Author Topic: Republicans Consider Sharp Cut in 401(k) Contribution Limits  (Read 75077 times)

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1191
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #350 on: November 02, 2017, 03:45:40 PM »
Republicans cannot claim to be fiscal conservatives any longer.  It's a lie.
I don't think either major party is fiscally conservative, but I thought the GOP brand of conservativeness was more centered around a government as small as feasible (though they fail to follow through on this as well, but I thought that was the main tenet of their conservatism).

TexasRunner

  • Pencil Stache
  • ****
  • Posts: 926
  • Age: 30
  • Location: Somewhere in Tejas
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #351 on: November 02, 2017, 04:17:17 PM »
I'm personally glad they are slashing the mortgage deduction.

Its still 500K.  No reason in my opinion to subsidize an excessive lifestyle.
Whether or not a fixed mortgage value is "excessive lifestyle" or not depends very much on the local cost of living, IMO. The median single-family house sales price in my town hit $1.675MM last year.

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? 

Sure I get that there are HCOL areas, but don't become whiney-pants about not getting a mortgage interest deduction for the second half of your million dollar home.  There are reasonable ways to live in every city (Except possibly the Bay Area, which may be its own basket of problems).

Oh how I wish we could return to the days of facepunching.  Whilst a noob and a lurker I was, dispencing facepunch worthy statements would not go unnoticed by many....

:p

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1191
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #352 on: November 02, 2017, 04:24:13 PM »
Sure I get that there are HCOL areas, but don't become whiney-pants about not getting a mortgage interest deduction for the second half of your million dollar home.
Not being whiny-pants about it personally; if that passes, I'll probably just pay the mortgage down to $500K and move along with my life. (Edit: looks like existing mortgages are grandfathered in, so I won't need to act)

My point is that I don't find that buying a median SFH in a town as evidence of excessive living (in fact, I think buying at the median is prima facie evidence against it being excessive).
« Last Edit: November 02, 2017, 04:33:28 PM by sokoloff »

by_1008

  • 5 O'Clock Shadow
  • *
  • Posts: 19
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #353 on: November 02, 2017, 04:33:08 PM »
Two other pieces I've noticed that I'm not too happy about:

-Repeal of the electric vehicle tax credit (though it was probably not long for this world anyway)

-Repeal of the lifetime learning credit. I was planning to take advantage of this next year for graduate school. It's a bit hard to decipher if this "expanded AOTC" would apply in a similar fashion for graduate school. My understanding was that the current AOTC only applies to undergraduate degrees?

I suppose everyone is going to have their own personal credit or deduction that they lose. But so far my impression is that these changes are much more likely to hit the average person, whereas the wealthy are in good shape due to the higher movement of the tax brackets.

TexasRunner

  • Pencil Stache
  • ****
  • Posts: 926
  • Age: 30
  • Location: Somewhere in Tejas
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #354 on: November 02, 2017, 05:05:02 PM »
Quote from: sokoloff link=topic=80523.msg1756926#msg1756926
My point is that I don't find that buying a median SFH in a town as evidence of excessive living (in fact, I think buying at the median is prima facie evidence against it being excessive).

So you do not think the average American is living excessively....?
Do you realize the volume of dept the average American has....?
Being 'Median' is in and of itself excessive living in our country. 

But that is enough thread-jacking and I get your point.  :)

Running my numbers, the following applies:

1) My mortgage is below 500k therefore no change in deduction
2) Texas has no state-level income tax so no loss to me (And why am I helping pay other State's taxes again...?)
3) 5 people in household resulted in 20250$ standard deduction which shall now be 24,000 for my spouse and I = 3750$ Higher deduction (roughly 560$ @ 15% rate)
4) Child credit went up from 1000 to 1600 so 3*1600 - 3*1000 = 1800$ credit.
5) Capital gains will be zero for me (not selling anyways but that's exciting for a FIRE'd individual).
6) I lose the student dept reduction but I don't think subsidizing debt is ever a good thing on the individual level.

Overall, my family gains 2360$ on the new system.  Not a bad gain.


The much MUCH bigger deal is that I work for a S-Corp (Family owned and about 1mil to 5mil gains every year...)  They will almost certainly be included in the capped tax rate of 25%, which results in 200k - 600k staying in the business!

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1092
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #355 on: November 02, 2017, 05:45:57 PM »

2) Texas has no state-level income tax so no loss to me (And why am I helping pay other State's taxes again...?)


Keeping the property tax deduction, but capping it, is brilliant for Republicans, in that it makes residents of states that choose to fund through income taxes (I'll call those "Blue States") pay for states that choose to fund through property taxes (I'll call those "Red States"), while further punishing those in the Blue States that live in the highest cost of living areas (I'll call those "Coastal Elites"). Never mind that CA, NY, MA and NJ were already among the states where residents most heavily subsidize the rest of the country.

TexasRunner

  • Pencil Stache
  • ****
  • Posts: 926
  • Age: 30
  • Location: Somewhere in Tejas
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #356 on: November 02, 2017, 06:12:59 PM »

2) Texas has no state-level income tax so no loss to me (And why am I helping pay other State's taxes again...?)


Keeping the property tax deduction, but capping it, is brilliant for Republicans, in that it makes residents of states that choose to fund through income taxes (I'll call those "Blue States") pay for states that choose to fund through property taxes (I'll call those "Red States"), while further punishing those in the Blue States that live in the highest cost of living areas (I'll call those "Coastal Elites"). Never mind that CA, NY, MA and NJ were already among the states where residents most heavily subsidize the rest of the country.

Still not convinced that this is factually accurate once you remove social security and medicare benefits (because its common for people to retire to Red states) and military bases (which are more concentrated in the southern half of the continental US.

But sure, wage it as class warfare.  Be careful, though, as class warfare is exactly what a significant percentage of the democratic base wants (Occupy Wall Street, Anyone?...)


TempusFugit

  • Pencil Stache
  • ****
  • Posts: 507
  • Location: In my own head, usually
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #357 on: November 02, 2017, 06:37:32 PM »
I'm not going to claim that I've reviewed this proposal in any detail or that I'm especially knowledgeable about tax law or the impact on various income groups.  I don't know the ultimate fiscal impact, other than that it seems to add an inexcusable amount to the already obnoxious deficit. In the long term this could have dramatic inflationary consequences.   Especially if the future government decides that the only way to pay off the deficit is to inflate it away. 

I think neither party is fiscally responsible because the general electorate is not fiscally responsible.   People want both more spending and more tax cuts.  People want something today that they (or someone else) can pay for later.  People (large groups) are not rational.  I mean, we elected Donald Freaking Trump as President.  How rational is that?  Why would our politicians be any more rational?  Because the learned and contemplative populace will listen to reason and logic? Hah.  Some of us might calmly consider this complex subject, or we think we might until our own biases are tested. But those other guys, please.

On a few of the proposed line items, I have a first pass takeaway on the principle of it, in my opinion.

Mortgage interest deduction - this was always a benefit skewed toward wealthier people.  While I can see a societal benefit to stable neighborhoods, and therefore to encouraging home ownership, there should be some limit. It has always made sense to me to cap that deduction at some reasonable level, whether regarding multiple homes or the value of the mortgage or a combination of both.  This seems like a reasonable proposal to me.  I haven't seen any note on inflation indexing for this, so it might be something that eventually disappears entirely due to the inflationary effects on home prices.  The HCOL areas may find that this actually helps constrain those prices a little. The concern about rental properties is something I'm not sure is legit. Wouldn't the interest still be an offset to business income in that case? Just like any other expense related to running a business that reduces net profit? I'm no accountant, so maybe that's off base.

401K limits - again something that is effectively benefiting wealthier people.  It probably should have been reduced, though not so far as that 2400 figure.  This is one of those things where we have to reduce deductions someplace. This probably wouldn't actually affect that many people, considering how few contribute anything near the max.  Remember that the guy (or gal) trying to support a family on 30k probably considers the Mustachian with a 500k IRA to be filthy rich.  It's all relative.  But this was politically untenable from the beginning because even people who don't take advantage would like to think they might.

Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

State income tax deduction -  I think this deduction has had a diluting effect on the accountability of state governments. Why should the rest of the nation's taxpayers subsidize California or New York or Illinois bad government? We have our own bad governments to deal with, thanks.  If the citizenry of NY doesn't want to pay for the services that NY is providing, then maybe those taxes will be lower.  That said, property taxes are the same thing, and I'd expect a move toward more property taxes in these states, if this becomes law. 

The corp tax rate to 20% -  I see the argument for reducing the rate from 35%.  I have friends who own small businesses and this is a real killer.  It isn't just the mega corp with offshore tax havens we should consider.  That said, do we really need to reduce it to 20% at the expense of ballooning the deficit?  Can we maybe go with 27%?  Combine this with eliminating all the (corp tax) loopholes and make it perhaps close to revenue neutral?

Charitable deduction - yes I agree that this will affect charitable giving. But doesn't anyone else sometimes feel just a little bit that the deduction kind of tarnishes the act of giving?  Should we really be looking for a deduction for our good deed?  The effect will be regrettable and so from that perspective it is maybe a bad idea. The US is the most charitable society on the planet.  I'd hate for that to change.

The real shame is that we truly do need tax reform.  Simplify the dang thing.  It would make it much easier to then argue about how much government we want to pay for.


maizefolk

  • Walrus Stache
  • *******
  • Posts: 5984
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #358 on: November 02, 2017, 06:52:23 PM »
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1092
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #359 on: November 02, 2017, 06:54:58 PM »

2) Texas has no state-level income tax so no loss to me (And why am I helping pay other State's taxes again...?)


Keeping the property tax deduction, but capping it, is brilliant for Republicans, in that it makes residents of states that choose to fund through income taxes (I'll call those "Blue States") pay for states that choose to fund through property taxes (I'll call those "Red States"), while further punishing those in the Blue States that live in the highest cost of living areas (I'll call those "Coastal Elites"). Never mind that CA, NY, MA and NJ were already among the states where residents most heavily subsidize the rest of the country.

Still not convinced that this is factually accurate once you remove social security and medicare benefits (because its common for people to retire to Red states) and military bases (which are more concentrated in the southern half of the continental US.

But sure, wage it as class warfare.  Be careful, though, as class warfare is exactly what a significant percentage of the democratic base wants (Occupy Wall Street, Anyone?...)

Sure, now it's all one country, and people are mobile within it, with spending for our common good. But before it was "why am I helping pay other State's taxes again?" States pay for their own operation somehow (with more or less help from the federal budget), and the deductions for the three major options (property, income and sales taxes, where you could pick either of the last two) never struck me as obviously conceptually tilting toward one "type" of state. Offering a deduction for only one of those actually seems like it has a much greater effect in favor of the states that most heavily rely on property taxes vs. the other two, favoring a more regressive state funding mechanism than income taxes.

I don't know if it's "class" warfare, vs. warfare along other cultural divides, though. I always assumed that the "Occupy" type stuff was so much more popular in the working class in the Blue States than in the Red States as to swamp class alone as the major factor in who went in for it.

maizefolk

  • Walrus Stache
  • *******
  • Posts: 5984
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #360 on: November 02, 2017, 07:01:04 PM »
From my experiences back then the Occupy folks were a mixture of the non-working poor, and underemployed college educated graduates, neither of which would really use the label "working class" but both of which were quite common in both red and blue states at the time.

My question is, if the tax reform passes, will this drive a shift towards more states raising more of their revenue through property taxes rather than income taxes? (Since less of the money comes out of their residents pockets and more comes out of their residents' federal tax returns). Still trying to work through that the second order effects of a general increase in property taxes across the country would be... (although potentially offset by a decrease in state income taxes).

sol

  • Walrus Stache
  • *******
  • Posts: 8457
  • Age: 44
  • Location: Pacific Northwest
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #361 on: November 02, 2017, 07:11:47 PM »
This part of the bill (in isolation) actually makes the tax code more progressive, not less.

Good thing you're not looking at the rest then.  Just as a quick example, the bill would also repeal FSAs and immediately subject an extra $5k of my income to taxation at my marginal rate.  That more than washes out any possible savings.

In my case, last year we had about $32k in deductions and exemptions.  Next year we would be forced into the 24k standard deduction and get no exemptions, so that's 8k of extra income that gets taxed right up front.  Plus 5k for the loss of the FSA.  I start out with 13k of extra taxable income in the 25% bracket, for a loss of over $3,000.

On the bright side, the newly increased child tax credit has a higher phase out and a higher value, so that saves me about $10k over this year's version because I have kids and am currently subject to the income phase out.  And our straight marginal rate would drop a little and the brackets are moved, so those would saves me some too.  Overall I think we'll pay more but it would be within a thousand dollars of what we currently pay, based on less than hour of reading.

And that's why I think it might actually pass.  Just like their shitty health care plan, this tax plan is a huge gift to the richest Americans.  Unlike their shitty health care plan, the new tax plan doesn't totally screw over middle class Americans (it screws over the deficit instead).  Health care failed because thousands of republican voters called their reps and said "your shitty plan sucks" and I don't think those same people are going to object quite so violently to this tax plan.  It's certainly not anywhere as good for them as it is for super rich people, but it's not totally going to fuck with most Americans either.  Without that middle class outrage, Congress might find a way to squeeze it through.

Personally, I wouldn't even mind paying higher taxes if my contribution was being used to reduce the deficit.  I'm not so thrilled about paying higher taxes so that billionaires can pay lower taxes, though.

TempusFugit

  • Pencil Stache
  • ****
  • Posts: 507
  • Location: In my own head, usually
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #362 on: November 02, 2017, 07:18:36 PM »
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

That's certainly a valid point.  But I'm considering it in the context of the family (heirs) not the individual.  If this were only a world of single childless people, then there would be no moral reason the society (read government) shouldn't get a big chunk.   Of course it would be a moot point in that case :-)

maizefolk

  • Walrus Stache
  • *******
  • Posts: 5984
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #363 on: November 02, 2017, 07:28:40 PM »
This part of the bill (in isolation) actually makes the tax code more progressive, not less.

Good thing you're not looking at the rest then.  Just as a quick example, the bill would also repeal FSAs and immediately subject an extra $5k of my income to taxation at my marginal rate.  That more than washes out any possible savings.

Absolutely people should look at the whole bill. But I like to take a reductionist approach and understand how each (largely unrelated) piece of the time will work in isolation.

For example, if I understand the new passthrough income tax rate correctly, it's actively going to raise taxes on a lot of small "mom and pop" businesses bringing in less than $90,000 in net profits, while cutting taxes for much wealthier business owners.

Eliminating the estate tax, is definitely a big cut for the wealthy (at the absolute most convenient time in your life to pay taxes, after you're already dead), and while it doesn't actively increase taxes for lower income folks, it has the net effect of shifting more of the total tax burden on to them (and at the much less convenient time of when you're still alive and could put that money to use in other ways).

To reiterate, I'm not arguing to the republican tax plan. Just trying to understand the effects of different pieces of it. And until today, I at least hadn't made the connection that trading deductions for credits (in a net revenue neutral fashion) has the effect of making an overall tax code more progressive.

aspiringnomad

  • Pencil Stache
  • ****
  • Posts: 946
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #364 on: November 02, 2017, 07:29:34 PM »
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

Yep, pragmatic economists of both political persuasions tend to agree that estate taxes are the best taxes to the extent that you care about not distorting decisions (you don't avoid death to avoid paying taxes) and building a meritocracy (that one should be obvious).

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 2265
  • Age: 55
  • Location: Ann Arbor, Michigan
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #365 on: November 02, 2017, 07:31:00 PM »
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

That's certainly a valid point.  But I'm considering it in the context of the family (heirs) not the individual.  If this were only a world of single childless people, then there would be no moral reason the society (read government) shouldn't get a big chunk.   Of course it would be a moot point in that case :-)

The richest of the rich inherit stock from their ancestors.
Consider the Coors family, that owned the Coors beer company. The family would hand down stock ownership through the generations. The stock could appreciate significantly in value. The family never paid any ordinary income tax rates from the dividends from owning the stock.  Finally, an estate tax would be the mechanism by which the inheritances could be taxed, making up for the fact that these Coors family members paid taxes at a lower rate throughout their lives because qualified dividends are taxed lower.

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1191
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #366 on: November 02, 2017, 07:43:50 PM »
Yep, pragmatic economists of both political persuasions tend to agree that estate taxes are the best taxes to the extent that you care about not distorting decisions (you don't avoid death to avoid paying taxes) and building a meritocracy (that one should be obvious).
It causes distortions while people are alive. Trust and estate planning lawyers love the estate tax; it drives a lot of business.

Our family doesn't have (nearly) enough money to worry about the current $11-ish MM estate limit, but because we're mid-40s now, many of our cFIREsim scenarios do have us ending with more than that, so we have incentives while we're middle-aged to begin transferring some of that wealth into vehicles that will allow portions of that to escape the estate tax (so the growth occurs in those vehicles rather than in our estate). But, because we're "only" just barely millionaires, with a lot of our net worth locked up in equity in our primary residence, we have other cFIREsim scenarios that are on the meager side if we now transfer too much of that wealth outside of our means to access.

So, for all this, we enrich trust and estate planning people who are able to help us, meaning the estate tax absolutely causes distortions (basically, causes a whole industry to exist in substantially larger form than otherwise) versus "keep it all normally managed, ensure you don't run out, make a will to dictate your distribution to charities, offspring, and other family members only upon death".

maizefolk

  • Walrus Stache
  • *******
  • Posts: 5984
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #367 on: November 02, 2017, 07:48:21 PM »
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

That's certainly a valid point.  But I'm considering it in the context of the family (heirs) not the individual.  If this were only a world of single childless people, then there would be no moral reason the society (read government) shouldn't get a big chunk.   Of course it would be a moot point in that case :-)

Well the perspective of the heirs is certainly also a valid one.* From the perspective of an heir, they have never paid income tax, or property tax on their inheritance (unlike your perspective in your first post on the subject). It's brand new money that (even if they were the sort of person who counts on an inheritance from their parents) no one was under any obligation to provide to them. Sure it would be nicer if they didn't have to pay tax (that's true of any single tax you care to name, from property to income to sales to a crack tax), but in a word where a certain amount of money needs to be raised to pay for the federal government** what other tax on the living would you propose to raise so that heirs could inherit their parents' net worth tax free?***

*Personally I've made it a point to design my life in such a way that I'll never be expecting or counting on any inheritance from my folks, because I don't ever want to be in the position of being in my 70s and bitter than my parents are still alive and enjoying the crap out of life at 100. But let's put that aside.

**Which is perhaps not the world our congress lives in, since this tax cut would cost an extra $1.5 trillion in deficit spending. But again, that's a distraction.

***And I'm sure you can come up with lots of places we could cut federal spending instead, but remember those spending cuts could just as easily be applied to reducing taxes on the living, so for the purposes of this hypothetical assume we've already cut all the federal spending you think we could do without, and used it to reduce property, and income, and sales taxes all over the country.

Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

Yep, pragmatic economists of both political persuasions tend to agree that estate taxes are the best taxes to the extent that you care about not distorting decisions (you don't avoid death to avoid paying taxes) and building a meritocracy (that one should be obvious).

Hahahahaha. Certainly an important point. However the reverse is not true. I've heard rumors that there was an uptick in the number of deaths by extremely elderly, extremely wealthy individuals in 2010 (the only year since 1916 where there was no estate tax, with everyone knowing the tax was coming back in 2011), although I don't know that anyone has done an actual study. Certainly adds a new more ominous connotation to "tax avoidance strategies."

sol

  • Walrus Stache
  • *******
  • Posts: 8457
  • Age: 44
  • Location: Pacific Northwest
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #368 on: November 02, 2017, 07:54:18 PM »
until today, I at least hadn't made the connection that trading deductions for credits (in a net revenue neutral fashion) has the effect of making an overall tax code more progressive.

My wife made the point to me early today that even your observation here isn't quite what it seems, because the lowest income people don't pay taxes anyway.  Sure, part of this new tax plan would make taxes more progressive for people earning more than about the median income and less than the top 10%, but it offers huge breaks to the top 10% and it offers nothing at all to the bottom ~half of earners (because they already pay zero).  It's not really progressive because it doesn't penalize the rich more than the poor, it instead rewards the rich and does nothing for the poor (and penalizes the middle).

Which is what we've been saying here all along: Republicans want to tax middle to upper-middle class Americans to give tax breaks to the very richest Americans.  They can't tax anyone else, because poor people just don't have enough money that you can take from them to offset the tax breaks you're trying to give to the wealthiest among us.  The upper middle class is the only group that has money you can take, if you refuse to take it from billionaires.

Personally, I'm in favor of progressive taxes only if they are progressive all the way to the top.  If you're going to pay a man ten dollars a day or a hundred dollars per day, he is happy to get both because they mean he can eat.  But if you're going to give him ten million dollars per day or a hundred millions dollars per day, what is he seriously going to do with it?  The marginal utility of money diminishes so rapidly at that point that progressive taxes absolutely make sense to me. If you're making a million dollars per day, I'm absolutely in favor of of a 90% tax rate.  That money means almost nothing to you, and our government can use it more effectively than you can.  All those stealth bombers need to be sanded down and repainted every six months.

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1092
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #369 on: November 02, 2017, 07:59:52 PM »
My question is, if the tax reform passes, will this drive a shift towards more states raising more of their revenue through property taxes rather than income taxes? (Since less of the money comes out of their residents pockets and more comes out of their residents' federal tax returns). Still trying to work through that the second order effects of a general increase in property taxes across the country would be... (although potentially offset by a decrease in state income taxes).

Notwithstanding all the Republican tax rhetoric about eliminating distortion, this bill is rife with potential distortions. Yours is a plausible example (and since property taxes are widely considered more regressive than income taxes, maybe not a surprising one). Here's another:  I am a W-2 employee, but a considerable factor in the market pressures that set my salary is the income I could make as an owner of a business that would at least have a crack at qualifying for the preferential tax treatment being proposed in this bill. I've passed up such ownership opportunities in the past for a combination of reasons, but it would be a *different combination* if those other opportunities also benefited from better tax treatment.

maizefolk

  • Walrus Stache
  • *******
  • Posts: 5984
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #370 on: November 02, 2017, 08:17:33 PM »
until today, I at least hadn't made the connection that trading deductions for credits (in a net revenue neutral fashion) has the effect of making an overall tax code more progressive.

My wife made the point to me early today that even your observation here isn't quite what it seems, because the lowest income people don't pay taxes anyway.  Sure, part of this new tax plan would make taxes more progressive for people earning more than about the median income and less than the top 10%, but it offers huge breaks to the top 10% and it offers nothing at all to the bottom ~half of earners (because they already pay zero).  It's not really progressive because it doesn't penalize the rich more than the poor, it instead rewards the rich and does nothing for the poor (and penalizes the middle).

That's a good point. I guess I was thinking of these as refundable credits (like EITC or the additional child tax credit), but I suppose the current credits we're discussing certainly aren't refundable. So you and your wife are absolutely correct. A revenue neutral trade of tax deductions for tax credits is going to be benefit the lowest income households who currently owe next taxes (which might already mean they're at or above the median household income) relative to people in higher income tax brackets, but it doesn't provide any additional benefit to people with even lower incomes who don't currently pay federal income taxes.

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 2265
  • Age: 55
  • Location: Ann Arbor, Michigan
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #371 on: November 02, 2017, 08:32:18 PM »
So pass-through income will be taxed at a max of 25% then ?

teen persuasion

  • Handlebar Stache
  • *****
  • Posts: 1152
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #372 on: November 02, 2017, 09:09:12 PM »
until today, I at least hadn't made the connection that trading deductions for credits (in a net revenue neutral fashion) has the effect of making an overall tax code more progressive.

My wife made the point to me early today that even your observation here isn't quite what it seems, because the lowest income people don't pay taxes anyway.  Sure, part of this new tax plan would make taxes more progressive for people earning more than about the median income and less than the top 10%, but it offers huge breaks to the top 10% and it offers nothing at all to the bottom ~half of earners (because they already pay zero).  It's not really progressive because it doesn't penalize the rich more than the poor, it instead rewards the rich and does nothing for the poor (and penalizes the middle).

That's a good point. I guess I was thinking of these as refundable credits (like EITC or the additional child tax credit), but I suppose the current credits we're discussing certainly aren't refundable. So you and your wife are absolutely correct. A revenue neutral trade of tax deductions for tax credits is going to be benefit the lowest income households who currently owe next taxes (which might already mean they're at or above the median household income) relative to people in higher income tax brackets, but it doesn't provide any additional benefit to people with even lower incomes who don't currently pay federal income taxes.
It looks like the CTC will only be refundable to the current $1k, and the family credits are not refundable at all.

If something is not mentioned, that means it is not being altered, correct?  So the Retirement Saver's credit and EITC remain unchanged?  If so, our tax status will remain exactly the same.  That's much better than the extra $8200 in tax I was expecting if the traditional 401k limit had been cut to $2400.  Devil's in the details.

kingxiaodi

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #373 on: November 02, 2017, 09:12:21 PM »
3) 5 people in household resulted in 20250$ standard deduction which shall now be 24,000 for my spouse and I = 3750$ Higher deduction (roughly 560$ @ 15% rate)

Wasn't $20250 only your personal exemption (5 x $4050)? There should have been another deduction on top of that (either standard for MFJ-$12700, or whatever your itemized deductions were). Regardless, while your deduction is probably smaller than it used to be, you'll probably end up around the same tax number due to the child tax credit increase.

sol

  • Walrus Stache
  • *******
  • Posts: 8457
  • Age: 44
  • Location: Pacific Northwest
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #374 on: November 02, 2017, 09:34:56 PM »
Wasn't $20250 only your personal exemption (5 x $4050)? There should have been another deduction on top of that

I seriously think Republicans are banking on most Americans not knowing the difference between an exemption and a deduction.

Just as an example, in my area an average family with 2 kids who owns their own average priced house is currently able to claim about $16k in personal and dependent exemptions (~$4k for each person) and THEN another $15k-20k in itemized deductions (mortgage interest, state property taxes, sales tax deduction) depending on how old their mortgage is.  That's at least $30k of untaxed income this year, without contributing a penny to a 401k or an HSA or any charity.  The new plan reduces that minimum of $30k to $24k, subjecting an extra $6k to taxation at your marginal rate.

But most people just plug their numbers into TurboTax or TaxAct, and they don't really understand how all the math works.  They think they're saving money with this deal because they don't know how to run the numbers themselves.  I think a lot of people are in for a rude awakening if they're expecting to save $4k this year like the President promised them.

boarder42

  • Walrus Stache
  • *******
  • Posts: 8360
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #375 on: November 03, 2017, 04:12:41 AM »
Wasn't $20250 only your personal exemption (5 x $4050)? There should have been another deduction on top of that

I seriously think Republicans are banking on most Americans not knowing the difference between an exemption and a deduction.

Just as an example, in my area an average family with 2 kids who owns their own average priced house is currently able to claim about $16k in personal and dependent exemptions (~$4k for each person) and THEN another $15k-20k in itemized deductions (mortgage interest, state property taxes, sales tax deduction) depending on how old their mortgage is.  That's at least $30k of untaxed income this year, without contributing a penny to a 401k or an HSA or any charity.  The new plan reduces that minimum of $30k to $24k, subjecting an extra $6k to taxation at your marginal rate.

But most people just plug their numbers into TurboTax or TaxAct, and they don't really understand how all the math works.  They think they're saving money with this deal because they don't know how to run the numbers themselves.  I think a lot of people are in for a rude awakening if they're expecting to save $4k this year like the President promised them.

The increased child tax credits offset alot of this.  But if you didn't itemize you come out ahead. If you did itemize there is a greater chance you'll be behind.

talltexan

  • Magnum Stache
  • ******
  • Posts: 4525
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #376 on: November 03, 2017, 07:04:05 AM »
I'm personally glad they are slashing the mortgage deduction.

Its still 500K.  No reason in my opinion to subsidize an excessive lifestyle.

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.

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1191
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #377 on: November 03, 2017, 07:08:58 AM »
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.)

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3339
  • Location: The Other Side
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #378 on: November 03, 2017, 07:29:55 AM »
One interesting tidbit about the new limited mortgage deduction - you cannot use it for a second home now.  It's limited to one primary residence.  Overall, I support the changes to this deduction.

I'm a red panda

  • Walrus Stache
  • *******
  • Posts: 8202
  • Location: United States
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #379 on: November 03, 2017, 07:34:06 AM »
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.)

It seems like it will hurt sales in a certain range.  A house that would have sold for $550,000 isn't going to sell for that- people will offer under $500k. A buyer in that range (maybe to $600-650?) is going to do all they can to spend no more than $499,999. Above a certain number it isn't going to matter I suspect- if someone wants a $1 mil house, I would guess they still get it.

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1191
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #380 on: November 03, 2017, 07:45:28 AM »
A house that would have sold for $550,000 isn't going to sell for that- people will offer under $500k. A buyer in that range (maybe to $600-650?) is going to do all they can to spend no more than $499,999. Above a certain number it isn't going to matter I suspect- if someone wants a $1 mil house, I would guess they still get it.
It's the mortgage amount, not the purchase price, that drives deductibility. A $500K mortgage and a $50K downpayment gets you to a $550K purchase price.

The rules are likely to be like today's rules (with the $1MM limit), where a mortgage of $600K would now be 5/6ths deductible in the first year. (A mortgage of $501K isn't $0 eligible; it's $500K eligible and $1K non-eligible.)

TempusFugit

  • Pencil Stache
  • ****
  • Posts: 507
  • Location: In my own head, usually
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #381 on: November 03, 2017, 07:46:40 AM »
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.)

It seems like it will hurt sales in a certain range.  A house that would have sold for $550,000 isn't going to sell for that- people will offer under $500k. A buyer in that range (maybe to $600-650?) is going to do all they can to spend no more than $499,999. Above a certain number it isn't going to matter I suspect- if someone wants a $1 mil house, I would guess they still get it.

I doubt that it will be an all-or-nothing deduction. I haven't read it, so maybe I'm mistaken, but I would expect that you could still deduct the interest on the 500k even if the total mortgage was higher.  Meaning that for every 1K above that (loan) amount, you would in effect be paying higher interest (since no deduction) but it wouldn't be so dramatic as to make you walk away over a few thousand dollars in purchase price.

sherr

  • Handlebar Stache
  • *****
  • Posts: 1543
  • Age: 36
  • Location: North Carolina, USA
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #382 on: November 03, 2017, 07:51:28 AM »
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

I still can't understand how this is anything more than a propagandised idea to specifically benefit the ultra-rich. All taxes are taxing money that has already been taxed.

FICA taxes? But I already paid income taxes!
Gas tax? But I already paid income tax on that money!
Property tax? But I already paid income tax on that money!
Sales tax? But I already paid income tax on that money!

Why do they get another bite just because the reaper visited? Because we do not want to go back to a society where the landed gentry own everything and the 99% "serfs" are more or less lifelong slaves. Go watch Downton Abbey or Poldark and ask yourself if that was better than today's world for the average person. And the estate tax is one of the only mechanisms we have in place to prevent that from happening again.

So yes, it is targeted at only affecting the ultra-rich, because that is the class of people that we have to worry about. Double the limits, fine. Index for inflation, great. Make absolutely sure that it only affects the targeted class and not land-wealthy "small" farms. But don't outright repeal it. A literal once-in-a-lifetime tax of 40% on the value of your estate that's more than $22MM is not going to make any heir destitute. Annoying for them, sure, no one likes paying taxes. But they will still have plenty of money to inherit that they didn't earn, and be able to live an excessive life of luxury or leverage their excessive wealth to build their own empire.

But it's necessary for society to have some way of ensuring that that fabulous wealth doesn't just exponentially grow and control more and more and more for forever. And it's no more "immoral" to charge an estate tax than it is literally any other type of tax that exists.

bobcobb7

  • 5 O'Clock Shadow
  • *
  • Posts: 19
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #383 on: November 03, 2017, 08:08:16 AM »
Wasn't $20250 only your personal exemption (5 x $4050)? There should have been another deduction on top of that

I seriously think Republicans are banking on most Americans not knowing the difference between an exemption and a deduction.

Just as an example, in my area an average family with 2 kids who owns their own average priced house is currently able to claim about $16k in personal and dependent exemptions (~$4k for each person) and THEN another $15k-20k in itemized deductions (mortgage interest, state property taxes, sales tax deduction) depending on how old their mortgage is.  That's at least $30k of untaxed income this year, without contributing a penny to a 401k or an HSA or any charity.  The new plan reduces that minimum of $30k to $24k, subjecting an extra $6k to taxation at your marginal rate.

But most people just plug their numbers into TurboTax or TaxAct, and they don't really understand how all the math works.  They think they're saving money with this deal because they don't know how to run the numbers themselves.  I think a lot of people are in for a rude awakening if they're expecting to save $4k this year like the President promised them.

The increased child tax credits offset alot of this.  But if you didn't itemize you come out ahead. If you did itemize there is a greater chance you'll be behind.

This will be where we come in. About 12k in exemptions and 24k in deductions with SALT included. So about 36k. Take away personal exemptions and SALT and we no longer itemize. That will be reduced to the 24k standard deduction so that doesn't look that great.

But if we account for the shift in tax brackets, say on 90k taxable, the old brackets would be about 14k in taxes owed and the new ones would be about 11k in taxes owed which evens out the additional tax owed by doing the new standard deduction.

Does this look right to you all?

I'm a red panda

  • Walrus Stache
  • *******
  • Posts: 8202
  • Location: United States
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #384 on: November 03, 2017, 08:10:48 AM »
A house that would have sold for $550,000 isn't going to sell for that- people will offer under $500k. A buyer in that range (maybe to $600-650?) is going to do all they can to spend no more than $499,999. Above a certain number it isn't going to matter I suspect- if someone wants a $1 mil house, I would guess they still get it.
It's the mortgage amount, not the purchase price, that drives deductibility. A $500K mortgage and a $50K downpayment gets you to a $550K purchase price.

The rules are likely to be like today's rules (with the $1MM limit), where a mortgage of $600K would now be 5/6ths deductible in the first year. (A mortgage of $501K isn't $0 eligible; it's $500K eligible and $1K non-eligible.)

Thanks for the correction.

I still suspect it will just depress a small range of prices. 

Scandium

  • Handlebar Stache
  • *****
  • Posts: 2360
  • Location: EastCoast
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #385 on: November 03, 2017, 08:18:13 AM »
Yep, pragmatic economists of both political persuasions tend to agree that estate taxes are the best taxes to the extent that you care about not distorting decisions (you don't avoid death to avoid paying taxes) and building a meritocracy (that one should be obvious).
It causes distortions while people are alive. Trust and estate planning lawyers love the estate tax; it drives a lot of business.

Our family doesn't have (nearly) enough money to worry about the current $11-ish MM estate limit, but because we're mid-40s now, many of our cFIREsim scenarios do have us ending with more than that, so we have incentives while we're middle-aged to begin transferring some of that wealth into vehicles that will allow portions of that to escape the estate tax (so the growth occurs in those vehicles rather than in our estate). But, because we're "only" just barely millionaires, with a lot of our net worth locked up in equity in our primary residence, we have other cFIREsim scenarios that are on the meager side if we now transfer too much of that wealth outside of our means to access.

So, for all this, we enrich trust and estate planning people who are able to help us, meaning the estate tax absolutely causes distortions (basically, causes a whole industry to exist in substantially larger form than otherwise) versus "keep it all normally managed, ensure you don't run out, make a will to dictate your distribution to charities, offspring, and other family members only upon death".

How much business can the estate tax drive, when only 0.2% of people in the country were affected by it every year, or 4,700 potential customers?
http://time.com/money/4444752/how-many-people-pay-estate-death-tax/
I think that ranks pretty low as far as distortions go.

NextTime

  • Pencil Stache
  • ****
  • Posts: 797
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #386 on: November 03, 2017, 08:27:18 AM »
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

I still can't understand how this is anything more than a propagandised idea to specifically benefit the ultra-rich. All taxes are taxing money that has already been taxed.

FICA taxes? But I already paid income taxes!
Gas tax? But I already paid income tax on that money!
Property tax? But I already paid income tax on that money!
Sales tax? But I already paid income tax on that money!

Why do they get another bite just because the reaper visited? Because we do not want to go back to a society where the landed gentry own everything and the 99% "serfs" are more or less lifelong slaves. Go watch Downton Abbey or Poldark and ask yourself if that was better than today's world for the average person. And the estate tax is one of the only mechanisms we have in place to prevent that from happening again.

So yes, it is targeted at only affecting the ultra-rich, because that is the class of people that we have to worry about. Double the limits, fine. Index for inflation, great. Make absolutely sure that it only affects the targeted class and not land-wealthy "small" farms. But don't outright repeal it. A literal once-in-a-lifetime tax of 40% on the value of your estate that's more than $22MM is not going to make any heir destitute. Annoying for them, sure, no one likes paying taxes. But they will still have plenty of money to inherit that they didn't earn, and be able to live an excessive life of luxury or leverage their excessive wealth to build their own empire.

But it's necessary for society to have some way of ensuring that that fabulous wealth doesn't just exponentially grow and control more and more and more for forever. And it's no more "immoral" to charge an estate tax than it is literally any other type of tax that exists.



Why should people have to pay income taxes on money they actually labor and work for, while someone who just happened to be born into a certain family can inherit millions/billions of dollars that they did not earn/work for, tax free?  Why do lottery winners and gamblers have to pay 40% tax on their winnings if millionaire/billionaire heirs get off tax free? The money they won has already been taxed, right? Why are capital gains and dividends taxed lower than income? The wealthy make the rules and are constantly coming up with ways to try and stack the deck ever more in their favor. And that's exactly what this bill is about.

In my opinion it's immoral to repeal the estate tax when you compare it to everything else they do tax the shit out of.



maizefolk

  • Walrus Stache
  • *******
  • Posts: 5984
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #387 on: November 03, 2017, 08:29:11 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.

OurTown

  • Handlebar Stache
  • *****
  • Posts: 1278
  • Age: 51
  • Location: Tennessee
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #388 on: November 03, 2017, 08:35:22 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?

CorpRaider

  • Bristles
  • ***
  • Posts: 439
    • The Corpraider Blog
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #389 on: November 03, 2017, 08:40:28 AM »
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

I still can't understand how this is anything more than a propagandised idea to specifically benefit the ultra-rich. All taxes are taxing money that has already been taxed.

FICA taxes? But I already paid income taxes!
Gas tax? But I already paid income tax on that money!
Property tax? But I already paid income tax on that money!
Sales tax? But I already paid income tax on that money!

Why do they get another bite just because the reaper visited? Because we do not want to go back to a society where the landed gentry own everything and the 99% "serfs" are more or less lifelong slaves. Go watch Downton Abbey or Poldark and ask yourself if that was better than today's world for the average person. And the estate tax is one of the only mechanisms we have in place to prevent that from happening again.

So yes, it is targeted at only affecting the ultra-rich, because that is the class of people that we have to worry about. Double the limits, fine. Index for inflation, great. Make absolutely sure that it only affects the targeted class and not land-wealthy "small" farms. But don't outright repeal it. A literal once-in-a-lifetime tax of 40% on the value of your estate that's more than $22MM is not going to make any heir destitute. Annoying for them, sure, no one likes paying taxes. But they will still have plenty of money to inherit that they didn't earn, and be able to live an excessive life of luxury or leverage their excessive wealth to build their own empire.

But it's necessary for society to have some way of ensuring that that fabulous wealth doesn't just exponentially grow and control more and more and more for forever. And it's no more "immoral" to charge an estate tax than it is literally any other type of tax that exists.

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.

boarder42

  • Walrus Stache
  • *******
  • Posts: 8360
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #390 on: November 03, 2017, 08:49:44 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

sol

  • Walrus Stache
  • *******
  • Posts: 8457
  • Age: 44
  • Location: Pacific Northwest
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #391 on: November 03, 2017, 08:54:09 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.

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1092
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #392 on: November 03, 2017, 09:03:07 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.

CorpRaider

  • Bristles
  • ***
  • Posts: 439
    • The Corpraider Blog
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #393 on: November 03, 2017, 09:05:52 AM »
Yeah seems like the implementation of the mtg interest thing could cause a lot of distortions with people not wanting to move or take a new mortgage in high property value markets since they are grandfathered in and as someone else pointed out, people scrambling to get in.  Can't believe freedom caucus, budget hawk, Mark Meadows is quoted as being against the second home mtg interest deduction.  Wow, I bet those tea partiers would love to know that!

Yeah estate and gift tax impacts behavior more than raises revenue. 

Don't see how they are going to give stepped up basis with no tax on the appreciation at death.  That is much more perverse than the straw man, "taxed twice" argument.  That gain is now going to be "never taxed."  Meanwhile the working stiffs are paying 39.6%.

Seems like the passthroughs and foreign tax elements are likely to be huge clusterfks.  Koch bros already coming out against the modest 20% flat tax on transfer pricing techniques that shift income to Ireland, caymans and other tax havens.  I thought they were in favor of a flat, fair tax that removed the crony capitalism and tax chicanery.  Between them and the "freedom caucus" going to mattresses for vacation homes, I'm starting to suspect these guys are full of it.

Hmm, if Meadows isn't on board, Kochs are actively working against and NE republicans are going to balk at SALT.....might be DOA.
« Last Edit: November 03, 2017, 09:13:37 AM by CorpRaider »

Scandium

  • Handlebar Stache
  • *****
  • Posts: 2360
  • Location: EastCoast
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #394 on: November 03, 2017, 09:13:31 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.

That’s not quite it. Rather, it’s not about the 4,700 people who die subject to the estate tax in any year, but rather it’s 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, that’s 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.

CorpRaider

  • Bristles
  • ***
  • Posts: 439
    • The Corpraider Blog
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #395 on: November 03, 2017, 09:15:33 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.
« Last Edit: November 03, 2017, 09:21:36 AM by CorpRaider »

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1191
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #396 on: November 03, 2017, 09:16:21 AM »
Can't believe freedom caucus, budget hawk, Mark Meadows is quoted as being against the second home mtg interest deduction. Wow, I bet those tea partiers would love to know that!
I'm not following. Why would being against a second home MID be such a critical point for the Tea Party types? That would seem to be way down on the list of things they'd worry about.

CorpRaider

  • Bristles
  • ***
  • Posts: 439
    • The Corpraider Blog
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #397 on: November 03, 2017, 09:17:58 AM »
Yeah, I agree.  I bet he didn't mention that at all at any of the tea party rallies when they were railing at the exploding debt and talking about crony capitalism and government handouts.
« Last Edit: November 03, 2017, 09:20:25 AM by CorpRaider »

OurTown

  • Handlebar Stache
  • *****
  • Posts: 1278
  • Age: 51
  • Location: Tennessee
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #398 on: November 03, 2017, 09:29:45 AM »
From Business Insider:

The plan would also create a $300 credit for "non-child dependents." Confusingly, your child might be a non-child dependent. This credit would essentially apply to any dependent who doesn't qualify for the child tax credit, which could mean an elderly parent but could also mean your dependent child aged 17 or over.

Finally, the plan would create a $300 "family flexibility credit." This would be a credit of $300 for yourself and $300 for your spouse.

* * *

Oh good, $300 for me, my spouse, and my stay at home unemployed millennial.


Scandium

  • Handlebar Stache
  • *****
  • Posts: 2360
  • Location: EastCoast
Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
« Reply #399 on: November 03, 2017, 09:34:22 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.