Among the Tax Bill’s Biggest Losers: High-Income, Blue State Taxpayers

https://www.nytimes.com/interactive/2017/12/05/us/politics/tax-bill-salt.html

by gdubs • 9 years ago

79 254 9 years ago

Let's just hope this doesn't get flagged off the front page either. It needs to be talked about, as it directly affects most people's livelihoods.

ghouse5• 9 years ago

And just like that... it's gone.

lettergram2• 9 years ago

This doesn't really make sense to me. So it appears that the tax bill generally is reducing the tax code and closing loop-holes (which typically is considered "good" to the left, and the right).

In this case, it looks like the tax reductions are reduced in states that have higher taxes. Well that makes sense, because the states with lower taxes have less to write off (as they have 0% in some cases). Of course Texas would be impacted less, because they have no state income tax. New York and California have a state income tax, so the amount that loop holes help people in those states is much higher. So they effectively will be paying higher taxes. Complain to the state governments, who have crazy high taxes (part of the reason I left California)!

This article honestly just seems to be trying to draw a correlation where there really isn't one. They are simplifying the tax code, that means reductions go away. Perhaps, we should lower taxes? I'd be in favor of that, but I'm also in favor of making it simpler to do my taxes.

davexunit3• 9 years ago

This is possibly the worst interpretation of the tax bill I have seen yet, maybe excluding Mitch McConnell's ludicrous statement that the bill is either deficit neutral or reduces the deficit.

whitehouse3• 9 years ago

Maybe elaborate? Disparagement without correction doesn’t help other readers.

BeetleB5• 9 years ago

Maybe you can point out flaws with the comment?

ghouse5• 9 years ago

I'm not aware of any person who lives in the US who has 0% (of state and local taxes which include income, payroll, property, and sales) Can you provide examples?

jacob019• 9 years ago

Yes, any change will have winners and losers. The winners will be happy, and the losers will be mad. We all support the idea of simpler tax code, but the devil is in the details. I'm not sure that eliminating the state tax deduction really simplifies anything though. It seems like a transfer of power from the states to the federal government.

hcknwscommenter14• 9 years ago

"It seems like a transfer of power from the states to the federal government."

Bingo, remember that the next time some politician tells you they are in favor of state's rights.

hcknwscommenter14• 9 years ago

I agree with davexunit. Your analysis is flawed. First, you characterize state and local income and property tax deductions as "loop-holes." That's an interesting bit of logical acrobatics. In reality, the Senate bill hardly closes any loop-holes, and creates a myriad of new ones. For example, the whole pass-through craziness.

BeetleB5• 9 years ago

There are legitimate criticisms of the bill (e.g. allowing corporations to deduct state taxes, but not individuals, or individual tax cuts expiring but the business ones are permanent).

But putting those aside, I agree with you in principle. Of course the bill hurts people the most who are in high tax states. They want the high taxes, and they got it. Why should the rest of the country subsidize their federal taxes because they are paying more state income taxes? (Actually, there are some good reasons for this, but they should be debated rather than merely dismissing it as a bias against people in those states).

And while I'm not 100% sure, the majority of the population is getting a tax cut - most people could not itemize with a $12000 deduction, and now they're getting another $3-4K ($12K - minus the personal exemptions they're losing).

jonathankoren3• 9 years ago

The high tax states are generally the rich donor states. No one in Mississippi is subsidizing California. It’s actua quite the opposite.

sremani• 9 years ago

If a person in TX or FL, where there in no income tax lives in a Mansion, they also will have increase in Tax, are they worst hit? no but, they did not have State tax deductions to begin with.

It could be argued, the rich people in blue states were paying less federal tax because of the SALT discounts, and now they have to pay the feds whole irrespective of the case at State.

mmanfrin3• 9 years ago

I'm a highish earning single homeowner in Alameda County (Bay Area) -- between the Mortgage Interest deduction, the Property Tax deduction, and the State Income Tax deduction being slated for removal, my taxable income is about to go up something like $60k, which is a large chunk of my actual income. This tax bill utterly fucks me, to the point I'm considering selling my house to get ahead of the inevitable housing crash.

I cannot see this bill as anything short of theft. Why do I have to pay double-digit percentage more on my taxes to give the ultra rich a tax cut? In what fucking world does that make any economic sense.

vkou• 9 years ago

I cannot see this bill as anything short of theft. Why do I have to pay double-digit percentage more on my taxes to give the ultra rich a tax cut? In what fucking world does that make any economic sense.

My rent isn't tax deductible. Why is yours blessed with such a status (In the form of a mortgage, and property tax deduction)?

All that mortgage tax deductions do, economically, is increase the overall price of homes, and have non-homeowners subsidize home-owners.

mattchristen• 9 years ago

Because the person that owns the property you rent is receiving those benefits.

mmanfrin3• 9 years ago

Mortgage interest and property taxes are costs on top of the actual cost of the house. My mortgage itself isn't tax deductible.

froindt3• 9 years ago

FWIW, only the interest is deductible, not the entire payment.

I agree with the sentiment though. The realtors have arguably the most effective lobbying efforts, and to be able to tie their industry in with the "American Dream" has been very effective.

I was out in DC earlier this year speaking with my congressional representatives about some changes to the bankruptcy code. We were working with a lobbyist who said something along the lines of "everybody knows when the realtors are in town. Nobody tries to get meetings that week because they have such a great mobilization effort, everyone gets booked up."

gizmo• 9 years ago

The rationale is to encourage home ownership, because that gives people an incentive to care about upkeep and the community. It's hard to create good neighborhoods with renters who can just pack up and leave.

hbarka2• 9 years ago

Relax. You’re not subsidizing anyone. Homeowners pay a larger share than renters to begin with. And if you know anything about Western society, home ownership creates stable societies—that’s why ownership is encouraged.

AznHisoka4• 9 years ago

Ok, lets play this game. From now on its renters that have to pay 50% of the property tax. No? But you get to deduct it! an extra deduction for you! whats not to like?!

timw0j• 9 years ago

It doesn't, and that's why a large majority of economists were wholly against it.

refurb7• 9 years ago

People have been clamoring for more taxes on the rich. Well, this is what it looks like.

Oh wait! You didn't think you were rich, right?

matt_wulfeck2• 9 years ago

Depends on if you mean rich for California, rich for the USA, or rich for the world.

Oh wait! They didn’t think wealth was relative, right?

eridius2• 9 years ago

No, this is a hit on the upper middle class. The actual rich aren't feeling the pain.

dragonwriter14• 9 years ago

People have been clamoring for more taxes on the rich.

But this “tax reform”, in net, does exactly the opposite.

52804375092485• 9 years ago

But... this tax bill dramatically _lowers_ taxes on people who make a lot more money or have a lot more assets. So sure, this guy is rich relative to an unemployed coal miner. But you're being a little disingenuous by implying that this guy is remotely close to "the rich" who people commonly think of raising taxes on, and doubly so in implying that people who want higher taxes want them for everyone but themselves. I would gladly pay more in exchange for better services and safety nets.

SmellTheGlove9• 9 years ago

People have been clamoring for more taxes on the rich. Well, this is what it looks like.

How exactly is this a tax increase on the rich?

klipt5• 9 years ago

I'm fine with paying tax if we get something good like universal healthcare out of it.

I don't want to pay more tax and cut medicare just to subsidize corporations and billionaires.

lettergram2• 9 years ago

California is the insane state with created the taxes. The government is trying to simplify the tax code, that means you should be able to say: "I'm taxed at 15%, and that means out of $100k you get $85k take home" Not all the deductions.

I'm not really, for or against this bill. I used to live in Alameda, CA and thought the taxes were insane. The bag tax, the income tax, the property tax, literally if you didn't have deductions out of $100k you might have a $30k take home. That's the crazy part.

Perhaps we should rethink the government being the biggest employer, and actually make taxes simple and uniform.

cortesoft2• 9 years ago

literally if you didn't have deductions out of $100k you might have a $30k take home.

That is just not true. Up until very recently, I had ZERO deductions I could take. I made over $100k in San Francisco and my take home was about 65% of my income.

mikedouglas• 9 years ago

Simplification is a red herring (notice how corporate state taxes are still deductible). Republicans needed a pay-for for reducing corporate/passthrough taxes and eliminating the estate tax. It just so happens that high wage earners in high tax states tend to be Democrats.

dragonwriter14• 9 years ago

The government is trying to simplify the tax code

False; the tax reform creates a whole host of new targeted tax breaks; it's not about simplification, just moving the tax burden. And, in net, moving it to the poor.

tzs3• 9 years ago

Reducing the number of brackets and removing a few of the simplest deductions while mostly leaving untouched or even increasing the hundreds or thousands of deductions that are generally only usable by companies and very wealthy people is not in any meaningful way simplifying the tax code.

prostoalex• 9 years ago

Good luck, every single prop aimed at raising the California income taxes passed overwhelmingly. The financial bind of those who make $200,000 and live in SF is not quite shared by voters in San Bernardino, Sacramento or even east LA.

It might also turn out that the pension plans for state employees, teachers, prison guards and police have been underperforming, and unless those pension funds loaded up on Bitcoin at the right time, the California taxpayers are on the hook to make up the difference.

There’s a silver lining, of course - once the high-speed rail is completed, the ticket revenues for the masses excited to go between LA and SF will surely pay for everything.

kamaal5• 9 years ago

>Perhaps we should rethink the government being the biggest employer, and actually make taxes simple and uniform.

And pensions.

Pretty much bulk of the tax money collected goes out to pay pensions and various other social security benefits, which people awarded themselves way back in time assuming the coming generations will happily pay for with taxes.

Nobody and nothing can satisfy people who think they are entitled to free money.

harryh7• 9 years ago

There are numerous items written by economists that discuss in detail why state and local taxes and mortgage interest should not be deductible from federal taxes. It's very highly agreed upon. Perhaps you should seek out some of this literature.

I also strongly suspect that you are overestimating the magnitude of the tax increase you will see but if course it's very hard to know without the details of your particular financial situation. In particular I will note that the mortgage interest deduction is grandfathered in for current homeowners and the elimination only applies to loans over 500k (and that's only in the house bill. the deduction remains completely in the senate bill. it remains to be seen what happens in reconciliation).

jbooth2• 9 years ago

That's all fine, but IN CONTEXT, OP is still getting robbed. They're paying higher taxes while the super-rich pay lower taxes.

They could have passed a bill that eliminated those deductions and gave corresponding tax breaks to the middle class. They could have passed a bill that skipped the tax breaks for the super-rich and actually cut the deficit. I'm OK with paying my fair share if we were actually solving problems.

But no. We've gotta pay higher taxes while still blowing a hole in the deficit? In what world does that make sense?

wehadfun• 9 years ago

The main argument is that richer people buy more expensive houses and get bigger deduction then lower income people and basically lower income people are subsiding rich people mansions. BUT there is a cap which I would guess would work good enough to mitigate this.

Redoubts2• 9 years ago

There are numerous items written by economists that discuss in detail why state and local taxes and mortgage interest should not be deductible from federal taxes. It's very highly agreed upon. Perhaps you should seek out some of this literature.

Could you show at least one? When I look for this, I don't see articles supporting your position.

putlake• 9 years ago

Instead of selling, if you move out and rent out your house, the rent you collect will only be taxed at a max rate of 25%. The federal income tax rate on passive income from S-corporations (which are pass through entities) maxes out at 25%.

TheAdamAndChe5• 9 years ago

When the federal government gives high tax states tax cuts, that means those areas give less to the federal government, meaning those generally rich states end up getting federally subsidized by the poorer states.

How does _that_ make sense? Shouldn't the richer areas help pay for the poor? Why not do something about the high taxes in your state instead?

dragonwriter14• 9 years ago

When the federal government gives high tax states tax cuts, that means those areas give less to the federal government, meaning those generally rich states end up getting federally subsidized by the poorer states.

Except those generally rich states are, in fact, currently net federal tax subsidizers of the rest of the country; this tax reform will actually reduce that because the rich people who are concentrated on those states will get huge tax cuts, whereas poorer people in the rest of the country will get big tax increases.

Shouldn't the richer areas help pay for the poor?

So, what you are saying is we shouldn't adopt a tax “reform” that massively reduces progressivity transferring tax burden from the rich too the poor?

If so, on that much we agree.

mullen2• 9 years ago

We do subsidize poor states. You speak as though Red states contribute anything to the federal government. With the exception of Texas, Georgia and some oil rich states, all of the Red states are takers and just about all of the Blue states are givers.

berberous• 9 years ago

Any chance you'd be willing to, roughly, show your work? I'm curious to see if your calcs are accurate and how you are getting to that number. Understand if you prefer not to. Thanks.

koolba2• 9 years ago

The counter argument is, why should the rest of the country and generally lower income tax payers be subsidizing the high State taxes, high property taxes, and higher mortgage deductions on your expensive homes?

If you want to lower your State tax bill then lobby your State representatives. If you want to lower your property taxes then lobby your local officials. Or vote with your feet and move somewhere that doesn’t subscribe to those high tax policies.

kevinh• 9 years ago

California already pays more to the federal government than it takes out. It is subsidizing poorer states, not the other way around.

dragonwriter14• 9 years ago

The counter argument is, why should the rest of the country and generally lower income tax payers be subsidizing the high State taxes, high property taxes, and higher mortgage deductions on your expensive homes?

They aren't. The high tax states generally are net contributors to the federal treasury, the low tax states are generally net drains.

jonathankoren3• 9 years ago

The counter argument is, why should the rest of the country and generally lower income tax payers be subsidizing the high State taxes, high property taxes, and higher mortgage deductions on your expensive homes?

No one asks this question, because the premise is completely flawed.

http://www.businessinsider.com/the-states-the-most-and-least...

SmellTheGlove9• 9 years ago

The counter argument is, why should the rest of the country and generally lower income tax payers be subsidizing the high State taxes, high property taxes, and higher mortgage deductions on your expensive homes?

High tax states tend to pay in more than they see back in benefits.

SmellTheGlove9• 9 years ago

I'm approaching from the opposite situation - I have a paid off house in my lower cost of living state and am relocating to the Bay Area for a job next month. I will not be selling my current home, nor buying in the Bay Area, until the fallout of this tax bill is known. At the very least, housing prices may come down where I'm going, but likely not where I'm moving from (since the mortgage interest deduction on most homes around here will wash out with the doubling of the standard deduction, but even if it does, it's percentages of far smaller numbers comparatively). Meanwhile, it sounds like nothing's changing in what I'll be able to deduct as a landlord. At least, that's my thought.

That said, it's always been a little odd to me that we could deduct our mortgage interest and property taxes, but a renter cannot even though they're paying a good portion of that on our behalf.

hcknwscommenter14• 9 years ago

"That said, it's always been a little odd to me that we could deduct our mortgage interest and property taxes, but a renter cannot even though they're paying a good portion of that on our behalf."

I'm not going to suggest that it is as simple as the following, but the underlying rationale is that the renter benefits from lower rent than it would otherwise be because the landlord has lower expenses.

cbhl2• 9 years ago

Who are the ultra-rich getting a tax cut?

I'm under the impression that it's the corporations getting the biggest big tax cut in this bill -- so possibly your employer.

hcknwscommenter14• 9 years ago

The CBO projects that those with income of greater than 1M a year get a tax cut.

BeetleB5• 9 years ago

Disclaimer: This bill adversely affects me as well, and I'm not in favor of it, but:

This tax bill utterly fucks me, to the point I'm considering selling my house to get ahead of the inevitable housing crash.

Can you imagine any type of reasonable tax reform that would not cause someone's tax to go up? Just the fact that some folks' taxes will go up does not make it a poor plan.

If your deductions are about $60K, then whether you feel like it or not, you are rich. And most tax overhauls would likely tax wealthier people more. This bill is a bit problematic as it taxes people in the upper middle class the most - whereas the rest of the lower/middle class and upper class get a break.

dv_dt3• 9 years ago

This is not a reasonable tax reform - its a net negative 1.5 trillion dollars to the federal budget, but really it's giving even more than that to corporations and the rich while increasing taxes on people who primarily make their income from labor (vs capital rents).

hcknwscommenter14• 9 years ago

"If your deductions are about $60K, then whether you feel like it or not, you are rich."

You are confusing income with wealth. They are somewhat causally related to be sure, but totally different. Case in point: I started receiving a high income at the age of 40 in SF, where before I earned a poverty wage. At 42, I have much less wealth than your average SF school teacher of the same age.

syshum• 9 years ago

>I cannot see this bill as anything short of theft

Welcome to libertarianism ;)

wanderer2323• 9 years ago

The government was subsidizing your lifestyle -- owning an expensive house in a state with a high income tax. It does not want to do this anymore. It makes as much economic sense as other subsidies do. Props for figuring out that taxation is theft though. Maybe next time don't vote for state government with highest state income tax in US?

dmode2• 9 years ago

Government subsidizes a ton of lifestyles. People with children. People who go to church. People with "pass throughs". People with estates. People with businesses. But somehow income tax in blue state is the target.

brandnewlow• 9 years ago

I went to an open house in SF Saturday. The realtor had been planning to list the house in February but the seller is so worried about the tax situation they put it on the market and want it sold ASAP.

benjaminl• 9 years ago

So you lost your special interest deductions and now have to pay taxes on your actual income? Doesn't sound unfair to me.

jartelt4• 9 years ago

Why should you get to make all those deductions in the first place? Just because you bought an expensive house doesn't mean you should pay that much less tax than a renter living in the same county as you.

klipt5• 9 years ago

The House version of the tax bill keeps property taxes deductible, because Texas has high property taxes and votes GOP.

Deduction used by GOP voters? Keep! Deduction used by Democrat voters? Remove!

This bill is a weaponization of the tax code against majority Democrat voting states.

Shivetya• 9 years ago

it is not theft to remove a deduction. state and city taxes should never have been deductible before this. That deduction favored those who could itemize, the well off.

People harp all the time on this site about the plight of the poor, the undeserved, and more but damn you guys don't suck. You are damn generous when it comes to some other person's money but have you pay more and it is Armageddon. Quit bemoaning the wealthy and recognize you are one of them. It doesn't take millions to be wealthy in this country and certainly not billions.

As with the city/state tax issue, all deductible taxes favor the wealthy. This takes an otherwise overly progressive tax system to steals it back by slight of hand. Politicians can show the poor who the exploit "see these high rates" and then bury a myriad of breaks in the system to give back to those who provided the funds needed for election.

Hell i am going to get walloped and I will adjust. I qualify for the 7500 EV rebate for my purchase in 17 and I am glad it is going; though for two reasons the first being the rich don't need help buying cars and the second manufactures late to the game should not get the benefit born out by the early adoption manufacturers.

The Joint Committee on Taxation finds no reason to not favor the bill. Deficits we experience don't come because of tax cuts, it comes because baseline budgeting out paces inflation and GDP growth.

Guess what guys, its time we pony up and pay for what we want. We don't get to pontificate on forums all day long. We have to pay the piper just like everyone else and many of us will benefit from the cut as well as suffer some losses but in the end those on the lower brackets will see nearly all their tax burden decreased and isn't that what we all keep saying we want, to help them up?

hcknwscommenter14• 9 years ago

"but in the end those on the lower brackets will see nearly all their tax burden decreased and isn't that what we all keep saying we want, to help them up"

Go read the CBO report. This is blatantly false. If you believe this and are not a troll, please educate yourself.

joe_the_user• 9 years ago

If a housing-crash is an unintended consequence of this bill, I'd count it a win.

However, it's quite possible you won't have a crash but simply a consolidation as homeowners who can't afford the taxes are replaced by ultra-rich landlord-speculators.

And of course, this makes sense to the ultra-rich.

lebanon_tn3• 9 years ago

Lifelong Californian here. Recently moved to Florida.

You should consider complaining to your local and state government about your high taxes. Why should workers in other states subsidize local taxes for higher cost of living areas through federal deductions? Force your politicians to justify what you are paying.

hcknwscommenter14• 9 years ago

"Why should workers in other states subsidize local taxes for higher cost of living areas through federal deducations"

Because those workers do not in fact subsidize my local taxes. As a Californian, I subsidize those low tax states as CA residents pay more in federal taxes than the state gets in federal benefits.

klipt5• 9 years ago

You can say that about any deduction. Why should taxpayers who aren't Christian subsidize donations to churches?

git_rancher• 9 years ago

The upper middle class is apparently a minority that is politically safe to do economic harm to.

closeparen7• 9 years ago

Bingo. Working and middle class say, “fuck you, you’re rich.” Upper class says, “fuck you, only peasants get paid in wages/salary.”

Same with housing. The rich see single family homes as a good investment at any price. The poor see anything other than BMR as not for them. No one wants to house yuppies other than a constituency which is too privileged to have liberal credibility and too poor to leverage policies driven by the rich.

influx2• 9 years ago

The median home value in Alameda County is $796,600. Median income is $97,000, total comp for software engineers at your company ranges between 100 and 255K/year, so you are already above the median income in that county.

According to: https://www.investopedia.com/news/how-much-income-puts-you-t... "The top 5% of households earn an annual income of $214,462 or higher"

Most folks in the US, or the world would consider you rich and deserving of paying more taxes.

For comparison, "the U.S. Census Bureau reported in September 2017 that real median household income was $59,039 in 2016".

notconservative8• 9 years ago

Thank you for posting the numbers to back this up.

handbanana• 9 years ago

I'm not ultra rich, and these tax changes benefit me. From what I understand, the tax changes do benefit a high number of people. But the amount they appear to negatively impact those that don't benefit from them, also appears to be high (which of course, isn't great)

I have not looked in depth at the tax changes (ie read the changes in detail), but I do think there's more to the changes than just giving the ultra rich a tax cut.

It seems to me that those living in high tax states, with expensive housing, appear to be negatively impacted.

pianom4n2• 9 years ago

Define "highish". You'll only get a tax increase if you're making more than 350K.

https://jsfiddle.net/381rkrsq/

influx2• 9 years ago

So people making over 200K a year will pay more taxes, cry me a river.

irrational3• 9 years ago

That was my feeling too. I read it and kept looking for the downside, but people making over 200k(!) having to pay more taxes doesn't seem to have a downside.

deadmetheny3• 9 years ago

It doesn't, the tax bill is generally good for lower income people who take the standard deduction. Everyone's screeching about it because of the people in the top income brackets are saving the most, which is a total "no shit" moment given how much more they pay in overall.

notconservative8• 9 years ago

This is what a lot of commenters aren't getting. Complaints about raising my taxes to lower corporate taxes is kinda ironic because 200K+ is rich as far as most of America is concerned.

closeparen7• 9 years ago

People don’t live in “most of America,” they live in their specific real estate and job markets. The bill punishes expensive areas indiscriminately, not people who are rich in context.

davidjnelson6• 9 years ago

You can't buy a decent house in the bay area on 200k.

irrational3• 9 years ago

There are really good jobs (and nice places to live) outside of the bay area.

pkaye• 9 years ago

However the billionaires will pay less.

davidjnelson6• 9 years ago

Bingo, that's exactly the issue.

akhilcacharya3• 9 years ago

Why should working people pay more so that corporations, wealthy inheritors and rent-seekers pay less?

Why should we explode the deficit if we need to make CHIP funding revenue neutral?

Why do we need stimulus in a booming economy?

notconservative8• 9 years ago

This article is more descriptive, not mentioning why the bill is setup like this. But, it's worth saying that this is working as intended from a GOP perspective. This hits mostly democrats. And even if it didn't, high state taxes are seen as propping up big (state) government.

sergiotapia2• 9 years ago

Florida here, I'm going be paying $4000 ish less in taxes. I hope the tax bill lands and is put to practice quick!

People who make over $200k aren't getting as big a tax break? I don't feel bad about that.

hcknwscommenter14• 9 years ago

"People who make over $200k aren't getting as big a tax break? I don't feel bad about that."

According to the CBO, people who make less than $75k get a tax increase by 2027 (on average). People who make between 75K and 500K get a very small tax deduction on average. Blue state residents get a tax increase almost across the board at >200K<1M. Almost anyone who makes more than a million a year gets a sizeable tax deduction.

creaghpatr2• 9 years ago

According to the CBO, people who make less than $75k get a tax increase by 2027

Because that's when the cuts expire. Incredibly dishonest framing here.

nostromo• 9 years ago

I don't see why state taxes should be federally deductible to begin with.

Two families both make $250,000 a year. One is in New York and one is in Texas. The family in Texas is carrying more of the federal tax burden than the family in New York. Why? Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes.

If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions.

eli3• 9 years ago

Taxes aren't based on how much you benefit from government. Progressive tax rates make sense because the wealthy can afford to pay a larger share of their paycheck to support shared society. Not because they necessarily derive more benefits than the middle class.

If we taxed people based on the benefits they receive from the government, then the homeless would pay a fortune.

AlexandrB• 9 years ago

If we taxes people based on the benefits they receive from the government, then the homeless would pay a fortune.

This is a comical simplification. The public and legal infrastructure in America overwhelmingly helps companies and investors make money. Where would UPS be without public roads? Where would Warren Buffet be without a stable legal framework for investment? That's not to mention the military spending that secures all of these fortunes against foreign aggression.

To claim that the poor disproportionately benefit from government spending is missing the forest for the trees.

cannonedhamster2• 9 years ago

If we taxes people based on the benefits they receive from the government, then the homeless would pay a fortune.

This is provably and patently false. Homeless people don't have their good protected by the police, don't get fire protection, don't drive, don't get deductions for businesses, don't get inheritance from their wealthy, millionaire parents, don't get lobbying influence. The entire system is set up to the benefit the rich with a few social stability benefits for the poor, which in turn keep them from uprising and storming the gates of the wealthy.

seibelj2• 9 years ago

Yes, liberals love high taxes when it hits someone but themselves. No one likes paying taxes.

sundaeofshock• 9 years ago

I don’t mind paying higher taxes if society as a whole benefits. The good people of California vote for taxe increases all the time for things like better schools or improved infrastructure.

If my taxes were going up to pay for something like single payer, I wouldn’t complain for one minute. However, in this instance, my taxes are going up to increase Ivanka Trump’s inheritance when that stuttering idiot father of hers dies. That’s some bullshit.

vostok5• 9 years ago

Two questions:

----

1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not?

----

2. How do you feel about the mortgage interest deduction? A very similar question could be asked.

Two families both make $250,000 a year. One took out a $750k mortgage and one took out a $300k mortgage. Why should the second family carry more of federal tax burden than the first?

I don't have the right answer, but it's something to consider.

ghouse5• 9 years ago

Two separate issues -- State and Local Taxes (SALT) are income, property and other taxes collected at the non-federal level. They have been deductible since the creation of the federal income tax. In part, because the federal government recognizes that resources are more efficiently allocated locally. And that is one reason why higher taxed states pay more into the federal government's budget than they receive in benefits. [1]

The Mortgage Interest Deduction is simply a wealth transfer from people who don't own homes to people who do own homes.

[1] https://www.theatlantic.com/business/archive/2014/05/which-s...

closeparen7• 9 years ago

Because they are vastly wealthier to afford a house that costs ~3x the median?

maxerickson2• 9 years ago

The right answer is to get rid of the deduction. It's regressive (as you point out) and reflected in the costs of housing anyway (people choose the monthly payment they can afford not the house they can afford).

munk-a5• 9 years ago

You're missing one even more heinous point, renters. A family paying off their 300k mortgage is getting a decrease in taxes owed while being subsidized for paying into an asset. The renting family is not being subsidized and they will never again see the money they are spending on rent. In most areas this is particularly twisted as mortgages will run beneath rental costs for the same standard of living. So the only real difference is that renters don't have to deal with the costs of damage to their asset... no money out of pocket for repainting or replacing appliances or structural issues and if their building slides into the sea they aren't out the value of the property.

Often times this also gets a bonus racist angle since minorities have a harder time securing a mortgage which traps them into overpaying for housing while struggling to save to pay less for their housing.

smsm429• 9 years ago

1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not?

There's no objective reason why it should be. But since deductions are largely arbitrary policy instruments anyway - because property tax deduction encourages and makes easier home ownership (at least this is the theory) and the government wants more home ownership. State tax deduction does not really have such goal (unless you see moving people to high-tax states as a goal, but I don't think federal government identifies such goal).

2. How do you feel about the mortgage interest deduction? A very similar question could be asked.

Same as above. Only much bigger - given 20% down mortgages, mortgage interest - especially for new mortgages on standard equal-payment plan - is very substantial. So, tax deduction makes owning home easier - and, on the reverse, removing this deduction would seriously hurt current mortgage owners and discourage new ones.

The difference here is that with property-related taxes there is a policy goal linked to it, and also long-term choice individuals make based on this policy, which would make them very upset if the policy changes. With state taxes, there's no real policy goal (for federal government at least) and most people don't choose state to live it because of state tax deduction.

ghouse5• 9 years ago

Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes.

New York gets about $0.80 for every $1 of taxes paid. Texas gets about $1.50. [1]

[1] https://www.theatlantic.com/business/archive/2014/05/which-s...

TheAdamAndChe5• 9 years ago

Both states still recieve the same benefits from the federal government, it's mostly just demographic and economic differences that cause different states to receive different amounts of aid. Or do you really think West Virginians, who are mostly poor, should receive exactly the amount as New York, who is much more rich overall?

notconservative8• 9 years ago

OP is talking about comparing families specifically. This talking point doesn't mean anything on the level of a single taxpayer.

You could argue that the family in Texas is getting more services for their tax dollar. But, that is almost certainly false, because people who actually make enough to pay taxes don't tend to consume the kind of services that cost tons of money (aka. social services).

dmode2• 9 years ago

You can make the same argument about every single deduction. Texas family makes large donations to Christian churches. Why does a secular family in blue state subsidize that deduction ? Texas has higher property taxes ? Why does a California family with low property taxes subsidize that ? Texas did not expand Medicaid. Which means an average citizen can have higher medical spending ? Why does another state with expanded Medicaid subsidize that deduction ? I can keep going on the myriad of all other deductions. Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction.

meritt• 9 years ago

Tax payments which directly fund public schools (SALT) are no longer deductible but they added the ability for private school tuition to be deductible. This is going to have dire consequences for America's public school system.

BeetleB5• 9 years ago

You can make the same argument about every single deduction.

And there's a good reason to eliminate most deductions. A lot of deductions complicate the tax code, and many likely exist to create loopholes by which people can avoid taxes.

The purpose of a deduction usually is to promote a certain type of activity (buying homes, giving in charity).

Out of all these, there is a reason only SALT was chosen to be eliminated. It is not some equalizer of burden. It is a political deduction.

While it may be politically motivated, I should point out that interest on mortgages and property taxes were both considered at some point, but ultimately ruled out as being politically untenable. So it's a bit of both.

dv_dt3• 9 years ago

You have a very wrong assumption there. Those blue states were already paying more in federal taxes than they were taking in spending. Families in red states already carried less federal tax burden...

This is all a crazy moot discussion anyway, because it's not even a balanced cut - its a cut that put the whole nation into a huge deficit while increasing taxes on labor-based incomes. So some already very wealthy capital owners are getting a very massive transfer.

munk-a5• 9 years ago

Howdy, I'm a progressive!

This is actually the one portion of the tax cut that I'd like to see retained... but I am really struggling as to why they wanted to remove the SALT exemption except to punish blue states. The party of states rights just removed the ability for individual states to try and innovate on budgetary matters and optimize spending into certain sectors of their economy they find particularly relevant - repealing this is a federalist policy which doesn't really meld with their messaging.

AFNobody3• 9 years ago

Two families both make $250,000 a year. One is in New York and one is in Texas. The family in Texas is carrying more of the federal tax burden than the family in New York. Why? Both are (in theory) receiving the same benefits from the Federal Government and should pay the same in taxes.

This assertion isn't true. Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart.

https://taxfoundation.org/federal-taxes-paid-vs-federal-spen...

5 of 24 years (1981-2005) CA has received less. And if you look up the scattering (but less concentrated) stats from 2005-2017, CA has been getting less than 80% of its money back from the Federal government. So its really 31 of the past 36 years that CA has been drained to help red states.

https://taxfoundation.org/states-rely-most-federal-aid/

If you're a progressive this should make even less sense: rich states are currently keeping additional funds for themselves local, in their rich states, via high taxes, that are then shielded from the federal government via deductions.

That is a strawman.

Progressive taxation has nothing to do with aggregate wealth and everything to do with individual wealth.

creaghpatr2• 9 years ago

Federal policies already heavily favor funding Red, rural states over more urban states. It "sounds" true when you think about a person/household but when you factor in the other state services being funded (i.e. roads) it falls apart.

Much of that funding goes to subsidies (farming, energy, etc) for which the whole country enjoys the benefits, if not proportionally. A state like SC that has a disproportionate amount of military bases is going to receive far more per capita government funds, though the local SC taxpayers only get marginally more benefit than the rest of the country.

That's not to say you are wrong that rural states get better de facto tax treatment than urban-focused states but it's a bit more intertwined than it sounds.

shagmin• 9 years ago

I like the other replies, but I'd like to add something that I haven't seen discussed much. The median income in New York and California is probably much higher compared to any random flyover red state. Your average household in NY and CA is going to be at a higher marginal tax rate than say Nebraska. I haven't done the math, but I'd suspect the deduction flattens this difference to some extent.

dragonwriter14• 9 years ago

I don't see why state taxes should be federally deductible to begin with.

The same reason legitimate business expenses (including, of course, state and local taxes paid by businesses, which are not affected by this reform) should be and are, and the same reason lots of personal expenses (some of which are, some of which are not currently) should be: expenses which are essential prerequisites to or consequence of earning income should be netted against income before taxing it.

My state and local income, property, and sales tax are the support payments for the physical and social infrastructure that allows me to earn the income I do. With the federal deduction (and assuming state taxes with a marginal rate below unity), it's in my interest to engage politically to optimize for my net return before federal taxes; without the federal deduction, it becomes worthwhile to sacrifice income (before and after) state taxes for lower state taxes, so long as the reduced federal tax cost of the lower pre-state-tax income is enough to offset the reduced net-of-state-tax-but-before-federal-tax income.

This encourages producing less market value when the net after state taxes is equal, encouraging economic contraction.

For illustration, suppose, for simplicity, a federal flat marginal tax rate of 30% percent, and the ability to make $100K with a state tax rate of 10% or $94K with a state tax rate of 5%, and no other deductions.

Ignoring federal tax, the optimum choice is to choose the $100K income with the 10% tax: it provides an $90K net (of state taxes) income, compared to $89.3K in the lower-base-pay regime.

If you deduct state taxes from federal taxes, the incentives are unchanged, the net becomes $63K vs. $62.51 with the high-income, high-tax choice providing the higher net income.

But if you don't deduct the state taxes, the incentives are flipped: producing less market value even after the cost of local infrastructure becomes preferable, with the net being $60K vs. $61.10K.

Supporters of this proposal say it punishes people in high-tax states for bad political decisions; but the math is that it punishes them for good political decisions—for choosing increased taxes when the increase in market value produced that those taxes enable is greater than the value of the taxes.

ctdonath3• 9 years ago

I don't see why state taxes wouldn't be federally deductible.

Roughly: if I work 6 hours, I have to work an additional hour a day just to earn money to give to the state; you're suggesting I should work an additional 15 minutes to earn money to give to the feds just because I earned the money to give to the state.

Absolutely I shouldn't be paying taxes on money earned just to pay taxes. It's not like I'm "shielding my earnings", because those earnings are earned specifically to get confiscated - you want me to earn more just because someone else took my money.

smsm429• 9 years ago

With the same logic, every expense should be deducted. If I work additional hour to give money to the landlord/clothes store/pub owner, why should I work additional 15 minutes to give money to the feds just because I earned money to give to the landlord/clothes store/pub owner? Because tax is charged on the income, not on money left in your pocket after paying everybody else. That's why it is income tax, not wealth tax or savings tax or any other tax.

seibelj2• 9 years ago

Coastal liberals are very happy for tax increases except when they have to pay it themselves! This makes the situation more fair - eliminate market warping changes such as the property tax deduction and stop letting states get a free ride when increasing taxes by reducing the federal burden. Seems fair to me.

davexunit3• 9 years ago

This is a tax break for the very wealthiest at the expense of everyone else, but sure, keep on that "coastal liberals" nonsense.

ghouse5• 9 years ago

Two issues here: 1) I thought the GOP was in favor of strong local governance and believed money is more efficiently allocated at the state level. This action flies in the face of that. 2) _Generally_ the states who are penalized by this change in tax policy already pay more in federal taxes than they receive in benefits.[1]

[1] https://www.theatlantic.com/business/archive/2014/05/which-s...

jartelt4• 9 years ago

Overall this bill seems really, really bad and poorly implemented (and costly). But as a renter in the bay area, I do like that increasing the standard deduction and reducing some of the other popular deductions will decrease the large tax break homeowners have been receiving. In my opinion we have been treating renters unfairly by letting homeowners deduct so much mortgage interest, property taxes, etc. We already incentivize home ownership by offering government backed 30-year mortgages. We don't need to use the tax code as well.

matt_wulfeck2• 9 years ago

It sounds like you actually don’t think the bill is bad.

jartelt4• 9 years ago

Actually, I do think the bill is bad and would not vote to pass it if I was in the position to do so. I think the benefits are skewed way too far in favor of wealthy individuals and corporations and the cuts will not be paid for by growth. However, if the tax bill only got rid of the mortgage interest deduction and property tax deductions, I would happily support it (unfortunately this is not the case). You are allowed to point out some positive things about an overall crappy bill.

davidjnelson6• 9 years ago

If the cost of housing in the bay area goes down due to this, that could be a good outcome depending on your situation.

hcknwscommenter14• 9 years ago

If owning real estate becomes more expensive, there is a very high likelihood that rents will increase rather than decrease.

jartelt4• 9 years ago

I do not believe anyone knows conclusively whether getting rid of those deductions will increase or decrease real estate prices. If the benefit of the deductions was already built in to the price of real estate, prices should come down if you remove the deductions. If removing the deductions limits the supply of homes for sale, prices could go up. My rent is going up every year as it is, so either way I would rather have a more level playing field between renters/owners.

koolba2• 9 years ago

Real estate prices would go down in response to increased costs associated with ownership (namely inability to deduct interest and property taxes).

To illustrate the point, if the carrying cost (i.e. property tax) of real estate was extreme, say 90%, nobody would want to own property and the price would plummet. Losing the deductibility for interest and property taxes is nowhere near that extreme but the direction of the effect is the same.

falcolas2• 9 years ago

It directly follows, really. The money for the increased costs has to come from somewhere.

refurb7• 9 years ago

I love how the articles make it look like Democrats are more likely to be hit by higher taxes. Yes, those states where taxes are going up are majority democrat, but the split isn't that far off from 50/50. Plenty of wealthy Republicans will be paying more tax too.

akhilcacharya3• 9 years ago

That's correct, and they're mad as hell too

http://www.washingtonexaminer.com/gop-donors-in-new-york-sou...

cbhl2• 9 years ago

This seems win-win to me.

Techies and bankers pay more in taxes.

People in fly-over states get a small tax cut, and maybe can buy a few extra weeks' groceries for their kids.

sergiotapia2• 9 years ago

It truly is a win-win. Take a good hard look at the kind of people complaining or trying to paint this tax bill as "bad" or "dangerous". Consider the source!

hcknwscommenter14• 9 years ago

You are forgetting this is all paid for by a 1.5 trillion dollar increase in the deficit.

hcknwscommenter14• 9 years ago

"People in fly-over states get a small tax cut, and maybe can buy a few extra weeks' groceries for their kids."

And where are you getting this? It is demonstrably untrue by 2027. Read the CBO report.

freditup2• 9 years ago

First, this article would've been much better off using medians instead of means. High earner outliers tend to skew stats like these.

Second, it's interesting to see people who were in favor of tax increases suddenly change their mind when it hits them. While I agree that tax cuts for the rich seem unnecessary, some tax hikes for the upper middle-class aren't out of line compared with a Democrat led tax plan. I wonder how much our own personal interests in our money affects how we view tax plans? Most people, no matter how rich they are, seem to want those just richer than them to be taxed more.

Finally, although the removal of the SALT deduction will cost me significantly, I'm not sure I understand how the deduction makes sense. Why should a state raising their taxes mean you have less of a federal obligation? It only makes sense to me if states with higher taxes use less federal resources.

hcknwscommenter14• 9 years ago

A tax rise to ensure that the poor do not go hungry or that social security and medicare are funded is one thing. A tax rise designed solely to fund a lowering of the corporate tax rate and targeted at blue states? An entirely different thing.

"It only makes sense to me of states with higher taxes use less federal resources." Which is entirely the case.

SmellTheGlove9• 9 years ago

Second, it's interesting to see people who were in favor of tax increases suddenly change their mind when it hits them.

I'm very much in favor of increasing taxes, if that tax increase went to taking care of some societal problem (I don't care what it is, so for the sake of argument, let's just stipulate that it's a problem we both agree needs funding to solve). In this case, anyone paying more in taxes is just subsidizing those who are seeing a cut. It's more of a shift, given that it's projected to increase the federal debt by quite a bit. I'd be okay with that if we were actually putting more spending money in the pockets of the lower and middle classes, but I'm not sure that's the case. If this is really about cutting taxes across the board, I'm okay with that too, but we need to cut spending and I'd like us to take a look at the defense budget before going after social programs.

Finally, although the removal of the SALT deduction will cost me significantly, I'm not sure I understand how the deduction makes sense. Why should a state raising their taxes mean you have less of a federal obligation? It only makes sense to me if states with higher taxes use less federal resources.

Deducting SALT makes sense in order to avoid double taxation. To me, it makes sense to pay the local govt first, then the state, then the fed, in that order. In theory, they will provide services to us in that order.

Mortgage interest and property tax deductions don't make sense to me, though. I don't really see why I should be able to deduct these, but my hypothetical tenant can't deduct their rent. None of this should have been deductible in the first place.

freditup2• 9 years ago

Thanks for the response - I think your thoughts on tax increases are quite reasonable. I agree that it's much harder to swallow a tax increase when it seems as if the money is going towards causes you disagree with, and I also feel that way with this tax bill personally.

Not sure if I understand the double taxation argument though. Say local/state/federal tax is 1%/5%/20%. Without the SALT deduction of any form, you get taxed 26% on each dollar which seems intuitive and fair. I think this model makes more sense than exempting certain amounts of money from each subsequent tax-level, but discounting the actual economic implications, I suppose which model seems more intuitive is somewhat subjective.

kamaal5• 9 years ago

>Second, it's interesting to see people who were in favor of tax increases suddenly change their mind when it hits them.

Deep down humans just optimize for personal profit.

Which is why one must always see themselves as temporarily embarrassed millionaires and not exploited proletariat.

vladgur• 9 years ago

Just to be clear, the article is talking about HOUSEHOLDS making more than 200k, not individuals.

With a National average salary for software developers of $109k(per Glassdoor), a family of 2 tech professionals across the nation will see their tax liabilities significantly increase

jonathankoren3• 9 years ago

The tax bill has multiple ploys, most central of which is a giant corporate tax reduction. (Note how that tax cut is permanent, while personal tax cuts are temporary.), along with long standing GOP wish list items like elimination of the estate tax and pass through income.

That said, there is also an animous towards the rich Democratic states, which this disproportionately hurts. The short game is to stick it to the libs. The long game is to try to eliminate state income taxes.

relics443• 9 years ago

Idk. I'm a high income tax payer in a blue state. According to my calculations, I'll be paying less taxes next year.

In fact, according to my calculations, almost every one will be paying less, except a miniscule population that will have their taxes raised by a couple of hundred per year. And even that might get legislated away in the conference.

api• 9 years ago

I have very mixed feelings about this part of the tax plan.

For years I've been concerned about the increasing geographic gap between rich and poor in America. All talent, capital, and entrepreneurship is increasingly concentrated in coastal cities. This is impoverishing the interior and at the same time driving real estate hyperinflation on the coasts.

The middle class and the young get caught in a vice here. You either live somewhere with affordable real estate but no career opportunities or you live somewhere where you can advance your career but can never afford a decent home and can never escape ever-increasing rent. Either way you are screwed. Rot in a backwater or spend everything on real estate and never accumulate savings.

I'm tempted to support anything with the potential to reverse this horrible trend.

At the same time I also see this as unfair. Coastal blue states already collectively pay more in taxes than they receive from the Fed.

I'm a bit torn on this. I'm also torn on the corporate income tax cut.

The rest of the tax bill seems mostly bad, so on balance I am not supporting it.

pianom4n2• 9 years ago

Here's a visualization of the changes with some settings.

https://jsfiddle.net/381rkrsq/

The AMT changes are a huge tax benefit, even to those in California. Especially if you're married

Among the Tax Bill’s Biggest Losers: High-Income, Blue State Taxpayers

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