Republican Tax Plan 2017

[dragoncar]

If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

[inline five]

If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

$700K mortgage, 30-year at 4% has about $27K in first year interest and (around here) $10K in property taxes. You need $16K in gross monthly income to keep your front-end total housing cost ratio to 28%. $16K * 12 is $192K per year gross income. That's going to put most people into the 28% bracket today. If the only deductions you had today were the $37K above, minus the $12.7K MFJ standard deduction, you're deducting an additional $14.3K at 28% or $4K using pretty bare minimum assumptions. $333/mo against a total housing cost of $4500 is a ~7.5% (after-tax) discount. Invest $265 per month at 6% (over-crediting the fact that interest goes down as you pay down the principal) and in 30 years, it's a quarter-million bucks difference vs not being able to deduct it.

I would imagine that most people care about a 7.5% discount on their greatest single expense, even if they don't realize that it's a quarter-million dollar difference over 30 years. Even seemingly small differences applied regularly over a long period can be financial life changers.

That's quite an impressive calculation but completely glosses over my point. That fictional person isn't going to not buy a house with $192k in income over $300/month.

This assumes no interest credit (credit up to $500k in tax plan IIRC) and remember you can still deduct property taxes.

Also std deduction goes to $24k not $12k.

And $250k in 30 years is $100k in todays dollars.

[surfhb]

Don't worry....the democrats will control congress in 2-4 years and everything will be switched.   Rinse and repeat as always while people are glued to their fucking phones whining about Weinsten and NFL players taking knees. 

[inline five]

If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

[dragoncar]

If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

Ok give me the $200/mo then

You remind me of the cashier who shorted me a nickel because he didn’t have a nickel.  He scoffed that I wanted my full change back.  It’s only five cents!  I told him, if it’s such a small amount you can make it a dime

[sokoloff]

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...

At some point on the spectrum, that $200/mo is going to make the difference in marginal behavior. Maybe someone's not on the fence today, but the removal of that $200/mo puts them on the fence where you say they shouldn't make the purchase.

It seems your claim that you don't make such a major decision over $200/mo in after tax results is roughly equivalent to saying that someone shouldn't take job A over job B because job A pays $3500/year more. Of course you don't consider that one fact in isolation, but it's also more than just a tie-breaker for most people.

Behavior of home buyers on the margin is what determines the market clearing price. Take some percentage of buyers out of some segment of the market and those prices will come down and the sales slow. Whether that's a good or bad thing depends in part on your philosophy and in part on the realities of the specific sub-market you're examining.

[simonsez]

Maybe you're rich if $200/month is something to scoff at?

Wait, sorry! Wrong thread!

[mustache you a question]

I have a story to tell about this plan that should make people mad, but I'm not sure people care where I live...

About a month ago I had the opportunity to attend a speech/town hall with one of the Senators who represent my state (Ben Sasse).  He gave a 30 minute speech and did a Q/A session afterwards.  In his speech, he talked about the bond market and why debt threatens this country, basically saying that once the interest on treasury bonds rise it's going to cost a bunch more money to service the country's debt and that's why we need to cut spending on entitlements related items.  I thought it was BS but he was able to articulate his side very well and I came out of it with more respect for him than I had before.

Flash forward to today, he is in favor of a tax plan that increases the debt (the very thing he warned against).  The thing that makes me so angry about all of this is that this man, who is supposed to hold high moral values was able to lie in front of 300 or so of his constituents and not flinch.

Sorry for the rant.

[DarkandStormy]

http://www.newsweek.com/republican-tax-bill-gives-private-plane-owners-tax-break-714381





The GOP, ladies and gents.  Tax breaks for corporate jet owners.  Paid for via the middle class and adding $1.5 trillion to the national debt.

Again...Fuck the GOP.

[starguru]

http://www.newsweek.com/republican-tax-bill-gives-private-plane-owners-tax-break-714381





The GOP, ladies and gents.  Tax breaks for corporate jet owners.  Paid for via the middle class and adding $1.5 trillion to the national debt.

Again...Fuck the GOP.

That's the thing that really grinds my gears.  I could understand cutting tax breaks that upper middle class or even middle class people get (401k, SALT, etc).  What I can't fathom is how they want to raise taxes on middle/upper middle/working rich, but at the same time NOT increase taxes on the most wealthy people. 

[sol]

Back on page 7 of this thread I wrote:

On the bright side, at least they didn't follow their blueprint from the healthcare debate and also steal from the poor at the same time.  They seem to have learned how bad the optics were on their plan to end medicaid to fund tax breaks for the rich, so this new tax plan mostly ignores the poor and instead steals from the middle class to fund tax breaks for the rich.  I wouldn't exactly call that progress, though.

and now I have to take it all back.  The new tax plan crushes medicare and the ACA exchanges in order to fund tax cuts for billionaires, EXACTLY like their health care proposal did earlier this year. 

I thought maybe they had learned from that experience that you don't ride a supposed wave of populism into office and then immediately start fucking with poor people in order to give goodies to billionaires.  That's the exact opposite of populism.  Whatever happened to draining the swamp?

[Clean Shaven]

  Whatever happened to draining the swamp?

It was bullshit from day one. Unfortunately not everyone saw that last November, and many still believe it.

[talltexan]

Enough sources for you?

Just because you don't like the facts doesn't mean they aren't facts.

This tax plan is a pile of shit designed solely to help the top 0.1% of this country.  Period.

Yep, that's much more than expected.  Thanks for the most thorough response.  Do you know where the "elimination of capital gains taxes for rich kids" comes from?

That comes from keeping the "step up" in basis that occurs when estates go through probate, but raising the threshold for Federal estate taxes to $22 million.

[sherr]

Vast majority of people would actually be better off in Roth accounts, so it actually encourages the wrong behavior.

Well that's a pretty bold sourceless assumption. How do you figure?

To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth). So assuming the US median household income of $59k for our retiree, that means (according to current tax rates) their average retirement tax rate would be 10.34 percent (assuming married filing jointly and standard deduction).

Traditional accounts are almost certainly better for everyone in the 15% bracket or higher. The 10% bracket is only break-even. The only people for whom Roth accounts are clearly better is the people who would be paying a 0% marginal rate, which is basically no one since if you are making that little income you don't have a lot to spare for retirement saving. The vast majority of people would be somewhere between worse-off and vastly-worse-off with Roth accounts, and removing the choice from the population is clearly worse than allowing people to choose based on their plans / assumptions.

[Boll weevil]

Saw this chart this morning.

https://www.yahoo.com/finance/news/house-just-passed-1-5-trillion-tax-bill-thats-brutal-poor-people-194334563.html

I'm guessing a lot of FIREs end up in that red box.

[inline five]

http://www.newsweek.com/republican-tax-bill-gives-private-plane-owners-tax-break-714381





The GOP, ladies and gents.  Tax breaks for corporate jet owners.  Paid for via the middle class and adding $1.5 trillion to the national debt.

Again...Fuck the GOP.

That's for the 91K operators like Netjets and Flexjet. The IRS actually lost that case in court a couple years ago, this just codifies it into law.

What was happening is the IRS wanted to collect ticket taxes on someone using their own airplane, kind of like if the local govt charged you a taxi fare for driving your personal car.

[inline five]

Vast majority of people would actually be better off in Roth accounts, so it actually encourages the wrong behavior.

Well that's a pretty bold sourceless assumption. How do you figure?

To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth). So assuming the US median household income of $59k for our retiree, that means (according to current tax rates) their average retirement tax rate would be 10.34 percent (assuming married filing jointly and standard deduction).

Traditional accounts are almost certainly better for everyone in the 15% bracket or higher. The 10% bracket is only break-even. The only people for whom Roth accounts are clearly better is the people who would be paying a 0% marginal rate, which is basically no one since if you are making that little income you don't have a lot to spare for retirement saving. The vast majority of people would be somewhere between worse-off and vastly-worse-off with Roth accounts, and removing the choice from the population is clearly worse than allowing people to choose based on their plans / assumptions.

It's not that simple because many things in retirement are based on taxable income. The lower your taxable income the more benefit you can take advantage of.

For the 1% of people like us yes the Trad might make more sense as we plan to retire early then convert the trad to Roth in a low tax bracket but we are NOT typical.

[DarkandStormy]

https://www.cbsnews.com/news/senate-gop-tax-reform-shouting-match-sherrod-brown-orrin-hatch/

Those Republicans get a little testy when you call them out on their shit.

[secondcor521]

Regarding the tax break for private aircraft, I searched the text of the Senate bill here:

https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf

And couldn't find "private aircraft" in there.  Looked for just "aircraft" and found 19 references, none of which matched the text in the Newsweek article.  I wonder if Topher Spiro and Newsweek are accurate, or if I'm just searching the wrong bill.  The above was the first Google link for "Senate tax bill text" and appears to be from the Senate Finance Committee, who I believe is responsible for the tax bill on the Senate side of things.

[sherr]

Vast majority of people would actually be better off in Roth accounts, so it actually encourages the wrong behavior.

Well that's a pretty bold sourceless assumption. How do you figure?

To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth). So assuming the US median household income of $59k for our retiree, that means (according to current tax rates) their average retirement tax rate would be 10.34 percent (assuming married filing jointly and standard deduction).

Traditional accounts are almost certainly better for everyone in the 15% bracket or higher. The 10% bracket is only break-even. The only people for whom Roth accounts are clearly better is the people who would be paying a 0% marginal rate, which is basically no one since if you are making that little income you don't have a lot to spare for retirement saving. The vast majority of people would be somewhere between worse-off and vastly-worse-off with Roth accounts, and removing the choice from the population is clearly worse than allowing people to choose based on their plans / assumptions.

It's not that simple because many things in retirement are based on taxable income. The lower your taxable income the more benefit you can take advantage of.

For the 1% of people like us yes the Trad might make more sense as we plan to retire early then convert the trad to Roth in a low tax bracket but we are NOT typical.

Still no numbers or sources I see. Okay.

I don't disagree that that's a consideration, but a 5% (for 15%-bracketers) discount on your entire retirement income is a pretty big difference to overcome. Never mind the 15% discount for 25%-bracketers. And that's even with me generously assuming that retirees will be "earning" the median US household income; most won't, expenses tend to be less in retirement (the biggie is that a lot of retirees have a paid-for house and / or retire to lower cost-of-living areas when they're not shackled to their job locations anymore). The less they "earn" the more imbalanced it is in favor of Traditional accounts.

And again, having the choice of which account you want to put money into based on your own plans / assumptions is obviously better than having that choice removed. You'd have to do an awful lot of mental gymnastics to explain how a force-everyone-to-use-Roth plan would be "better for the vast majority of people".

[OurTown]

So the rate reductions and doubling the standard deduction will sunset for individuals in 2026 under the Senate plan.  Maybe we can all FIRE by 2026 so we can avoid the worst of the increase!

[caffeine]

State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

[inline five]

State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

[caffeine]

State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

I'm not sure that's even deductible in this plan.

[inline five]

State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

I'm not sure that's even deductible in this plan.

Pretty sure it is. Income isn't but property is. At least the one from the House was like that. If they eliminate both I'm all for it. I would much rather see an elimination of both because all that would happen is states would then convert to property tax only which doesn't really help anything.

[MDM]

To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth).

That is not correct.

For any given year's choice of traditional vs. Roth (and assuming the traditional contribution would be deductible), comparing the contribution amount's marginal saving rate vs. the expected marginal tax rate on withdrawal amounts based on that contribution is correct.

E.g., see https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/ and https://www.bogleheads.org/wiki/Traditional_versus_Roth.

[Scortius]

State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

I'm not sure that's even deductible in this plan.

Pretty sure it is. Income isn't but property is. At least the one from the House was like that. If they eliminate both I'm all for it. I would much rather see an elimination of both because all that would happen is states would then convert to property tax only which doesn't really help anything.

It is not. The Senate plan eliminates all State tax exemptions. Don't make the mistake of looking at the House plan, it's designed to be much nicer to middle-income folks because it doesn't have to abide by the $1.5T Byrd rule.  The Senate plan is going to squeeze much tighter to get under the $1.5T cap, and that's the one that they're going to have to stick to if they want it to stay permanent.

[inline five]

State tax will no longer be deductible under the tax plan. This would effectively tax the hell out of wealthy Californians who wouldn't be able to deduct their state income tax.

I would guess states would then just change to a property only tax.

I'm not sure that's even deductible in this plan.

Pretty sure it is. Income isn't but property is. At least the one from the House was like that. If they eliminate both I'm all for it. I would much rather see an elimination of both because all that would happen is states would then convert to property tax only which doesn't really help anything.

It is not. The Senate plan eliminates all State tax exemptions. Don't make the mistake of looking at the House plan, it's designed to be much nicer to middle-income folks because it doesn't have to abide by the $1.5T Byrd rule.  The Senate plan is going to squeeze much tighter to get under the $1.5T cap, and that's the one that they're going to have to stick to if they want it to stay permanent.

Well to be fair not being able to deduct income and property taxes will hit higher earning folks more, not the middle.

[sherr]

To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth).

That is not correct.

For any given year's choice of traditional vs. Roth (and assuming the traditional contribution would be deductible), comparing the contribution amount's marginal saving rate vs. the expected marginal tax rate on withdrawal amounts based on that contribution is correct.

E.g., see https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/ and https://www.bogleheads.org/wiki/Traditional_versus_Roth.

Sort of.

The reason to use marginal tax rates in this decision is that you can make the decision separately for every dollar you invest. If the next dollar you invest will be taxed at 25% now and 25% when you retire, then the tax situation is break-even.

So the first $12.7k you are choosing between your current marginal rate and the 0% retirement marginal rate (standard deduction). Obviously Traditional is better than Roth if your current marginal rate is > 0.
For the next $18.65k you are choosing between your current marginal rate and the 10% retirement marginal rate. Obviously Traditional is break-even if your current marginal rate is 10%, and better if it's more.
For the next $57.25k you are choosing between your current marginal rate and the 15% retirement marginal rate. Obviously Roth is better if your current marginal rate is 10% or less, it's break-even at 15%, and Traditional is better if your current marginal rate is 25% or more.
Etc.

Or, the short (slightly estimated) way to say that is that you're choosing between your current marginal rate and your average retirement rate. If you want to split your contribution between Traditional and Roth then by all means, break it down dollar-by-dollar. If you just want to know which account is "better for the vast majority of people" then you can use average. But no matter what you can't just look at the marginal rate on the last dollar and make decisions based on that alone (well, you can if you want to make bad choices and pay too much in taxes).

[sherr]

It is not. The Senate plan eliminates all State tax exemptions. Don't make the mistake of looking at the House plan, it's designed to be much nicer to middle-income folks because it doesn't have to abide by the $1.5T Byrd rule.  The Senate plan is going to squeeze much tighter to get under the $1.5T cap, and that's the one that they're going to have to stick to if they want it to stay permanent.

Or they could, I don't know, work with Democrats to come up with a bill that is able to pass by invoking cloture instead.

Given that "bi-partisan compromise" is a dirty word to the current Republican party, no, they cannot.

[djadziadax]

No one wants to do weeks worth of tax work. But if the alternative is a $5k a year tax increase, I don't want simplification...

There is a value proposition here. I am willing to suffer complex taxes if it offers me more money in my pocket. If you are not losing anything to move to a simple standard then of course that less tax BS will sound like the best option.

Are you a high earning family? It seems to always be the case for people who compain about actual middle class getting a tax break. Because for our family, this law would result in a $2500 tax break while taking all of 20 min to prepare the tax return. But again, we live in 750 sq ft, all of 4 people.

[djadziadax]

DINC here with no mortgage, moderate property taxes, have state income tax, and maxing out two pre-tax retirement accounts.  I would consider this a pretty average MMM household.  We will save about $1,800 in taxes under the House plan.  Why is everyone so outraged?  What am I missing?

Well put.  I've ran my numbers under both bills, and I save money.  I think there has been way too much focus on what is being eliminated and not enough people seeing how the bracket changes offset the losses.

I wonder the same thing -  we will save on taxes, and we make around 150K and that is with one person currently not eligible for 401K!!

[djadziadax]

Saw this chart this morning.

https://www.yahoo.com/finance/news/house-just-passed-1-5-trillion-tax-bill-thats-brutal-poor-people-194334563.html

I'm guessing a lot of FIREs end up in that red box.

This is called - "How to lie with statistics"...Economy projections beyond a 2-3 yr period are useless, and even those are crap usually. 10 -20 year period are just hilarious. Yahoo News progressive sledgehammer falls on anything that is not pure socialism.

[djadziadax]

Well to be fair not being able to deduct income and property taxes will hit higher earning folks more, not the middle.

No one on  this topic is fair. Everyone evaluates through their own biases. And no one is willing to state what a "fair" tax system according to them would be. The hypocrisy.

[DarkandStormy]

Saw this chart this morning.

https://www.yahoo.com/finance/news/house-just-passed-1-5-trillion-tax-bill-thats-brutal-poor-people-194334563.html

I'm guessing a lot of FIREs end up in that red box.

This is called - "How to lie with statistics"...Economy projections beyond a 2-3 yr period are useless, and even those are crap usually. 10 -20 year period are just hilarious. Yahoo News progressive sledgehammer falls on anything that is not pure socialism.

Are...are you intentionally being obtuse?

The Joint Committee on Taxation, Congress’s nonpartisan scorekeeper in tax matters, released its evaluation of the House GOP’s tax bill

Progressive and LIBRUHLS are only releasing what the JCT and CBO - both NON PARTISAN - are pulling together and publishing.

Take your issue up with them, not Yahoo Finance or liberals.

[MDM]

To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth).

That is not correct.

For any given year's choice of traditional vs. Roth (and assuming the traditional contribution would be deductible), comparing the contribution amount's marginal saving rate vs. the expected marginal tax rate on withdrawal amounts based on that contribution is correct.

E.g., see https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/ and https://www.bogleheads.org/wiki/Traditional_versus_Roth.

So the first $12.7k you are choosing between your current marginal rate and the 0% retirement marginal rate (standard deduction). Obviously Traditional is better than Roth if your current marginal rate is > 0.
For the next $18.65k you are choosing between your current marginal rate and the 10% retirement marginal rate. Obviously Traditional is break-even if your current marginal rate is 10%, and better if it's more.
For the next $57.25k you are choosing between your current marginal rate and the 15% retirement marginal rate. Obviously Roth is better if your current marginal rate is 10% or less, it's break-even at 15%, and Traditional is better if your current marginal rate is 25% or more.
Etc.

Or, the short (slightly estimated) way to say that is that you're choosing between your current marginal rate and your average retirement rate. If you want to split your contribution between Traditional and Roth then by all means, break it down dollar-by-dollar. If you just want to know which account is "better for the vast majority of people" then you can use average. But no matter what you can't just look at the marginal rate on the last dollar and make decisions based on that alone (well, you can if you want to make bad choices and pay too much in taxes).

Don't know if you were misled by something you read, but there are some subtle but important points you may be missing.

Last one first: of course one "can't just look at the marginal rate on the last dollar and make decisions based on that alone."  No argument there, but that isn't the suggested comparison.

One needs to look at the marginal rate on "amounts".  E.g., if one doesn't wish to split an annual 401k or IRA contribution, the contribution amount would be $18K or $5.5K (or the >50 amount) respectively.  Similarly, one might use a 4%/yr withdrawal ratio on the projected balance of this year's traditional contribution to get the withdrawal amount that goes in the denominator for the marginal calculation. Say, 4% of $18K returning 5% real for 30 years would be an extra $3100.  The withdrawal marginal rate is [(tax including the $3100) - (tax without the $3100)]/$3100.

Using (tax including the $3100)/(total income) could cause one to make bad choices and pay too much in taxes.

Consider this example:
Someone saving 15% on a traditional contribution this year.  Regardless of whether that contribution is made, the person will pay a 25% marginal rate when withdrawing from traditional accounts, but the effective rate will be 11%.

Should the person contribute to traditional or Roth this year?

[GoingConcern]

If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

Ok give me the $200/mo then

You remind me of the cashier who shorted me a nickel because he didn’t have a nickel.  He scoffed that I wanted my full change back.  It’s only five cents!  I told him, if it’s such a small amount you can make it a dime

This is more like you going to a store and ask the coffee shop owner and/or other customers to subsidize your purchase.

 

[Thegoblinchief]

Is there a tool out there that would let non-Excel wizards easily calculate the change in their own taxes under this plan? Obviously all subject to sausage-making change as nothing's law yet.

Just from what I've read, I believe my family will come out ahead because of the increased child credits. Currently we do enough pre-tax savings to pay essentially zero federal tax, might start getting a refund again.

[djadziadax]

Are...are you intentionally being obtuse?

Misunderstanding of my point is not my fault. If you want to argue on that topic take it up with the leading expert of systemic risk, Nassim Taleb.
And just check how many times the CBO has been wrong in the past in their projections. Hence - how to lie with statistics - recommended reading for many MBA programs...

https://www.amazon.com/How-Lie-Statistics-Darrell-Huff/dp/0393310728

[djadziadax]

Is there a tool out there that would let non-Excel wizards easily calculate the change in their own taxes under this plan? Obviously all subject to sausage-making change as nothing's law yet.

Just from what I've read, I believe my family will come out ahead because of the increased child credits. Currently we do enough pre-tax savings to pay essentially zero federal tax, might start getting a refund again.

Actually you may really not need to be excel wizard to do this...you can actually just use a calculator.

1. Calculated whether your mortgage deduction (on 500K)+charitable contribution+property taxes will be over 24K if MFJ. If not, you know you will be taking the standard deduction.

2. Combine all sources of income - ordinary income (x1) + investment income (x0.5) to get to your total income. Only 50% of Investment income will be tax, hence multiply by 0.5.

3. Subtract your retirement contributions (401K, IRA if applicable) from your total income

4. Subtract your medical premiums from your income (i believe this stays pretax)

5. Subtract your Standard or Itemized deduction

6. That will give you your taxable income. Then, multiply that x 12% if up to 90K.

7. That gives you your tax.

8. Subtract from 8 the combination of your child and flex credits (1600 per child, 300 per adult in household)

9. That is the tax you will be paying.

I think that is pretty correct but am open to corrections.

[ZiziPB]

2. Combine all sources of income - ordinary income (x1) + investment income (x0.5) to get to your total income. Only 50% of Investment income will be tax, hence multiply by 0.5.

Huh?

[dragoncar]

If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

Ok give me the $200/mo then

You remind me of the cashier who shorted me a nickel because he didn’t have a nickel.  He scoffed that I wanted my full change back.  It’s only five cents!  I told him, if it’s such a small amount you can make it a dime

This is more like you going to a store and ask the coffee shop owner and/or other customers to subsidize your purchase.

No, it's like going to the store and I want to buy some milk.  But the price went up 10 cents because the government stopped subsidizing the milk.  I say, now that's more expensive than juice, so I'll buy the juice instead.  Then some guy on the internet tells me I'm wrong because nobody makes a decision to buy milk based on 10 cents and I tell him to give me 10 cents if it's no big deal.

No matter how much extra value someone assigns to home ownership, there's still a break even point where you are on the fence.  Maybe renting costs $1000 and buying costs $1200, but I choose to buy because I'm willing to pay $200 extra to own.  Now the price goes up to $1400, but I'm not willing to pay a extra $400 to own.  So I rent.  Is this really hard to grasp?

[inline five]

If you are basing purchase or career changes of hundreds of thousands of dollars, is saving a couple hundred a month at most really how you should be evaluating it?!

It's pretty ridiculous to pretend that you would've gotten a $700k mortgage to save $200/month but now that you can't deduct it, all bets are off. Yeah ok whatever.

Most of us around here do a "buy vs. rent" calculation, and deductibility of mortgage can be a deciding factor.  Removal or reduction of this deduction can definitely make "rent" come out on top.

Again if you are on the fence over such a huge purchase over just a few hundred bucks then maybe you shouldn't make it. You don't make a half million plus purchase because you're saving $200/month in taxes...you make it because you want to keep your housing costs stable and use inflated dollars over time to pay down the fixed rate loan.

In 30 years inflation more than double most folks salaries alone, if they keep renting forever they'll see continued increasing rents.

Remember you still can deduct up to $500k and the standard deduction goes to $24k.

How many middle class Americans are taking out jumbo loans?

This mortgage write off benefitted the wealthiest Americans not the middle class. Time to close it altogether IMO.

Ok give me the $200/mo then

You remind me of the cashier who shorted me a nickel because he didn’t have a nickel.  He scoffed that I wanted my full change back.  It’s only five cents!  I told him, if it’s such a small amount you can make it a dime

This is more like you going to a store and ask the coffee shop owner and/or other customers to subsidize your purchase.

No, it's like going to the store and I want to buy some milk.  But the price went up 10 cents because the government stopped subsidizing the milk.  I say, now that's more expensive than juice, so I'll buy the juice instead.  Then some guy on the internet tells me I'm wrong because nobody makes a decision to buy milk based on 10 cents and I tell him to give me 10 cents if it's no big deal.

No matter how much extra value someone assigns to home ownership, there's still a break even point where you are on the fence.  Maybe renting costs $1000 and buying costs $1200, but I choose to buy because I'm willing to pay $200 extra to own.  Now the price goes up to $1400, but I'm not willing to pay a extra $400 to own.  So I rent.  Is this really hard to grasp?

No it's completely understandable.

Except your example is not correct because there are no $500k mortgages for $1400/month.

However think about what the tax deduction is doing. For one renters are subsidizing homeowners, when it probably should be the opposite. Two, lower income folks are subsidizing higher income folks who have larger mortgages.

It's already limited to $1m. Correct me if I am wrong but the new tax plan will lower that to $500k mortgages.

How does this hurt the middle class? If anything it's a tax on the wealthy because they can't deduct as much.

[jean]

Is there a tool out there that would let non-Excel wizards easily calculate the change in their own taxes under this plan? Obviously all subject to sausage-making change as nothing's law yet.

Just from what I've read, I believe my family will come out ahead because of the increased child credits. Currently we do enough pre-tax savings to pay essentially zero federal tax, might start getting a refund again.

Actually you may really not need to be excel wizard to do this...you can actually just use a calculator.

1. Calculated whether your mortgage deduction (on 500K)+charitable contribution+property taxes will be over 24K if MFJ. If not, you know you will be taking the standard deduction.

2. Combine all sources of income - ordinary income (x1) + investment income (x0.5) to get to your total income. Only 50% of Investment income will be tax, hence multiply by 0.5.

3. Subtract your retirement contributions (401K, IRA if applicable) from your total income

4. Subtract your medical premiums from your income (i believe this stays pretax)

5. Subtract your Standard or Itemized deduction

6. That will give you your taxable income. Then, multiply that x 12% if up to 90K.

7. That gives you your tax.

8. Subtract from 8 the combination of your child and flex credits (1600 per child, 300 per adult in household)

9. That is the tax you will be paying.

I think that is pretty correct but am open to corrections.

That's seems about right, except the mortgage interest provision is only for new loans (so if you happen to already have a $500k+ mortgage, you can deduct all interest) and property taxes are capped at $10k.  This is the house plan.  The senate plan allows no property tax deduction and allows interest on mortgages up to $1M no change.  The senate plan also has different tax brackets.

[RangerOne]

No one wants to do weeks worth of tax work. But if the alternative is a $5k a year tax increase, I don't want simplification...

There is a value proposition here. I am willing to suffer complex taxes if it offers me more money in my pocket. If you are not losing anything to move to a simple standard then of course that less tax BS will sound like the best option.

Are you a high earning family? It seems to always be the case for people who compain about actual middle class getting a tax break. Because for our family, this law would result in a $2500 tax break while taking all of 20 min to prepare the tax return. But again, we live in 750 sq ft, all of 4 people.

I agree this is only an issue, for the most part, for people considering buying a median priced Cali home. If you can't or wouldn't itimize then this would be a small tax break.

They are keeping a lot of bullshit tax breaks to give breaks to people who need them even less than I do.

Though I will admit if I weren't negotiating to buy a home right now I'd be happier about California's housing market getting a small reality check.

There will be a lot of unhappy home owners paying more taxes. I can't comment on if the whole lot are just a bunch of "rich kids". But I know we are not fucking multi millionaires getting to ditch the estate tax to spoil our kids....

[FIREchiefsr]

and now I have to take it all back.  The new tax plan crushes medicare and the ACA exchanges in order to fund tax cuts for billionaires, EXACTLY like their health care proposal did earlier this year. 

Hey, it's not like they're getting rid of Obamacare altogether. They're leaving the Obamacare taxes in place (the 3.8% NIIT and the .9% Medicare surcharge).

Good point.  I hadn't really thought about that.

[RangerOne]

So the rate reductions and doubling the standard deduction will sunset for individuals in 2026 under the Senate plan.  Maybe we can all FIRE by 2026 so we can avoid the worst of the increase!

This is just a bullshit way to bypass fiscal responsibility. The reality is the adminstration and Congress that is there in 2026 will be all but forced to extend the cuts... Just like we did for bush. It let's them claim they aren't jacking up the deficit as much. But they know that we will likely not let the breaks expire....

Where as a democratic Congress would certainly let corporate breaks expire.

*I don't think this is a terrible thing. The claim taxes will go back up in 2026 is what I am calling bullshit. They probably won't for most people making under 200k.

[sherr]

To decide which is better you have to compare your current marginal tax rate (the discount you'd get for Traditional) with your retirement average tax rate (the discount you'd get for Roth).

That is not correct.

For any given year's choice of traditional vs. Roth (and assuming the traditional contribution would be deductible), comparing the contribution amount's marginal saving rate vs. the expected marginal tax rate on withdrawal amounts based on that contribution is correct.

E.g., see https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/ and https://www.bogleheads.org/wiki/Traditional_versus_Roth.

So the first $12.7k you are choosing between your current marginal rate and the 0% retirement marginal rate (standard deduction). Obviously Traditional is better than Roth if your current marginal rate is > 0.
For the next $18.65k you are choosing between your current marginal rate and the 10% retirement marginal rate. Obviously Traditional is break-even if your current marginal rate is 10%, and better if it's more.
For the next $57.25k you are choosing between your current marginal rate and the 15% retirement marginal rate. Obviously Roth is better if your current marginal rate is 10% or less, it's break-even at 15%, and Traditional is better if your current marginal rate is 25% or more.
Etc.

Or, the short (slightly estimated) way to say that is that you're choosing between your current marginal rate and your average retirement rate. If you want to split your contribution between Traditional and Roth then by all means, break it down dollar-by-dollar. If you just want to know which account is "better for the vast majority of people" then you can use average. But no matter what you can't just look at the marginal rate on the last dollar and make decisions based on that alone (well, you can if you want to make bad choices and pay too much in taxes).

Don't know if you were misled by something you read, but there are some subtle but important points you may be missing.

Last one first: of course one "can't just look at the marginal rate on the last dollar and make decisions based on that alone."  No argument there, but that isn't the suggested comparison.

One needs to look at the marginal rate on "amounts".  E.g., if one doesn't wish to split an annual 401k or IRA contribution, the contribution amount would be $18K or $5.5K (or the >50 amount) respectively.  Similarly, one might use a 4%/yr withdrawal ratio on the projected balance of this year's traditional contribution to get the withdrawal amount that goes in the denominator for the marginal calculation. Say, 4% of $18K returning 5% real for 30 years would be an extra $3100.  The withdrawal marginal rate is [(tax including the $3100) - (tax without the $3100)]/$3100.

Using (tax including the $3100)/(total income) could cause one to make bad choices and pay too much in taxes.

Consider this example:
Someone saving 15% on a traditional contribution this year.  Regardless of whether that contribution is made, the person will pay a 25% marginal rate when withdrawing from traditional accounts, but the effective rate will be 11%.

Should the person contribute to traditional or Roth this year?

Well, thanks for correcting me, you've given me a lot to think about. That person should contribute to Roth this year.

I feel like at least half of my point to inline five was that that's a highly improbable scenario. If you're only in the 15% bracket while working, you're almost certainly not going to have enough money or be used to the lifestyle that would cause you to withdraw enough in retirement to be in the 25% bracket. Most retirees spend less in retirement than they do while working, and far less than they make while working, so on average Traditional accounts are going to be better for most people. But that's not the portion you were arguing against.

[RangerOne]

Ive got to assume I am just in the unlucky middle. I make to much and get phased out of tax breaks for the "middle class"  but I don't make enough to celebrate the death of AMT
 I have got to assume that alot of OC folks and Bay area people will not care as much about losing deductions because AMT was probably doing that already... Though it is just a guess on my part. Never had to calculate my AMT tax....

[sokoloff]

However think about what the tax deduction is doing. For one renters are subsidizing homeowners, when it probably should be the opposite. Two, lower income folks are subsidizing higher income folks who have larger mortgages.

Renters are already (and still will be) getting the full mortgage interest deduction (via the supply side deductions their landlords are able to take, which serve to change the economics and increase the supply of rental housing vs a world where no mortgage interest was deductible for landlords).