Author Topic: Republicans Consider Sharp Cut in 401(k) Contribution Limits  (Read 63954 times)

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1089
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #400 on: November 03, 2017, 09:39:12 AM »
America is a nation of optimists. A lot more people assume (or just hope) that they're going to die deca-millionaires than actually do.

In order for a lawyer or financial advisor to see a customer on fancy, complex, and expensive estate tax avoidance strategies, it is only enough that their potential customer thinks they might have enough money to be subject to the estate tax at death, not that they actually hit that mark before death.

Thatís not quite it. Rather, itís not about the 4,700 people who die subject to the estate tax in any year, but rather itís about the top 0.2% of the population in total who would be heading there (and sure, some penumbra that is concerned about heading there, but may not). If Bernie Sanders was right that the top 0.1% of the US controls about 23% of the total wealth, thatís a huge market.
What? How is that any "huger" a market? If it effects 0.2% then that's the market; 5000 people. How much percentage wealth they control has no impact on the number of people in the market for those services.

No, itís more than 600,000 living people, not 4,700 who died in the year, and their wealth absolutely affects ďthe market,Ē because the market is the amount of money being spent, not the number of people spending it. The more money they have, the more itís worth it to them to shield it from estate taxes, supporting throwing more billable time at solving the problem.

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1192
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #401 on: November 03, 2017, 09:41:06 AM »
It impacts (i.e., changes behavior, such as encouraging gifting and other transfers to break up the estate) many more than the individuals who pay the tax.  Basically, as is, you're only going to pay the tax if you are really really rich and really really dumb/negligent.
Not following. The point was that the estate tax drove "huge market" to tax attorneys. But it's < 5,000 people so I didn't see this a particularly relevant concern. Nor do I think people giving away their estate rather than paying the tax is a big deal either. If anything, if the point is to reduce the amount of inherited wealth then it doesn't matter whether the state takes 40%, or the person give it away. Goal is achieved either way.
There are "X" number of people who feel they might be affected by an estate tax and choose to engage the services of trust/estate planners.

After that is done, there are ~5000 estates that still fall under the estate tax rules. It is overwhelmingly likely that I will be able to avoid the estate tax by either proper planning or by having sub-par market returns during my retirement years. So, I won't be in the 5000, but I've already paid money to estate planners.

The "X" is much higher than 5000/year and the "X" is the market for these services. The 5000 is mostly the people who fucked up and didn't avail themselves of these services.

CorpRaider

  • Bristles
  • ***
  • Posts: 439
    • The Corpraider Blog
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #402 on: November 03, 2017, 09:44:27 AM »
I think I pretty much convinced myself this is DOA, as is, so I'm going shut down all mental effort unless and until I read it has passed both houses.

sherr

  • Handlebar Stache
  • *****
  • Posts: 1108
  • Age: 35
  • Location: North Carolina, USA
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #403 on: November 03, 2017, 09:45:30 AM »
Agree.  Break up dynastic wealth or at least reset the game a little.  But this is going to be a serious off topic thread hijack.

Well since Republicans are no longer Considering Sharp Cuts in 401(k) Contribution Limits, I'd say the entire thread is already off topic. :)

ixtap

  • Handlebar Stache
  • *****
  • Posts: 2420
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #404 on: November 03, 2017, 09:46:39 AM »
It impacts (i.e., changes behavior, such as encouraging gifting and other transfers to break up the estate) many more than the individuals who pay the tax.  Basically, as is, you're only going to pay the tax if you are really really rich and really really dumb/negligent.

Not following. The point was that the estate tax drove "huge market" to tax attorneys. But it's < 5,000 people so I didn't see this a particularly relevant concern. Nor do I think people giving away their estate rather than paying the tax is a big deal either. If anything, if the point is to reduce the amount of inherited wealth then it doesn't matter whether the state takes 40%, or the person give it away. Goal is achieved either way.

Even if it is a family foundation that pays each of the kids a couple hundred thousand dollars to sit on the board? I mean, sure, at least they are paying income taxes on that...

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1192
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #405 on: November 03, 2017, 09:56:01 AM »
Even if it is a family foundation that pays each of the kids a couple hundred thousand dollars to sit on the board? I mean, sure, at least they are paying income taxes on that...
Well I mean, who better to know what great-great-grandpa Jim would have wanted than some people related by blood who've never met the guy?!

teen persuasion

  • Handlebar Stache
  • *****
  • Posts: 1104
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #406 on: November 03, 2017, 10:50:40 AM »
Since we have dodged the bullet (for the moment) on the 401(k) issue, I think we will come out slightly ahead, maybe to the tune of 2 or 3 grand.  BTW, has anyone figured out the $300 credits you can claim in the first six years?

what section is this in

I think OT is referring to the expanded nonrefundable family/child tax credits.

Basically, they're a patch to make it seem like the Republican tax plan isn't just stealing from the poor to give to the rich.    The temporary tax credit makes it look like it's neutral or even slightly positive for poor people, but then the credit phases out.  The long term plan here is to take from the poor, they're just delaying the onset of the taking.

Oh, good catch - I hadn't caught the Jan 1, 2023 expiration date on that.  Ok, that changes my impact from 0 right now to sudden tax increase (thru loss of credits) in 5 years.  Just as the youngest turns 17 and we are beginning FAFSA filing for him.  It really won't be a good time for us to begin Roth conversions!

It's striking how often that ~$24k annual income level is an inflection point: new standard deduction for MFJ, rough point at which max EITC phaseout begins, 150% FPL for a couple (to stay off Medicaid), AGI cap for EFC = 0 (believe this one is $25k now).

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #407 on: November 03, 2017, 10:53:41 AM »
Since we have dodged the bullet (for the moment) on the 401(k) issue, I think we will come out slightly ahead, maybe to the tune of 2 or 3 grand.  BTW, has anyone figured out the $300 credits you can claim in the first six years?

what section is this in

I think OT is referring to the expanded nonrefundable family/child tax credits.

Basically, they're a patch to make it seem like the Republican tax plan isn't just stealing from the poor to give to the rich.    The temporary tax credit makes it look like it's neutral or even slightly positive for poor people, but then the credit phases out.  The long term plan here is to take from the poor, they're just delaying the onset of the taking.

Oh, good catch - I hadn't caught the Jan 1, 2023 expiration date on that.  Ok, that changes my impact from 0 right now to sudden tax increase (thru loss of credits) in 5 years.  Just as the youngest turns 17 and we are beginning FAFSA filing for him.  It really won't be a good time for us to begin Roth conversions!

It's striking how often that ~$24k annual income level is an inflection point: new standard deduction for MFJ, rough point at which max EITC phaseout begins, 150% FPL for a couple (to stay off Medicaid), AGI cap for EFC = 0 (believe this one is $25k now).

i missed that.  that not a great thing .

maizefolk

  • Magnum Stache
  • ******
  • Posts: 4682
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #408 on: November 03, 2017, 11:14:09 AM »
I missed that the child tax credits are temporary as well. That does indeed put a rather different spin on it. Thanks Sol.

maizefolk

  • Magnum Stache
  • ******
  • Posts: 4682
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #409 on: November 03, 2017, 12:10:08 PM »
I have been consistent in opposing the mortgage interest deduction.

However, I think this reduction is going to cause housing prices in premium markets to sky-rocket. Suppose you're a typical Bay Area family, with income of $160K, and a house worth $860,000 that you have a mortgage of $650,000 on.

You want to move up to a bigger house--perhaps add a third bedroom--but you don't want to lose your grandfathered mortgage. So now selling isn't so appealing. In order to get enough equity so that you can finance your new house with a $500,000 mortgage, you're willing to sell this two bedroom house for $1.1 million.

But this means that the three bedroom houses are going to appreciate by 30% as well, putting them even farther out of reach.
I think this analysis ignores the fact that the new buyer faces the opposite problem: they now can't get a deductible mortgage of 80% of $1.1MM.

I think it will cause a slowing of sales and an overall decrease in the rate of price appreciation in owner-occupied high-end real estate. I think it shifts power over to commercial buyers of real estate and away from owner-occupants. (Commercial entities still deduct unlimited mortgages.)

If home owners aren't willing to sell except for higher prices, and new home buyers will only be able to afford lower payments (because less of the total payment will come back in to them at tax time from mortgage interest and property tax deductions), I predict the end result will be a noticeable slowdown in overall home sales.

That's bad for real estate agents, but also probably bad for the economy overall, because people will be less willing to relocate to pursue new jobs causing more mismatches between labor force supply and demand. I should also mention that the trend in terms of people being less willing to sell their houses and move is already something that's happening across the country, so this would if anything accelerate it, not create a whole new pattern.



Source for the graph: https://www.nytimes.com/2017/05/14/business/economy/home-ownership-turnover.html

YttriumNitrate

  • Handlebar Stache
  • *****
  • Posts: 1026
  • Location: Northwest Indiana
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #410 on: November 03, 2017, 12:56:26 PM »
Having trouble believing that on a forum about living frugally we are seriously having a discussion about whether a 1 million dollar home is excessive living or not.  What about a 500,000$ lambo?  What about a 15,000$ cappuccino maker?
This whole discussion reminds me of MMM's post on hedonic adaptation, and how it results in just about everyone thinking they are middle class.

http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/

It's no surprise that a person living in a $3 million dollar Palo Alto house will think of themselves as middle class. They have adapted to an environment of high wealth, and there are people with much much more than them in their environment, so clearly they are not the ones who are wealthy.

On the other end of the spectrum, in a rich country it's easy to forget that someone making and spending $32,000 a year is in the top 1% of earners.
http://www.investopedia.com/articles/personal-finance/050615/are-you-top-one-percent-world.asp