excellent step.
"I assume that the deduction for home mortgages also benefits the rich more than the middle class, yes?"
Yes. Unfortunately, they're keeping that.
"Allows Trump to select blue states (which won't be voting for him anyway) as a scapegoat to win support from key on-the-fence demographic groups."
Unfortunately, there are blue-state Republicans (e.g. upstate New York) who will fight this too. I don't give it much chance for success.
If you have paid off your mortgage the only deduction is property taxes Those get so high it is often more than people can pay and they can lose their property.
I itemize and even with the high personal exemption I may not pay less under Trumps plan even though my income is low middle class. I do hope it will lower by tax liability At least it will make states think about the viability of raising taxes on income and property.
It sounds like a good idea that cuts to something Republicans want (simpler tax codes). Either or, the federal tax rate shouldn't care for your state tax rate, as the federal government should be using the money solely for things it does, not using it to kick back to states.
Blue Washington State has no state income tax, although sales tax is high. Does this involve the sales tax deduction, as well?
Why anybody believes anything Chuck Schumer or Nancy Pelosi says is honestly mystifying to me. I mean, yeah... all politicians lie... but good lord. So much sound and fury is made anytime Trump tells a lie, but top tier Democrats seem to be taken at their word and never questioned within the liberal bubble.
"And yet, the Dems are still out there claiming the plan gives tax cuts to the rich on the backs of the poor and middle class. I listened to Schumer this weekend making exactly this claim. The claim has no basis in reality but their followers will still believe it."
-- Not even the great minds of our generation like Schumer are immune to Innumeracy.
It's hard to tell if this will be good or bad for someone like me. Our combined income is around $100k a year.
After all of my deductions though, four kids, charitable giving, mortgage, child tax credits, etc, I'd think I do better than a 30,000 standard deduction.
The result would be a shift in population to low or zero income taxes states. So California, NY, NJ, Conn and MD will lose people. It will also dilute red states with blue state people and their ideology. Pros and cons
I assume that the deduction for home mortgages also benefits the rich more than the middle class, yes?
That would be the only reason for a rich property owner to carry a mortgage.
If a purpose is to reduce income inequality this proposal will help that by send high income people out of coastal states
Conservatives fall into the trap of thinking that deductions are the government giving them back some of what is theirs. They are not. They are the government making someone else pay your taxes.
For instance, the mortgage deduction is a way to make people who rent pay for other people's houses.
Only across-the-board cuts fit the first description.
Blue Washington State has no state income tax, although sales tax is high. Does this involve the sales tax deduction, as well?
Yes, the proposal is to eliminate the deduction for state and local taxes, which includes income (or sales) and property taxes.
Wait, I thought Dems supporting sanctuary and opposing local cooperation with immigration enforcement were now all in favor of federalism?
Anyway, the real problem with the US tax system is that the bottom 50% pay too little. As a matter of common citizenship, skin in the game, and no representation without taxation, they should pay more. If we are going to have a welfare state, as we do, based on solidarity, as we pretend, then we should act more like honest Scandinavians. Instead, of course, we already tax "the rich" inordinately, and gorge ourselves on debt.
This is the Reagan Method Redux. It trades a standard deduction increase for giving up certain itemized ones, but not other ones. It is the rare bird that was thought extinct: a tax Reform that favors the Middle Class. The predominant acts in DC trade middle class money to help the poor and the wealthy.
The danger is that a "Read My Lips, No New Taxes" line can flip to an increase in rates the second the Dems, including Dems named Bush, come back into power.
One downside is that it will make US taxation even more "progressive" than it already is.
The US is already extreme vs international norms as far as progressivity of taxation (i.e., the difference in tax burden across levels of income).
One effect of this is what we see in California. Tax collections are extremely volatile as upper-percentile incomes are volatile, depending on economic conditions. As the state lives in a boom-bust cycle, public finances do also.
"If a purpose is to reduce income inequality this proposal will help that by send high income people out of coastal states."
It will reduce income inequality even if nobody moves. Low income people get a doubling of the standard deduction while high income people lose a deduction.
Anyone here think the Dems will support it on this basis? Yeah, me neither.
Anyone here think Chuck Todd and his ilk will call the Dems on it? Yeah, me neither.
And, of course, if the Blue States want to eliminate their taxpayers being "double taxed" on income, they can always allow people to deduct their federal income taxes in calculating state income.
I haven't done the calculation, but here in NY state, while we get a big deduction from state taxes, that pretty much gets wiped out (and perhaps then some) by the AMT. If both the deduction and the AMT are eliminated, we might end up with a bigger tax bill, but not by a large amount, I suspect. In any case I support this for the reason Glenn Reynolds gave: There's no reason for the federal government to accommodate big-spending state governments. I'd like to see spending cuts too, though, more than I want to see tax cuts.
Glenn mentioned that this would make those most affected to possibly start paying attention to state and local politics now. That just makes sense. they should not get a benefit for crazy local spending on the backs of federal taxpayers,
" That is a glaring political dysfunction that should be corrected."
And that is precisely why it won't happen...
Eric wrote:
"It's hard to tell if this will be good or bad for someone like me. Our combined income is around $100k a year.
After all of my deductions though, four kids, charitable giving, mortgage, child tax credits, etc, I'd think I do better than a 30,000 standard deduction."
Eric,
Assuming you are married, I see you have, without itemization today, 12,600+20200=32,800 in just standard and dependent deductions. You also have $4000 in child credits (which are unaffected in the proposal as it stands). While the details are vague before any legislation is written, I would assume that the 30,000 is added to dependent deductions, too, so I would wager your deductions under what is discussed would be 30000+20200=50,200 and you still add to that the 4000 in child credits.
Eliminating the tax deduction (and, if Trump wanted to be consistent, the interest deduction) would hit high income people in blue states--particularly California, New York, New Jersey and Connecticut. But it would hit some more moderate income people in those states as well. An alternative would be to allow a deduction for, say, up to 5000 or 10000 of taxes and interest on homeowner loans up to, say, $400,000. People who buy million dollar properties would pay through the nose, but middle class people would get some relief, especially in upstate New York and Central Valley California (where there are actually a fair number of Republicans and Trump voters.
Shit, I though you had five children, so deduct 4050 from the numbers above.
With the elimination of the AMT, tax bills in high tax states might not rise so much for the high income workers in those states.
When I lived in CT, I itemized, but almost every year I lived there, I had to at least calculate the AMT because I was close to the threshold, and actually had to pay it the last three years I lived there.
This would probably hurt me if it was enacted. It would not hurt me enough to oppose it since I think it is generally a good idea.
For those who think that want to eliminate the mortgage interest deduction, do note that doing this all at once would cause chaos. Removing the deduction would reduce the value of houses and cause a good deal of wealth loss in the middle class where the house is typically the most valuable asset. It would also cause many people to lose their homes. If you want to go forward with eliminating it, it needs to be phased and/or grandfathered.
It's easy to get lost in all the intricate details of the tax code -- and how proposed changes will affect such details.
I want the code to be simplified, and tax rates to be lower. Full stop.
How is this to be done? I simply don't know.
"For those who think that want to eliminate the mortgage interest deduction, do note that doing this all at once would cause chaos."
Of course you couldn't do this all at once. Who's arguing for that?
I just want to say -- mostly to my several detractors here -- that I like the tax plan introduced by Cohn and Mnuchin. I like the content. I like the way it is being rolled out. I like most of what is being said about it, by administration officials.
It is something of a model, as to how the Trump Administration could go about things legislative. A good mix of Executive Branch leadership, open communications with Congress, straight talk on details (or lack thereof when appropriate) and no grand promises of "amazing things." (Maybe a few from Trump himself, but he's incorrigible. At least he didn't call them "little guys in yarmulkes." This time.)
My wife and I are 100% debt free, so we pay no mortgage interest. We also live in a relatively low tax state (although sales taxes are high). We don't have enough deductions to make it worthwhile to itemize, so raising the standard deduction would benefit me greatly.
In the end, what matters is how much you have left over after you've paid for everything (mortgage, car payments, food, utilities, taxes, etc.). I see a lot of people who get hung up on deductions. I think they're making a fundamental mistake. When I told some people that we were paying off our house, they asked about losing the mortgage deduction. A deduction only lowers your taxes by the marginal rate. To use simple numbers, suppose you're in a 30% tax bracket (state and federal) and have $5,000 of mortgage deductions. Those deductions will only lower your tax burden by $1,500. Given the choice, I'd rather pay the extra $1,500 to the government and keep the $3,500 than pay $5,000 to the mortgage company. Actually, I'd rather keep all $5,000 but I'll take what I can get.
"I want the code to be simplified, and tax rates to be lower. Full stop."
Yes. The complexity of the tax code is obscene, not to mention a drag on the economy.
"I assume that the deduction for home mortgages also benefits the rich more than the middle class, yes?"
Just 2 thoughts on the home mortgage deduction:
1. What about all the people who calculated their budget when they bought a house and factored in this deduction? How can you leave so many people dealing with such a big change and this big illiquid asset?
2. Most families taking this deduction probably don't have deductions adding up to $30,000, so they'll just be in a better position because of the increased standard deduction.
"1. What about all the people who calculated their budget when they bought a house and factored in this deduction? How can you leave so many people dealing with such a big change and this big illiquid asset?"
You grandfather it.
"I assume that the deduction for home mortgages also benefits the rich more than the middle class, yes?"
Depends. $15,000 in tax savings is more than $2,000, but the $2,000 is potentially more important to the family getting it.
For those who think that want to eliminate the mortgage interest deduction, do note that doing this all at once would cause chaos.
For all the reasons you cite, and many more, you're absolutely correct. Even phasing in and grandfathering would be problematic. My home has an estimated value (thank you Zillow) of about $375k. Some have estimated that value is inflated by the availability of the home mortgage interest deduction by as much as 20%. (The value of the home mortgage deduction depends, in part, on how the interest deduction is treated for state income tax purposes. So, estimates vary by the state.) Eliminating the deduction would reduce my equity by $75k! I'd still have equity, because I've been paying on the mortgage for 17 years and we've made some improvements to the home, but a $75k reduction would put my neighbors who just bought their home into the red.
Grandfathering the deduction for existing mortgages would NOT eliminate the hit to home values. A future buyer wouldn't benefit from the deduction on the new mortgage, so the amount the buyer would be willing to pay would reflect that fact. But, grandfathering the mortgage deduction for existing borrowers would make more difficult for existing owners to move. They'd have to give up a very valuable benefit if they sell.
Phasing out the deduction is difficult because we're talking about a mortgage that has a term measured in decades. When Congress phased out the personal interest deduction as part of the '86 Tax Reform Act, taxpayers were able to deduct a decreasing percentage of the interest over a 3-year period (IIRC). These were short-term loans and, within 3-years, most taxpayers were able to pay down their debt. That's simply not possible for most taxpayers with their mortgages. There is an element of unfairness involved with denying a deduction after taxpayers entered into long-term mortgages based, in part, on the fact the interest would be deductible.
I understand the desire to stick it to the blue states, but I have two problems with this. Don't conservatives generally believe money taxed and spent locally is preferable and more efficient than at the federal level? Also, ending the property tax deduction will have a negative impact on home values for everyone.
"Grandfathering the deduction for existing mortgages would NOT eliminate the hit to home values."
Will some people take some loss if we do away with it? Yes. But your analysis is one-sided. Your house value may be reduced some, but the next house you buy will be cheaper.
Anybody who votes for eliminating the home mortgage deduction will be out of office at the next election.
The art of the possible, etc.
"Anybody who votes for eliminating the home mortgage deduction will be out of office at the next election."
Put it 10 years in the future. But yeah, probably never happen.
Damned Republicans better not screw this up!
Please, those clowns could f*ck up a one-car parade.
As a filer in a high-prop-tax Red district with no state income tax, I have schadenmixedfeelings. I'll have to increase withholdings to make up for the delta between the loss of the prop-tax deduction and whatever increase in the exemption/standard deduction.
Knew it was coming, in one form (mortgage/charitable/etc) or another. At least I'll feel more patriotic, right?
"I assume that the deduction for home mortgages also benefits the rich more than the middle class, yes?"
Of course it does. Rich people own pricier homes than the middle class.
I am in favor of phasing out the home mortgage deduction. But then I can be; we've paid our mortgage off. Ann's Point 1 doesn't apply to us. I'd like to know how many people would be affected, and by how much.
The AMT was a disaster from the get-go. It hits families at about twice the median (ca. $100K) and hits them very hard. Not saying they didn't deserve it, but my point is that it was launched at a time when it hit only seriously high rollers, and hasn't been inflation-adjusted ever since.
The estate ("death") tax? Meh. That's a sop to Trump himself and his rich friends, of course, but in actual money value it doesn't amount to much.
Charitable donations? OK, but they really aren't all going to homeless shelters, even for cats. Think museums, symphony, opera. I approve of all these things, but they aren't what most people think of as "charity."
Bracket simplification? Good. Huge corporate tax reduction? Also good. How are we to pay for all this? Ummmm...
Don't conservatives generally believe money taxed and spent locally is preferable and more efficient than at the federal level?
Generally, yes. However, that doesn't mean conservatives believe the federal government should subsidize higher local taxes. It is NOT inconsistent to believe that services (and the taxes to support them) should be provided by the lowest level of government possible while also believing that the tax burden levied by each level of government should be as clear as possible to taxpayers. The federal state and local tax deduction helps to hide the true cost of state and local government, which most conservatives believe is a bad thing.
Also, ending the property tax deduction will have a negative impact on home values for everyone.
Maybe. If taxpayers become upset with their property tax burdens, politicians may choose to lower those burdens. Unlike a home mortgage which, in general is a long-term fixed cost that cannot altered without harming the lender or the borrower, local governments can and do change their real estate tax levy from one year to the next. So, its much harder to project how much the loss of the real property tax deduction would affect home values for any period of time greater than a year. We'd have to know how local governments would respond to the change in federal tax law.
Just a reminder that social security and medicare taxes are not deductible--why should be state and local taxes?
There is also discussion in eliminating the Estate Tax. Although that tax doesn't actually hit many people anymore since the estate and gift tax exemption is very high (5.49 million per person or twice that for a married couple). Not that many people are going to be assessed estate taxes.
I would be more interested and CONCERNED if they also eliminate the cost basis step up on death. This would more adversely affect those 'regular' or moderately well off heirs.
For example. You inherit some stock or a house from your parents who bought the items in 1950. The current market value of a home from the initial purchase price of say $20K in 1950 can be upwards of 1 million in some areas of California. Stock purchase can also have a very low cost basis but a high current market value. If the heirs have to sell or liquidate, without a step up in basis...they may get royally screwed.
Stock Market value of 1000 shares in 1990 $1440 Market value today. 147,000
With no step up in basis....Capital gains IF sold.....145,000
Capital gains taxes at the highest rate: $29,112
So while you may not be assessed the Estate Tax you are likely to be raped by Capital Gains taxes or be forced to hold onto assets that you might rather sell, liquidate or if a house have to split with heirs.
I particularly like:
1) Elimination of the AMT. This has always seemed unfair and unAmerican. If you are legally entitled to a deduction, you should be allowed to take it.
2) Even bigger, the repatriation tax. There are something like $1,000,000,000,000 ($1T) in profits held overseas by US companies. They currently pay no tax at the 35% (or whatever) rate and do not create any economic activity in the US.
I think 15% tax to bring the money back will give us a tremendous boost. First, $150bn in tax revenues and also $1T or so in new invenstment. What's not to like?
I am sure that some people prefer having "The rich" not pay 35% instead of paying 15% but those people are stupid.
As is our whole corporate tax structure. How else would you describe a Brazilian Corporation having to pay US taxes on a restaurant it owns in Japan? Stupid may be too mild a word.
John Henry
"The AMT was a disaster from the get-go."
It's (purposefully, of course) misnamed. It's actually the MMT (Mandatory Maximum Tax).
Don't conservatives generally believe money taxed and spent locally is preferable and more efficient than at the federal level?
Well, yes, except that there are states who are, for instance, better stewards of their highway funds and more welcoming to military bases. Then there are those where wheat, corn. rice, sugar and soybeans are and aren't grown.
Also, ending the property tax deduction will have a negative impact on home values for everyone.
It may also do two other things on the local level:
(1)more people will dispute their property tax valuations each year and...
(2)more people will pay attention to local ballot measures raising the levy or proposing bond issues funded by it.
Given that interest income is taxed, it makes sense to me to allow interest expenses to be deducted. That would apply to all interest expenses, not just home mortgages. It would be even better if interest income were not taxed (and interest expense therefore not deductible).
"It's (purposefully, of course) misnamed. It's actually the MMT (Mandatory Maximum Tax)."
Actually there's a good case to be made that we should keep the AMT and throw out the income tax. The AMT is more like a simple flat tax.
DK Walser - good points.
Larry J,
"I see a lot of people who get hung up on deductions. I think they're making a fundamental mistake."
I have the same argument with my mother every single year since I started doing my parent's taxes- she literally saves every piece of paper you would need for itemization, but my parents' standard deduction is over 15,000 now, and along with their personal exemptions, they never come close to being able to itemize, and my mother always bitches about it endlessly every time I have her sign the forms. For some reason, I can never seem to convince her that she is better off not having to itemize.
But your analysis is one-sided. Your house value may be reduced some, but the next house you buy will be cheaper.
True enough. However, if someone's retirement plan involves selling their 4 bedroom house in a good school district and buying a much smaller house (a/k/a, downsizing) the "tax law savings" on the next home will be swamped by the "tax law loss in value" on the sale of the existing home.
Note: I'm NOT saying I'm not for making the change. I'm saying that there are some very significant practical problems with doing anything to the home mortgaged interest deduction that need to be carefully thought through. I don't believe its enough to simply say there will be some winners and losers to any proposal, so let's go forward. We might say something like that when we are dividing up the check for a group lunch and determining how much everyone's meal cost -- who ordered the ice tea and who didn't -- doesn't seem worth the effort. Because of the relative size of a home's value on most middle class taxpayers' balance sheet, eliminating the home mortgage deduction is apt to bankrupt some taxpayers through no fault of their own. I would have a problem with that -- even though I'd do fine under such a proposal.
This is a very complex area without an apparent simple solution. Any proposal I've seen (I'm a tax CPA, so I've seen a lot of proposals) will give windfalls to some and harm lots of others. In the end, as a society we still may be better off without the deduction. I'm just asking that the practical issues be recognized and fully addressed.
High tax states would only be shifting the burden if there were balanced budgets. With deficits, the burden is just shifted to future generations.
I'm a Trump voter, a Californian paying the 13.3% on top of the top federal rate. I'm just one man paying the tax burden for many many people for many years, and now I'll get creamed again. Every tax "reform" just makes the system more progressive, which means less fair. How can you justify half the citizens paying no effective tax while forcing a very few to pay most of it. It could not be less fair. I earn a lot, becuase I have out-worked and out-sacrificed, and out lasted most of my fellow citizens, who now don't even pay any share, let alone their fair share. Everybody should pay something if you want to call yourself an "American", "a patriot", or "an adult".
The whole concept of "income" tax is 20th century. It was the perfect tool for the Industrial Revolution, and the creation of the Federal Reserve system.
Today it is no longer viable, as none of the million tax lawyers has a clue what is in all the local, state, and federal "income" tax laws, letters, and recommended practices.
What can we do? The answer is to do to the IRS what we did to the horses in the cities. Ban them to the far reaches of society.
In its place, replace it with a "consumption" tax. Exempt all food, water, and health care.
"This is a very complex area without an apparent simple solution. Any proposal I've seen (I'm a tax CPA..."
This is the problem with the market distortions of our current tax code. BTW, have you factored in the gain to (almost) everyone when they have the ability to do their own taxes (he asks sweetly)?
In Oklahoma I pay zero state income taxes, as my federal pensions are exempt.
I don't think that is fair, but I'm not going to start a riot or protest.
The theory is, that Oklahoma wants to attract federal jobs. That's why we have 50 military bases, and the Marshal Service Airline. We are the hub for all prisonor air travel.
I guess it all comes out in the wash. ...or maybe not. We'll have to ask the 1% and all the lawyers.
@bagoh20 - I could not agree more. BTW, I thought you were moving to Nevada.
I assume that the deduction for home mortgages also benefits the rich more than the middle class, yes?
That would be the only reason for a rich property owner to carry a mortgage.
Depends on the definition of 'rich'. The deduction limits kick in once you get to the types of homes households comfortably in the top 1% own and the benefit begins to represent a smaller and smaller portion of household income.
Rich people love mortgages because collateralized debt is cheap money. For many they take the leverage when they could easily pay cash. There's some monsters out there.
I'm just glad the discussion is focused on state taxes and there's less interest in the pass through proposal. Hopefully it's too complicated for lefties to understand.
Of course, vested interests will muck up any reform, but ideally you'd want a tax system based on simple principles, for example: 1. The purpose of taxation is to raise money. Corollary: it is not a tool to give goodies to some people; if you want to give goodies, spend. 2. Everyone pays. Corollary 1: if you are a resident or citizen, you gotta chip in. Corollary 2: if you want to give the poor more money, spend.
Rich people love mortgages because collateralized debt is cheap money. For many they take the leverage when they could easily pay cash. There's some monsters out there.
That used to be the smart move but I'm not sure it is now.
To those who think the estate tax is just for the rich. I disagree. My parents bought a home for 40 k in 1962 Now that home is worth 1.7 million. So that the kids who inherits have to pay taxes and cannot buy each other out and a family can not take over the house, My husband parents bought a house , paid cash from the proceeds of their previous house. That house is worth 700-1.2 due to the removal of estate taxes they do not have to pay 20 % of 1.2million. The just have to pay capital gains on any increase since the last parent died.
The home mortgage deduction artificially inflates housing prices and real estate commissions. However, if eliminating the deduction is phased in slowly, prices will find their market level and everyone will be happier in the long run.
However, I do not expect people to support short term pain for long term gain.
Everybody should pay something if you want to call yourself an "American", "a patriot", or "an adult".
This I agree with. Everybody should pay federal income taxes, even if it's only a token amount.
I think 15% tax to bring the money back will give us a tremendous boost. First, $150bn in tax revenues and also $1T or so in new invenstment. What's not to like?
Use it to build the wall, watch Democrat's heads explode. It's a win-win-win!
Except currently both state income and sales taxes are deductible. So, as usual, Instaidiot doesn't know what he is talking about and it will affect Red state people. So stop being so goddamned smug.
"Everybody should pay federal income taxes, even if it's only a token amount."
Yes.
Except currently both state income and sales taxes are deductible. So, as usual, Instaidiot doesn't know what he is talking about
Wrong. When you call someone an idiot, you ought to be more sure of your own facts.
If you file a Form 1040, and itemize deductions on Schedule A, you have the option of claiming either state and local income taxes or state and local sales taxes (you can’t claim both).
The AMT cost my son $2400 last year -- because he had to sell assets to go to College.
I'm all for its repeal. I'd like to see the end of the mortgage deduction. Give people an incentive to save, not to borrow.
"Rich people love mortgages because collateralized debt is cheap money. For many they take the leverage when they could easily pay cash. There's some monsters out there.
That used to be the smart move but I'm not sure it is now."
I own all property (a decent bit) free and clear.
Not that I don't get the argument re free (or almost free) dough. In fact, I've sold hundreds of millions of dollars of mortgage instruments to Wall St.
But, just paying the maintenance stuff (tax/ins/staff) is annoying enough. The comforting feeling of no debt is worth the cost of not maximizing dough making. Plus, when something goes sideways (e.g. aftermath of the W years) and leveraged folks must abandon ship, it's cool to pick up deals.
That used to be the smart move but I'm not sure it is now.
Rates matter less than the spread vs. the alternative.
The comforting feeling of no debt is worth the cost of not maximizing dough making
I'd put myself in this camp, too, but many in the PE/VC/Hedge set would be annoyed at all that tied up capital.
Wrong. When you call someone an idiot, you ought to be more sure of your own facts.
I thought someone might pull this bullshit because I wrote "and" not "or". Where did I say if you paid both you could deduct both? Instaidiot was claiming that the decision to eliminate the tax deduction would not affect him because he lives in a state without an income tax, but the sales tax deduction will go away too.
I own all property (a decent bit) free and clear.
My husband and I had a mortgage on our first home but bought our subsequent seven houses outright. Not everyone is in the position to do that and some think it's not financially savvy but we did enjoy debt-free living, as I still do. I think most young couples depend on the tax incentive that a home mortgage offers and cutting that deduction could kill home sales in some, if not most, markets.
To those who think the estate tax is just for the rich. I disagree. My parents bought a home for 40 k in 1962 Now that home is worth 1.7 million.
Unless your parents have another 3.75 million in assets, you don't have to worry about the estate tax. And then only the inheritance over 5.45 million is taxed (e.g., if your parents' estate was worth $6 million, you would only pay the estate tax on $550,000).
It will not work without comprehensive reform including ending anti-capitalist programs such as Obamacare (and other protection mechanisms), "free" trade, and redistributive change, and addressing civil and human rights violations including [class] diversity, abortion rites, and Catastrophic Anthropogenic Immigration Reform.
Fredo, the issue with the estate tax is that of double taxation.
Fredo, the issue with the estate tax is that of double taxation.
No it isn't. In fact inheritance is a huge tax break. Look at RAH's example. When her parents die, she will be able to sell a house worth 1.7 million that was purchased for 42K without having to pay a penny in capital gains, same with any stocks that they inherit. The basis is reset at the time of death, so any gain during your parents' lives is never taxed.
Where did I say if you paid both you could deduct both?
That's the most natural reading of "currently both state income and sales taxes are deductible."
Do you have a quote of Reynolds saying that it "would not affect him"? It's certainly not in his op-ed linked above. All he says is "I see no reason why a Walmart cashier in Tennessee (which has no state income tax and low property taxes) should be subsidizing a hedge fund mogul in New York or a studio executive in Hollywood."
Blogger Freder Frederson said...
"Fredo, the issue with the estate tax is that of double taxation.
No it isn't. In fact inheritance is a huge tax break. Look at RAH's example. When her parents die, she will be able to sell a house worth 1.7 million that was purchased for 42K without having to pay a penny in capital gains, same with any stocks that they inherit. The basis is reset at the time of death, so any gain during your parents' lives is never taxed."
And then you have the case of a closely held company employing dozens of people having to pay etate taxes when the owner dies and the company is forced to lay off or sell off in order to pay those taxes.
...BTW, have you factored in the gain to (almost) everyone when they have the ability to do their own taxes (he asks sweetly)?
I wouldn't mind at all if the tax code were fare simpler and most people could do their own taxes. But, I have a suspicion that my wife has been voting for democrats ever since she realized our family income depends on our tax system. The higher the rates and more complex the tax code the more valuable are my skills. I don't worry about ever being out of work.
Since the issue of an estate tax has been brought up I think it is worth a mention that the current tax laws encourage an elderly couple to remain in an overly large house rather than downsizing. (This would apply mostly in high property value areas such as Coastal California and suburbs of New York. This also applies when the large house was purchased many years ago at a low price.) Assume a house was purchased for $100,000 some years ago and would sell today for $1,000,000. Under most circumstances the elderly selling couple may be able to deduct $500,000 as well as the original $100,000 from the sale price but the remaining %400,000 would be taxed at capital gains--$94,000 to the feds plus whatever the state tax would be--in California it could be as high as 13.4% or another $53,000. And, in California at least, where the property tax on a long held residence is likely low because of Prop. 13, if the new downsized residence is in another county, the property tax on the new house may be as high as the tax on the old large house.
If the couple waits until one of them dies (at least in community property states) the result is a new basis of a million and then it can be sold tax free and the surviving spouse can move without a penalty.
The larger houses in desirable areas in the metropolitan areas of coastal California and suburbs of other high income cities are probably worth well over a million (in Berkeley CA very few houses sell for under a million even in less desireable areas and many sell for 2 million or more and in really posh areas the prices are even higher).
In such cases the "selling" tax is much higher.
Presumably it is desirable housing policy for elderly people whose children have left home to downsize so that people with families can find sufficiently spacious housing (without going to the far suburbs where new housing is being constructed). But the governments will penalize those who move thus encouraging them to keep occupying large houses with lots of empty space. (My wife and I live in a five bedroom house and we rarely set foot in the three rooms in our second story--but heaven forfend if we be encouraged to find a smaller place to live.
Also, I might admit, the three upstairs bedrooms are lovely places to store books, old vinyl records, furniture, and all sorts of other stuff--out of sight for us, and eventually a headache for our children to dispose of once we are gone.
I live in a high tax state. Essentially the effect of this would be keep the tax dollars flowing from my state to the feds the same, but would reduce the amount sent back to my state from the feds.
Look for a judge to declare that this is constitutional. Really, we are seeing unelected federal judges take on more and more power from the elected branches of government.
Standard deductions should be tied to DATA.
The standard Welfare, SNAP, Medicaid, etc redistribution is the base for it. Then add 30%, or more, because working people deserve more for dealing with traffic, bosses, and CPAs.
Chpt 10 "1099-GOV" http://mcaf.ee/5gcu7j
...Instaidiot was claiming that the decision to eliminate the tax deduction would not affect him because he lives in a state without an income tax, but the sales tax deduction will go away too.
You don't have enough information about his tax situation to know whether he benefits from the sales tax deduction or not.
...Then add 30%, or more, because working people deserve more for dealing with traffic, bosses, and CPAs.
Oh, the standard deduction should be much, much, larger for those forced to deal with CPAs (says a CPA).
Give me liberty or give me taxes.
Or buy my vote.
Your choice.
Sorry if I missed a comment making the same pint, I've been driving all day to get home from OC.
I assume that the deduction for home mortgages also benefits the rich more than the middle class, yes?
I would suggest capping it. I have long believed that home prices in California are out of control. One reason we moved to Arizona is that we would have had to pay close to a million dollars for a 3 bedroom, 2 bath house in OC. My son has done well since I helped him buy a house back in 1991 when the market was depressed. One of his best friends is cashing out and moving to Atlanta. They will sell there 3 bedroom house for about $700,000 and buy a huge house on an acre or more on a golf course for about $500K.
The house we have in Tucson could not be found in Orange County. My son is now musing about moving out of state when he retires from his firefighter job., His wife can wok from home and do very well, as she does now. The kids have to decide but the oldest might use our address for U of A.
The middle class is abandoning California. They were talking about the prospect of Gavin Newsome as governor. That would cause a mass exodus.
Presumably it is desirable housing policy for elderly people whose children have left home to downsize so that people with families can find sufficiently spacious housing
Some years ago, an older couple wanted to trade houses with me because I had a one story and they had a much bigger house with two.
I said no because I did not want two story and did not want to change my Prop 13 tax status.
One story houses in OC are now selling for the same as two story bigger houses. The expensive houses can only be afforded by older owners.
They were talking about the prospect of Gavin Newsome as governor.
I'm betting he throws his hat into the presidential race in 2020.
Get rid of all the deductions, but lower the fees & taxes and eliminate 'progressivity'. Flat tax or no tax!
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