The Gang Tries Fixing the Tax Code

[vote for pedro]

I disagree that this tax cut is "bad for the deficit."  The CBO will probably score this statically and portray it as a reduction in revenue, but the truth is that tax cuts increase revenue due to increased economic activity.  Tax revenues under Reagan increased from $517B in 1980 to $909B in 1988 with two huge tax cuts.  The reason the deficit also increased was due to increased spending, not decreased revenue.

https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762

Cute, but no. We were in the middle of a nasty recession in 1980, and there were 8 years of elevated inflation in between those two tax receipts you listed. The total inflation from 1980 to 1988 was 44%. $517B to $909B is a 74% gain. So that's actually not much of a gain in real terms. Not to mention Reagan ballooned the military budget.

Also, the 1986 tax bill was not a tax cut. It was revenue neutral by design.

I don't know where you are getting your inflation numbers but here are some CPI numbers for you:

http://www.inflation.eu/inflation-rates/united-states/historic-inflation/cpi-inflation-united-states.aspx

After adjusting for inflation, yes revenues decreased in 1982 and 1983.  But increased every other year.

And I only picked 1980 to 1988 because all these leftists are claiming "Reagan's tax cuts blew up the deficit."  1980 being the last year under Carter and 1988 being the last year under Reagan.  Increased spending blew up the deficit.  Revenues increased even after inflation. 1982 and 1983 being the exception.

1980 $517B       Revenue    Inflation   Difference
1981   $599B   +15.86%   8.92%   6.94%
1982   $618B   +3.17%   3.83%   -0.66%
1983   $601B   -2.75%   3.79%   -6.54%
1984   $666B   +10.82%   3.95%   6.87%
1985   $734B   +10.21%   3.80%   6.41%
1986   $769B   +4.77%   1.10%   3.67%
1987   $854B   +11.05%   4.43%   6.62%
1988   $909B   +6.44%   4.42%   2.02%

[vote for pedro]

Yes when I started my reply, the claim was that revenues decreased after inflation.  I see that has been retracted, thank you.

A minor point: the inflation rate for the applicable years is 39.6% compounded, not 44%.

[○∙◄☻¥tπ[╪AV┼cVê└]

Going from a 99% to a 98% tax rate could increase revenue, but anyone who claims that Trump's plan will is a total hack.

[ProudModerate2]

Just recently heard on the news some organization describing trump's tax plans as :
Too much candy, and no vegetables.

[#gravelgang #lessiglad]

Just recently heard on the news some organization describing all of trump's tax plans on everything as :
Too much candy, and no vegetables.

[jaichind]

For personal finances reasons I wrote all sorts of income tax calculators over the years.  As a result it was pretty easy for me to do a comparison of taxes paid under the current system and the Trump plan over different incomes (namely AGI of 30K 50K 75K 100K 150K 200K 250K 500K 750K 1000K 2000K)

I assumed a family of 3.  I used California (San Francisco)  and Alabama as comparison to get the most extreme scenarios (of course even more extreme is places like FL where there are no state income taxes).  I assume the family in question buys a house in line with their income where they can afford it in the region they live in (mostly around 3 times AGI) and get a mortgage with a down payment in line with their income.   I also assume the AGI is composed some dividends in line with what is expected given the overall income of said family.  I also assume charity giving for families with income starting with 100K with around 1% of AGI and rising to 2% of AGI by 2000K.

Doing scenarios comparison gives us

California (San F)
AGI         Current         Trump       Difference       Trump tax (in $ terms)
              tax rate        tax rate                            increase/decrease
 30K         1.75%          0.00%         -1.75%              -$525.00
 50K         5.72%          2.77%         -2.95%            -$1,475.00
 75K         8.81%          5.18%         -3.63%            -$2,725.00
100K       10.36%          6.44%         -3.93%            -$3,925.00
150K       12.92%        11.24%         -1.67%            -$2,506.00
200K       14.66%        14.58%         -0.08%              -$150.00
250K       17.16%        16.72%         -0.44%            -$1,102.00
500K       24.98%        25.41%          0.43%             $2,157.00
750K       25.26%        27.82%          2.56%            $19,211.00
1000K     26.62%        29.28%          2.66%            $26,567.00
2000K     29.21%        31.21%          2.00%            $40,063.00


Alabama
AGI         Current         Trump       Difference       Trump tax (in $ terms)
              tax rate        tax rate                            increase/decrease
 30K           1.75%         0.00%        -1.75%                -$525.00
 50K           5.72%         2.77%        -2.95%             -$1,475.00
 75K           8.81%         5.18%        -3.63%             -$2,725.00
100K         10.36%         6.44%        -3.93%             -$3,925.00
150K         14.76%        11.24%       -3.51%             -$5,270.00
200K         16.73%        14.58%       -2.14%             -$4,286.00
250K         18.34%        16.72%       -1.63%             -$4,069.00
500K         25.80%        25.96%        0.16%                 $791.00
750K         29.09%        28.62%       -0.47%             -$3,518.00
1000K       31.34%        29.73%        -1.61%           -$16,136.00
2000K       34.11%        31.39%        -2.72%           -$54,406.00

So the Trump plan is a shift of resources from upper income to lower income in CA as well as a shift of resources from CA upper income taxpayers to AL overall.  The divergence of the 1000K+ taxpayer experience between CA and AL is striking.

Given most high income taxpayers in Alabama are mostly business owners and most high income taxpayers in CA (San F) are the cognitive elite, Trump plan is overall a plan that shift resources from the  intelligentsia to everyone else.  This is a populist tax plan and is the Trump revenge for this group of voters not voting for him.

[jaichind]

I read rumors that part of the Trump tax plan would perhaps remove personal exemptions.  If that were true, and, for example, if the plan also keeps PEASE itemized deductions reduction and set the 20% qualified dividend tax rate thredhold at the same level as the 35% tax bracket then I think the plan might come closer to becoming revenue neutral.  

I decided to take those assumptions and construct scenarios with the standard 3 family household and AGI of 30K 50K 75K 100K 150K 200K 250K 500K 750K 1000K 1500K or 2000K that live in various places I live or have lived in (Montgmery Country, MD; Brooklyn, NY, Scarsdale, NY) or where I will retire to (Bay County, FL), as well as San Francisco, CA as a ultra high tax area and Alabama as an example of a low tax area.  Of course FL is low tax as well.  I will skip New Haven CT where I went to college since that is likely to be similar to Scarsdale NY (at least in suburbs outside of New Haven)

I use housing prices in each area to set which income levels will buy a house with a mortgage (I assume the family is in the 15th year of a 30 year mortgage where there is one) and appropriate real estate taxes.  I assume the right level of charity giving in line with AGI.  I also assume the right level of qualified dividends in sync with AGI.

I then calculate the federal tax rate (federal taxes plus Obamacare taxes) as a % of AGI under current tax plan and Trump plan.

What I found is for 30K 50K and 75K the result is the same for all 6 regions which is

       Current   Trump   Difference
30K    1.75%   2.00%   0.25%
50K    5.72%   5.20%  -0.52%
75K    8.81%   6.80%  -2.01%

I am sure Trump will make adjustments so for 30K AGI region there is no tax increase


For San Francisco CA we have

       Current   Trump   Difference
100K   10.36%   7.65%    -2.71%
150K   12.76%  13.27%    0.51%
200K   14.54%  16.10%    1.56%
250K   17.16%  17.93%    0.77%
500K   25.40%  25.83%    0.43%
750K   25.82%  28.38%    2.56%
1000K  27.20%  29.89%   2.69%
1500K  29.38%  31.57%   2.19%
2000K 30.25%   32.09%   1.84%

In the 250K-500K range AMT hits and the Trump plan helps by removing it so the increase under Trump is more manageable.  Then it peaks at around AGI 750K-1000K before slowly decreasing.


Alabama we have

       Current   Trump   Difference
100K  10.36%   7.65%   -2.71%
150K  14.62%  13.27%   -1.35%
200K  16.74%  16.10%   -0.63%
250K  18.33%  17.93%   -0.40%
500K  26.24%  26.38%    0.13%
750K  29.56%  29.18%   -0.38%
1000K 31.88%  30.34%   -1.54%
1500K 34.05%  31.67%   -2.39%
2000K 34.77%  32.09%   -2.68%

Here the Trump tax cut are lower in the 200K to 750K region


In Brooklyn, NY we have

       Current   Trump   Difference
100K   10.36%   7.65%  -2.71%
150K   12.30%  13.27%  0.97%
200K   14.12%  16.10%  1.98%
250K   17.16%  17.93%  0.77%
500K   25.40%  25.83%  0.43%
750K   25.82%  28.38%  2.56%
1000K  27.34%  29.89%  2.55%
1500K  29.59%  31.57%  1.98%
2000K  30.46%  32.09%  1.63%

Just like SF due to AMT the Trump tax hit is lower in the 250K-500K region but hen peaks around 750K to 1000K before falling.


In Scarsdale NY we have

       Current   Trump   Difference
100K   10.36%   7.65%   -2.71%
150K   12.15%  13.27%   1.12%
200K   14.01%  16.10%   2.09%
250K   17.16%  17.93%   0.77%
500K   25.61%  26.09%   0.48%
750K   26.03%  28.64%   2.61%
1000K 27.94%  30.16%   2.22%
1500K 30.82%  31.67%   0.84%
2000K 31.83%  32.09%   0.26%

The AMT region of 250K-500K the Trump tax increase is smaller and then peaks at 750K before falling fairly quickly.


In Bay County FL we have

       Current   Trump   Difference
100K  10.36%   7.65%   -2.71%
150K  14.50%  13.27%  -1.23%
200K  16.84%  16.10%   -0.74%
250K  18.42%  17.93%   -0.49%
500K  26.10%  26.35%    0.25%
750K  30.23%  29.16%   -1.07%
1000K 32.20%  30.34%  -1.86%
1500K 34.71%  31.67%  -3.04%
2000K 35.74%  32.09%  -3.65%

Very similar to AL with the Trump tax decrease smaller around the 200K-500K region.  


In Montgomery County MD

       Current   Trump   Difference
100K   9.53%   7.65%  -1.88%
150K  12.50%  13.27%  0.77%
200K  14.59%  16.10%  1.52%
250K  17.35%  17.93%  0.58%
500K  25.82%  26.35%  0.53%
750K  26.61%  29.16%  2.55%
1000K 28.55%  30.34%  1.80%
1500K 31.04%  31.67%  0.63%
2000K 32.08%  32.09%  0.01%

Very similar to Scarsdale with the Trump tax increase being smaller in the 250K-500K region due to AMT.  Trump tax increase peaks at 750K before falling very quickly.


All things equal, in low tax areas (AL, FL) the Trump plan looks like a traditional GOP tax cut plan with across the board cuts (except for the 500K region)  while in high tax areas (CA, NY, MD) the Trump plan looks like a traditional Dem tax plan raising taxes on higher income brackets and lowering them in lower income brackets.

Of course all this still point to what I said before: The Trump tax plan is an anti-intelligentsia tax plan where the  intelligentsia will be fleeced to pay off everyone else.  The typical successful intelligentsia lives in places like CA or greater NYC area and make a household income of around 750K.  Those that fit that description will get a massive tax increase.  Those making 1000K or more tend to be business owners, especially in places like AL and FL.

[vote for pedro]

Under the current system high state income & property tax states are given a pass - their citizens' tax burden is similar to those who live in low tax states.  I.e. for the same income you pay a similar amount of total tax.  In that sense the federal government is subsidizing the high tax states:  More of the citizens tax dollars go to the state & local government and less to the feds.

The proposed system is actually a shot at the high tax states.  If it did become law the high income citizens in high tax states would suddenly feel the burden of those high state income & property taxes.   The fiscally responsible low taxation states would suddenly look a lot more appealing tax burden wise.