Trump Tax Proposal Seems Largely Unchanged

[ixtap]

If the 401k change simply caps traditional contributions at $2400, but allows Roth contributions to the previous limits, then I'm not so sure this is a bad thing for the big savers out there.  These are often folks that wind up with "too much" money in retirement and have to struggle with things like RMDs pushing them into high tax brackets.

I am not worried about the big savers. I would be saving the money in some form and the additional tax is not enough to have a significant impact on my timeline. I am more concerned with encouraging the low to medium savers. Hence, I could get behind a cut, just not as drastic of one. Roth just does not incentivize the way deductions do, even when the math works.

[dude]

I looks like they collapse the 25%, 28%, and 33% brackets into the 35% bracket.  I have a feeling for people like me who are in the 28% bracket, we're going to get seriously fucked.  I deduct @$17k in mortgage interest, @$11k in property taxes, and we defer $42k in 401k contributions.  I can't see any way where I don't take it in the ass really hard no matter how this thing comes out.

[I'm a red panda]

I looks like they collapse the 25%, 28%, and 33% brackets into the 35% bracket.  I have a feeling for people like me who are in the 28% bracket, we're going to get seriously fucked.  I deduct @$17k in mortgage interest, @$11k in property taxes, and we defer $42k in 401k contributions.  I can't see any way where I don't take it in the ass really hard no matter how this thing comes out.

Having fewer brackets is simpler though!


(And yeah, I think we are going to be paying a lot more due to this. I'd be happy to pay more for social programs and infrastructure, but not to pad the coffers of the uber rich.)

[wenchsenior]

I looks like they collapse the 25%, 28%, and 33% brackets into the 35% bracket.  I have a feeling for people like me who are in the 28% bracket, we're going to get seriously fucked.  I deduct @$17k in mortgage interest, @$11k in property taxes, and we defer $42k in 401k contributions.  I can't see any way where I don't take it in the ass really hard no matter how this thing comes out.

Having fewer brackets is simpler though!


(And yeah, I think we are going to be paying a lot more due to this. I'd be happy to pay more for social programs and infrastructure, but not to pad the coffers of the uber rich.)

Yeah...if the 401k deduction is taken away, we will also get reamed out like I never anticipated.  Again, I'd be fine with paying 3 or 4K more in taxes (though not 10K more, which is what it is shaping up to be), if this was actually a Bowles-Simpson kind of overhaul.  But not this BS.

[RangerOne]

This is terrible for me.

I am the tax codes dream. Homeowner with a stay at home spouse. I had about $24k in itemized and $16k in exemptions which seem to be going away.

This is the crazy thing. Getting rid of exemptions kills itemizing dead for most people. $16k in exemptions alone for a family of 4. Forget the state tax which is probably a quarter of that unless you are very high income.

Only in California or New York are you even likely to own a home who's monthly carrying cost is in a range where you might pay $24k a year in interest and taxes.

So basically we will be forced to take a standard deduction but at a disadvantage from where we were previously. They could have at least kept the new deduction closer to $30k like it was 6 months ago... Then at least it would be slight net positive for an average size family.

Unless of course they increase the child tax credit another $1000 or something. But honestly the exemption is simpler than a tax credit with a cutoff and phase out like the child tax credit.

You're forgetting the state income tax which is a significant deduction for a lot of people.  Residents of CA, NY, NJ, CT get hit with both state income and property tax, both very high. 

Last year I paid about $16K in state income tax, $9300 in property tax (on a very modest $250K townhouse) and about $500 in personal property tax (on a Jetta that's a couple of years old).  I couldn't deduct any (or most) of it because of AMT, but there are lot of residents who don't fall under AMT and would be significantly affected by these deductions and personal exemptions going away.

ETA: last I heard, this part of the proposal is DOA, anyway...  I think at most what we'll end up with is a bare bone tax cut for corporations and some individuals but no simplification of the code.

I focus on the exemption removal because that is a clear massive itemizable tax break across state lines. For a family of 4 its $16k. Its true you get this with your standard deduction as well. But by keeping the standard deduction small having exemptions cross over to itemizing, it means I only need to cross a $12k itemizing deduction threshold to make it worth it. On top of that you are starting from a baseline of $16k deducted for a family eitherway.

With the new measure the baseline will be $0 deducted and I need to find itemized deductions in the amount of $24k to see an improvement. I am already $4k behind where I would have been at this point. And their child tax credit phases out at a stupidly low income and does not scale with brackets... The threshold cutoff for exemptions on the other hand puts you well over $300k a year.

Your property tax is painfully high, I can only suspect you are in NJ? I feel like my household income is at the lower end of upper middle incomes. We average about $130k per year. As a result in California I am only paying $5k in state income tax. With deductions I stay at around 7% top marginal. So losing that sucks but doesn't drastically alter things for me.

Also in Cali property tax is super low. A median priced home in San Diego at $600k only incurs 1% tax, plus maybe 0.2% non deductible for local initiatives.

I suspect your state tax bill is higher simply because you make more. And I would agree my concerns get worse as you cross into the 28% bracket but still don't make enough to suffer AMT.

The $100k-$250k income households I feel typically aren't faced with losing so many tax breaks. Its strange and I feel like some of it stems from the fact that the new brand of Trump Republicans don't cater as much to fiscal conservatives

[ZiziPB]

 
Your property tax is painfully high, I can only suspect you are in NJ?
......

I suspect your state tax bill is higher simply because you make more.

I'm in CT and currently trying to sell my place because I agree that the property tax is ridiculous :-)  State tax is 6.75%.  The point I'm trying to make is that the proposed changes would disproportionately impact residents of certain states. 

I guess we'll find what really happens next month...

[DavidAnnArbor]

 
Your property tax is painfully high, I can only suspect you are in NJ?
......

I suspect your state tax bill is higher simply because you make more.

I'm in CT and currently trying to sell my place because I agree that the property tax is ridiculous :-)  State tax is 6.75%.  The point I'm trying to make is that the proposed changes would disproportionately impact residents of certain states. 

I guess we'll find what really happens next month...

Yes they would, in fact many New York/New Jersey Republican Congresspeople voted against the Budget that was passed in the House precisely because of the potential to remove the itemization of local/state income taxes.

This tax plan is galling because the money you will now have to pay in income taxes goes right to super rich people.

[FIREchiefsr]

Am I the only person here who fully expects this tax proposal to never make it into law, in any form?  The ultra-conservatives can't support the deficit increases.  The high property tax/high state income tax Senators and Representatives can't support the deduction elimination.  The congressmen from Utah can't support the elimination of the personal exemptions.  The moderates can't support the lowering of the top tax bracket and elimination of the estate tax.  The Democrats can't support any of it.  Do we really think that within a matter of weeks 50 Republican Senators are going to come together and pass anything?

[wenchsenior]

Am I the only person here who fully expects this tax proposal to never make it into law, in any form?  The ultra-conservatives can't support the deficit increases.  The high property tax/high state income tax Senators and Representatives can't support the deduction elimination.  The congressmen from Utah can't support the elimination of the personal exemptions.  The moderates can't support the lowering of the top tax bracket and elimination of the estate tax.  The Democrats can't support any of it.  Do we really think that within a matter of weeks 50 Republican Senators are going to come together and pass anything?

I'm quite sure they will pass SOMETHING, but you make a great point.  Even if the House passes some form of craziness, the Senate will just strip a lot of the craziness back out.  Rand Paul is moaning already because the proposal raises the deficit but doesn't actually cut taxes for many in the middle class.  Other GOP senators from high-tax states are already complaining about that provision (Or their governors are). Etc.  What will likely happen is the Senate will finally settle on a much simpler bill that drops "reform" altogether and just does a WBush style 10-year tax cut  for all, with the bulk of the tax cuts going to business and upper income.  Then they will drop it on the House RIGHT before everyone is supposed to leave for the Christmas holiday, and tell them 'take it or leave it'.  And the House will take it because they are so desperate to get SOMETHING done.

Then they will have a big party and politely smile and nod while Trump takes all the credit and lies about how this is "true reform" and "the biggest tax cut EVER IN THE HISTORY OF TAXES".

Ironically,  if the GOP had started their 3-branch tenure with this exact kind of bill, along with a little infrastructure bill that included a pittance for Trump's Big Beautiful Wall, they would not now be in this mess and would have built some goodwill with voters.

[waltworks]

They can't just cut taxes, though. They need to make it revenue neutral at the 10 year mark. My *guess* is that this will just mean the cuts will sunset in a decade (this has happened before, for the same reason), because finding the funds anywhere else is politically impossible.

-W

[wenchsenior]

They can't just cut taxes, though. They need to make it revenue neutral at the 10 year mark. My *guess* is that this will just mean the cuts will sunset in a decade (this has happened before, for the same reason), because finding the funds anywhere else is politically impossible.

-W

Right, I agree.  That's why I made the comparison with GWBush's tax cuts.  Suspect that is where they will end up again.

[RangerOne]

So more hard numbers are out for the proposal. One highlight I suppose is the 12% bracket and 25% starts and cutoffs are getting a small bump which honestly due to inflation is probably overdue.

The child tax credit going from 1k to 1.6k is a bit of a joke, buy better than a stick in eye.

Beyond that it seems clear the spirit of the proposal is still basically to cut taxes on the very wealthy by shitting on home owners in blue states with high property values. I mean it makes sense if you are trying to win GOP votes.

I too believe it is highly unlikely we won't see major changes to get something to pass. I 80% expect them to say fuck it, and revert to a bush style tax cut on top of their must have estate tax removal and corporate tax cuts. Which would be even more of a deficit. I think their is a small chance they could pass it as is though.

I guess we will find out how much lobbying power their is in all these high dollar housing markets.

[HPstache]

The child tax credit going from 1k to 1.6k is a bit of a joke, buy better than a stick in eye.

A joke, in what way?

[Sid Hoffman]

I just ran some sample returns, does this look correct to you guys based on the information release so far?

I decided to run a couple scenarios to see the effect for the Americans that matter most; the working poor and the typical family.  Currently, median single-income is $31,099 and I'd say that we want to be looking at people making only 80% that value to get a feel for the below average workers that feel the bit of taxes the hardest.  The second scenario is the nuclear family of 2 kids making the median income of $57,617.  I assume low healthcare expenses for the low income worker due to current subsidized rates available to low income workers.  I also assume zero HSA or retirement savings.  Obviously higher healthcare costs, HSA or retirement savings will lower the tax bill more, but from what I've read, low income workers rarely contribute to such things so they are broad, majority-applicable assumptions.

I'll display simplified returns below:

Scenario 1, Current tax structure
Gross income $24,879
-Standard deduction of $6350: 18529
-Personal exemption of $4050: 14479
-Health insurance of $1500: 12979
AGI: $12,979
Federal income tax: $1,481 (10% of the first 9325 = $933, 15% of 3654 = 548)

Scenario 1, Proposed tax structure
Gross income $24,879
-Standard deduction of $12000: 12879
-Personal exemption of $0: 12879
-Health insurance of $1500: 11379
AGI: $11,379
Federal income tax: $1,365 (12% of 11379)

Conclusion: A low income worker would see their federal tax exposure fall 8% from 1481 to 1365.

Scenario 2, Current tax structure
Gross income $57617
-Standard deduction of $12700: 44917
-Personal exemption of $16200: 28717
-Health insurance of $3000: 25717
AGI: $25,717
Federal income tax: $2925 (10% of the first 18650 = $1865, 15% of 7067 = 1060)
-Child tax credit of $2000
Final tax exposure: $925

Scenario 2, Proposed tax structure
Gross income $57617
-Standard deduction of $24000: 33617
-Personal exemption of $0: 33617
-Health insurance of $3000: 30617
AGI: $30617
Federal income tax: $3674 (12% of 30617)
-Child tax credit of $3200
Final tax exposure: $474

For the married couple with two kids, it appears to provide a significant 49% tax cut from 925 to 474.  In fact I think it's even more because there's some wording about an additional $300 tax credit, but I'm not 100% clear on how it applies.  Like if it was two parents at $300 each, you'd be at zero tax liability and I have trouble believing that's how it would work.

Basically it appears to ease the burden from low income singles and working families while actually somewhat raising taxes on the highest income earners (people already paying a ton in state taxes, people with income over $500k/year, people with million dollar mortgages) and I like that.  I am a huge fan of progressive taxation.  This proposal appears to greatly increase the amount at which taxation is progressive, in particular for working families with kids - the group most vulnerable to economic problems that affect children.

Thoughts from others?

[sunnyca]

PTF

[HPstache]

I just ran some sample returns, does this look correct to you guys based on the information release so far?

I decided to run a couple scenarios to see the effect for the Americans that matter most; the working poor and the typical family.  Currently, median single-income is $31,099 and I'd say that we want to be looking at people making only 80% that value to get a feel for the below average workers that feel the bit of taxes the hardest.  The second scenario is the nuclear family of 2 kids making the median income of $57,617.  I assume low healthcare expenses for the low income worker due to current subsidized rates available to low income workers.  I also assume zero HSA or retirement savings.  Obviously higher healthcare costs, HSA or retirement savings will lower the tax bill more, but from what I've read, low income workers rarely contribute to such things so they are broad, majority-applicable assumptions.

I'll display simplified returns below:

Scenario 1, Current tax structure
Gross income $24,879
-Standard deduction of $6350: 18529
-Personal exemption of $4050: 14479
-Health insurance of $1500: 12979
AGI: $12,979
Federal income tax: $1,481 (10% of the first 9325 = $933, 15% of 3654 = 548)

Scenario 1, Proposed tax structure
Gross income $24,879
-Standard deduction of $12000: 12879
-Personal exemption of $0: 12879
-Health insurance of $1500: 11379
AGI: $11,379
Federal income tax: $1,365 (12% of 11379)

Conclusion: A low income worker would see their federal tax exposure fall 8% from 1481 to 1365.

Scenario 2, Current tax structure
Gross income $57617
-Standard deduction of $12700: 44917
-Personal exemption of $16200: 28717
-Health insurance of $3000: 25717
AGI: $25,717
Federal income tax: $2925 (10% of the first 18650 = $1865, 15% of 7067 = 1060)
-Child tax credit of $2000
Final tax exposure: $925

Scenario 2, Proposed tax structure
Gross income $57617
-Standard deduction of $24000: 33617
-Personal exemption of $0: 33617
-Health insurance of $3000: 30617
AGI: $30617
Federal income tax: $3674 (12% of 30617)
-Child tax credit of $3200
Final tax exposure: $474

For the married couple with two kids, it appears to provide a significant 49% tax cut from 925 to 474.  In fact I think it's even more because there's some wording about an additional $300 tax credit, but I'm not 100% clear on how it applies.  Like if it was two parents at $300 each, you'd be at zero tax liability and I have trouble believing that's how it would work.

Basically it appears to ease the burden from low income singles and working families while actually somewhat raising taxes on the highest income earners (people already paying a ton in state taxes, people with income over $500k/year, people with million dollar mortgages) and I like that.  I am a huge fan of progressive taxation.  This proposal appears to greatly increase the amount at which taxation is progressive, in particular for working families with kids - the group most vulnerable to economic problems that affect children.

Thoughts from others?

This matches my simulations... an excellent break for this particular theoretical family of 4.  I interpret the $300 credit as "old children living at your home" and "your actual elderly parents living at your home"... someone can clarify.

[Scortius]

I just ran some sample returns, does this look correct to you guys based on the information release so far?

I decided to run a couple scenarios to see the effect for the Americans that matter most; the working poor and the typical family.  Currently, median single-income is $31,099 and I'd say that we want to be looking at people making only 80% that value to get a feel for the below average workers that feel the bit of taxes the hardest.  The second scenario is the nuclear family of 2 kids making the median income of $57,617.  I assume low healthcare expenses for the low income worker due to current subsidized rates available to low income workers.  I also assume zero HSA or retirement savings.  Obviously higher healthcare costs, HSA or retirement savings will lower the tax bill more, but from what I've read, low income workers rarely contribute to such things so they are broad, majority-applicable assumptions.

I'll display simplified returns below:

Scenario 1, Current tax structure
Gross income $24,879
-Standard deduction of $6350: 18529
-Personal exemption of $4050: 14479
-Health insurance of $1500: 12979
AGI: $12,979
Federal income tax: $1,481 (10% of the first 9325 = $933, 15% of 3654 = 548)

Scenario 1, Proposed tax structure
Gross income $24,879
-Standard deduction of $12000: 12879
-Personal exemption of $0: 12879
-Health insurance of $1500: 11379
AGI: $11,379
Federal income tax: $1,365 (12% of 11379)

Conclusion: A low income worker would see their federal tax exposure fall 8% from 1481 to 1365.

Scenario 2, Current tax structure
Gross income $57617
-Standard deduction of $12700: 44917
-Personal exemption of $16200: 28717
-Health insurance of $3000: 25717
AGI: $25,717
Federal income tax: $2925 (10% of the first 18650 = $1865, 15% of 7067 = 1060)
-Child tax credit of $2000
Final tax exposure: $925

Scenario 2, Proposed tax structure
Gross income $57617
-Standard deduction of $24000: 33617
-Personal exemption of $0: 33617
-Health insurance of $3000: 30617
AGI: $30617
Federal income tax: $3674 (12% of 30617)
-Child tax credit of $3200
Final tax exposure: $474

For the married couple with two kids, it appears to provide a significant 49% tax cut from 925 to 474.  In fact I think it's even more because there's some wording about an additional $300 tax credit, but I'm not 100% clear on how it applies.  Like if it was two parents at $300 each, you'd be at zero tax liability and I have trouble believing that's how it would work.

Basically it appears to ease the burden from low income singles and working families while actually somewhat raising taxes on the highest income earners (people already paying a ton in state taxes, people with income over $500k/year, people with million dollar mortgages) and I like that.  I am a huge fan of progressive taxation.  This proposal appears to greatly increase the amount at which taxation is progressive, in particular for working families with kids - the group most vulnerable to economic problems that affect children.

Thoughts from others?

It's a good analysis, but this certainly is anything but a more progressive scheme. The big differences at the top are going to be the lowering of the corporate tax rate from 35% to 20%, the removal of the AMT, and the removal of the estate tax.

In general, as written, it seems like almost everyone is going to get a tax cut or have a relatively small change.  I'm not sure how they're going to score this as revenue-neutral in order to allow it to be come permanent.

[Bumperpuff]

If the average person ends up owing about the same amount but having to do a lot less work to calculate how much they owe and document why they owe that much, I'll call that a win.

If they wanted to simplify filing for individuals the IRS could send you your taxes pre-filled.  Then you just make any needed changes (business expenses, unreported income, gifts), if any and return a signed copy.  For most people filling out taxes would only take a couple minutes.
https://www.forbes.com/sites/taxanalysts/2016/04/20/elizabeth-warren-is-right-about-pre-filled-tax-returns/#5b9155668d4f

Graduated tax brackets are not complicated.  The things that make taxes complicated are normally deductions and finding ways to shelter your income.

[waltworks]

I'm sure they gave up on the revenue-neutrality bit a while ago. That requires actually making hard choices/cutting spending on something. They'll just have things sunset in a decade instead.

I'm generally agnostic about the budget deficit/debt but it's pretty striking how little the GOP seems to care about one of their biggest complaints about the Obama years now.

-W

[I'm a red panda]

If the average person ends up owing about the same amount but having to do a lot less work to calculate how much they owe and document why they owe that much, I'll call that a win.

If they wanted to simplify filing for individuals the IRS could send you your taxes pre-filled.  Then you just make any needed changes (business expenses, unreported income, gifts), if any and return a signed copy.  For most people filling out taxes would only take a couple minutes.
https://www.forbes.com/sites/taxanalysts/2016/04/20/elizabeth-warren-is-right-about-pre-filled-tax-returns/#5b9155668d4f

Graduated tax brackets are not complicated.  The things that make taxes complicated are normally deductions and finding ways to shelter your income.

Well, I see the problem right there.  Elizabeth Warren is an evil democrat. An idea she thinks is good could not possibly be good.

It's like how Romneycare is a horrible idea once Obama got on board with it.

[PowderStache]

I just ran some sample returns, does this look correct to you guys based on the information release so far?

...

For the married couple with two kids, it appears to provide a significant 49% tax cut from 925 to 474.  In fact I think it's even more because there's some wording about an additional $300 tax credit, but I'm not 100% clear on how it applies.  Like if it was two parents at $300 each, you'd be at zero tax liability and I have trouble believing that's how it would work.

Basically it appears to ease the burden from low income singles and working families while actually somewhat raising taxes on the highest income earners (people already paying a ton in state taxes, people with income over $500k/year, people with million dollar mortgages) and I like that.  I am a huge fan of progressive taxation.  This proposal appears to greatly increase the amount at which taxation is progressive, in particular for working families with kids - the group most vulnerable to economic problems that affect children.

Thoughts from others?

This matches my simulations... an excellent break for this particular theoretical family of 4.  I interpret the $300 credit as "old children living at your home" and "your actual elderly parents living at your home"... someone can clarify.

I think the $300 credit is for non-child (child meaning under 17 y.o.) dependents, plus the taxpayer and spouse who have dependents.  So MFJ + 2 in college would be $1200 credit.

Such a family with AGI of $125K and $20K current itemized deductions would see tax bill go from ~$13,400 to $12,250. (Edit: Tax before any education credits)

Another sim for single with AGI $85K & Std Deduction sees tax bill go from ~$10,200 to $8750.

[seattlecyclone]

If the average person ends up owing about the same amount but having to do a lot less work to calculate how much they owe and document why they owe that much, I'll call that a win.

If they wanted to simplify filing for individuals the IRS could send you your taxes pre-filled.  Then you just make any needed changes (business expenses, unreported income, gifts), if any and return a signed copy.  For most people filling out taxes would only take a couple minutes.
https://www.forbes.com/sites/taxanalysts/2016/04/20/elizabeth-warren-is-right-about-pre-filled-tax-returns/#5b9155668d4f

Graduated tax brackets are not complicated.  The things that make taxes complicated are normally deductions and finding ways to shelter your income.

I agree that changing the number of tax brackets has essentially no effect on the complexity of tax computation, and pre-filling numbers could make the process easier.

Even with pre-filled numbers, the taxpayer must still verify their accuracy. Collecting all of this information can be quite time-consuming. Reduce the number of inputs to the tax calculation and you reduce the amount of effort needed to compute your tax liability, whether the IRS takes an initial stab at it for you or not.

[badassprof]

I live in NJ.  Currently we rent but are looking to buy.  By my calculation, using the Forbes graphic to estimate the new tax brackets, the elimination of the state and local deduction and the increase in standard deduction would eliminate any tax benefit for buying a house.  That would increase my federal income tax bill if I buy by $7500.  If I continue to rent, the increased standard deduction and larger 12% bracket would offset the lost state income tax deduction and I'd get a few hundred dollars of tax break, maybe larger if the child tax credit phase out is raised.

Also, the large standard deduction effectively eliminates the mortgage interest deduction for all but the most expensive homes.  Add the elimination of the property tax deduction, and this would be a major drag on the real estate market in a lot of places, I'd think.  I'm thinking twice about buying with this uncertainty.

It'd be a boon to landlords, however. People have to live somewhere and if they're not buying, they're renting. Property taxes would still be a business expense, and with the pass through tax change, rental income would be capped at a 25% rate.

It's almost as if this tax proposal was crafted specifically to help specific parties -- those who own a lot of real estate.

Although this would only help those who are landlords who are either incorporated or whose income is low enough, right? That is, if you make 150+, you can't deduct your housing expenses currently, or at least not until you sell. Will that change?

[DavidAnnArbor]

It's wrong to get rid of the estate tax, the AMT, and lower corporate tax rates to 20%. It will greatly add to the deficit. These lowered taxes for the rich don't boost economic growth, look at Kansas. And the tax code becomes regressive not progressive as a result. Rich people will make their income pass through income instead of ordinary income in order to get the new lowered rate on pass through income.
Ending deductibility of state and local taxes and other deductions, actually raises taxes on a substantial number of middle-class Americans.
80 percent of the tax cut goes to the top 1 percent; only 12 percent to the middle three quintiles.

[JLee]

It's wrong to get rid of the estate tax, the AMT, and lower corporate tax rates to 20%. It will greatly add to the deficit. These lowered taxes for the rich don't boost economic growth, look at Kansas. And the tax code becomes regressive not progressive as a result. Rich people will make their income pass through income instead of ordinary income in order to get the new lowered rate on pass through income.
Ending deductibility of state and local taxes and other deductions, actually raises taxes on a substantial number of middle-class Americans.
80 percent of the tax cut goes to the top 1 percent; only 12 percent to the middle three quintiles.

I can't say I'm surprised, when a tax plan is created by a billionaire...

[Undecided]

Americans that matter most; the working poor and the typical family.

Huh.

Basically it appears to ease the burden from low income singles and working families while actually somewhat raising taxes on the highest income earners (people already paying a ton in state taxes, people with income over $500k/year, people with million dollar mortgages) and I like that.  I am a huge fan of progressive taxation.  This proposal appears to greatly increase the amount at which taxation is progressive, in particular for working families with kids - the group most vulnerable to economic problems that affect children.

Thoughts from others?

It’s increasingly progressive up to the level of the highest paid people who don’t actually have any influence, then flattens out (or goes relatively regressive, in the case of the high-end pass-through business owner).

[dresden]

I am skeptical of the bill.  Here is what MSNBC is reporting on brackets.

Under the House bill there will be four brackets: 12 percent, 25 percent, 35 percent and 39.6 percent.

12 percent: This rate applies to single filers above $12,000, up to $45,000. Married couples are subject to this rate starting at $24,000, up to $90,000.
25 percent: For single filers, this rate applies at $45,000 of taxable income. Joint filers who are married are subject to this rate starting at $90,000.
35 percent: This rate applies at $200,000 for singles and $260,000 for married couples.
39.6 percent: The top rate applies at $500,000 for singles and $1 million for married filers.

I don't think there is a "0" rate from 0-24,000 for couples which makes me suspect the 25% rate is starting at 66,000 rather than the current 76,000 and the 24,000 standard deduction is actually the 0-24,000 0% range.    That is not how the current brackets work - the standard deduction isn't baked into the brackets which is why I think that 24,000-90,000 bracket is BS and it's really 0-66,000.  So this means people making 70-80k will pay more - much more if they get a decent savings from itemizing.  It seems most over 200k will come out ahead and the higher the income the more certain it becomes you will come out ahead. 

From what I can tell the bill helps primarily the 300k+ earners.  Obviously those with high pass through income are the biggest winners.

The bill would save me a little bit this year by eliminating the 28% rate ,but next year I go to part time @24 hours and with the lower income next year my taxes are slightly higher under the new plan with 3 exemptions and some benefit from itemizing under the current law.   The difference in tax won't even be noticeable but it's ironic my taxes are going up to pay for a cut for people making more than me.

[I'm a red panda]

Americans that matter most; the working poor and the typical family.

Huh.

Exactly. Obviously veterans are the Americans who matter most.
/s

[ZiziPB]

I am skeptical of the bill.  Here is what MSNBC is reporting on brackets.

Under the House bill there will be four brackets: 12 percent, 25 percent, 35 percent and 39.6 percent.

12 percent: This rate applies to single filers above $12,000, up to $45,000. Married couples are subject to this rate starting at $24,000, up to $90,000.
25 percent: For single filers, this rate applies at $45,000 of taxable income. Joint filers who are married are subject to this rate starting at $90,000.
35 percent: This rate applies at $200,000 for singles and $260,000 for married couples.
39.6 percent: The top rate applies at $500,000 for singles and $1 million for married filers.

I don't think there is a "0" rate from 0-24,000 for couples which makes me suspect the 25% rate is starting at 66,000 rather than the current 76,000 and the 24,000 standard deduction is actually the 0-24,000 0% range.    That is not how the current brackets work - the standard deduction isn't baked into the brackets which is why I think that 24,000-90,000 bracket is BS and it's really 0-66,000.  So this means people making 70-80k will pay more - much more if they get a decent savings from itemizing.  It seems most over 200k will come out ahead and the higher the income the more certain it becomes you will come out ahead. 

From what I can tell the bill helps primarily the 300k+ earners.  Obviously those with high pass through income are the biggest winners.

The bill would save me a little bit this year by eliminating the 28% rate ,but next year I go to part time @24 hours and with the lower income next year my taxes are slightly higher under the new plan with 3 exemptions and some benefit from itemizing under the current law.   The difference in tax won't even be noticeable but it's ironic my taxes are going up to pay for a cut for people making more than me.

No, if you look at the text of the bill and the existing statute, the new bill works the same as the existing law.  The tax brackets apply to taxable income, so effectively there is a 0 rate for the $24K for MFJ.

[dandarc]

I am skeptical of the bill.  Here is what MSNBC is reporting on brackets.

Under the House bill there will be four brackets: 12 percent, 25 percent, 35 percent and 39.6 percent.

12 percent: This rate applies to single filers above $12,000, up to $45,000. Married couples are subject to this rate starting at $24,000, up to $90,000.
25 percent: For single filers, this rate applies at $45,000 of taxable income. Joint filers who are married are subject to this rate starting at $90,000.
35 percent: This rate applies at $200,000 for singles and $260,000 for married couples.
39.6 percent: The top rate applies at $500,000 for singles and $1 million for married filers.

I don't think there is a "0" rate from 0-24,000 for couples which makes me suspect the 25% rate is starting at 66,000 rather than the current 76,000 and the 24,000 standard deduction is actually the 0-24,000 0% range.    That is not how the current brackets work - the standard deduction isn't baked into the brackets which is why I think that 24,000-90,000 bracket is BS and it's really 0-66,000.  So this means people making 70-80k will pay more - much more if they get a decent savings from itemizing.  It seems most over 200k will come out ahead and the higher the income the more certain it becomes you will come out ahead. 

From what I can tell the bill helps primarily the 300k+ earners.  Obviously those with high pass through income are the biggest winners.

The bill would save me a little bit this year by eliminating the 28% rate ,but next year I go to part time @24 hours and with the lower income next year my taxes are slightly higher under the new plan with 3 exemptions and some benefit from itemizing under the current law.   The difference in tax won't even be noticeable but it's ironic my taxes are going up to pay for a cut for people making more than me.

No, if you look at the text of the bill and the existing statute, the new bill works the same as the existing law.  The tax brackets apply to taxable income, so effectively there is a 0 rate for the $24K for MFJ.

This - calling the standard deduction a "0% bracket" is a bit of marketing.  We've called standard-deduction + exemptions that here from time to time for years.

[HPstache]

Leave it to MSNBC to report the news wrong...

[DarkandStormy]

Does the proposal effectively eliminate the Roth conversions?  The language is confusing on that - seems like they're trying to eliminate the "horse race" but it may also apply to Roth conversions.

[dandarc]

Does the proposal effectively eliminate the Roth conversions?  The language is confusing on that - seems like they're trying to eliminate the "horse race" but it may also apply to Roth conversions.

They aren't eliminating conversions.  Only recharacterizations.  Perhaps the confusion comes from the fact that under current law, in addition to recharacterizing contributions, you can also recharacterize a traditional to Roth conversion.  Recharacterizing contributions allows you to switch from Roth to Traditional after you've made your contribution.  Recharacterizing a conversion, on the other hand, undoes the conversion.

What they are taking target at is the "undo a conversion" type of recharacterization, but they're also eliminating the other type of recharacterization.  At that's what they said in the "summary by section" document I was looking at yesterday.

[dandarc]

Also on the recharacterizations - while you could set up a horse-race of sorts with same year contributions, it is pretty limited in scale.  Eliminating the "contribution" type of recharacterization is a problem because the vast majority use it when their income is higher or lower than expected and they've already made an IRA contribution, or to correct an honest mistake.  Kind of throwing the baby out with the bathwater eliminating this kind of recharacterization. 

The "undo a conversion" recharacterization I can understand eliminating more, although again, I'd bet most who use that are responding to income coming in higher than expected, and not as many are doing a horse race.

[rugorak]

Since a few seem to be freaking out, the 401k changes that were being thrown around did not make it into the bill. So those will stay the same. Relax on that front.

I think the lack of deductions will screw over most people far worse than any benefit they may see.

My hope right now is that between the Dems fighting against the big wins for the ultra wealthy, the fiscal conservatives fighting against the deficit increase, and the GOP Congresspeople from blue states but red district that the bill as is will die. But I think something will probably get passed just because of the political theater. Right or left they all want to say I voted for tax cuts for you. Damn the reality or the consequences. I need to write my Congressperson to try and convince her that kissing Paul Ryan's ass on this one will doom her career as her district will pay more in taxes with it (I live in a red district in NY state). We'll see.

[RangerOne]

The child tax credit going from 1k to 1.6k is a bit of a joke, buy better than a stick in eye.

A joke, in what way?

I suppose it is not entirely fair to say its a joke. It depends. In sweet spot at lower incomes where you make enough to have to pay Federal income tax but are still in the 12% bracket the child tax credit boost of $600 per child is pretty noticeable.

However at the 25% bracket it quickly becomes a wash since the lost exemption is worth twice as much to that person.

Overall its seems for most people they will be slightly better off with the new structure. All except for home owners in high cost of living states.

So I suppose my primary complaint comes back to the fact that their proposal removes any tax break for home owners with families and standard 9-5 jobs.

Everyone will just do the standard and average families will gain no tax benefit for home ownership.

In fairness maybe we will all be better off for this. The market will simply adjust. But for those of us in the middle of considering a home purchase it is incredibly frustrating to be in a situation where tax reform could adversely impact the value of a starter home.

And also there is no clear signaling as to why the new tax systems will stop favoring home ownership. If you want to be a real downer you could say the federal government is not going to subsidize home ownership so that we can give wealthy families a fat tax break on inheritance.

In the end I suppose this is why trying to incentive's purchases through tax breaks is a double edged sword. I would never personally buy a property with a tax break as necessary to afford it, but the reality is owning a home suddenly costing everyone in California an extra few hundred dollars a month is going to cause values to take a quick hit.

[DavidAnnArbor]

The maximum tax rate for pass through income is going to be 25% which is going to create a stampede of high earners to convert their income into pass through sources.

[VoteCthulu]

I think the lack of deductions will screw over most people far worse than any benefit they may see.

Since only about 30% of housholds currently itemize, that seems unlikely.

[tralfamadorian]

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.

From this:
https://www.nytimes.com/2017/05/14/business/economy/home-ownership-turnover.html

The median homeowner's tenure is sitting at 8.7 years though that's up from <4 years a decade ago. 

For such a supposedly real estate savvy president, between this and and the mortgage deduction and SALT changes, his party's tax bill sure seems to enjoy trying to stick it to homeowners. Perhaps to fire off a real estate free-fall in coastal CA and NYC so he and his institutional buddies can pick up scads of properties at pennies on the dollar?

[waltworks]

I don't really have a problem with having to spend longer in your home to get the capital gains benefits, nor do I have a problem with eliminating the mortgage interest deduction. Those are both things that mainly help rich people in fancy homes (they're massively regressive) AND they distort the whole housing market to favor owners over renters. That's stupid.

I think the bigger issue is that if you let existing homeowners keep the deduction, but don't allow new buyers to have it, you are in effect taxing people who want to sell their homes and move. It would be better to eliminate the whole deduction for everyone.

-W

[FIREchiefsr]

Does the proposal effectively eliminate the Roth conversions?  The language is confusing on that - seems like they're trying to eliminate the "horse race" but it may also apply to Roth conversions.

They aren't eliminating conversions.  Only recharacterizations.  Perhaps the confusion comes from the fact that under current law, in addition to recharacterizing contributions, you can also recharacterize a traditional to Roth conversion.  Recharacterizing contributions allows you to switch from Roth to Traditional after you've made your contribution.  Recharacterizing a conversion, on the other hand, undoes the conversion.

What they are taking target at is the "undo a conversion" type of recharacterization, but they're also eliminating the other type of recharacterization.  At that's what they said in the "summary by section" document I was looking at yesterday.

Do you have a link to this "summary by section" document?  I read the actual bill language, and also pulled up the section of the Internal Revenue Code.  I couldn't find anything to suggest they are eliminating recharacterizations of Roth conversions.

Bill text:

11 Subtitle F—Simplification and Re
12 form of Savings, Pensions, Re
13 tirement
14 SEC. 1501. REPEAL OF SPECIAL RULE PERMITTING RE15
CHARACTERIZATION OF ROTH IRA CON16
TRIBUTIONS AS TRADITIONAL IRA CON17
TRIBUTIONS.
18 (a) IN GENERAL.—Section 408A(d) is amended by
19 striking paragraph (6) and by redesignating paragraph
20 (7) as paragraph (6).
21 (b) EFFECTIVE DATE.—The amendments made by
22 this section shall apply to taxable years beginning after
23 December 31, 2017.

This is paragraph (6) of the IRC that is being removed:

(6)Taxpayer may make adjustments before due date
(A)In general
Except as provided by the Secretary, if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan).
(B)Special rules
(i)Transfer of earnings
Subparagraph (A) shall not apply to the transfer of any contribution unless such transfer is accompanied by any net income allocable to such contribution.
(ii)No deduction
Subparagraph (A) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan.

[Gin1984]

Also screws working parents by getting rid of the daycare FSA.  But I think that is a bonus to the GOP.  Screw women as well as middle class/poor.

[tralfamadorian]

I don't really have a problem with having to spend longer in your home to get the capital gains benefits, nor do I have a problem with eliminating the mortgage interest deduction. Those are both things that mainly help rich people in fancy homes (they're massively regressive) AND they distort the whole housing market to favor owners over renters. That's stupid.

I think the bigger issue is that if you let existing homeowners keep the deduction, but don't allow new buyers to have it, you are in effect taxing people who want to sell their homes and move. It would be better to eliminate the whole deduction for everyone.

-W

I don't have a problem with eliminating or changing either one of them as well. Your complaints are valid.

However, implementing them both at once when the recovery- of the biggest RE slowdown in US history- is getting long in the tooth would be foolhardy. 

[Clearright]

Also screws working parents by getting rid of the daycare FSA.  But I think that is a bonus to the GOP.  Screw women as well as middle class/poor.

Well increasing the tax credit from $1000 to $1600 and also increasing the income limit for said tax credit isn't exactly screwing over women or middle class poor. Think it helps more than it helps for most people.

[sol]

Well increasing the tax credit from $1000 to $1600 and also increasing the income limit for said tax credit isn't exactly screwing over women or middle class poor. Think it helps more than it helps for most people.

Keep in mind that the expanded child tax credit is temporary, and disappears in a few years.  They only put it in there to confuse people into thinking they weren't screwing over women and the middle class poor, by making it look neutral to people in the short term. 

The long term impact of this tax plan is to do nothing at all for the poor (who currently don't pay taxes anyway and won't get any benefit from the new GOP tax plan), and moderately raise taxes on the upper middle class in order to give huge tax breaks to the super wealthy, all whole exploding the deficit. 

That last part is the most telling, I think, because it highlights that Republicans don't really care about the deficit or government spending, they only care about giving tax breaks to their wealthiest political donors.  When those two things were in conflict, they gladly abandoned their long-held position of fiscal responsibility.  They screwed over America in order to make the rich even richer.  Nothing else matters to them except the plutocracy.

[VoteCthulu]

They screwed over America in order to make the rich even richer.  Nothing else matters to them except the plutocracy.

It's a good thing all Democrats are perfectly altruistic and all Republicans are selfish bastards, otherwise we might have honest disagreements about public policy, and that would be a lot more work!

[Undecided]

They screwed over America in order to make the rich even richer.  Nothing else matters to them except the plutocracy.

It's a good thing all Democrats are perfectly altruistic and all Republicans are selfish bastards, otherwise we might have honest disagreements about public policy, and that would be a lot more work!

There’s room to have genuine disagreement about public policy, sure, e.g., when the parties are working toward law that requires cross-aisle support, but that doesn’t mean Sol’s reductionism is wrong in this case. With nearly 40 years of supply-side economics-driven tax policy accompanied by huge increases in income and wealth disparity (and real decreases at the bottom end), it’s hard to credit support for doubling down on it as something other than the product of greed (whether for the direct personal financial benefit or for sewing up the power to be dispensed by the plutocrats), zealotry or idiocy.

[Gin1984]

Also screws working parents by getting rid of the daycare FSA.  But I think that is a bonus to the GOP.  Screw women as well as middle class/poor.

Well increasing the tax credit from $1000 to $1600 and also increasing the income limit for said tax credit isn't exactly screwing over women or middle class poor. Think it helps more than it helps for most people.

No, it does not help because the credit is non-refundable, FSA decreases your FICA and regular taxes AND alows you to get into EITC which is refundable or saver's (at higher levels) where you can use the non-refundable credit.  So, I stand by what I said.  Screws women as well as poor/middle class.

[sol]

They changed the tax plan today, to raise the tax brackets.  This means higher taxes on everyone.

https://www.cbsnews.com/news/house-gop-quietly-changes-tax-bill-to-tax-income-at-higher-rates-over-time/

[PowderStache]

They changed the tax plan today, to raise the tax brackets.  This means higher taxes on everyone.

https://www.cbsnews.com/news/house-gop-quietly-changes-tax-bill-to-tax-income-at-higher-rates-over-time/

The change to the plan speeds up a switch to the "Chained CPI" for adjusting tax bracket levels.  The Chained CPI is probably a better measure of changes in the general price level, but it usually comes in a bit (~.25) lower than the CPI measure used now.  You could call the result "higher taxes on everyone" in future years, or you could call it "not cutting taxes on everyone every year" depending on which CPI measure you think is more correct.