Tuesday, December 19, 2017

SALT Deduction Change

Sam Brodey at MP discusses the SALT Deduction change.  Here are my first thoughts.
"This discussion reminds me of when the SW Light Rail supporters were arguing that the line was a bargain because MN only had to provide only about 10% of the funding. Seemingly total indifferent to the 90% that was going to be paid from our Federal tax dollars.

Now MN Liberals usually state that they believe the wealthy do not pay enough in taxes. Though the article uses averages, I am assuming that $10,000 is more than enough of a deduction for most of us normal people. So what is the issue? It seems that many here would be happy that the wealthy of MN will be paying more in Federal Taxes.

Personally I think they should have cancelled SALT deductions even though it would cost me. My rationale is that each person should pay their fair share of the Federal taxes.

And if they want to support additional spending at the local and state level, more power to them. Maybe the SALT deduction is part of why the Blue States always support tax increases on the successful folks... I mean they are only paying a part of the increase."

32 comments:

John said...

CNN House Vote Results

Some GOP Reps voted to keep getting their Federal subsidy. :-)

Sean said...

I guess double taxation is OK when it screws the blue states but not OK when it makes really, really wealthy people pay the estate tax?

How does one explain this complete and total inconsistency on what conservatives have always claimed is one of their fundamental principles of tax policy?

John said...

I am not sure...

Remember that I am against the Estate tax, but I do think Capital Gains taxes should be paid upon the death of the owner(s)...

I don't understand the GOP position that death let's one avoid paying their capital gains taxes... It seems to me it makes a lot of old Owners do foolish things...

"Oh... I have to hold on to this property until I die so my children and I can avoid paying capital gains taxes."

I have a relative who could really use the proceeds from a land sale to live better in retirement, but they won't for that one reason.

Hopefully they stay healthy so they are not forced to sell it to pay nursing home bills.

John said...

Just look at all this work people do to avoid paying taxes.

Estate Planning and Taxation

Capital Gains vs Estate Tax

CBPP Ten Facts

John said...

I am thinking many Minnesotans will appreciate the benefits in this bill.
FOX Tax Bill

I only have this year left to claim the Child tax credit. After that the effect on my taxes should negligible either way.

"What about the alternative minimum tax rate (AMT) ?

The alternative minimum tax rate is essentially a secondary tax on the wealthy; put in place to offset the benefits a person with a high income could receive. The new bill eliminated the AMT for corporations, but keeps it for individuals. It raises the exemption to $500,000 for single taxpayers and $1 million for couples.

How does it impact my personal income tax?

The bill keeps the seven tax brackets while reducing the rates for five of them. The new rates start at 10 percent and rise to 12, 22, 24, 32, 35 and 37 percent.

The highest rate -- 37 percent -- applies to individuals whose income exceeds $500,000. For joint filers, the threshold is $600,000. This rate is being lowered from 39.6 percent.


And what about estate taxes?

The new bill keeps the estate tax at 40 percent but doubles the exemption levels -- which are currently at $5.49 million for individuals and $10.98 million for married couples.

What about my state and local tax deductions, or SALT?

Under the finalized bill, families can deduct up to a total of $10,000 in local property and state and local income taxes.

Will I still be penalized if I don’t have health insurance?

No. Starting in 2019, the new legislation eliminates the Affordable Care Act’s individual mandate.

How does the new bill affect the child tax credit?

Under the new bill, taxpayers can claim $2,000 credit for each qualifying child under the age of 17. The tax credit applies to single filers and married couples, and is fully refundable up to $1,400.

Sean said...

"I am thinking many Minnesotans will appreciate the benefits in this bill."

They may (the numbers show that typical families will only get about a 1% boost in pre-tax incomes), until they vanish.

For $1.5 trillion, if helping out everyday people was the goal, you could do a heckuva lot better.

John said...

What is your source?

I would think middle class folks with kids would love the government paying them more for each kid... This has to be worth much more than 1%.

Not to mention the lower tax rates. And the SALT deal shouldn't impact them.

I am think it is only wealthier MN's with no kids who are going to feel the pinch. And hopefully they will make up for it with additional stock market gains.

Sean said...

The Child Tax Credit is limited based on your income (15% of your income above $2500 in the new bill), so low-income folks don't get the full impact of the increase. (and, of course, keep in mind that these CTC changes vanish in 2025)

CBPP CTC Changes

JCT Estimates of Distributional Effects

John said...

But low income Parents still get $1400 in essence of free cash per child no matter how much they pay in Federal taxes. Correct?

Which is a $400 increase per child.

How does one even quantify the "reduction" when you get even more back now than you paid in?

"The $1,400 limit means that millions of moderate-income children will get a CTC increase of no more than $400 per child. Some 14 million children in moderate-income families would get less than the full $1,000 CTC increase, we estimate. That’s a modest improvement over the Senate bill, under which 16 million children would have been denied the full credit, and the increase that a number of these families received would have been smaller.

For example, a married couple with two children making $24,000 would get an $800 increase in their CTC ($400 per child) under the final bill compared to $200 ($100 per child) under the Senate bill. The original Rubio-Lee proposal would have delivered a $1,672 increase to this family, because it wouldn’t have created this new, artificial limit on the CTC for moderate-income families."

Sean said...

In fact, the Obama stimulus bill had bigger tax cuts for the bottom 40% than this bill does (per the Tax Policy Center).

Graph of TPC data on impacts of stimulus vs. GOP tax reform

John said...

The JCT indicates some big cuts on Page 1 Columns "Change in Fed Tax" for low to middle class folks.

And for lowest income folks, the numbers are all bogus anyway since they get far more back in money and services than they pay in.

And yes they phase out, but based on how the Bush tax cuts went... The DEMs will let the tax cuts die for the wealthy folks and make them permanent for every one else.

Maybe it is time for Bar Stool Economics Again

John said...

Sean,
But like many Liberals you seem to be happily forgetting that most of the low and middle class tax cuts from Bush and Obama are still in place.

Whereas the successful folks are back at about Clinton rates + the ACA taxes.

Sean said...

"But low income Parents still get $1400 in essence of free cash per child no matter how much they pay in Federal taxes."

Nope. 24 million children receive a partial CTC, as detailed in the CBPP link.

"But like many Liberals you seem to be happily forgetting that most of the low and middle class tax cuts from Bush and Obama are still in place.

Whereas the successful folks are back at about Clinton rates + the ACA taxes."

OK. So what?

John said...

So using their example...

A single Mom with 2 kids making $14,500 / yr gets back.
Current: ($14,500 - $3,000) x .15 = $1,725
New: (14,500 - $2,500) x .15 = $1,800

A couple with 2 kids making $28,000 / yr gets back.
Current: $2,000
New: $2,800

I think that is what Jerry would call an excellent carrot to encourage that woman to improve her employment potential or get married... :-)

Thanks for teaching me. By they way, the single Mom is still getting back far more than she is paying in Fed Income Taxes..

John said...

As for your "so what?"

Let's use a simple example:

Not Wealthy
2001: Income: $40,000 Taxes: $10,000
20010: Income: $40,000 Taxes: $8,000
2017: Income: $40,000 Taxes: $8,000
2019: Income: 40,000 Taxes: $7,000

Wealthy
2001: Income: $400,000 Taxes: $150,000
20010: Income: $400,000 Taxes: $120,000
2017: Income: $400,000 Taxes: $150,000
2019: Income: 400,000 Taxes: $120,000

Based on the above who is getting a real tax cut relative to the other.

Summary: Baselines matter

Sean said...

Where are you getting these numbers?

Sean said...

"Summary: Baselines matter"

OK. Let's roll that baseline back a little further, then.

Atlantic figure of effective tax rates by quintile

A massive drop in taxation on the wealthiest in our society was followed with a massive increase in wealth concentration at the top of the scale. Coincidence?

John said...

I got the child tax credit numbers from the CBPP link.

I made up the income tax numbers with a normal progressive tax construct and similar reductions.

Your currydemocrats.org link looks really suspect. I have never heard of anyone paying an "average effective tax rate" of 75%...

John said...

Maybe they were thinking Marginal Rates

As for the cause of the wealth gap... With all the globalization and automation going on. I wouldn't pick taxes as the root cause.

The reality is that low skill / low education jobs aren't worth much in this country now days. And wealthy investors make money everywhere.

Sean said...

"I made up the income tax numbers with a normal progressive tax construct and similar reductions."

You can't do that. You need to take an actual scenario and run the numbers, not just make junk up.

"Your currydemocrats.org link looks really suspect. I have never heard of anyone paying an "average effective tax rate" of 75%..."

It's from an Atlantic article.

Atlantic: 16 Charts About Income Inequality

Which sources it from this paper:

Piketty and Saez: How Progressive is the U.S. Tax System?

John said...

Of course I can make junk up if all I am doing is explaining why base lines matter. That is a concept issue.

I'll check out the better links when I get a chance.

John said...

From the Atlantic

"First, let's look at the gap between the super-super rich and the rest. About 60% of the increase in the top 1%'s share of total income seems to come from the expansion of the financial sector and the explosion in executive pay in non-financial compensation.

At the same time that their incomes have grown, effective tax rates on the super-super rich have fallen, especially since our laws give preference to income from capital gains. This is huge, because the top 1% has controlled more than 40% of stock market wealth since the 1980s. The next 9% owns another 40%. Stock wealth hasn't exactly democratized.

Since 1960, average effective tax rates have fallen dramatically for the top 0.1% -- much of it thanks to preferences for capital gains income. Progressive taxation won't fix the middle class crisis, Mishel pointed out to me over the phone, but it can discourage sky-high CEO salaries and provide more public funds to pay for infrastructure, education, and a safety net.

We're moving from the tippy-top of income to the very bottom here. As taxes have fallen at the top, the minimum wage has fallen at the bottom. In 1964, the minimum wage was about 50% of the average worker's hourly earnings. By 2011, that figure fell to 37%.

Although the minimum wage probably has a light effect on middle-class wages, it goes a long way toward explaining the falling market wages of the very poor -- especially among women, for whom it explains about two-third of the "50/10 wage gap" change in the last 40 years.

Explaining the stagnation of the middle class is more complicated. According to EPI, the story begins in manufacturing, where trade with less developed nations (who can produce cheaper goods with cheaper labor) hurt wages among the non-college-educated class that once relied on manufacturing jobs.

As manufacturing eroded, so did unions, whose coverage fell from 27% in the early 1970s to just 13% in the late 2000s. Without unions, middle class workers without skills to move into higher-paying jobs lacked the collective power to bargain for higher wages."

Sean said...

You want to discuss concepts because when it turns to what is actually going to happen, it doesn't look so great.

JCT Estimates Show Final GOP Tax Bill Skewed To Top

John said...

I guess I can agree that taxes are a minor contributing factor. (ie part of their 40%) Though I am not sure if we would not have been worse off without the change.

I think more of the capital would have fled America if the change had not occurred. Which may have been really bad news for us workers.

And why the low and middle class wages have fallen is all about global competitiveness and Americans liking low cost / high quality services no matter who here loses a job.

In summary: the wealth gap is complicated. And I don't think we can tax our way to solving it as long as capital is free to flow to a more competitive economy.

John said...

As I said before... Let's focus on 2018, it is really all that matters to most people.

In 2025 I can guarantee the low income cuts will be extended and the high income cuts will be allowed to lapse when the DEMs have their way.

Sean said...

"I think more of the capital would have fled America if the change had not occurred."

The U.S. has run positive net capital inflows for decades.

Sean said...

"In 2025 I can guarantee the low income cuts will be extended and the high income cuts will be allowed to lapse when the DEMs have their way."

There's no guarantee that will happen. Dems wanted to keep the payroll tax cut, but that didn't happen. CHIP hasn't been renewed. If the GOP thought that taking care of the middle class was the priority, they could have made the individual cuts permanent and sunsetted the corporate cuts.

John said...

And if GOP has not bankrupted us yet. They would extend all of the cuts.

John said...

Maybe the positive capital inflow is due to the low capital gains taxes...

And Payroll tax cut and CHIP are in essence welfare. Not good things for the middle class.

John said...

Please remember though that I am an advocate for raising the payroll taxes (premiums) so they are more aligned with the desired benefits.

Sean said...

"Maybe the positive capital inflow is due to the low capital gains taxes..."

This has been the case since WW2.

John said...

Well I looked with little success, most of the capital flow graphs only go back to 1980.

However it would make sense that money flowed to the US after WWII, much of the rest of the world was in bad shape and the US was thriving.