Tax Rates

[sumpnz]

Poor people, allowed to keep more of their own money, will tend to spend it, stimulating the economy faster and more reliably than giving rich people money.  

Ugh.  OK, I'll concede that point insofar as we're discussing the low end of the consumer economy.  Walmart, etc will probably do better in that case, but in terms of the overall economy that is not correct.  Poor people, as you state, will tend to spend that money more so than rich people.  Because rich people will invest it.  Something that actually expands the economy long term.

Personally, I look at our historically low interest rates, and see the country and world awash in money looking for investments.  Even at near 0% interest rates, there just aren't enough business cases out there that have rewards considerate with the risks.

So, supply is taken care of.  Demand is what needs work.

If demand isn't there, it is most likely because prices are too high.  Giving people more money isn't anywhere near as economically efficient as changing the environment that is causing those prices to be so high.  It's more likely that punitive (or protective if you're already the big dog in the yard) regulations are the culprit for the lack of investment than supply being saturated.  With less barriers to entry new participants in the marketplace will enter and be able to make use of those investment dollars looking for a place to go.

We must always intelligently fight fraud, waste, and abuse.  We need to cut spending before cutting taxes too much further.

No quibbles on that statement.

[Scout26]

If they double the standard deduction, it makes almost any deduction for the rich, because they'll be the only ones with enough deductible expenses to beat it.  The current home deduction, for example, ends up being a giant giveaway for the rich.  It is a major reason why anybody with a mansion will always keep it mortgaged to the hilt, because why not?  Free money.  A loan at, oh, 3% or so ends up being closer to 2% after you hit the 33% tax bracket at about $200k.  2% is lower than inflation most of the time, which makes it literally free money.  Advantages only increase as you get into the 39.6% rate.

This is a problem.  Deductions just don't help much if you're in, say, the 10% bracket, because you still pay 90%.  It's why I prefer credits if the government MUST subsidize something.

Most people that itemize are not doubling whatever their standard deduction would be.  Most a maybe a thousand or a couple thousand over what their standard deduction would normally be.  $6300 for a Single person and $12,600 for Married, $9,300 for Head of Household.   First, you need a mortgage, so for average middle class you're looking a $3,000 to $7,000 in mortgage interest. Property taxes average $5,000 for a house, $2500 for a condo.  Illinois (now) has a 5% flat tax on income and throw in a couple hundred in charitable contributions.  Then you are a grand or so over the threshold to itemize.  (Yes, I didn't include medical expenses.  Only those out-of-pocket expenses greater then 10% of your income are deductible. So need to have been pretty sick and not have had insurance.)

Most the time people itemizing are mostly barely over the Standard Deduction amounts.  Maybe $2,000-$3,000 at the most.  Doubling the standard deduction would give most people a huge tax cut.

[sumpnz]

I pay not quit e $12k in mortgage interest, have 4 kids, etc.  I bet doubling the standard deduction would still be better for me. I

[zahc]

Some of us bunch our deductions in alternate years in order to get more deductions. Real estate taxes for one, but I am considering starting a Donor Advised Fund so I can bunch my charitable contributions as well (it's like an HSA for giving).

[Hawkmoon]

I think a fair plan would be to tax every person 10% of all of their income minus a personal exemption of $12,000.  You could do that on a post card.

That's the way it should be done. A few election cycles back, Steve Forbes campaigned on a flat rate platform. IIRC he thought 15 percent was the right number.

Correction: his number was 17 percent.

[Hawkmoon]

Some of us bunch our deductions in alternate years in order to get more deductions. Real estate taxes for one, but I am considering starting a Donor Advised Fund so I can bunch my charitable contributions as well (it's like an HSA for giving).

And of course the big charitable organizations will be up in arms if any tax plan eliminates deductions for charitable giving. Because then donations would actually be charity, rather than a tax strategy.

[charby]

Doesn't mean a thing when you don't adjust receipts for the population.  Also, the curve looks more like it doesn't care what the top marginal bracket is, more or less.

Why would the top marginal bracket matter all that much?  Only a tiny fraction of people ever paid it, and usually only on a tiny amount of income.

I think that a more important graph to check would be something like gross receipts compared to average personal tax rate.

What I was going to say, I really don't see what I was asking about either.

[charby]

Most people that itemize are doubling whatever their standard deduction would be.  Most a maybe a thousand or a couple thousand over what their standard deduction would normally be.  $6300 for a Single person and $12,600 for Married, $9,300 for Head of Household.  

Current law includes a standard deduction of $6,350 along with a personal exemption of $4,050. The proposed law gets rid of the personal exemption, but increases the standard deduction to $12,000. So let's say the net deduction increases by $1,600.

They aren't talking about the personal exemption going away.

[charby]

I think a better way to stimulate the economy is start breaking up the large holding companies (like Berkshire Hathaway), that way the amount of upper level management will expand and start to move the money around to other groups. Maybe instead of looking at how much market share (monopoly), but look at % of GDP a company controls in total.

Not going to fight a global market, some parts of the economy is going to go to the lowest bidder and there is always a lower bidder.

[Pb]

I think a better way to stimulate the economy is start breaking up the large holding companies (like Berkshire Hathaway), that way the amount of upper level management will expand and start to move the money around to other groups. Maybe instead of looking at how much market share (monopoly), but look at % of GDP a company controls in total.

I think it would be good to break up the big tech companies like Google and Apple... they have WAY too much power in my opinion.

[sumpnz]

Rather than forecably breaking them up I'd favor changing the regulatory environment to encourage more competition.  Let the markets decide if they should be that big.  Just make sure the already big guys can't exert influence on retailers, banking/capital sources, suppliers, etc to keep the upstarts from succeeding.

[cordex]

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.

[Firethorn]

Ugh.  OK, I'll concede that point insofar as we're discussing the low end of the consumer economy.  Walmart, etc will probably do better in that case, but in terms of the overall economy that is not correct.  Poor people, as you state, will tend to spend that money more so than rich people.  Because rich people will invest it.  Something that actually expands the economy long term.

Except that rich people don't invest where they don't see profit.  Crazy low interest rates indicate an economy where there's plenty of capital floating around to invest, it's just that it can't find much to invest in.

If demand isn't there, it is most likely because prices are too high.  Giving people more money isn't anywhere near as economically efficient as changing the environment that is causing those prices to be so high.  It's more likely that punitive (or protective if you're already the big dog in the yard) regulations are the culprit for the lack of investment than supply being saturated.  With less barriers to entry new participants in the marketplace will enter and be able to make use of those investment dollars looking for a place to go.

I'm not going to object to that, I'll just point out that there are multiple ways to manipulate the economy.  Keeping regulations manageable is always a concern, but relatively speaking, that's scalpel work, while tax rates are a hammer.  Sometimes the hammer is simply the better tool for the situation.

Most the time people itemizing are mostly barely over the Standard Deduction amounts.  Maybe $2,000-$3,000 at the most.  Doubling the standard deduction would give most people a huge tax cut.

Which is it?  Most people are doubling the standard deduction, or are mostly barely over?  That said, I agree with you except for one thing:  The elimination of the personal exemption.  Which is $4k per person, vs the $6.3k deduction.(All figures for single people)  Doubling the deduction and eliminating the exemption only puts people(Under $262k at least), ahead $2.3k in reducing taxable income.  That's assuming they don't currently itemize.  If they currently itemize more than $10.3k of deductions but less than $16.6k, then their taxable income is going up!

As for the home mortgage exemption, that's why I said having home mortgages be deductible is a giveaway to the rich, because it's the rich who have big enough mortgages to drastically pop the standard deduction, as in it's more than doubled right then and there.  While there are plenty of middle class people taking the mortgage deduction, as you note, most of the time they barely get over the standard deduction, so doubling it would cause many of them to go to the standard deduction, at which point they lose all advantage from the mortgage deduction.  I get close each year, but don't manage to bust the standard deduction, so while I have a mortgage, I don't benefit.

I'd rather do something like eliminate the mortgage deduction, and increase the personal exemption to something like $6k, call it "housing and food allowance".  $500/month per person should cover the "mandatory minimum" cost of living stuff for people not living alone.

Some of us bunch our deductions in alternate years in order to get more deductions. Real estate taxes for one, but I am considering starting a Donor Advised Fund so I can bunch my charitable contributions as well (it's like an HSA for giving).

You can do that?  I only pay ~$3k in interest, and ~2.2k in property taxes.  I only got to itemize like my first 2 years of owning the house.  3.25% interest and under $100k left.  I mean, I should probably get a home equity loan and just invest if I can get 3.25% interest because it's deductible and I'm clearing 10% on my investments, but I want my place paid off!

Charby - You say that the proposed law gets rid of the personal exemption, which I have seen as well, then you say "they aren't talking about the personal exemption going away"?

Sumpnz - I agree with you.  I don't think breaking up holding companies is the answer.  I think encouraging more competition is.  Making it easier to enter the market by relaxing regulation would be step one.  Starting with internet service providers is one I'm personally interested in, as a computer programmer the internet is a big deal, and I see the current crop doing things like making cooperative startups illegal rather than addressing that it's their utterly horrible service that is causing residents to rise up and try to make competition.

[charby]

I mean no one from the GOP is talking about that deduction going away, kind if a bait and switch.

[Firethorn]

I mean no one from the GOP is talking about that deduction going away, kind if a bait and switch.

Okay, that makes sense.  Given the way personal exemptions and deductions work, I rate the exemption as superior to standard deduction.  Mainly because you still get the exemption if you itemize.

So yeah, it's a big bait and switch.

Just had another thought - head of household.  The HoH gets an exemption for each dependent, but the standard deductible remains the standard deductible.  Probably a near universal tax increase on them.

[charby]

Also appears only 0.2% of all estates are subject to the current inheritance tax. Yeah, we don't need that to be expired, really only applies to the mega rich.

I hope this Tax change fails today. This is being coming the GOP version of the Democrats trying to ban certain firearms.

Or maybe it will pass and will cause a massive NO vote against the GOP in Nov 2018.

[makattak]

Also appears only 0.2% of all estates are subject to the current inheritance tax. Yeah, we don't need that to be expired, really only applies to the mega rich.

I hope this Tax change fails today. This is being coming the GOP version of the Democrats trying to ban certain firearms.

Or maybe it will pass and will cause a massive NO vote against the GOP in Nov 2018.

It doesn't apply to the mega-rich because they use all the legal means (trusts, foundations, etc...) to avoid the tax.

Although its a small number, family farms and family owned businesses tend to get the worst of this tax.

[charby]

It doesn't apply to the mega-rich because they use all the legal means (trusts, foundations, etc...) to avoid the tax.

Although its a small number, family farms and family owned businesses tend to get the worst of this tax.

Farms do the same thing, family businesses should.

[makattak]

Farms do the same thing, family businesses should.

Farms often do the same thing.

And, no, they shouldn't. It is a great evil to tax a family's assets simply because the owner died. If you admit it is a bad idea to force the sale of a small business because the owner died, then the tax code ought to reflect that. Not, "well, they ought to take expensive legal steps and jump through bureaucratic loopholes so the government doesn't screw them and their employees over in the case of an unexpected death!"

[charby]

Farms often do the same thing.

And, no, they shouldn't. It is a great evil to tax a family's assets simply because the owner died. If you admit it is a bad idea to force the sale of a small business because the owner died, then the tax code ought to reflect that. Not, "well, they ought to take expensive legal steps and jump through bureaucratic loopholes so the government doesn't screw them and their employees over in the case of an unexpected death!"

If you're business is worth more than $5.5M and you're not incorporated (or with a trust) you're an idiot. Just asking to loose everything in a liability lawsuit.

There is no free lunch in the country, just because you don't like or use a government service, doesn't mean millions of others use it or need it.

[sumpnz]

Incorporating does nothing for inheritance issues.

[charby]

Incorporating does nothing for inheritance issues.

Depends how you write the rules of incorporation.

[Ben]

It appears they'll have the votes for an amended version that includes more and different rates. With just a cursory look at the new rates, for me, it looks like either a wash or a bit helpful depending on what the income ranges are. I have to see if they have done anything with dividends and capital gains, as that could have a detrimental effect on me.

Corker is the lone R holdout, out of spite it appears.

http://www.foxnews.com/politics/2017/12/02/senate-passes-major-tax-reform-package.html

[Firethorn]

And it's coming out that other than reducing the corporate tax rate it's more or less a wash?

[French G.]

The corporate tax rate is a huge deal, wish we could have a standalone bill to shine a light on it, but then again people are stupid so it would just be arglebargle bargle rich 1% evil Baron overlord Trump's cronies in the news. Nevermind that if you lower the rate you reduce the spread between compliance and the profit of dodging and more people pay. Same with personal tax too. Then maybe if we don't have the highest first world corporate tax some companies create jobs that the rest of us can get taxed on.