Republican Tax Plan 2017

[Malloy]

This math seems pretty good to me:
http://time.com/5032079/gop-tax-plan-graduate-students-waiver/
It's not teachers, just TAs, but it's a stupid way to raise tax revenues.  And I don't think that's liberal garbage.

For Hill, the impact of the House GOP tax bill is alarming. He currently takes home about $27,000 a year from his graduate stipend, after taxes. Under the House bill, he estimates that he would would take home about $15,000 a year. Graduate tuition at MIT costs about $50,000, and Hill receives a $30,000 stipend; the GOP plan would require him to pay income taxes on that combined $80,000.

So let's run some numbers.  Gross income of $80,000.  $80,000 minus standard deduction of $24,000 equals $61,000.  This is entirely in the 12% bracket so taxes owed is $7,320. $30,000-$7,320=$22,680 take home.  That is quite a bit more than "half" and just $4,320 less than what he's brining home now.  Also keep in mind that he is getting free tuition from MIT.  Glad to see the liberal thought process of making a bad decision (having a baby while in grad school while barely getting by) then blaming others for your problems when the situation slightly changes, though.  One more thing: if this doofus could look beyond the next year of his life, he could see that the new tax plan will greatly benefit him as a PhD most likely earning six figures.

I would really expect some better critical thinking on this forum, instead of trusting a source like TIME.

You forgot to include the $2,000 child tax credit which would reduce his taxes from $7,320 to $5,320 resulting in after tax income of $24,680.

Under the current system I doubt he's paying any income taxes as he would qualify for the earned income tax credit. At $30,000 less the standard deduction ($12,700) and three personal exemptions ($12,150) his taxable income is only $5,150 which at 10% is only $515. Going through the IRS's horrible EITC assistant (seriously I think there were about 30 poorly worded questions to get to an estimate) at $30,000 of earned income they would qualify for an EITC of $2,368 for an effective tax of -$1,853 or -6.2%. So when he says he brings home $27,000 after taxes what he forgot to say is "and then I get a $5,000 refund because I didn't claim enough exemptions on my W-4."

I haven't heard anything about changes to the EITC under these new tax plans so this person would still qualify for that assuming the graduate stipend isn't counted as "earned income".

Yeah-this one is kind of an edge case because the guy is married and has a kid.  Under most cases, the grad student gets a 12, 700 deduction and no EITC (because no kid).  I wonder what the math looks like for 2 married grad students with no kids (160k taxable income).

As for the theory that he should lick Orrin Hatch's boots for this tax plan for all the future savings he'll be eligible for, don't those all go away in 2026?  My understanding is that the EITC, the changes to the brackets, AND the doubling of the deduction all go away, BUT there's still the elimination of SALT which will remain as non-deductible after 2026 under the current Senate plan (I could be a version off)  So, this guy will be an economist (or computer scientist, or geneticist or other MMM STEM-approved career track, because I don't muddy the discussion with people's opinions about the humanities), likely living in HCOL city, with a mortgage.  No more doubled deduction.  EITC is phased out.  No SALT.  Do the personal exemptions come back in 2026?  I think this guy likely pays MORE under this plan as both a grad student and a high earning professional after 2026, which will be most of his career years.  He will certainly be able to afford it, and I guess he's a garbage liberal and should just reconsider his garbage liberal lifestyle choices of being married and having a kid and suck it up. 

Anyway, adding 50k of taxable income to a 30k stipend is a big change in policy.  Most cases have taxes going up significantly for grad students.  I can see why they are upset.

[sol]

taxes going up significantly for grad students.  I can see why they are upset.

I'm pretty sure this is a feature and not a bug.  Conservatives hate graduate students, educated peoples, and all forms of scientists. 

Educated scientists gave us the theory of evolution and birth control.  Educated scientists tend to doubt the revealed truth of Divine scripture, like when it says animals could talk and the sun stopped in the sky.  Educated scientists question the authority of societally enforced gender discrimination and keep making noises about the wage gap, when they should be telling their womenses to get back in the kitchen.  Educated scientists fight against teaching creationism in public schools.  Clearly, educated scientists oppose the GOP ideology in every form, so why should the GOP encourage anyone else to become one?  Better to just tax them into Oblivion. 

So I don't think it's a coincidence.  The whole tax plan is targeted at groups they don't like, which is why it is so bad for blue states, and poor people who need health insurance, and small businesses, and graduate students, but great for super wealthy inheritors, big corporations, and real estate developers.  It's more politics than policy, but that doesn't mean they won't pass it.

[MDM]

Glad to see the liberal thought process of making a bad decision (having a baby while in grad school while barely getting by) then blaming others for your problems when the situation slightly changes, though. 

I would have a much easier time paying attention to what people say if they were capable of saying it without spewing insults along with whatever else they said.
It's a huge turn-off, and runs rampant these days.

Conservatives hate graduate students, educated peoples, and all forms of scientists. 

JLee - agreed.

[mizzourah2006]

taxes going up significantly for grad students.  I can see why they are upset.

I'm pretty sure this is a feature and not a bug.  Conservatives hate graduate students, educated peoples, and all forms of scientists. 

Educated scientists gave us the theory of evolution and birth control.  Educated scientists tend to doubt the revealed truth of Divine scripture, like when it says animals could talk and the sun stopped in the sky.  Educated scientists question the authority of societally enforced gender discrimination and keep making noises about the wage gap, when they should be telling their womenses to get back in the kitchen.  Educated scientists fight against teaching creationism in public schools.  Clearly, educated scientists oppose the GOP ideology in every form, so why should the GOP encourage anyone else to become one?  Better to just tax them into Oblivion. 

So I don't think it's a coincidence.  The whole tax plan is targeted at groups they don't like, which is why it is so bad for blue states, and poor people who need health insurance, and small businesses, and graduate students, but great for super wealthy inheritors, big corporations, and real estate developers.  It's more politics than policy, but that doesn't mean they won't pass it.

The entire graduate thing would be terrible, especially given the drastic difference in costs depending on the University. I went to a state school for my PhD and after the first year qualified as in-state, so this likely wouldn't really have impacted me. But if I had gone to a private university like Carnegie Melon, or MIT, etc. It would have placed an enormous burden on me. One thing to keep in mind is that hard sciences tend to have much better stipends than other programs. My stipend was $5k/semester and if I got a summer teaching assistanship it was another $2.3k. If I went to a private university my entire stipend would have been paid out in taxes because I was single at the time.

I wonder if private universities could just strategically adjust the cost of tuition for graduate programs specifically.

[Glenstache]

The NY Times modeled the bill (or at least one iteration of it) for a large number of middle class households. As the discussion above indicates, it is a mixed bag depending on the specific situation.

https://www.nytimes.com/interactive/2017/11/28/upshot/what-the-tax-bill-would-look-like-for-25000-middle-class-families.html?smid=fb-nytimes&smtyp=cur

Here are the details on their analysis methods:

Some details about our sources and methodology

The tax analysis is confined exclusively to middle-class households, defined as households that earn two-thirds to two times household-size adjusted median income. That’s roughly $40,000 to $125,000 for a family of four, or about $30,000 to $90,000 for a couple. For singles, the middle class starts at about $20,000, although to make the charts more readable, we aren’t showing households earning less than $40,000. (We’re using what tax analysts call “expanded income,” which includes cash income but also noncash items such as employer contributions to health insurance and the employer share of payroll taxes.)

To figure out how the Senate bill would affect households, we worked with the Open Source Policy Center — a Washington research organization affiliated with the right-leaning American Enterprise Institute — to model the proposal using the center’s TaxBrain program. Special thanks to Ernie Tedeschi, an economist and occasional Upshot contributor, for his thoughts on modeling the impact of the corporate tax cuts.

The data we’re using comes from the Census Bureau’s Current Population Survey, which asks tens of thousands of Americans detailed questions about their household finances every year. Although these records are not as accurate as the administrative I.R.S. tax records that some think tanks like the Tax Policy Center use (particularly regarding the wealthiest Americans), they line up reasonably closely. The Open Source Policy Center adjusted the data to align with I.R.S. definitions of income; the center also ran parts of our analysis using data from the I.R.S. to ensure that the findings held up.

[Malloy]

taxes going up significantly for grad students.  I can see why they are upset.

I'm pretty sure this is a feature and not a bug.  Conservatives hate graduate students, educated peoples, and all forms of scientists. 

Educated scientists gave us the theory of evolution and birth control.  Educated scientists tend to doubt the revealed truth of Divine scripture, like when it says animals could talk and the sun stopped in the sky.  Educated scientists question the authority of societally enforced gender discrimination and keep making noises about the wage gap, when they should be telling their womenses to get back in the kitchen.  Educated scientists fight against teaching creationism in public schools.  Clearly, educated scientists oppose the GOP ideology in every form, so why should the GOP encourage anyone else to become one?  Better to just tax them into Oblivion. 

So I don't think it's a coincidence.  The whole tax plan is targeted at groups they don't like, which is why it is so bad for blue states, and poor people who need health insurance, and small businesses, and graduate students, but great for super wealthy inheritors, big corporations, and real estate developers.  It's more politics than policy, but that doesn't mean they won't pass it.

The entire graduate thing would be terrible, especially given the drastic difference in costs depending on the University. I went to a state school for my PhD and after the first year qualified as in-state, so this likely wouldn't really have impacted me. But if I had gone to a private university like Carnegie Melon, or MIT, etc. It would have placed an enormous burden on me. One thing to keep in mind is that hard sciences tend to have much better stipends than other programs. My stipend was $5k/semester and if I got a summer teaching assistanship it was another $2.3k. If I went to a private university my entire stipend would have been paid out in taxes because I was single at the time.

I wonder if private universities could just strategically adjust the cost of tuition for graduate programs specifically.

Maybe?

This is such a weird discussion.  Why are the conservatives on this forum arguing about why it's good for people making 30k to suddenly pay a lot more in taxes?  I apologize for posting an article with a weird case (married with kid grad student), which is not the situation for many grad students I'd guess.  It looks like people who have run the numbers estimate at least an extra 2k a year in taxes for many grad students at private institutions.  Can anyone on the the "this tax plan is great!" side of the argument do the magic math that says that a single, no kid grad student doesn't pay more?  And why is everyone ignoring the sunset provisions of the tax bill?  If doubling the standard deduction is indeed better for everyone, what happens when that goes away in 7 years?  Those 2026 grad students are still paying the taxes on their tuition waiver, but they no longer have an increased standard deduction that is supposed to be the spoonful of sugar to make the taxes go down. 

[A Definite Beta Guy]

taxes going up significantly for grad students.  I can see why they are upset.

I'm pretty sure this is a feature and not a bug.  Conservatives hate graduate students, educated peoples, and all forms of scientists. 

Educated scientists gave us the theory of evolution and birth control.  Educated scientists tend to doubt the revealed truth of Divine scripture, like when it says animals could talk and the sun stopped in the sky.  Educated scientists question the authority of societally enforced gender discrimination and keep making noises about the wage gap, when they should be telling their womenses to get back in the kitchen.  Educated scientists fight against teaching creationism in public schools.  Clearly, educated scientists oppose the GOP ideology in every form, so why should the GOP encourage anyone else to become one?  Better to just tax them into Oblivion. 

So I don't think it's a coincidence.  The whole tax plan is targeted at groups they don't like, which is why it is so bad for blue states, and poor people who need health insurance, and small businesses, and graduate students, but great for super wealthy inheritors, big corporations, and real estate developers.  It's more politics than policy, but that doesn't mean they won't pass it.

The entire graduate thing would be terrible, especially given the drastic difference in costs depending on the University. I went to a state school for my PhD and after the first year qualified as in-state, so this likely wouldn't really have impacted me. But if I had gone to a private university like Carnegie Melon, or MIT, etc. It would have placed an enormous burden on me. One thing to keep in mind is that hard sciences tend to have much better stipends than other programs. My stipend was $5k/semester and if I got a summer teaching assistanship it was another $2.3k. If I went to a private university my entire stipend would have been paid out in taxes because I was single at the time.

I wonder if private universities could just strategically adjust the cost of tuition for graduate programs specifically.

Maybe?

This is such a weird discussion.  Why are the conservatives on this forum arguing about why it's good for people making 30k to suddenly pay a lot more in taxes?  I apologize for posting an article with a weird case (married with kid grad student), which is not the situation for many grad students I'd guess.  It looks like people who have run the numbers estimate at least an extra 2k a year in taxes for many grad students at private institutions.  Can anyone on the the "this tax plan is great!" side of the argument do the magic math that says that a single, no kid grad student doesn't pay more?  And why is everyone ignoring the sunset provisions of the tax bill?  If doubling the standard deduction is indeed better for everyone, what happens when that goes away in 7 years?  Those 2026 grad students are still paying the taxes on their tuition waiver, but they no longer have an increased standard deduction that is supposed to be the spoonful of sugar to make the taxes go down.

Because it's a tax loophole. Employer perks are wage income and should be taxed. If they are not taxed, they are tax loopholes (like your employer-based health insurance, which is the biggest tax loophole in America). It's no different at a university just because the perk happens to be reduced tuition.

[Daisy]

I don't remember if my fellowship stipend was taxed back in the day when I did my masters degree. I was so low-income though that it probably wasn't much tax...don't know.

When my employer paid for another masters degree, it was considered income and I had to pay income tax on it, even though I never received the actual income in money form. The company directly paid the tuition.

I didn't realize stipend payments for graduate degree were not taxed.

[ixtap]

I don't remember if my fellowship stipend was taxed back in the day when I did my masters degree. I was so low-income though that it probably wasn't much tax...don't know.

When my employer paid for another masters degree, it was considered income and I had to pay income tax on it, even though I never received the actual income in money form. The company directly paid the tuition.

I didn't realize stipend payments for graduate degree were not taxed.

They are, we are referring to tuition waivers, not stipends.

Some stipends are seen as payment for teaching and therefore taxed as earned income, including FICA. Some are awards and therefore exempt from FICA. However, they are still income to be reported.

[ZiziPB]

Because it's a tax loophole. Employer perks are wage income and should be taxed. If they are not taxed, they are tax loopholes (like your employer-based health insurance, which is the biggest tax loophole in America). It's no different at a university just because the perk happens to be reduced tuition.

Is the bill closing even one CORPORATE tax loophole???  Corporations keep their SALT deduction and get a 20% rate, but all of a sudden the Republicans think it makes sense to take away loopholes for individuals??  They keep the carried interest loophole benefiting hedge fund managers but make tuition waivers for grad students taxable???

[mm1970]

taxes going up significantly for grad students.  I can see why they are upset.

I'm pretty sure this is a feature and not a bug.  Conservatives hate graduate students, educated peoples, and all forms of scientists. 

Educated scientists gave us the theory of evolution and birth control.  Educated scientists tend to doubt the revealed truth of Divine scripture, like when it says animals could talk and the sun stopped in the sky.  Educated scientists question the authority of societally enforced gender discrimination and keep making noises about the wage gap, when they should be telling their womenses to get back in the kitchen.  Educated scientists fight against teaching creationism in public schools.  Clearly, educated scientists oppose the GOP ideology in every form, so why should the GOP encourage anyone else to become one?  Better to just tax them into Oblivion. 

So I don't think it's a coincidence.  The whole tax plan is targeted at groups they don't like, which is why it is so bad for blue states, and poor people who need health insurance, and small businesses, and graduate students, but great for super wealthy inheritors, big corporations, and real estate developers.  It's more politics than policy, but that doesn't mean they won't pass it.

The entire graduate thing would be terrible, especially given the drastic difference in costs depending on the University. I went to a state school for my PhD and after the first year qualified as in-state, so this likely wouldn't really have impacted me. But if I had gone to a private university like Carnegie Melon, or MIT, etc. It would have placed an enormous burden on me. One thing to keep in mind is that hard sciences tend to have much better stipends than other programs. My stipend was $5k/semester and if I got a summer teaching assistanship it was another $2.3k. If I went to a private university my entire stipend would have been paid out in taxes because I was single at the time.

I wonder if private universities could just strategically adjust the cost of tuition for graduate programs specifically.

Maybe?

This is such a weird discussion.  Why are the conservatives on this forum arguing about why it's good for people making 30k to suddenly pay a lot more in taxes?  I apologize for posting an article with a weird case (married with kid grad student), which is not the situation for many grad students I'd guess.  It looks like people who have run the numbers estimate at least an extra 2k a year in taxes for many grad students at private institutions.  Can anyone on the the "this tax plan is great!" side of the argument do the magic math that says that a single, no kid grad student doesn't pay more?  And why is everyone ignoring the sunset provisions of the tax bill?  If doubling the standard deduction is indeed better for everyone, what happens when that goes away in 7 years?  Those 2026 grad students are still paying the taxes on their tuition waiver, but they no longer have an increased standard deduction that is supposed to be the spoonful of sugar to make the taxes go down.

Because it's a tax loophole. Employer perks are wage income and should be taxed. If they are not taxed, they are tax loopholes (like your employer-based health insurance, which is the biggest tax loophole in America). It's no different at a university just because the perk happens to be reduced tuition.

I'm thinking that schools will have to make adjustments then, by increasing stipends to facilitate being able to eat, for example.

When my spouse was in grad school, we lived a couple of years in grad student housing.  Very cheap compared to regular housing.  We didn't have kids, but many did.  Some had stay at home spouses, but many spouses (like me) worked.

I can't imagine what it would mean to tax tuition perks like that.  I mean, I went to Carnegie Mellon (undergrad), and thank you US taxpayers for paying for it.  Or most of it.  Actually, y'all paid for my master's degree too.  If you started working before 1996 anyway.

[ixtap]

I'm thinking that schools will have to make adjustments then, by increasing stipends to facilitate being able to eat, for example.

When my spouse was in grad school, we lived a couple of years in grad student housing.  Very cheap compared to regular housing.  We didn't have kids, but many did.  Some had stay at home spouses, but many spouses (like me) worked.

I can't imagine what it would mean to tax tuition perks like that.  I mean, I went to Carnegie Mellon (undergrad), and thank you US taxpayers for paying for it.  Or most of it.  Actually, y'all paid for my master's degree too.  If you started working before 1996 anyway.

Interesting. When I was working on my PhD, the grad student housing was priced according to the nice apartments in the area plus utilities that I did without (we still had dial up available through the university, so I didn't have cable or internet). And it was not cut in half if you had a roommate, but rather some calculus by which you were at the very least both paying the full cable and internet bills. They ended up opening it up to undergrads because so few grad students fell for it.

[Daisy]

I don't remember if my fellowship stipend was taxed back in the day when I did my masters degree. I was so low-income though that it probably wasn't much tax...don't know.

When my employer paid for another masters degree, it was considered income and I had to pay income tax on it, even though I never received the actual income in money form. The company directly paid the tuition.

I didn't realize stipend payments for graduate degree were not taxed.

They are, we are referring to tuition waivers, not stipends.

Some stipends are seen as payment for teaching and therefore taxed as earned income, including FICA. Some are awards and therefore exempt from FICA. However, they are still income to be reported.

Now that I think about it, I did not have to pay income tax on the fellowship amount that went towards my tuition, only on the stipend. It makes sense now.

But when my employer paid for another masters, I did have to pay income tax on it...weird.

[Glenstache]

There is a fundamental underlying question of whether the government should be adjusting the tax code to encourage/discourage activities. I think the answer is "yes" and that as a society we benefit from doing what we can to make education more affordable. The directed taxation of endowments and stipends hurts our educational system. It is important to note that universities are not funded strictly through tuition. For the big research institutions, a significant portion of the funding has come through research grant overhead. This is to a large extent a system that evolved following WWII and during the cold war. As DOD-driven funding has dropped, it has changed university budgets. I'm not so certain that university budgets are as fungible as some commenters above indicate. I think that arguing that decreasing funding to universities will force them to reduce tuition is not correct and not how the market will respond. I know that in Washington state it has been exactly the opposite when State-funding to UW decreased during the recession and the university had to increase tuition even after doing what it could to tighten its belt.
https://www.aaas.org/page/historical-trends-federal-rd


Bottom line: we should fund research and education heavily to remain competitive over the decade time scales. The gains from this investment will help most of us, even if we are not direct recipients of that education. I am beyond the education pipeline and still want to be taxed to pay for this system. As an employer, I need trained scientists coming out of the universities to fill our open job positions.

[Malloy]

Because it's a tax loophole. Employer perks are wage income and should be taxed. If they are not taxed, they are tax loopholes (like your employer-based health insurance, which is the biggest tax loophole in America). It's no different at a university just because the perk happens to be reduced tuition.

Is the bill closing even one CORPORATE tax loophole???  Corporations keep their SALT deduction and get a 20% rate, but all of a sudden the Republicans think it makes sense to take away loopholes for individuals??  They keep the carried interest loophole benefiting hedge fund managers but make tuition waivers for grad students taxable???

Yup.  If loopholes are terrible, then this bill doesn't meaningfully address that problem.  I'm actually OK with some loopholes going away, but this tax bill seemed designed to close them for the sole purpose of funneling more money to corporations and the 0.1% and to blow up the deficit.  It's such a heavy lift that they are left with raising taxes on grad students to even try to raise revenues to make up for the lost revenues from corporations. 

[keyvaluepair]

Same here as a grad student. When I did my Ph.D. at a prominent university near Palo Alto, my fellowship certainly did not allow me any sort of a comfortable living. Adding taxes on top of that would have made it pretty unlikely that I could have supported myself without dumpster diving. The Republican plan seems to simply maintain or increase existing corporate tax loopholes & taxing already impoverished grad students seems like a petty fuck-you to grad universities.

And BTW, the conservatives of today don't seem like actual conservatives - they just seem like religious/ethno-nationalists <dons asbestos suit>.

[jean]

And why is everyone ignoring the sunset provisions of the tax bill?  If doubling the standard deduction is indeed better for everyone, what happens when that goes away in 7 years? 

One theory is that the individual tax cuts will be made permanent too, eventually.  It is very hard to raise taxes in the US.  But they can't write that into this bill, because it costs too much.  So, they won't do it now, but they'll do it before they sunset.  Isn't that what happened with the bush tax cuts?  Then, they will come after all the social programs and "entitlements" because "the country can't afford them".  Of course we can't afford them, but we can afford big tax cuts. Not sure this is how it will play out, but my dad is convinced :)

It isn't so easy for universities to just increase stipends to compensate.  The money for the increased stipend has to come from somewhere, such as 1) increased tuition for all 2) increased cost to fund a grad student on a research grant 3) endowments (less common). Also, many funding agencies have maximum allowable stipend levels that they will pay. I suspect grad students would just be getting a bill for 2018 because universities can't respond quickly enough. Much research funding comes from federal sources, so increasing the stipend would come from government funds in many cases.  Since there are (I assume, but seems like a good assumption) no plans to increase research funding, this will either lead to increased tuition or fewer graduate students doing research.  Or both.  SAD!

My best guess is that this provision won't survive into law (or at least there will be a grad student exception), but maybe I'm just an optimist.

[inline five]

Looking at most large universities, they run huge surpluses especially when you account for their endowments growing.

Perhaps they should reduce tuition, this neutering any tax consequences. I did the math with IIRC MIT which showed they could cover all their students costs at their sticker price of tuition and still have a couple hundred mil leftover a year if they withdrew their endowment at a 4% rate.

[JLee]

taxes going up significantly for grad students.  I can see why they are upset.

I'm pretty sure this is a feature and not a bug.  Conservatives hate graduate students, educated peoples, and all forms of scientists. 

Educated scientists gave us the theory of evolution and birth control.  Educated scientists tend to doubt the revealed truth of Divine scripture, like when it says animals could talk and the sun stopped in the sky.  Educated scientists question the authority of societally enforced gender discrimination and keep making noises about the wage gap, when they should be telling their womenses to get back in the kitchen.  Educated scientists fight against teaching creationism in public schools.  Clearly, educated scientists oppose the GOP ideology in every form, so why should the GOP encourage anyone else to become one?  Better to just tax them into Oblivion. 

So I don't think it's a coincidence.  The whole tax plan is targeted at groups they don't like, which is why it is so bad for blue states, and poor people who need health insurance, and small businesses, and graduate students, but great for super wealthy inheritors, big corporations, and real estate developers.  It's more politics than policy, but that doesn't mean they won't pass it.

The entire graduate thing would be terrible, especially given the drastic difference in costs depending on the University. I went to a state school for my PhD and after the first year qualified as in-state, so this likely wouldn't really have impacted me. But if I had gone to a private university like Carnegie Melon, or MIT, etc. It would have placed an enormous burden on me. One thing to keep in mind is that hard sciences tend to have much better stipends than other programs. My stipend was $5k/semester and if I got a summer teaching assistanship it was another $2.3k. If I went to a private university my entire stipend would have been paid out in taxes because I was single at the time.

I wonder if private universities could just strategically adjust the cost of tuition for graduate programs specifically.

Maybe?

This is such a weird discussion.  Why are the conservatives on this forum arguing about why it's good for people making 30k to suddenly pay a lot more in taxes?  I apologize for posting an article with a weird case (married with kid grad student), which is not the situation for many grad students I'd guess.  It looks like people who have run the numbers estimate at least an extra 2k a year in taxes for many grad students at private institutions.  Can anyone on the the "this tax plan is great!" side of the argument do the magic math that says that a single, no kid grad student doesn't pay more?  And why is everyone ignoring the sunset provisions of the tax bill?  If doubling the standard deduction is indeed better for everyone, what happens when that goes away in 7 years?  Those 2026 grad students are still paying the taxes on their tuition waiver, but they no longer have an increased standard deduction that is supposed to be the spoonful of sugar to make the taxes go down.

Because it's a tax loophole. Employer perks are wage income and should be taxed. If they are not taxed, they are tax loopholes (like your employer-based health insurance, which is the biggest tax loophole in America). It's no different at a university just because the perk happens to be reduced tuition.

Given that we shouldn't have to have employer-based health insurance in America, that seems to be a reasonable concession until we pull our collective heads out of our asses and get with the rest of the world on modern, affordable health care.

[mizzourah2006]

Looking at most large universities, they run huge surpluses especially when you account for their endowments growing.

Perhaps they should reduce tuition, this neutering any tax consequences. I did the math with IIRC MIT which showed they could cover all their students costs at their sticker price of tuition and still have a couple hundred mil leftover a year if they withdrew their endowment at a 4% rate.

endowment funds come with differing stipulations depending on who donated the money. I could donate a million to my alma-mater and say it has to be used for student athlete housing. They can't use it for anything but student athlete housing. Also, most endowments are much more conservative than a 4% rate. The fund has to last as long as the university, not for 30 years and it supports infrastructure/building upgrades on campuses as well, which I'm more than certain aren't cheap.

[MustachianAccountant]

I would like to see the estate tax repeal removed however.  I think keeping the estate tax but indexing for inflation would be appropriate.

I feel that the estate tax should be repealed and at the same time the step up in basis should be eliminated.  The repeal of the estate tax is often done under the guise of "keeping family businesses in the family" so lets remove the step up in basis and remove the incentive for someone to begin selling assets as soon as said assets are passed on to them.

Don't have time to read the whole thread, but I agree with this. If someone pays taxes on their income all their lives, why should that money be taxed AGAIN after they die?

Instead, remove the step up in basis (as you said) and maybe even strip off any retirement flavors from the money. So if grandma passes you an IRA, that IRA becomes regular non-tax advantaged money (gets dumped into a taxable brokerage account). Any money that went in untaxed (Trad IRA) gets taxed at that time, as well as the earnings that haven't been taxed yet.

I'd even be in favor of this applying to everyone who gets an inheritance.

[Gondolin]

infrastructure/building upgrades on campuses as well, which I'm more than certain aren't cheap.

Are you really defending private universities here? Universities have been engaging in an incredibly wasteful arms race of new building, luxury student comforts and balloning administration staffs for the last 30 years, largely funded by gov't backed, non-dischargable student loans. If school gave back some of that money back by tax assisting graduate student stipends, that would be a *great* outcome.

Instead, they'll probably just raise tuition even further. However, make no mistake, most universities could weather this expense easily if, they were willing to admit that maybe they don't need to build a third athletic center in the hopes of gaining +1 ranking in the next Princeton review.

[SaucyAussie]

I would like to see the estate tax repeal removed however.  I think keeping the estate tax but indexing for inflation would be appropriate.

I feel that the estate tax should be repealed and at the same time the step up in basis should be eliminated.  The repeal of the estate tax is often done under the guise of "keeping family businesses in the family" so lets remove the step up in basis and remove the incentive for someone to begin selling assets as soon as said assets are passed on to them.

Don't have time to read the whole thread, but I agree with this. If someone pays taxes on their income all their lives, why should that money be taxed AGAIN after they die?

Instead, remove the step up in basis (as you said) and maybe even strip off any retirement flavors from the money. So if grandma passes you an IRA, that IRA becomes regular non-tax advantaged money (gets dumped into a taxable brokerage account). Any money that went in untaxed (Trad IRA) gets taxed at that time, as well as the earnings that haven't been taxed yet.

I'd even be in favor of this applying to everyone who gets an inheritance.

Agreed, it seems like the biggest argument in favor of the estate tax is "they're rich, they can afford it".  But the end result is massive efforts to shelter assets through life insurance and tax havens and not a whole lot of extra tax revenues. The real winners are insurance companies and tax attorneys.

[jean]

Agreed, it seems like the biggest argument in favor of the estate tax is "they're rich, they can afford it".

I think the better argument is that the estate tax is part of mitigating structural inequality.  It is wealth redistribution. Taxing the wealthy and wealth redistribution is not something everyone in this country agrees is a good thing, but many (myself included) think that a healthy society has a level of wealth redistribution and limits extreme economic inequality.

If you work your whole life and pay taxes, you don't pay taxes again when you die.  You are dead, you aren't doing anything.  Whoever is inheriting the money is (indirectly) paying the taxes, which seems appropriate. 

Anyway, at least changing the step-up basis would be prudent - seems crazy not to.  Unrealized capital gains (not family businesses!) account for a large share of estates that get hit with the estate tax.

[schmerna]

I don't remember if my fellowship stipend was taxed back in the day when I did my masters degree. I was so low-income though that it probably wasn't much tax...don't know.

When my employer paid for another masters degree, it was considered income and I had to pay income tax on it, even though I never received the actual income in money form. The company directly paid the tuition.

I didn't realize stipend payments for graduate degree were not taxed.

They are, we are referring to tuition waivers, not stipends.

Some stipends are seen as payment for teaching and therefore taxed as earned income, including FICA. Some are awards and therefore exempt from FICA. However, they are still income to be reported.

Now that I think about it, I did not have to pay income tax on the fellowship amount that went towards my tuition, only on the stipend. It makes sense now.

But when my employer paid for another masters, I did have to pay income tax on it...weird.

The FICA exemption (including tax free tuition remission) for Graduate Students in for full-time students enrolled in degree programs that are also Graduate Assistants (Research Assistants, Teaching Assistants, etc). 

You wages from your employer made you ineligible for the exemption when you were employed.

[sol]

Agreed, it seems like the biggest argument in favor of the estate tax is "they're rich, they can afford it".

I think the better argument is "they're dead, they don't need it anymore."  Death is the best time to pay taxes.  That tax rate should be higher than any tax rate you ever paid while alive.

When you think about it, the whole idea of passing a vast fortune on to someone who hasn't worked a day in their lives seems grossly unjust.  I can see a reasonable argument for 100% estate tax.

Like go ahead and put your fortune into a foundation, and then let your kid run the foundation while drawing a salary (and paying taxes on the salary). That's fine.  But I don't think you should just be allowed to GIVE somebody billions of tax-free dollars they can't possible use, because that money is clearly income and it should be taxed as such.  That kind of enormous transfer or wealth, without any taxation at all, seems fundamentally unjust while we still have homeless people freezing each winter, and kids who don't get enough to eat, and we can't provide basic medical care to our citizens.

[mizzourah2006]

infrastructure/building upgrades on campuses as well, which I'm more than certain aren't cheap.

Are you really defending private universities here? Universities have been engaging in an incredibly wasteful arms race of new building, luxury student comforts and balloning administration staffs for the last 30 years, largely funded by gov't backed, non-dischargable student loans. If school gave back some of that money back by tax assisting graduate student stipends, that would be a *great* outcome.

Instead, they'll probably just raise tuition even further. However, make no mistake, most universities could weather this expense easily if, they were willing to admit that maybe they don't need to build a third athletic center in the hopes of gaining +1 ranking in the next Princeton review.

I don't disagree with you on the fact that universities are building resort style buildings for education purposes and that costs tons of money. What I am saying is it isn't as simple as just drawing down the endowment at a 4% rate. As I said earlier many of the funds in the endowment have very specific guidelines around them. It's not just the universities money to do with it as it pleases. I do believe that they could probably whether the storm of this, by increasing stipends for PhD students, given that most programs have no more than 20-25 active PhD students at any given time. My comment was regarding an endowment easily being able to pay for every single students tuition and then some.

[SaucyAussie]

Agreed, it seems like the biggest argument in favor of the estate tax is "they're rich, they can afford it".

I think the better argument is that the estate tax is part of mitigating structural inequality.  It is wealth redistribution. Taxing the wealthy and wealth redistribution is not something everyone in this country agrees is a good thing, but many (myself included) think that a healthy society has a level of wealth redistribution and limits extreme economic inequality.

If you work your whole life and pay taxes, you don't pay taxes again when you die.  You are dead, you aren't doing anything.  Whoever is inheriting the money is (indirectly) paying the taxes, which seems appropriate. 

Anyway, at least changing the step-up basis would be prudent - seems crazy not to.  Unrealized capital gains (not family businesses!) account for a large share of estates that get hit with the estate tax.

Sure but how do you justify applying the estate taxes only to the wealthy, without my argument of "they're rich, they can afford it".   The fact that you are dead and the one who is doing the inheriting would seem to apply to all inheritances, not just the wealthy.

[sol]

Sure but how do you justify applying the estate taxes only to the wealthy

I don't.  I think all inheritances should be taxed as income. 

Our income tax system is already designed to be progressive, so that poor people pay little or no taxes, and the wealthy pay more.  "Because they can afford it."  Using income tax rates for inheritances seems like the simplest way to go about this.  Did you have income from an inheritance?  Then it's income and it gets taxed just like any other income.

I would make the same case for capital gains and dividends, btw.  Why do we need so many different tax rates for different types of income?

[sherr]

Agreed, it seems like the biggest argument in favor of the estate tax is "they're rich, they can afford it".

I think the better argument is that the estate tax is part of mitigating structural inequality.  It is wealth redistribution. Taxing the wealthy and wealth redistribution is not something everyone in this country agrees is a good thing, but many (myself included) think that a healthy society has a level of wealth redistribution and limits extreme economic inequality.

If you work your whole life and pay taxes, you don't pay taxes again when you die.  You are dead, you aren't doing anything.  Whoever is inheriting the money is (indirectly) paying the taxes, which seems appropriate. 

Anyway, at least changing the step-up basis would be prudent - seems crazy not to.  Unrealized capital gains (not family businesses!) account for a large share of estates that get hit with the estate tax.

Sure but how do you justify applying the estate taxes only to the wealthy, without my argument of "they're rich, they can afford it".   The fact that you are dead and the one who is doing the inheriting would seem to apply to all inheritances, not just the wealthy.

The exact same way you justify a graduated tax rate with people in higher brackets paying more. Or luxury goods being taxed at a higher sales tax rate than essentials.

You're right, at that level it does come down to "they're rich, they can afford it". And it's true. And the ultra-rich are the ones where we have to worry about systemic long-term inequality. We really don't want to go back to the era of the landed gentry owning everything and having all the power. It didn't work out very well.

[sokoloff]

Anyway, at least changing the step-up basis would be prudent - seems crazy not to.  Unrealized capital gains (not family businesses!) account for a large share of estates that get hit with the estate tax.

If you're advocating getting rid of the step-up in basis, I think that's a bad idea from a practical perspective.

When did Grandpa buy those shares? What were the basis figures on the dates of those various purchases? How much was the result of dividend reinvestments? When were those purchases? What was the share count and cost basis of those shares?

A paperwork and logistical nightmare as compared to "what day did Grandpa die? what were the shares worth on that day? Perfect; glad to have that taken care of in 5 minutes."

[Metta]

infrastructure/building upgrades on campuses as well, which I'm more than certain aren't cheap.

Are you really defending private universities here? Universities have been engaging in an incredibly wasteful arms race of new building, luxury student comforts and balloning administration staffs for the last 30 years, largely funded by gov't backed, non-dischargable student loans. If school gave back some of that money back by tax assisting graduate student stipends, that would be a *great* outcome.

Instead, they'll probably just raise tuition even further. However, make no mistake, most universities could weather this expense easily if, they were willing to admit that maybe they don't need to build a third athletic center in the hopes of gaining +1 ranking in the next Princeton review.

I don't disagree with you on the fact that universities are building resort style buildings for education purposes and that costs tons of money. What I am saying is it isn't as simple as just drawing down the endowment at a 4% rate. As I said earlier many of the funds in the endowment have very specific guidelines around them. It's not just the universities money to do with it as it pleases. I do believe that they could probably whether the storm of this, by increasing stipends for PhD students, given that most programs have no more than 20-25 active PhD students at any given time. My comment was regarding an endowment easily being able to pay for every single students tuition and then some.

I don't know how true this is. My niece is attending the best college in her discipline, Pratt Institute. They have an endowment of 123 million dollars. Their tuition is about $45000 a year and there are about 4500 students attending the school. If they pulled 4% per year that would give them $4,920,000. Divided by the 4500 students, this would allow them to give each student $1093 off their tuition each year. So nowhere near being able to pay for every single student's tuition and then some.

However, a pull of 4% is probably irresponsible since an endowment is supposed to last forever and 4% would eventually require touching the principal. So, I think your statement might be true with some universities but certainly not all and probably not most.

[mizzourah2006]

Sure but how do you justify applying the estate taxes only to the wealthy

I don't.  I think all inheritances should be taxed as income. 

Our income tax system is already designed to be progressive, so that poor people pay little or no taxes, and the wealthy pay more.  "Because they can afford it."  Using income tax rates for inheritances seems like the simplest way to go about this.  Did you have income from an inheritance?  Then it's income and it gets taxed just like any other income.

I would make the same case for capital gains and dividends, btw.  Why do we need so many different tax rates for different types of income?

So the same would hold for gifts given to children? At what age should this be enforced? If I pay for my kids grad program should that be taxable?

Dividends and capital gains have theoretically already been taxed at the corporate rate, which is why I believe those are different. A company can't provide a dividend without taking a profit (for very long) and all earnings are taxed as earned income by the corporation you invest in. So theoretically this would be similar to you owning a chain of grocery stores and being taxed on the profit and then being taxed on the profit again when you take a portion of it home. It's just further removed in this instance because you don't own all of the company, but instead a small portion of it.

[Proud Foot]

Anyway, at least changing the step-up basis would be prudent - seems crazy not to.  Unrealized capital gains (not family businesses!) account for a large share of estates that get hit with the estate tax.

If you're advocating getting rid of the step-up in basis, I think that's a bad idea from a practical perspective.

When did Grandpa buy those shares? What were the basis figures on the dates of those various purchases? How much was the result of dividend reinvestments? When were those purchases? What was the share count and cost basis of those shares?

A paperwork and logistical nightmare as compared to "what day did Grandpa die? what were the shares worth on that day? Perfect; glad to have that taken care of in 5 minutes."

I agree with you on this.  It seems to make sense to eliminate the step-up in basis but agree it would make for a paperwork nightmare. Since brokers are now required to track cost basis it would make sense to take a blended approach until eventually all shares will either be purchased or have a step-up in basis more recently than when the tracking requirement was implemented. After that the only items which might have issues would be tracking the basis if capital improvements have taken place on property or investments in private companies.

[sol]

I don't know how true this is. My niece is attending the best college in her discipline, Pratt Institute. They have an endowment of 123 million dollars. Their tuition is about $45000 a year and there are about 4500 students attending the school. If they pulled 4% per year that would give them $4,920,000. Divided by the 4500 students, this would allow them to give each student $1093 off their tuition each year. So nowhere near being able to pay for every single student's tuition and then some.

This totally depends on the school.  Harvard's endowment is 37.6 billion dollars, and they have 22k students at $43k each.  So they spend/collect approximately a billion dollars per year in tuition, that's a 2.6% withdrawal rate that would be required to make tuition 100% free.

I'm a Caltech grad, and they have roughly analogous numbers.  2.1 billion dollar endowment, 1000 undergrads at $48k each, which works out to 2.28% SWR required to make tuition 100% free. 

Of course the real world is more complicated than that.  They're not actually collecting full tuition from every student today, because many of them bring scholarships or work study with them.  Many others get university grants, which already come out of the endowment (or the income stream that would otherwise go into the endowment).  So in practice it would cost these schools even less than their ~2.5% SWRs to make tuition free, but then again those endowments also have to pay for fixed expenses that may be far greater than the total collected from tuition.  Big universities have many streams of income, like research grants, that keep them afloat.  At a place like Caltech, the undergrads are basically an afterthought.  They're bright and highly motivated cheap labor, but not really the reason the place exists.

[sol]

So the same would hold for gifts given to children? At what age should this be enforced? If I pay for my kids grad program should that be taxable?

Of course it should.  Income is income.  If your 12 year old is out mowing lawns all summer, he's supposed to pay taxes on his income.  Even his tips.

In practice kids are usually overlooked by the IRS.  I suspect that has more to do with the puny amounts of money involved instead of their ages, though.  It's not cost effective to audit a 12 year old for $30 in back taxes.  But if that 12 year old inherited a few billion, I'm absolutely sure they would audit for their due.

Dividends and capital gains have theoretically already been taxed at the corporate rate, which is why I believe those are different.

This argument has always confused me.  Yes, a corporation pays taxes on their profit.  Then they pay their employees, who pay income taxes on that profit when it's converted to income.  Then the employee pay sales taxes when he spends his taxed income which came from the taxed profit.  Then the company pays corporate taxes on whatever the employee bought after paying sales taxes after paying income taxes after the company paid corporate taxes.  ALL money has been taxed before.  It gets taxed every time it changes hands.

So it doesn't make sense to say "dividends have already been taxed once" unless you also think you shouldn't have to pay sales tax because "my income has already been taxed once."  They've both been taxed before.  It's not like you can follow one dollar through the economy as it is traded and spent over and over again, because it is comingled and fungible.   We don't tax dollars.  We tax transaction events, like payroll or purchases or dividend payouts. 

So theoretically this would be similar to you owning a chain of grocery stores and being taxed on the profit and then being taxed on the profit again when you take a portion of it home.

Yes!  Exactly!  If you're both the owner and the employee, you pay both kinds of taxes!  Once on the corporate profits, then again as payroll taxes when you take home income.  Then you pay taxes again as the consumer, when you buy something from your own store!  Then again as the owner on the profit from the sale from your store to yourself as the consumer!  That's how taxes are supposed to work.  Every transaction gets taxed, every time money changes hands Uncle Sam gets a cut.

An inheritance is just another transaction.  It should get taxed, IMO.  The only reason it doesn't is that the super-rich have effectively carved out a little exemption for themselves to protect and preserve their position of privilege, to perpetuate income inequality, to ensure that their families will always be the rich and powerful and that nobody else can challenge that secure position. 

[sokoloff]

So the same would hold for gifts given to children? At what age should this be enforced? If I pay for my kids grad program should that be taxable?

Of course it should.  Income is income.  If your 12 year old is out mowing lawns all summer, he's supposed to pay taxes on his income.  Even his tips.

I think you missed mizz's point, either intentionally or unintentionally.

If I gift my 8 year old a dinner, presumably that should not be taxable to her.
If I gift her a $10 toy for Christmas, presumably that should not be taxable to her.
If I gift her $1000 into her 529 account, that is currently not taxable (and I believe should not be taxable to her either, and legally, it falls into the gift tax exemption amount).

mizz was specifically talking about gifts given to children, not the child working for income.

[Psychstache]

]

However, a pull of 4% is probably irresponsible since an endowment is supposed to last forever and 4% would eventually require touching the principal. So, I think your statement might be true with some universities but certainly not all and probably not most.

I recall listening to an interview with the head of Stanford's endowment and he used 5% withdrawal rate on their endowment, which makes sense if you use the 4% SWR rule + tax free status of endowments.



Sent from my Pixel using Tapatalk

[mizzourah2006]

Dividends and capital gains have theoretically already been taxed at the corporate rate, which is why I believe those are different.

This argument has always confused me.  Yes, a corporation pays taxes on their profit.  Then they play their employees, who pay income taxes on that profit when it's converted to income.  Then the employee pay sales taxes when he spends his taxed income which came from the taxed profit.  Then the company pays corporate taxes on whatever the employee bought after paying sales taxes after paying income taxes after the company paid corporate taxes.  ALL money has been taxed before.  It gets taxed every time it changes hands.

So it doesn't make sense to say "dividends have already been taxed once" unless you also think you shouldn't have to pay sales tax because "my income has already been taxed once."  They've both been taxed before.  It's not like you can follow one dollar through the economy as it is traded and spent over and over again, because it is comingled and fungible.   We don't tax dollars.  We tax transaction events, like payroll or purchases or dividend payouts. 

So theoretically this would be similar to you owning a chain of grocery stores and being taxed on the profit and then being taxed on the profit again when you take a portion of it home.

Yes!  Exactly!  If you're both the owner and the employee, you pay both kinds of taxes!  Once on the corporate profits, then again as payroll taxes when you take home income.  Then you pay taxes again as the consumer, when you buy something from your own store!  Then again as the owner on the profit from the sale from your store to yourself as the consumer!  That's how taxes are supposed to work.  Every transaction gets taxed, every time money changes hands Uncle Sam gets a cut.

An inheritance is just another transaction.  It should get taxed, IMO.  The only reason it doesn't is that the super-rich have effectively carved out a little exemption for themselves to protect and preserve their position of privilege, to perpetuate income inequality, to ensure that their families will always be the rich and powerful and that nobody else can challenge that secure position.

First of all comparing a consumption tax (sales tax) to an income tax is like comparing apples to oranges.

Secondly, that's not how ownership works. You do get taxed on an income, but you only need to take what is considered 'a reasonable income' for your position within the company as an owner. If you own a chain of grocery stores you must take a salary, say of....$150k/yr and that is taxed as income, but all the rest of the money can be taken out as profit if need be as it was already taxed at the corporate rate. Plus companies don't claim employees' salary as income, so that money is not taxed as income by the company. It is taxed as income by the employee and is considered an operating expense by the company thus comes out before the company pays taxes on it as income/earnings.

[sol]

mizz was specifically talking about gifts given to children, not the child working for income.

We have a gift tax exemption, for children or anyone else.  I think it's fair to keep that same limit for inheritances.

As it is now, you can receive gifts of up to $14k without owing taxes, if it comes from a living relative, but $5.5 million if it comes from a dead relative.  I think a gift is a gift and they should be treated the same.

But I also think we've already established that what seems obviously reasonable to me will never pass through Congress.  Logic is not their strong suit.

[NoStacheOhio]

Dividends and capital gains have theoretically already been taxed at the corporate rate, which is why I believe those are different.

This argument has always confused me.  Yes, a corporation pays taxes on their profit.  Then they play their employees, who pay income taxes on that profit when it's converted to income.  Then the employee pay sales taxes when he spends his taxed income which came from the taxed profit.  Then the company pays corporate taxes on whatever the employee bought after paying sales taxes after paying income taxes after the company paid corporate taxes.  ALL money has been taxed before.  It gets taxed every time it changes hands.

So it doesn't make sense to say "dividends have already been taxed once" unless you also think you shouldn't have to pay sales tax because "my income has already been taxed once."  They've both been taxed before.  It's not like you can follow one dollar through the economy as it is traded and spent over and over again, because it is comingled and fungible.   We don't tax dollars.  We tax transaction events, like payroll or purchases or dividend payouts. 

Aren't employee wages are treated as a liability and count against earnings (before profit)?

[jean]

If you're advocating getting rid of the step-up in basis, I think that's a bad idea from a practical perspective.

When did Grandpa buy those shares? What were the basis figures on the dates of those various purchases? How much was the result of dividend reinvestments? When were those purchases? What was the share count and cost basis of those shares?

A paperwork and logistical nightmare as compared to "what day did Grandpa die? what were the shares worth on that day? Perfect; glad to have that taken care of in 5 minutes."

But... if you have repealed the estate tax, no one has ever paid taxes on those capital gains, which could have been growing for 40 years or more.  How is that the right answer?  Figure out the paperwork or keep the estate tax.  Besides, if grandpa was ever going to sell the shares himself, he would have to keep track of all of that and report it.  By dying, he gets out of the paperwork and only passes the money on?  No, you inherit the stocks and the paperwork mess together.

Right now, this is limited since once you get above the estate tax limit ($10M?), you pay the estate tax.  It is not perfect, but it limits the impact and provides some argument for the step up basis.

And yes, under current law gifts, including to children, are taxed (by the giver) if they are above a certain (lifetime) amount. 

[mizzourah2006]

mizz was specifically talking about gifts given to children, not the child working for income.

We have a gift tax exemption, for children or anyone else.  I think it's fair to keep that same limit for inheritances.

As it is now, you can receive gifts of up to $14k without owing taxes, if it comes from a living relative, but $5.5 million if it comes from a dead relative.  I think a gift is a gift and they should be treated the same.

But I also think we've already established that what seems obviously reasonable to me will never pass through Congress.  Logic is not their strong suit.

But it counts against your lifetime allowance, which is equal to the threshold for the estate tax. And just to be clear it's 14k/person. So if you have a wife and both parents are still living it's actually $56k/yr. My point was if you enforce a 100% estate tax people will just gift all their money away before they die. So you need to essentially make sure no money exchanges hands at all over a person's lifetime without being taxed.

[sokoloff]

Dividends and capital gains have theoretically already been taxed at the corporate rate, which is why I believe those are different.

This argument has always confused me.  Yes, a corporation pays taxes on their profit.  Then they play their employees, who pay income taxes on that profit when it's converted to income.  Then the employee pay sales taxes when he spends his taxed income which came from the taxed profit.  Then the company pays corporate taxes on whatever the employee bought after paying sales taxes after paying income taxes after the company paid corporate taxes.  ALL money has been taxed before.  It gets taxed every time it changes hands.

So it doesn't make sense to say "dividends have already been taxed once" unless you also think you shouldn't have to pay sales tax because "my income has already been taxed once."  They've both been taxed before.  It's not like you can follow one dollar through the economy as it is traded and spent over and over again, because it is comingled and fungible.   We don't tax dollars.  We tax transaction events, like payroll or purchases or dividend payouts. 

Aren't employee wages are treated as a [business expense] and count against earnings (before profit)?

Yes, they are. In the example above, it was the employee who paid income tax, then sales tax, and then a <potentially different> company paid corporate taxes on the profits earned by that employee's consumption.

[sol]

Aren't employee wages are treated as a liability and count against earnings (before profit)?

Sure, but that's just an accounting trick to lower the corporation's tax burden.  All employee paychecks are paid with dollars that come from the company's revenue. 

And you're still missing the point of circular taxation.  All of the company's revenue comes from consumers who have already paid income tax on their earnings.  All spendable employee wages are paid from corporate revenue.  In between everyone pays sales taxes and property taxes and gas taxes and everything else.  All money has been taxed before. 

The employee wage deduction, like the individual mortgage deduction, is just an exemption to shelter some income and lower the effective rate.  It doesn't mean the money hasn't been taxed, it's just an accounting tool used to pay less.

[sokoloff]

mizz was specifically talking about gifts given to children, not the child working for income.

We have a gift tax exemption, for children or anyone else.  I think it's fair to keep that same limit for inheritances.

As it is now, you can receive gifts of up to $14k without owing taxes, if it comes from a living relative, but $5.5 million if it comes from a dead relative.  I think a gift is a gift and they should be treated the same.

But it counts against your lifetime allowance, which is equal to the threshold for the estate tax. And just to be clear it's 14k/person. So if you have a wife and both parents are still living it's actually $56k/yr. My point was if you enforce a 100% estate tax people will just gift all their money away before they die. So you need to essentially make sure no money exchanges hands at all over a person's lifetime without being taxed.

Any gift below the exemption amount is NOT counted against your lifetime allowance. If you give $14K/yr, it's entirely gift tax (and estate tax impact) free.

[Metta]

I don't know how true this is. My niece is attending the best college in her discipline, Pratt Institute. They have an endowment of 123 million dollars. Their tuition is about $45000 a year and there are about 4500 students attending the school. If they pulled 4% per year that would give them $4,920,000. Divided by the 4500 students, this would allow them to give each student $1093 off their tuition each year. So nowhere near being able to pay for every single student's tuition and then some.

This totally depends on the school.  Harvard's endowment is 37.6 billion dollars, and they have 22k students at $43k each.  So they spend/collect approximately a billion dollars per year in tuition, that's a 2.6% withdrawal rate that would be required to make tuition 100% free.

I'm a Caltech grad, and they have roughly analogous numbers.  2.1 billion dollar endowment, 1000 undergrads at $48k each, which works out to 2.28% SWR required to make tuition 100% free. 

Of course the real world is more complicated than that.  They're not actually collecting full tuition from every student today, because many of them bring scholarships or work study with them.  Many others get university grants, which already come out of the endowment (or the income stream that would otherwise go into the endowment).  So in practice it would cost these schools even less than their ~2.5% SWRs to make tuition free, but then again those endowments also have to pay for fixed expenses that may be far greater than the total collected from tuition.  Big universities have many streams of income, like research grants, that keep them afloat.  At a place like Caltech, the undergrads are basically an afterthought.  They're bright and highly motivated cheap labor, but not really the reason the place exists.

I agree, this depends on the school. However, Harvard actually has the largest academic endowment in the entire world. So it doesn't make sense to me to look to Harvard and then make statements about all colleges based on Harvard's endowment. (I recognize that this is not what the tax proposal has in it and I'm basically ok with the proposed tax on college endowments that average more than 100,000 per student. I might make it a higher number, but the basic idea of taxing wealth at a higher level is ok from my perspective.)

Here is a link that lists endowments for all colleges and universities:

http://www.nacubo.org/Documents/EndowmentFiles/2016-Endowment-Market-Values.pdf

Looking at it, you can see the Median endowment across the board is $120,330,000. Harvard's endowment is $34,541,893,000, so Harvard has an endowment 287 times greater than what the median college endowment is. It doesn't make sense to dump all colleges in the same pot and declare that they are all the same.

Gondolin said:

most universities could weather this expense easily if, they were willing to admit that maybe they don't need to build a third athletic center in the hopes of gaining +1 ranking in the next Princeton review.

But the fact is that most universities probably couldn't weather this expense easily. What we have seen for the last couple decades has been an erosion in state and federal funds going to universities. At the same time, funds that are made available are often earmarked to be used only for buildings or other hard assets that the people can see their names on. So it gives the illusion that the universities would prefer to build structures rather than programs, when the reverse is generally true.

Research grants are another area where the wealthy schools are the most likely to get grants. So it contributes to a problem where less prestigious schools are scraping to get by, while wealthier schools, which already have large endowments, also get large research grants. This means that there is a perception problem when people look at universities. They hear about how Harvard or MIT or UCLA operate and they think that all universities have similar resources and are making similar choices. That's not the case.

It is as if someone looked at Warren Buffett and then asked my family with our income (approx $73000 per year) or my sister with her income (approx $30,000 in a good year) why we don't contribute as much to charity as Warren Buffett or why we don't exercise the same opportunities Warren Buffett does.

Very wealthy institutions and very wealthy people have options that the median institution or median person does not.

[mizzourah2006]

mizz was specifically talking about gifts given to children, not the child working for income.

We have a gift tax exemption, for children or anyone else.  I think it's fair to keep that same limit for inheritances.

As it is now, you can receive gifts of up to $14k without owing taxes, if it comes from a living relative, but $5.5 million if it comes from a dead relative.  I think a gift is a gift and they should be treated the same.

But it counts against your lifetime allowance, which is equal to the threshold for the estate tax. And just to be clear it's 14k/person. So if you have a wife and both parents are still living it's actually $56k/yr. My point was if you enforce a 100% estate tax people will just gift all their money away before they die. So you need to essentially make sure no money exchanges hands at all over a person's lifetime without being taxed.

Any gift below the exemption amount is NOT counted against your lifetime allowance. If you give $14K/yr, it's entirely gift tax (and estate tax impact) free.

You are right, anything above the tax free gift is counted. My mistake, it doesn't change the fact that people will just give it away to avoid taxes on it,  especially people in the 5-10 million networth range.

[sokoloff]

it doesn't change the fact that people will just give it away to avoid taxes on it,  especially people in the 5-10 million networth range.

Totally agree on that point. I'm not in that range now, but am overwhelmingly likely to be in that range assuming I avoid an untimely death. I do expect to be forced to do smart things to ensure that the money goes where my wife and I prefer upon our death.

[sol]

it doesn't change the fact that people will just give it away to avoid taxes on it,  especially people in the 5-10 million networth range.

Perfect!  That's exactly what I want to happen.  I want a lifetime cap on how much money you can give to your children without incurring ANY taxes, and I think the gift tax exemption amount per year is a fine place to start. 

But the current estate tax is approximately 800% of that amount, and the new GOP tax plan would make it an infinite amount.  I'm not worried about folks who want to gift a few hundred thousand dollars over decades, I'm worried about the RKOI crowd who inherit billions without ever finishing high school or working a day in their lives.  If you're a multibillionaire and want want to make your deadbeat hedonistic wildchild into a multibillionaire too, that kid absolutely should pay regular income taxes on whatever you give him.  His "income" shouldn't be treated and different than what the rest of us actually earn.

And (to get back on topic here) that's one of the fundamental problems with both versions of the current GOP tax plan; it strongly favors people who get rich without working over people who get rich by working.  Unearned income is taxed at a much lower rate than wage income.  Owner profits get low taxes, worker salaries get high taxes.  Working is discouraged, in favor of inheriting or passive ownership.  That seems like the very definition of promoting wealth inequality.