$1.5 Trillion GOP Tax Cut Thread

[jaichind]

They're making a change to the tax code so that tuition remission is taxed as income for graduate students. That means that students making around $16k a year will have to pay taxes for $40k or more. Not only does that make them jump tax brackets, it also taxes them for a ridiculous amount of their already extremely low actual income.

Conceptually this tax change makes a lot of sense to me from a consistency point of view.  For example if a landlord provides an apartment rent-free to a superintendent and the superintendent also receives a salary from the landlord, the value of the apartment's free-market rent is considered part of the superintendent's compensation requiring tax payments by both him and the landlord (for federal state local taxes as well as FICA.) 

Of course if the graduate has been given a scholarship by the university then it is different story.   I believe the proposed tax changes only tries to tax the value of labor provided by the graduate student who receives discounts off the tuition in compensation.  If so then this tax changes merely makes it consistent with the existing tax code. 

[jaichind]

Financial markets now pricing in in the prospects of the plan becoming law. 

The S&P 500 Financials Index is at its highest level since October 2007. Banks could see a boost to net income -- they have fewer deductions and tend to pay more in federal taxes than non financial companies

The US Dollar Spot Index has increased for a third straight day, the longest stretch in more than a month. The prospect of faster economic growth and higher interest rates supports the greenback.

[jaichind]

I'm really dumb about stuff like this, but I'm worried, depressed over it, and need some help understanding it. If/when this passes, will it be for forever or can it be changed/overruled (for lack of a better word at the moment) if Dems win President and majorities in both Chambers in 2020? If it actually starts doing all the bad things opponents are saying it will, can we have another vote on tax reform and redo/undo this in another Congress? Tax stuff like this goes over my head and I'm totally ignorant about it.

Well, at some stage in the future the Dems will take over the Presidency and have a majority in the House and Senate.  I think they will, like the GOP, keep parts of this existing tax plan (assuming some variation does pass and get signed into law) but change others in keeping with the Dem's priorities. So some of this plan will survive and others will be changed.

[jaichind]

Now the Senate bill has the AMT coming back.  But raises the AMT exemption from married/singled $86,200/$55,400 to  $109,400/$70,600.  This pretty much moves the threshold for AMT hitting from AGI of around $180K to around $300K.  The medical deduction threshold made 7.5% as opposed to 10% of AGI for 2 years.  This threshold was a lot lower but was made 10% under the Obamacare law.

[jaichind]

After the Senate bill passes what the Senate and House has to work out in reconciliation , for personal income tax are

1) Mortgage deduction cap of $1m (Senate) vs 500K (House) - I am backing the House on this one
2) Different rates and threshold - I am backing the Senate on this one mostly because the Senate rates and threshold closes the marriage penalty more aggressively
3) Medical deduction which is gone in the House but not Senate - I am backing the House  on this one
4) AMT which is gone under the House version and stays in the Senate version with higher thresholds - I am backing Senate on this one - AMT acts more like a flat tax which I support
5) House Family flexibility Credit which does not exist in the Senate version - Mostly base the Senate.  Do not see the reason for this
6) Standard deductions slightly higher in the House version - I am mostly neutral
7) House Bubble tax for taxable income above $1 million/$1.2 million - I am for the Senate not just because I am affected but that this is a con job by the House.  If they want to take higher incomes more just increase the top marginal rate.  This is a attempt to get more revenue without telling it like it is.

[jaichind]

One thing that I just noticed about the brackets thresholds is that for Head of Households beyond, say 70K in income, it treats them the same as singles whereas before they were in between single and married jointly.  This is another aggressive move to close the marriage gap toward the top income brackets.  This is totally awesome.  If the closing of the gap between singles and married couples at the top is about assortative mating then this is just about removing incentives for  single parenthood.   Totally great on both parts.

[jaichind]

To make things simple I am now just rooting for House to pass this bill as it and call it  a day.  A great policy victory. GOP will get hammered in 2018 but it is worth it from my point of view.  The short term stimulus would mean that Trump will head into 2020 with a solid record of economic growth and could even win re-election which would delay another 4 years from Dems trying to reverse some of this.

[jaichind]

To make things simple I am now just rooting for House to pass this bill as it and call it  a day.  A great policy victory. GOP will get hammered in 2018 but it is worth it from my point of view.  The short term stimulus would mean that Trump will head into 2020 with a solid record of economic growth and could even win re-election which would delay another 4 years from Dems trying to reverse some of this.

In what ways are huge deficit spending and further decreasing revenue thereby incurring more deficit spending a victory? This bill is sure to do that and to make the math work you need to do cuts. Republicans won't cut or streamline discretionary but will only cut non-discretionary items like SS, Medicare, and Medicaid. Those programs could remain solvent with simple fixes, not decimation.

Also, Jaichind, you DO realize the OVERWHELMING consensus of economists (outside the White House of course) are of the resolute opinion this will do little to nothing to foster greater private sector growth? Corporations are ALREADY running with record level profits, and the economy's big weakness is lack of wage growth and money being put in the middle class's hands, for which this tax bill does little to nothing.

A recent survey of 40 top economists, including conservatives, were polled as to whether this tax cut is likely to notably spur economic growth. 39 out of 40 said "no"!

But hey, you're getting your beak wet, so FTW. Amarite? It's the Jaichind way.

Hmmm.  Sorry it seems I did not do a good job communicating what I meant.  I totally agree that the long term impact of this tax plan is mixed and the jury will be out for a while on that. What I meant about the short term stimulus in the Senate plan are the a)  immediate implementation of temporary full expensing and b)  one-time low tax rate on overseas profits will lead to a surge of investments and expatriation of foreign based profits will lead to the surge of business spending in 2018 and in turn jazz up the economy in 2019 and just in time for Trump's re-election in 2020.

[jaichind]

A number of my left-wing friends have said, "as much as it sucks that it's a corporate give away, I desperately need to keep some more money." Most of my friends makes between $35k and $55k (myself included). What's the best argument to use to encourage my friends not to support this tax plan?

That the deficits caused by this tax plan would only give the GOP the ammo to then cut all sorts entitlement programs which in turn will cut the net material standard living of your friends on the long run.  Of course this argument would make me want to support this plan but the same argument can b used to convince someone center-left to oppose this plan.

[jaichind]

A number of my left-wing friends have said, "as much as it sucks that it's a corporate give away, I desperately need to keep some more money." Most of my friends makes between $35k and $55k (myself included). What's the best argument to use to encourage my friends not to support this tax plan?

That the deficits caused by this tax plan would only give the GOP the ammo to then cut all sorts entitlement programs which in turn will cut the net material standard living of your friends on the long run.  Of course this argument would make me want to support this plan but the same argument can b used to convince someone center-left to oppose this plan.

Please tell us about all the jobs you're going to create with your tax cut.

If you want to live in a polluted, crony capitalist garbage heap, why don't you go back to China?

Sorry.  Not sure I get your feedback.  I back this plan partly because unwinding the marriage tax penalty as  well as unwinding of federal subsidies for high tax state/local governments.  I also back it as a way to starve the beast which in turn would lead to reduction to various welfare programs.  The creation of more jobs was never a goal for me to support this plan.  I agree that on the short run there will be an economic sugar high in the corporate tax rates and lead to greater economic activity which helps Trumps re-election.  On the whole I OPPOSE this aspect of this plan since it risks higher inflation.  So not sure what any of this has to do with number of jobs or in particular industrial jobs which I guess would lead to more pollution.  Of course Trump would want people to believe that this plan will lead to more industrial jobs.  I am not sure of that and I really do not care.  The goal for me is and always will be reduction of the welfare state.

[jaichind]

https://www.seattletimes.com/business/trump-suggests-openness-to-negotiations-on-tax-plan/

"Trump told reporters at the White House before a trip to New York City that he would consider setting the corporate tax rate at 22 percent, compared to a 20 percent rate that he has pushed for with House and Senate Republicans during the fall."

[jaichind]

A number of my left-wing friends have said, "as much as it sucks that it's a corporate give away, I desperately need to keep some more money." Most of my friends makes between $35k and $55k (myself included). What's the best argument to use to encourage my friends not to support this tax plan?

If all your friends are in NY, their taxes are probably going up because of no SALT...

Also the cuts are temporary.

Well, if this person's friends have income of 35K-55K then SALT going away as deductions will not affect them since their NY state and NYC taxes are not going to be high enough to be above Standard deduction of 6.5K.  Now that the Standard deduction will go to around 12K pretty much all of them will get a tax cut under this plan. 

[jaichind]

Most democrats would not let the tax cuts on the Middle Class Expire. Democrats from the Bernie Wing sure, but their not taking over the party.

But you are practically acting like taxes just can't ever be raised again, even though this is hardly raising them outright, considering the cuts were temporary to begin with. If Democrats want to deliver on something beneficial to the middle class that requires the extra revenue, they can easily rebut arguments against allowing temporary cuts to lapse.

This article laid out a case for why Democrats may want to just let certain things expire and get rid of/mitigate the unpopular parts of the tax changes - namely those that benefit corporations/wealthy people, while raising taxes further on them:

http://www.businessinsider.com/trump-gop-tax-reform-bill-democrats-2017-11

You must be logged in to read this quote.

Who knows what they end up doing, but I think you are seriously overestimating how likely it is that these cuts are just automatically made permanent/re-upped upon expiration. Again, it will likely come down to how much influence Republicans have at that point in time.

I totally agree the Dems can and will raise taxes once they have full control.  I do not think they will reverse everything in the current plan.  For example the tax cuts that the 50K-100K bunch gets because of the higher standard deduction I doubt they can reverse.   I doubt they can bring back SALT deductions as given the higher standard deduction they will be called out for a tax giveaway for the wealthy in NY NJ CA.  What they will do is the raise the top rate from 38.5 to some higher rate and perhaps remove some corporate rate deductions.

[jaichind]

As much as I back the Senate plan of eliminating the individual mandate for health insurance I am not sure it will actually generate as much revenue the CBO claims that it will.  Here some "dynamic scoring" is needed.  The whole premise is that without the individual mandate for health insurance a lot of young healthy taxpayers will not choose to sign up for health insurance and as a result will not require subsidies.  On the other hand having all these young healthy taxpayers out of the insurance market (or at least they would sign up for cheap catastrophic non-Obamacare insurance plans) would also mean that insurance premiums on Obamacare exchanges will rise, and perhaps rapidly, over time.  Since Obamacare subsidies are calibrated around cost of insurance premiums as a function of income of the subsidy recipient, a surge in healthcare insurance premiums will also mean that the federal government will have pay out more Obamacare subsides with the net affect of reducing the savings from the federal government of view. 

Of course a logical next step would be to remove these subsidies and also remove community rating.  Then the true removal of Obamacare would be complete.  If the subsidies and community rating  are not removed which is also very likely then it would be a good experiment in economic theory to see if there will be a death spiral in the Obamacare healthcare insurance markets.  It would be interesting to watch either way. 

[jaichind]

Just walk into a Walmart in the Ozarks of Missouri and you'll see how the GOP is screwing over their own voters. This plan is literally a Mr. Burns on The Simpsons level of evil parody. And jaichind is Mr. Burns

I am honored that you would associate me with someone with such high net worth as Mr. Burns.  I always thought of myself as a high income Smithers given my role in my mega-corp.   

I totally agree this plan partly about is about shifting wealth toward capital.  But that is only half the story.  It is also about, now we are talking about TV shows,  the transfer of wealth from people depicted in "Sex and the City" to people as depicted in "Leave it to Beaver." 

[jaichind]

Jeff Merkley is only Democrat to get amendment in GOP tax reform bill

As Senate Republicans geared up to pass sweeping changing to the tax code early Saturday, senators offered a number of amendments aimed at making the bill better. Oregon's Jeff Merkley is the only Democrat to get one included in the final bill.

"Senate just passed my amendment to strike the terrible DeVos Tax Earmark – a handout for a wealthy, DeVos-funded private school that refuses to comply with federal non-discrimination laws," Merkley tweeted after the vote. "Like all these special interest giveaways, it never should have been in this #TaxScamBill."

http://www.oregonlive.com/politics/index.ssf/2017/12/jeff_merkley_is_only_democrat.html

I think he saved the GOP from an embarrassment.  The original plan was for a  1.4% investment income tax on college and university endowments exceeding $300K per student.  Then a provision was added in that exempted colleges that did not take federal money.  It turned out that the only college that would have benefited was Hillsdale College,  a private campus aligned with the wealthy family of Trump’s Education Secretary Betsy DeVos who are longtime GOP donors.

After the Dems called this out the GOP Senate decided to change the threshold to $500K instead which get  Hillsdale College out of paying this tax, for now unless its endowment were to rise in the future, and still hit what the GOP really want to hit, which are elite private universities like Harvard Yale Princeton and Stanford.  Thanks to Jeff Merkley  the GOP avoided a major embarrassment and still got their target, mostly. 

[jaichind]

https://www.nytimes.com/2017/12/04/business/economy/tax-bill-new-york.html

"Even if most rich New Yorkers stay put, local politicians could find it harder to raise taxes to pay for services. Mr. de Blasio, for example, has called for a tax on millionaires to help fix the city’s subway system. Mr. Murphy, the New Jersey governor-elect, wants a similar tax for public schools.

Without the state and local tax deduction, those plans could face more opposition. Already, top Democratic lawmakers in New Jersey have hinted they might back away from supporting Mr. Murphy’s millionaire tax if the deduction is repealed."

This plan to get rid of SALT deductions is having the affect I was hoping for.

[jaichind]

Speaking of NY, NY state real estate taxes has a provision that you can pay part of the amount owned the next year in the current year.  I already told all my friends to pay off in 2017 that they are allowed to pre pay from 2018 so they can get the tax deduction which will be net effect gone in 2018 (all of them have real estate taxes way higher than the 10K limit.)  Frankly at this stage Cuomo should make a public service announcement calling for all real estate tax payers in NY state to pre pay their real estate taxes from 2018 that they are allowed to.

[jaichind]

Current GOP discussions on SALT deductions are a compromise where instead of a cap of 10K  on real estate taxes it would be a 10K cap on all SALT deductions and the taxpayer can pick between state and local income taxes OR real estate taxes.  Does not seem to me that this will make much of a difference for married taxpayers.  I guess it would for single taxpayers in some cases.

[jaichind]

Current GOP discussions on SALT deductions are a compromise where instead of a cap of 10K  on real estate taxes it would be a 10K cap on all SALT deductions and the taxpayer can pick between state and local income taxes OR real estate taxes.  Does not seem to me that this will make much of a difference for married taxpayers.  I guess it would for single taxpayers in some cases.

My partner and I pay less than $5000 in “personal" property taxes, partly because half our property taxes are a business expense, but more than $10,000 in state income tax.

So under this "compromise" GOP idea you and your partner can now deduct 10K instead of 5K.  Of course under current law the deduction would be 5K plus (10K+).  Assuming you are filing jointly and do not have other large deductions (like charity or mortgage) this does not matter that much because 10K vs 5K is still way less than 24K in standard deduction.

[jaichind]

Current GOP discussions on SALT deductions are a compromise where instead of a cap of 10K  on real estate taxes it would be a 10K cap on all SALT deductions and the taxpayer can pick between state and local income taxes OR real estate taxes.  Does not seem to me that this will make much of a difference for married taxpayers.  I guess it would for single taxpayers in some cases.

This is more of a giveaway to the rich than restoring SALT entirely since it only affects people who wouldn't otherwise take the standard deduction if SALT were entirely abolished - people with big mortgages or large charitable donations (or both).

Sure.  But the people that usually itemize are higher income taxpayers (in high tax states) anyway.  So the tax plan came in to hurt them and when there is a compromise, sure, it then "unhurts" them a bit.

[jaichind]

The removal of Salt deductions would screw over alot of upper middle class families in high tax states. Im glad some progress is being made to lessen the blow.

But if that were your concern then I assume you would have opposed the Obamacare tax increase on income over 200K/250K. Because it is the same set of people. 

[jaichind]

Well, yes and no. People in NYC, for example, right now always itemize down to about 75k in income just on the basis of SALT. This does nothing for the people in the lower end of that group but is helpful for people around 300k or so (it also favors older people over younger ones since it's really all about whether you have a mortgage or not, but that's more of a feature of the mortgage deduction that has knock-on consequences here).

Well, if we go with NYC I agree that a single person with AGI of slightly below 100K would dip into itemized deductions just based on SALT (no mortgage as it is unlikely someone with 100K can afford to buy a home/condo in NYC.)  But under this plan the standard deduction surges to 12K which means you have to go up to nearly 150K to have SALT near standard deduction (again 150K income most likely will not allow someone to buy a home.)  But even in this case due to lower rates this taxpayer still pays less in taxes.  And even if we allow for SALT deductions to be allowed up to 10K under this GOP compromise plan it would still not help get it past the standard deductions of 12K unless charities is fairly high.

Of course I agree with you, this compromise helps at the marginal level for people more above 250K especially if they have a significant mortgage payment.  In NYC you will have to be at around 250K to be able to buy a reasonable condo or house.  But for incomes above 500K this does not help again as people with income above 500K will most likely have real estate taxes above 10K making this compromise not helpful.

So this idea is an idea for people in the 250K-500K range living in a high tax area (NYC, CA, NJ etc etc)

[jaichind]

The removal of Salt deductions would screw over alot of upper middle class families in high tax states. Im glad some progress is being made to lessen the blow.

But if that were your concern then I assume you would have opposed the Obamacare tax increase on income over 200K/250K. Because it is the same set of people. 

Being part of the top 5% does not make you part of the middle class, not even the upper middle.

Sure.  But this idea of allowing SALT deductions of up to 10K as opposed to 10K real estate taxes (pick the higher of the two) only helps people in the 250K-500K range anyway which is the same bunch of people that was asked to pay the Obamacare tax (in addition to 500K+ of course.)

[jaichind]

https://www.washingtonpost.com/business/economy/trump-sees-a-fix-for-tiny-sliver-not-helped-by-tax-bills/2017/12/06/70776cae-dab1-11e7-b1a8-62589434a581_story.html?utm_term=.167b1d16be48

"But GOP negotiators are now openly discussing the possibility of moving that rate up to 22 percent in order to free up more revenue, people familiar with the discussions said. One of those people said the 22 percent rate is “seriously under discussion.”"

This is disappointing.  I am not married to 20% corp tax rate.  I just think they should go all out to get rid of all the different deductions (SALT, real estate taxes, mortgages etc etc).  Raising the corp tax rate to 22% means they can put back in these deductions.  Oh well.