Trump Tax Proposal Seems Largely Unchanged

[sol]

You could call the result "higher taxes on everyone" in future years, or you could call it "not cutting taxes on everyone every year"

I only meant "higher taxes" compared to the original version of the GOP tax bill.  They released a bill that was a huge cut for corporations and the wealthy, and a slight cut for most other people but a slight increase for others (like upper-middle class homeowners with large families) while adding trillions to the deficit.  Then they modified the bill to keep the huge tax cuts for the wealthy and the wealthiest individuals, but make it neutral or a slight increase for most people and a slightly bigger tax increase on the rest.

So they took their "Cuts, Cuts, Cuts" bill and made it more like a "Cuts for the rich and corporations only" bill.  It is no longer a tax cut for most citizens.  It is higher taxes on most people compared to their original version.

That makes it harder to sell as the "biggest tax cut in history", when only about 5% of people will actually see a tax cut.

[nereo]

That makes it harder to sell as the "biggest tax cut in history"†, when only about 5% of people will actually see a tax cut.

You missed the fine print.

† "biggest tax cuts in history" refers to the absolute dollar amount of taxes paid in non-adjusted terms for those in the highest tax bracket when accounting for taxes paid on wealth transfers (i.e. 'estate tax').  Statement does not consider tax cuts for middle or lower class citizens, nor as percentage of earned income or similar metrics. Wealthy individuals who do not see a substantial reduction in taxes are not included in the analysis of 'biggest tax cuts in history' because they negatively impact the computed average.  Loss of governmental services due to budgetary shortfalls due to a reduction in federal revenue are likewise considered to be outside the purview of this statement.  External analyses are "fake news" and should be ignored unless their conclusions parallel those given by the President of the United States or his official messengers.  Messengers are determined solely by POTUS, and he alone can refute any statements made by said messengers, even retroactively.

[seattlecyclone]

I haven't seen this change widely discussed.

https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf
Page 137.

Primary home gain exclusion will change from two out of five years to five out of eight years with a maximum of one sale every five years. Also, for very high earners this would start to phase out at $250k/$500k AGI single/MFJ. Exclusion level will stay the same at $250k/$500k.

This is a pretty big deal for people living in higher-housing-cost areas.

We bought our first house in Seattle in 2010, pretty close to the bottom of the market. It appreciated by about $120k in our first five years living there. Under this bill, if we would have moved out after 4 years 11 months we would have been facing a tax of around $18k (assuming 15% capital gains rate), but $0 if we had waited another month. This is a pretty big cliff. A cliff at two years seems somewhat defensible to me, but not so much at five. How many people are going to be sticking it out for a little while longer in a house that's the wrong size or location for them, to save a significant chunk of money on taxes? A phase-out would probably reduce the number of unintended consequences here.

[waltworks]

To be fair, getting to pay no taxes on something that you sell for a big profit (your house) is a little bit ridiculous, IMO, anyway. Nobody would make this argument for, say, a car, or a gold coin, or a stock/bond, or a collectible.

I think the old system where the proceeds were tax free only if they were used on your next house made more sense, really.

The bottom line is that both the capital gains exemption and the mortgage interest deduction are pretty indefensible - from both sides of the political spectrum. IMO it would be best to just get rid of both of them cold turkey. Cheaper housing would be a net positive for the economy.

-W

[Undecided]

To be fair, getting to pay no taxes on something that you sell for a big profit (your house) is a little bit ridiculous, IMO, anyway. Nobody would make this argument for, say, a car, or a gold coin, or a stock/bond, or a collectible.

I think the old system where the proceeds were tax free only if they were used on your next house made more sense, really.

The bottom line is that both the capital gains exemption and the mortgage interest deduction are pretty indefensible - from both sides of the political spectrum. IMO it would be best to just get rid of both of them cold turkey. Cheaper housing would be a net positive for the economy.

-W

In a lot of locations, the “gains” in residential real estate are mostly just the effects of inflation, though. Really rationalising capital gains would probably require inflation-adjusting the return. Offering people a break on capital gains for their homes—rather than getting people focused on an overall logical system that’s more disadvantageous for tax revenue—seems like a smart move for government.

[seattlecyclone]

To be fair, getting to pay no taxes on something that you sell for a big profit (your house) is a little bit ridiculous, IMO, anyway. Nobody would make this argument for, say, a car, or a gold coin, or a stock/bond, or a collectible.

I think the old system where the proceeds were tax free only if they were used on your next house made more sense, really.

The bottom line is that both the capital gains exemption and the mortgage interest deduction are pretty indefensible - from both sides of the political spectrum. IMO it would be best to just get rid of both of them cold turkey. Cheaper housing would be a net positive for the economy.

-W

I agree in principle, that treating houses different from other assets for capital gains taxation is kind of silly.

I also agree with Undecided that inflation-adjusting cost basis for the purpose of capital gains taxation would also make a lot of sense.

But, if you are going to have this special carve-out for houses, and you're going to make the cut-off be shorter than many people live in their houses, a gradual phase-out seems fairer than a sharp cliff.

[waltworks]

Agreed that inflation adjusting would make sense. That's easy enough.

And sure, you could phase it in (drop the exemption by $100k/year over the next 5 years or something).

Those are, imo, minor quibbles. But of course, in all likelihood nothing will happen regardless.

-W

[terran]

To be fair, getting to pay no taxes on something that you sell for a big profit (your house) is a little bit ridiculous, IMO, anyway. Nobody would make this argument for, say, a car, or a gold coin, or a stock/bond, or a collectible.

I think the old system where the proceeds were tax free only if they were used on your next house made more sense, really.

The bottom line is that both the capital gains exemption and the mortgage interest deduction are pretty indefensible - from both sides of the political spectrum. IMO it would be best to just get rid of both of them cold turkey. Cheaper housing would be a net positive for the economy.

-W

In a lot of locations, the “gains” in residential real estate are mostly just the effects of inflation, though. Really rationalising capital gains would probably require inflation-adjusting the return. Offering people a break on capital gains for their homes—rather than getting people focused on an overall logical system that’s more disadvantageous for tax revenue—seems like a smart move for government.

You're taxed on interest income, which is less than inflation. Why should the gains on housing be adjusted for inflation while the gains on other assets are not?

[Undecided]

To be fair, getting to pay no taxes on something that you sell for a big profit (your house) is a little bit ridiculous, IMO, anyway. Nobody would make this argument for, say, a car, or a gold coin, or a stock/bond, or a collectible.

I think the old system where the proceeds were tax free only if they were used on your next house made more sense, really.

The bottom line is that both the capital gains exemption and the mortgage interest deduction are pretty indefensible - from both sides of the political spectrum. IMO it would be best to just get rid of both of them cold turkey. Cheaper housing would be a net positive for the economy.

-W

In a lot of locations, the “gains” in residential real estate are mostly just the effects of inflation, though. Really rationalising capital gains would probably require inflation-adjusting the return. Offering people a break on capital gains for their homes—rather than getting people focused on an overall logical system that’s more disadvantageous for tax revenue—seems like a smart move for government.

You're taxed on interest income, which is less than inflation. Why should the gains on housing be adjusted for inflation while the gains on other assets are not?

I’m not saying they should be, only that giving a pass on capital gains taxes for homes (where relatively common very long holding periods can make for large nominal gains with no real gain), as is done now and as is proposed to be done (albeit on different terms) “solves” the most egregious case of “gains” that aren’t real gains, which probably takes pressure off complaints about being taxed on inflationary gains in general.

[RangerOne]

Cold turkey killing all housing tax breaks I don't think is a great idea. Though I do agree getting ride of all home purchase tax incentives should be on the table. Simply because it distorts often in undesired ways.

I would rather they get ride of tax breaks obviously not helping people own a home. Ie there should be no tax breaks on second homes. These are investments that often hurt would be home buyers because it encourages older better off people to compete for starter homes.

I still would like to see extra taxes blocking foreign buyers. At least in the case where they aren't living in a property.

Beyond that giving tax breaks for your primary also may be unecessary. But I would take away a piece at a time and let the market adjust. I am not a huge fan of any tax break that essentially just helps line the pockets of lenders and realtors, but at the same time affordability is now baked into our current tax system and every change needs to settle once made.

[DarkandStormy]

http://thehill.com/policy/finance/359353-gop-tax-bill-would-add-17-trillion-to-debt-cbo

CBO - tax bill would add $1.7 trillion to the debt

[nereo]

CBO - tax bill would add $1.7 trillion to the debt

Well there's one more principle the GOP has abandoned.  Other than "less taxes for corporations and the rich" I'm not sure what the party stands for anymore.  Not free trade (seems they're trying to strike down all trade deals without any new ones to replace them with), not states rights (see war on 'sanctuary cities', ICE and DOJ stepping all over various state toes), not limitations on executive power (loyalty to the Prez is key)...

... all the good ideas the GOP had seem to have gone into the rubbish bin.

[Gumption]

Above all else, it seems like the GOP wanted the corporate tax rate to be lowered to 20% (even though most mega corps pay around 16% anyway.) They had to find a way to make up the money, so the rest of us are paying for it...including small businesses.

[ZiziPB]

Looks like the plan is in trouble one way or the other, and I think the chances of it passing are pretty slim at the moment.  The Senate is supposed to come up with its own bill today.  Which doesn't really bode well for GOP.  Having 2 competing bills and just a few working days left in which to agree on something and actually vote on it doesn't seem like a sure way to success...

[FIREchiefsr]

Looks like the plan is in trouble one way or the other, and I think the chances of it passing are pretty slim at the moment.  The Senate is supposed to come up with its own bill today.  Which doesn't really bode well for GOP.  Having 2 competing bills and just a few working days left in which to agree on something and actually vote on it doesn't seem like a sure way to success...

Actually, I think this is very typical.  I believe both houses will vote to approve their own bills, and then the differences will be resolved in committee (after which, both houses would have to vote again on the revised/compromised bill).

[ZiziPB]

Looks like the plan is in trouble one way or the other, and I think the chances of it passing are pretty slim at the moment.  The Senate is supposed to come up with its own bill today.  Which doesn't really bode well for GOP.  Having 2 competing bills and just a few working days left in which to agree on something and actually vote on it doesn't seem like a sure way to success...

Actually, I think this is very typical.  I believe both houses will vote to approve their own bills, and then the differences will be resolved in committee (after which, both houses would have to vote again on the revised/compromised bill).

Right, except that there seem to be significant differences.  I really think that this will go the way of the ACA repeal - the House will pass something so that they can claim they passed it, and it will die in the Senate after a few days/weeks of intense drama.

[FIREchiefsr]

Looks like the plan is in trouble one way or the other, and I think the chances of it passing are pretty slim at the moment.  The Senate is supposed to come up with its own bill today.  Which doesn't really bode well for GOP.  Having 2 competing bills and just a few working days left in which to agree on something and actually vote on it doesn't seem like a sure way to success...

Actually, I think this is very typical.  I believe both houses will vote to approve their own bills, and then the differences will be resolved in committee (after which, both houses would have to vote again on the revised/compromised bill).

Right, except that there seem to be significant differences.  I really think that this will go the way of the ACA repeal - the House will pass something so that they can claim they passed it, and it will die in the Senate after a few days/weeks of intense drama.

Absolutely.  This is what I originally expected (maybe still do).  I think this is all about the corporate tax cuts and pass throughs, with just enough smoke/small cuts/marketing for the middle class to be able to get it through.

[I'm a red panda]

Above all else, it seems like the GOP wanted the corporate tax rate to be lowered to 20% (even though most mega corps pay around 16% anyway.) They had to find a way to make up the money, so the rest of us are paying for it...including small businesses.

With a 1.7 trillion addition to the debt, I don't think they have found a way to pay for it.