$1.5 Trillion GOP Tax Cut Thread

[jaichind]

The Senate version is considering keeping seven individual income-tax rates -- though the income thresholds that would apply to them aren’t clear.   I guess we will find out later today.

[jaichind]

It gives me every incentive to be reborn as a Rothschild or a Rockefeller. But what can you expect from a President who fits a Marxist stereotype of a capitalist pig?

Well, the reasonably wealthy will get a tax cut or tax increase depending on where they live and all things equal the gains made by low local income tax states are much less than the losses in high local income tax state. 

Of course we have this pass through entities "loophole."  But it is only for passive income that will be taxed at 25% and professionals that are actually earning money for labor (accountants, lawyers, financial professionals and other “consultants”) will still be taxed at ordinary income levels. There is a blended 30/70% split between capital/labor designation for people that can prove that they invested capital into a business.  The ability for the reasonably wealthy to take advantage of this are quite limited.   

I agree in theory the lower corporate tax rates will help equity owners which skew mainly toward the top but that is speculative and requires the UHNW taxpayer in question to risk their capital in the equity market to benefit from it.   Many UHNW investors might be heavy in fixed income where under this plan they take a slight hit instead of gains.  And there is no reason why any one middle class taxpayer cannot also take advantage of this by taking similar risks in the capital market instead of investing in CDs. 

https://www.bloomberg.com/view/articles/2017-11-09/what-if-taxes-could-make-divorce-even-more-painful

Pretty much is saying the same thing

" On the other hand, if the person paying the alimony is in a higher tax bracket than the person receiving it (frequently true), the deduction they’re getting is worth more than the taxes that their former spouse has to pay. This creates what’s known in the CPA biz as a “tax arbitrage opportunity”: by moving money from a highly taxed pocket to a lower-taxed one, the two halves of a former couple have reduced their total tax bill. So if you eliminate the arbitrage, the IRS will collect more revenue."

" divorce tends to fall during economic downturns. That’s because divorce is expensive -- not just in attorney’s fees, but in the greater need for child care and the higher cost of supporting two households rather than one. Divorce rebounds, of course, when the economy improves, "

[jaichind]

It seems in the Senate version the top bracket will be 38.5% instead of 39.6% with the same thresholds as House (500K for singles and $1 million for married) vs threshold of (426K for singles and 480K for married) today for 39.6%.  The Senate version also does not have the bubble tax clawback starting at $1 million for singles and $1.2 million. 

While we do now know the thresholds for the other 6 tax rates in the Senate version it seems from an individual tax rates point of view this plan is basically the same as the House plan with some tweaks.  It removes the marriage penalty for upper income tax payers and hits SALT deductions to lower rates which has the effect of transferring wealth from  Blue state high income taxpayers to Red State high income tax payers.

Overall I prefer the Senate plan mostly because they get rid of real estate tax deduction completely.  Too bad they are keeping the mortgage threshold deduction at $1 million instead of moving it down to $500K for the House.  I think they should get rid of it completely.  The Senate version also seems to keep the medical deduction which I think we should also get rid of but it is not that big of a deal.  Under the Obamacare legislation you can only take medical deduction for the amount over 10% of AGI so only few people are able to take advantage of it anyway.  I guess the same for the mortgage deduction, only a small % of mortgages (I think 6%) are above 500K anyway so it make very little difference on the long run.

[jaichind]

I assume the Senate plan also eliminates the Worthless Entitled Rich Kids Tax (the estate tax).

No. It keeps it but raises the threshold.  It is the same as the House plan except the House plan will completely remove the tax after a transition period (2023?) while the Senate plan will leave it in with a higher threshold.

[jaichind]

Senate keeps the endowment tax (yes !! And that is speaking as someone that went to Yale and gives to the Yale alumni fund) but keep student loan interest deduction (NO !!).  Frankly they do not go far enough.  I think universities should just bee taxed like any other business.  If they want to give financial aid, fine.  Just raise the price on everyone else so it can be paid for.   

[jaichind]

I don't know how the GOP can justify not giving people the SALT deduction which has been in the code for like a 100 years, almost since there was income tax.

One of the basic arguments will be to avoid double taxation. You are already paying state & local taxes, you should atleast be able to deduct that & not pay taxes on taxes already paid. The GOP argues about Death Tax for the Millionaire Estate Tax but would make people pay tax on tax.

I don't know how the Democrats can justify making people pay a medicare tax for dividends which has been exempt in the code for like a 50 years, almost since there was medicare.

One of the basic arguments will be to avoid double taxation.  Corporations already pay a corporate tax for profits but now we are asking for investors tho receive these dividends after tax to pay another tax on top of that.

[jaichind]

Senate keeps the endowment tax (yes !! And that is speaking as someone that went to Yale and gives to the Yale alumni fund) but keep student loan interest deduction (NO !!).  Frankly they do not go far enough.  I think universities should just bee taxed like any other business.  If they want to give financial aid, fine.  Just raise the price on everyone else so it can be paid for.   

The endowment tax makes no sense. Why are some charities taxed on investments but not others? Will just result in absurd things like universities transferring parts of their endowments to associated non-profit hospitals in order not to pay the tax, or religiously affiliated colleges claiming to be churches so as to avoid treatment as educational endowments.

I view a university as a business and not a charity.  BTW. I would also be for taxing charities.  If you want to help people, fine.  Why should the government subsidize that.  I think this entire charity deduction should go. 

[jaichind]

House plan
Rate       Single               Married, filing jointly
12%     Up to $45K           Up to $90K
25%     $45K–$200K        $90K–$260K
35%     $200K–$500K      $260K–$1M
39.6% More than $500K   More than $1M

Plus this bubble claw-back that starts at 1mil for single and 1.2 mil for married.

Senate plan
Rate      Single                  Married, filing jointly
10%     Up to $9,525        Up to $19,050
12%     $9,525–$38.7K     $19,050–$77.4K
22.5%  $38.7K–$60K        $77.4K–$120K
25%     $60K–$170K         $120K–$290K
32.5%  $170K–$200K       $290K–$390K
35%     $200K–$500K       $390K–$1M
38.5%   More than $500K   More than $1M

No bubble clawback.

So the Senate brackets are 10 12 22.5 25 32.5 35 38.5 vs 10 15 25 28 33 35 39.6

I am more in favor of the Senate plan more because of the removal of real estate deduction.    OK part of it is also because I do better under the Senate plan.  This stupid bubble claw-back hits me pretty bad and pretty much wipes out my gains.  And it is stupid.  I rather the House GOP call a spade a spade and raise the top rate to 41% or something like that.

[jaichind]

I have to do some more scenario analysis. But my initial read of the tax brackets numbers is that it seems in the Senate plan most of the revenue saved by the delay of the corporate tax cut mostly went to upper income personal tax reductions relative to the House plan with the benefits going to those around 250K and above with the benefit getting bigger as income goes up.  

If the goal is to keep the code progressive at the personal income side the House plan does that more than the Senate plan.  Both will be a hit for Blue Sate high income tax payers but the House hit is greater.

[jaichind]

Yeah, there's no way I can support this travesty of a bill. Getting taxed for nearly $50k on the $16k you're actually earning is just simply not feasible.

And jaichind i'm sure is happy about it.  But he also thinks $750,000/year is middle class.

Conceptually I do not agree with that part of the tax plan.  I agree that a stipend should really not be taxed as income since it is meant to be used on a particular product.  What I would say is that tax regulations should be changed so that if the stipend were dependent on the graduate student doing certain labor for the department or professor then that should be split out and the value of that work be taxed as income. But beyond that I fail to see why a stipend should be taxed as income since it is really a discount on a product.  Of course there are plenty of other aspects of this plan I do not agree with (it should zero out all deductions like charity, mortgages as well as SALT etc etc.)   But overall it moves in the right direction and I will be glad to support a likely compromise version between the House and Senate versions.

[jaichind]

Double taxation. Pretty simple & basic, which is why SALT was there since the tax code was there.

If you pay local taxes, you don't have to pay taxes on that local tax again at the federal level. Why should you pay tax twice? Most of the so-called High tax states are subsidizing most red states & get a fraction of the taxes they send anyways. It is totally crazy that Trump wants to apply a tax on local taxes now (which is what taking away the deduction is). And it is not some person paying 10K, there are many people earning less than 100-150K who will be effected by this bigtime.

And these voters didn't vote for the GOP to raise taxes on them. The GOP basically has the Congress due to these 3 dozen representatives from CA, NY, NJ, Illinois, etc. They would be toast without them in the house.

Why would not the reverse logic be true?  Namely is it not double taxation when state and local income taxes are being levied on income without removing what is being paid by federal taxes? By this logic should not all state and local income taxes first allow as deduction the amount paid in federal taxes?  I would also think by the same logic property taxes should also be deductible at the state and local income tax level as well.  And of course FICA and Obamacare taxes should also be deductible at the state and local level.  In theory the same should be true for FICA and Obamacare for federal taxes but I will grant that all of them are federal taxes so they can be additive and not seperate taxes that could lead to an argument of double taxation. 

Of course once property taxes are in the mix, then should not sales tax also be in the mix as well since just like property taxes, sales tax are not related to income.  I get the federal tax code allows people in no income tax states (like FL) to use sales tax instead for deductions.  But by the double taxation argument means that it should not that be additive and not in replace off.  Namely sales tax should always be deductible on federal taxes and maybe state and local taxes (I guess less of an argument there just like the FICA/Obamacare for federal taxes).

If we did that then while I would not agree with this system I would agree it is internally consistent.  What the GOP Senate plan is internally consistent on the basis that all taxes are separate and what one pays for one should not affect the other.

[jaichind]

Just a reminder: if you’re married and making under $260,000 annually, you get a tax cut or at least break even. Single and under $200,000, same deal.

I really don’t get why this is “cutting taxes for the millionaires and billionaires.”

Absolutely false. Senate bill raises my taxes $1-2000, and I make 85 a year. Next.

There must be something relatively special about your situation.   TX does not have state income taxes.  So if we plug 85K for AGI (which I think is an overestimate for you since you might have things like 401K or other above the line deductions.)   Assuming then one went with standard deduction filing as single in 2018, under current law the tax comes out to $14,228.75.  Under the House plan the 2018 tax comes out to $12,050.00 while under the Senate plan the tax comes out to $12,496.00.  Of course this is not to say you will not get a 1-2K increase.  It will depend on the circumstances.  

For example, if the real estate taxes you pay is 20K.  Then your 2018 tax under current law comes out to $10,866.25 while under the House plan the 2018 tax stays at $12,050.00 while under the Senate plan the tax stays at $12,496.00.  So there will be an increase of 1-2K. But it would unusual for someone with an AGI of 85K to own a house that has real estate taxes of 20K. It is possible but unusual.  

[jaichind]

Just a reminder: if you’re married and making under $260,000 annually, you get a tax cut or at least break even. Single and under $200,000, same deal.

I really don’t get why this is “cutting taxes for the millionaires and billionaires.”

I would generally agree with your thresholds on which taxpayers benefits.  I would argue that even up to 500K due to AMT going away the high tax states filers would not see much of an increase if not a decrease.  It is the households above 500K in high tax states that will take a hit.

As why this is viewed as “cutting taxes for the millionaires and billionaires" it is mostly because of removal of AMT does help not just people in the 200K-500K range but also business owners that might have a lot of deductions but then had to pay AMT tax which is gone now.  Of course there is this whole pass-through business whose benefit to high income business owners is exaggerated but there is a benefit.  Of course corp tax cut helps equity owners which tend to be wealthier than normal.

[jaichind]

There must be something relatively special about your situation.   TX does not have state income taxes.  So if we plug 85K for AGI (which I think is an overestimate for you since you might have things like 401K or other above the line deductions.)   Assuming then one went with standard deduction filing as single in 2018, under current law the tax comes out to $14,228.75.  Under the House plan the 2018 tax comes out to $12,050.00 while under the Senate plan the tax comes out to $12,496.00.  Of course this is not to say you will not get a 1-2K increase.  It will depend on the circumstances. 

For example, if the real estate taxes you pay is 20K.  Then your 2018 tax under current law comes out to $10,866.25 while under the House plan the 2018 tax stays at $12,050.00 while under the Senate plan the tax stays at $12,496.00.  So there will be an increase of 1-2K. But it would unusual for someone with an AGI of 85K to own a house that has real estate taxes of 20K. It is possible but unusual.   

I take 18k in deductions, including 6k of property tax. The other 12 remain deductible but hey look at that the new standard is 12.

Ok.  If so I agree you do lose under the Senate Plan.  For 2018 it goes from $11,366.25 to $12,496.00. But you should back the House plan which would put it at $10,600.00 and would be a reduction.

Of course lets agree that a deduction of 18K on an AGI of less than 85K is pretty unusual.

[jaichind]

Murkowski came out in favor  Health Mandate Repeal but not necessary the Senate bill, yet. 

[jaichind]

Ryan will just ram through the Senate bill. There will be a few defections from the Lunatics Caucus, but not enough.

This is what I am hoping for.  Not sure it will work out that nicely.  Ideally they take the Senate plan and take out the teacher deduction as well as the House version of Mortgage deduction limitations.  But I will take it if it is just the Senate plan as it.  You got to take what is possible.  The removal of  Health Mandate Repeal would be awesome. 

[jaichind]

I played around with my income tax plan calculator that I built based on the House and Senate plans and added in the feature to do calculations for Singles and Head of Household recently. One thing I noticed about the House and Senate plans is that both closes the gap on the marriage penalty for higher income taxpayers.  But it seems the Senate plan is much more aggressive on closing that gap than the House.  High income singles will get hit badly by this.  It seems the greatest net loser in the Senate tax plan, by far, is the high income single salaried taxpayer living in an ultra-high tax area, say, San Francisco or NYC.   Wow.  My wife tells me some of her single investment banking friends in NYC are very steamed by this plan.  I can see why.  I put in some numbers and nearly fell off my seat on how badly they will get hit.

[jaichind]

I played around with my income tax plan calculator that I built based on the House and Senate plans and added in the feature to do calculations for Singles and Head of Household recently. One thing I noticed about the House and Senate plans is that both closes the gap on the marriage penalty for higher income taxpayers.  But it seems the Senate plan is much more aggressive on closing that gap than the House.  High income singles will get hit badly by this.  It seems the greatest net loser in the Senate tax plan, by far, is the high income single salaried taxpayer living in an ultra-high tax area, say, San Francisco or NYC.   Wow.  My wife tells me some of her single investment banking friends in NYC are very steamed by this plan.  I can see why.  I put in some numbers and nearly fell off my seat on how badly they will get hit.

I didn't read your post but I agree with it's premise: the in.g GOP is gonna raise our taxes

Depends on your definition of "our."  In my personal case I am a tiny net loser under the House plan but gain somewhat under the Senate plan.  Married tax filers tend to get hit a lot less that single filers in the high income range for NY (especially NYC) taxpayers.  Even people in my situation should get hit badly but does due to some somewhat unique circumstances for my personal situation my hit is almost nothing if not net positive.  But of course the higher your income goes the bigger the hit with the caveat that "our" would refer to salaried workers and not business owners.

[jaichind]

I played around with my income tax plan calculator that I built based on the House and Senate plans and added in the feature to do calculations for Singles and Head of Household recently. One thing I noticed about the House and Senate plans is that both closes the gap on the marriage penalty for higher income taxpayers.  But it seems the Senate plan is much more aggressive on closing that gap than the House.  High income singles will get hit badly by this.  It seems the greatest net loser in the Senate tax plan, by far, is the high income single salaried taxpayer living in an ultra-high tax area, say, San Francisco or NYC.   Wow.  My wife tells me some of her single investment banking friends in NYC are very steamed by this plan.  I can see why.  I put in some numbers and nearly fell off my seat on how badly they will get hit.

Combine this with the Republican Party's "family values" rhetoric, and I can't help but wonder if there's a motive for this.

I think it is a bit more complex then that.  It is more about assortative mating at the higher income levels.  The current tax code actually make is neutral or even slightly advantageous for a doctor to marry a nurse but carries heavy punishments when a doctor marries a doctor.  The House and to much a bigger extent the Senate plans reduces or even eliminates this punishment.  This would be a non-issue 50 years ago but with the change in social norms and social expectations of women in professional world this is a relevant issue.  To some extent assortative mating at the top plus the rise of services in the economy are major drivers of household income inequity last couple of generations.  This marriage penalty in the tax code partially offset this trend.  Now if the Senate plan passes, with my total support, this economic constraint on assortative mating will be removed, as it should be.

[jaichind]

Just to show what I am talking about.  If we take a household in SF that has AGI of 500K with some reasonable assumptions about real estate tax, mortgages, and charity.  The 2018 federal tax under current law, House plan, Senate plan with this household being Single vs Married are the following
               
              Current Law     House       Senate
Married     $124.5K      $121.8K      $117.5K
Single       $125.2K      $135.3K      $138.0K

If you are married you gain but gain more under the Senate Plan.  If you are single you lose and you lose more under the Senate plan.

[jaichind]

Just to show what I am talking about.  If we take a household in SF that has AGI of 500K with some reasonable assumptions about real estate tax, mortgages, and charity.  The 2018 federal tax under current law, House plan, Senate plan with this household being Single vs Married are the following
               
              Current Law     House       Senate
Married     $124.5K      $121.8K      $117.5K
Single       $125.2K      $135.3K      $138.0K

If you are married you gain but gain more under the Senate Plan.  If you are single you lose and you lose more under the Senate plan.

So why should I support this?

Well, if you are married ....

[jaichind]

How tax reform will affect me depends on the future phases of my life.

Currently - Net loss of 2-3K under House plan, gain of 4-5K under Senate plan. 

In 2-3 years when I will go into semi-retirement by working part time and DW completely retires - gain of 4-5K under House Plan and gain of 4-5K under Senate plan mostly because AMT goes away.

In 5-6 years when I will completely retire but live in Scarsdale until my kid goes to college - loss of 6K-7K under House plan and loss of 7K-8K under Senate plan mostly due to loss of deductions of real estate taxes will shift what rates my qualified dividends will be taxed at.

In 11-12 years when I will move to FL in retirement - gain of 4-5K under House Plan and gain of 4-5K under Senate plan mostly because of the larger standard deduction and lower rates.

Overall this plan is a plus for us and it goes through most likely I will work part time a bit longer I had planned to make up for some of the losses I will incur under this plan when I go into full retirement but still live in high tax Scarsdale.

[jaichind]

I played around with my income tax plan calculator that I built based on the House and Senate plans and added in the feature to do calculations for Singles and Head of Household recently. One thing I noticed about the House and Senate plans is that both closes the gap on the marriage penalty for higher income taxpayers.  But it seems the Senate plan is much more aggressive on closing that gap than the House.  High income singles will get hit badly by this.  It seems the greatest net loser in the Senate tax plan, by far, is the high income single salaried taxpayer living in an ultra-high tax area, say, San Francisco or NYC.   Wow.  My wife tells me some of her single investment banking friends in NYC are very steamed by this plan.  I can see why.  I put in some numbers and nearly fell off my seat on how badly they will get hit.

Combine this with the Republican Party's "family values" rhetoric, and I can't help but wonder if there's a motive for this.

I think it is a bit more complex then that.  It is more about assortative mating at the higher income levels.  The current tax code actually make is neutral or even slightly advantageous for a doctor to marry a nurse but carries heavy punishments when a doctor marries a doctor.  The House and to much a bigger extent the Senate plans reduces or even eliminates this punishment.  This would be a non-issue 50 years ago but with the change in social norms and social expectations of women in professional world this is a relevant issue.  To some extent assortative mating at the top plus the rise of services in the economy are major drivers of household income inequity last couple of generations.  This marriage penalty in the tax code partially offset this trend.  Now if the Senate plan passes, with my total support, this economic constraint on assortative mating will be removed, as it should be.

You really believe this, or is it just trolling? I mean such a policy in my feeble old mind, is just so wrong on so many levels. It has that odor of eugenics about it for starters. But then again, such "power couples" may be too engaged in other endeavors to have much desire to be bogged down with rug rats. So maybe not. Anyway, just ugh, in my opinion. Meanwhile I am hooked up with a talented artist who makes next to no money. Maybe it is time to get married under the new tax code from hell!

Well, lets be clear what I am saying.   I am for taxes being the same for two people regardless or not they are married or not.  RIght now that is clearly not the case



What this set of tax proposals will reduce the marriage penalty for two high income couples.  My positions on eugenics is neutral and I want the government to hold the same position.  The current tax laws has a clear anti-eugenics bias toward the higher income bands.  A pro-eugenicists tax code would be to tax heavier for low income couple relative to if they filed as single and tax lower for high income married couples realtive to if they filed as single.  IF that were the case I would be equally opposed to that setup just like I am opposed this differential tax treatment today.   

[jaichind]

How tax reform will affect me depends on the future phases of my life.

Currently - Net loss of 2-3K under House plan, gain of 4-5K under Senate plan. 

In 2-3 years when I will go into semi-retirement by working part time and DW completely retires - gain of 4-5K under House Plan and gain of 4-5K under Senate plan mostly because AMT goes away.

In 5-6 years when I will completely retire but live in Scarsdale until my kid goes to college - loss of 6K-7K under House plan and loss of 7K-8K under Senate plan mostly due to loss of deductions of real estate taxes will shift what rates my qualified dividends will be taxed at.

In 11-12 years when I will move to FL in retirement - gain of 4-5K under House Plan and gain of 4-5K under Senate plan mostly because of the larger standard deduction and lower rates.

Overall this plan is a plus for us and it goes through most likely I will work part time a bit longer I had planned to make up for some of the losses I will incur under this plan when I go into full retirement but still live in high tax Scarsdale.

Tell me, do you ever consider anything other than your own narrow self-interest in such matters or do you think worrying about the effects upon society, the economy, and the long-term fiscal health of the government is for suckers?

Of course.  Overall I am mostly looking out for number one but that will be overridden by policy preferences I have.  For example, lets take this tax reform proposal.   I would be better of if Trump/GOP just does a mini version of what Bush II did in 2001.  But I really like taking away SALT Mortgage deductions as well, especially the Senate, the push to fix up the marriage penalty so I am more included to back this current set of proposals versus just an smallish across the board tax cut.

Also, I am for the House version taking away the health spending deduction on the principle that I do not see why the government should subside  health care spending versus say spending on buying a care.  Understand that this actually complicates my plan to go into full retirement fairly early in my career.  While the medium scenario has me mostly benefiting under this tax reform plan, the 10% scenario where I have lot of health care spending (including insurance premiums) I stand to lose a lot.  Of course that just means that I might have to defer my early retirement by a year or two.  I am fully responsible for planning for my retirement and it is on my to figure out what risk I want to take, not for the government to bail me out.

[jaichind]

It seems there will be pressure for the Senate to alter its plan on Real Estate taxes to cap it at 10K like the House version instead of getting rid of it completely.  Issue here is where to find the money for this.