quote:Originally posted by BlackBlade: $250 billion, by shuffling a few people into higher tax brackets, removing some write-offs, and in exchange $4 trillion in lost revenue.
We'll give you about 6 cents, if you give us a dollar. Yay!
I'm not sure that's accurate, although I haven't looked at it in depth. This CBS news reports says that the net effect would be $300 billion in increased revenue from federal taxes, mostly due to sharply restricting the mortgage interest deduction and deductions due to state and local taxes.
The Post article you link to later in its copy seems to substantiate this point when it says "[o]ther Democrats challenged the notion that Republicans had made any major concessions. Lowering the top rate from 35 percent to 28 percent would eat up most of the extra revenue generated by limiting itemized deductions, they said, leaving very little savings to reduce future borrowing."
Again, I haven't looked at it closely, but it seems like the $300 billion in increased revenue from taxes is net and includes the cost over the next ten years of the lowered tax rates. Additionally, the GOP plan raises another $300 billion in non-tax revenues through increasing fees for federal services, etc. And it cuts $700 billion in planned federal spending, with 2/5 coming from agency budgets, 2/5 from Medicare and Medicaid benefit restrictions and 1/5 from a revised method for calculating SS COLA.
Posts: 2926 | Registered: Sep 2005
| IP: Logged |
posted
Speaking personally, by the way, limiting my mortgage interest deduction would result in a fairly sizable tax increase.
Posts: 37449 | Registered: May 1999
| IP: Logged |
quote:Originally posted by TomDavidson: Speaking personally, by the way, limiting my mortgage interest deduction would result in a fairly sizable tax increase.
For me, too. Of course, the tax increase due to restricting the mortgage insurance deduction would be greatest for those with the largest mortgages. See, for instance, this post by Suzanne Mettler on the relative benefits of the mortgage interest deduction. 69% of the benefit is accrued by the approximately 20% of households with income greater than $100,000.
Posts: 2926 | Registered: Sep 2005
| IP: Logged |
quote:Additionally, the GOP plan raises another $300 billion in non-tax revenues through increasing fees for federal services, etc.
So they want to cut the progressive top tax rate and increase the regressive fees for services.
I assume they are proposing cutting all tax rates, although I don't know the relative amounts. And both the deductions called out (mortgage interest and state and local taxes) primarily benefit the wealthy. I don't think it's clear what the net effect on the progressivity of the revenue burden would be, even including the proposed increases in fees, tariffs, etc.
Posts: 2926 | Registered: Sep 2005
| IP: Logged |
posted
She should break down the $100,000+ bracket into 3-4 brackets: $100-250k, $250k-$1M, $1-10M, $10M+. I would expect the share to fall off drastically as you move up through those brackets, and the top two brackets there are the ones who have been making out like bandits on a greater and greater scale with each successive tax cut post-1997.
Posts: 10886 | Registered: Feb 2000
| IP: Logged |
posted
The mortgage interest deduction always seemed wrong-headed to me. Presumably within a short time of its implementation the housing market would have absorbed its impact resulting in a rise in home prices as buyers effectively have a bit more to spend and sellers know this. Thus it amounts to a transfer from the government to home sellers, a transfer I'm not sure there's much utility in making. (Or am I missing something?)
Having said that, by the same token, presumably a restriction on the home mortgage deduction will result in a drop in home values. Given the roots of the GFC, the problems with underwater mortgages, this being a balance-sheet recession etc etc, is now the time to push for this?*
*I'm not unbiased here: I would be sorely inconvenienced by such a restriction.
Posts: 644 | Registered: Sep 2008
| IP: Logged |
posted
However "wrong-headed" the mortgage interest deduction may be, this is pretty clearly a horrid time to get rid of it. Not only is it likely to cause a further drop in housing prices, it will also lead to another round of defaults and foreclosures as people who entered their mortgages with the assumption that they would be receive a tax break find they can no longer afford to make their payments without it.
Posts: 12591 | Registered: Jan 2000
| IP: Logged |
posted
More info in the form of a House Ways and Means report on the impact of Mortgage Interest deduction (among others) on different income categories.
Summarizing from Table 3, the average value in 2009 of the MID for different income classes is: 10,000-20,000 = $280 20,000-30,000 = $520 30,000-40,000 = $640 40,000-50,000 = $800 50,000-75,000 = $1230 75,000-100,000 = $1490 100,000-200,000 = $2860 > 200,000 = $6650
<edit>From the same source, the average value of the state and local taxes deduction: 10,000-20,000 = $46 20,000-30,000 = $79 30,000-40,000 = $123 40,000-50,000 = $168 50,000-75,000 = $302 75,000-100,000 = $433 100,000-200,000 = $1013 > 200,000 = $6556 </edit>
<edit2>Also, it's perhaps useful to point out that among all credits, these two and the charitable contributions credit are the least progressive. The distributions of benefits for all other credits are significantly skewed toward lower incomes, relative to those three.</edit2>
<edit3>Also important to note is that those are the average values to those who claimed the benefit. Given that very few households in the lowest income classes will claim the benefit (since they are relatively unlikely to have a mortgage or owe sufficiently large state and local taxes), and that most households in the upper income echelon will, it's not immediately clear how the "average" member of the income class is affected, other than it'll probably be a significantly dilated version of the benefit calculated above.</edit3>
posted
I really should do my own looking for this, but I'll throw out, has anyone seen a break down (preferably including income categories) of the deductions from primary versus second houses?
It seems to me that losing the second house provision may make sense, even in the current environment.
Posts: 10177 | Registered: Apr 2001
| IP: Logged |
posted
I don't think it would be terribly difficult to adjust income taxes in the lower brackets so that the change is revenue neutral among people with lower incomes. In fact, since many people in this group are renting anyway, it might not even have to be a big change.
quote:Problem #3: The deduction is wildly regressive. The tax savings for households earning more than $250,000 is 10 times the tax savings for households earning between $40,000 and $75,000 a year, according to recent research by James Poterba and Todd Sinai.
If there ever was a case for small-government egalitarianism, then this is it. Eliminating the home mortgage deduction and replacing it with an across-the-board tax cut would equalize after-tax incomes without a single new government program.
quote:Originally posted by The Rabbit: However "wrong-headed" the mortgage interest deduction may be, this is pretty clearly a horrid time to get rid of it. Not only is it likely to cause a further drop in housing prices, it will also lead to another round of defaults and foreclosures as people who entered their mortgages with the assumption that they would be receive a tax break find they can no longer afford to make their payments without it.
So you read the second paragraph of my post?
Posts: 644 | Registered: Sep 2008
| IP: Logged |
posted
Rabbit, if they can't make their house payment without it, they aren't going to be able to make their payment with it. The mortgage interest deduction lowers taxable wages. It isn't a hard credit.
If I am single and make $40,000 a year and I pay $6,000 in mortgage interest, it is better for me to take the flat $10,000 off. For a family of two it would be beneficial to take the $6,000, as I get the $3750 deduction per person as well. All in all it really isn't going to save you much. When I was paying $11,000k in interest a year on my mortgage it amounted to something like $300.
I think people often confuse the mortgage interest deduction with the tax credit that ended last year. The tax credit got you some nice money, but the mortgage deduction? Not so much. Lower income families will more than likely have no taxable earnings after normal deductions anyway, so for many of those families the mortgage deduction does nothing for them currently.
The net result is that this would mostly affect middle and upper class families, while essentially leaving lower and lower middle class families alone.
The higher the mortgage, the more interest a person pays. Take that credit away, and you automatically raise taxes, though not by much.
Don't get me wrong, I think it is a positive thing. I'm all for simplifying the tax code. I'd be fine with removing all deductions but I would want some pretty comprehensive tax reform. I don't know the last time some of you have looked at the Circular E (IRS Publication 15) but the tax tables are utterly overwhelming.
Posts: 1937 | Registered: Nov 2006
| IP: Logged |
quote:Originally posted by Geraine: Don't get me wrong, I think it is a positive thing. I'm all for simplifying the tax code. I'd be fine with removing all deductions but I would want some pretty comprehensive tax reform. I don't know the last time some of you have looked at the Circular E (IRS Publication 15) but the tax tables are utterly overwhelming.
What is it about the tables that you find overwhelming?
Posts: 644 | Registered: Sep 2008
| IP: Logged |
quote:Originally posted by Geraine: Don't get me wrong, I think it is a positive thing. I'm all for simplifying the tax code. I'd be fine with removing all deductions but I would want some pretty comprehensive tax reform. I don't know the last time some of you have looked at the Circular E (IRS Publication 15) but the tax tables are utterly overwhelming.
What is it about the tables that you find overwhelming?
The tax tables. There are literally thousands of them. The fact that I am so close to the next tax bracket that if I work literally 3 hours of overtime I actually get paid LESS than if I didn't.
The 10-35% marginal rates aren't too bad. The problem lies in the formula the IRS uses to calculate your tax liability. Then you factor in all of the deductions, credits, etc. and you suddenly have a massive mess when you go to file your taxes. It does wonders for H&R Block.
OASDI and Medicare are easy to calculate, and I appreciate that. In my perfect world, Federal Income Tax would be based on a flat percentage with different wage base limits, like OASDI is currently framed.
For example you don't pay federal income tax on the first $20,000 you make, once you hit $20,001, any future earnings are automatically taxed at 10%. When you hit $80,000 this goes up to 15% on future earnings, $150,000 goes to 20%, $500,000 it goes to 25%, etc. Those aren't the numbers I'd choose, just throwing numbers out there so you get the idea.
That would help the lower and middle class while the wealthy shoulder more of the tax burden. No W-2 forms would be needed, and nobody would need to file anything at the end of the year.
Posts: 1937 | Registered: Nov 2006
| IP: Logged |
quote:For example you don't pay federal income tax on the first $20,000 you make, once you hit $20,001, any future earnings are automatically taxed at 10%. When you hit $80,000 this goes up to 15% on future earnings, $150,000 goes to 20%, $500,000 it goes to 25%, etc.
You realize that this is the status quo, right? That what you're describing is in fact a marginal tax rate?
What you seem to be saying is that you find claiming deductions to be excessively complicated. You can of course simplify this by not claiming any but the default.
Posts: 37449 | Registered: May 1999
| IP: Logged |
posted
Geraine, I know how the mortgage deduction works. I'm not a fool.
I've always had enough deductions to justify itemizing even without a mortgage. I don't know how common that is but if you start from that position its pretty simple. If you are in a 20% tax bracket and your mortgage interest payment is $1000/month (a fairly modest mortgage in many parts of the country) and you have other deductions that are greater than or equal to the standard deduction, eliminating the mortgage deduction would increase your tax burden by $2400. If you are on edge of solvency, that additional tax burden could easily push you over the edge.
Posts: 12591 | Registered: Jan 2000
| IP: Logged |
posted
Rabbit, it wasn't my intention to imply you didn't. My point is for most households in America, especially those living in poverty, eliminating the mortgage deduction would not have an effect, and is effectively a progressive tax increase on the middle and upper classes.
Tom: It is a form of marginal tax, but it is not the status quo. Right now the IRS looks specifically at your gross taxable wages for the year, and that is what determines your tax owed. Your taxable wages can be manipulated by things such as medical, 401(k), dependents, etc.
If you remove the deductions as well as the loopholes, and replace the tax system with a tiered structure that is calculated based on YTD wages instead of End of Year wages, there would be nothing for an individual to file.
Posts: 1937 | Registered: Nov 2006
| IP: Logged |
quote:Right now the IRS looks specifically at your gross taxable wages for the year, and that is what determines your tax owed. Your taxable wages can be manipulated by things such as medical, 401(k), dependents, etc.
So your problem isn't with the tax tables; it's that we allow deductions.
Posts: 37449 | Registered: May 1999
| IP: Logged |
Blayne Bradley
unregistered
posted
So apparantly Congress is going to absolve themselves of the sequesting trigger of the supercommittee?
IP: Logged |
apropos of nothing, did you know congress il literally less popular than the notion of america becoming a communist country?
Posts: 15421 | Registered: Aug 2005
| IP: Logged |
posted
9% and 11% is almost certainly within the statistical margin of error, but it's still pretty embarrassing.
Posts: 10886 | Registered: Feb 2000
| IP: Logged |
Seriously, I remember when we were all up in arms about Larry Craig perhaps not leaving the Senate. I'm freaking sick of Charlie Rangel. I remember him being asked by a reporter whether his ethics violations necessitated his resigning, he looked at him like he was speaking another language. Of course not! Charlie Rangel doesn't answer to ethics!
Posts: 14316 | Registered: Jul 2005
| IP: Logged |
quote:Originally posted by Geraine: Rabbit, it wasn't my intention to imply you didn't. My point is for most households in America, especially those living in poverty, eliminating the mortgage deduction would not have an effect, and is effectively a progressive tax increase on the middle and upper classes..
She just formulated a very clear example of what section of society might feel an effect. A family at the brink of solvency could see their total outlay increase by roughly 1/6th of their mortgage payments. And that is on a decidedly modest mortgage, in many areas.
Posts: 9912 | Registered: Nov 2005
| IP: Logged |
quote:Originally posted by Geraine: Don't get me wrong, I think it is a positive thing. I'm all for simplifying the tax code. I'd be fine with removing all deductions but I would want some pretty comprehensive tax reform. I don't know the last time some of you have looked at the Circular E (IRS Publication 15) but the tax tables are utterly overwhelming.
What is it about the tables that you find overwhelming?
The tax tables. There are literally thousands of them. The fact that I am so close to the next tax bracket that if I work literally 3 hours of overtime I actually get paid LESS than if I didn't.
They would literally pay you less? That is hat you are saying? By working more you stand to be compensatd for that work with a net decrease In pay? Really?
Posts: 9912 | Registered: Nov 2005
| IP: Logged |
quote:Originally posted by Geraine: Don't get me wrong, I think it is a positive thing. I'm all for simplifying the tax code. I'd be fine with removing all deductions but I would want some pretty comprehensive tax reform. I don't know the last time some of you have looked at the Circular E (IRS Publication 15) but the tax tables are utterly overwhelming.
What is it about the tables that you find overwhelming?
The tax tables. There are literally thousands of them. The fact that I am so close to the next tax bracket that if I work literally 3 hours of overtime I actually get paid LESS than if I didn't.
They would literally pay you less? That is hat you are saying? By working more you stand to be compensatd for that work with a net decrease In pay? Really?
It is possible that making more disqualifies him for some tax credits, like the earned income credit. But didn't we go though this with mal at some point showing that this was flawed?
Posts: 2223 | Registered: Mar 2008
| IP: Logged |
posted
A lot of people get confused about the fact that moving into a higher tax bracket doesn't mean your entire income is taxed at that level, just the income made over the threshold.
But it is possible that crossing said threshold disqualifies him for some sort of tax credits. Most people aren't that aware of their own tax situation, and for that matter, most people aren't so on the cusp that going over wouldn't outweigh the negatives, but it's certainly possible.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
Of course. But at no point is a person literally compensated for his work less than if he had worked fewer hours. He may miss out on credits, but you do not *earn* less money.
Posts: 9912 | Registered: Nov 2005
| IP: Logged |
posted
At what point does that become a distinction without a difference? The bottom line is less money, and being wrong about how his money is being withheld, while still being right about the cause, doesn't really change anything substantive.
Either way, I think the most likely answer is that he's simply doing his taxes wrong.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
If you are close to the poverty line, you can get a negative effective marginal tax rate due to the loss of certain tax credits and government transfers, in Canada anyways. It is a bit silly.
Posts: 7593 | Registered: Sep 2006
| IP: Logged |
quote:Originally posted by Lyrhawn: Either way, I think the most likely answer is that he's simply doing his taxes wrong.
I started doing taxes for my company at 23 and even in that byzantine mess I never really found any situation that would be true there unless I really, really was doing my taxes wrong.
Of course, I don't do my own taxes anymore, I hire professionals. I could ask them if there's ever those sorts of situations these days, but honestly the system is so favorable to people like me that I doubt we're really talking about a real problem.
Posts: 15421 | Registered: Aug 2005
| IP: Logged |
posted
Well, that's probably the point, Samp; presumably Geraine isn't independently wealthy, so it's possible that he's getting some sort of credit right now that he'd lose if he went over the limit. I will say that I grew up very poor, and we occasionally ran into situations like this -- but never from federal taxes. Usually there were high-value services (provided by local and state governments, and charities) that were provided to us based on our income level that, if we nudged our income too high, would be retracted, forcing us to replace their assistance with a high-cost option that more than wiped out the income gain. Again, though, this wasn't a tax problem.
Posts: 37449 | Registered: May 1999
| IP: Logged |
posted
And regardless, blaming this supposed catch-22 on tax credits is a bit disingenuous. If the credits weren't there, he would be working more hours for the same money anyway. losing a benefit is not losing earnings, and the solution to the problem would be just to eliminate the benefit entirely, with the same result.
He can talk about this as a perverse incentive, but not with much gravity. As a net thing, the elimination of the tax credit would have only a negative effect on his income. He's just sore that he can't collect *and* earn enough not to qualify for it. Which is just sour grapes over a problem that doesn't really exist anyway.
Posts: 9912 | Registered: Nov 2005
| IP: Logged |
Blayne Bradley
unregistered
posted
Obama says he will veto the bill to remove the trigger?
IP: Logged |
posted
News reports indicate that Press Secretary Carney, when pressed by reporters, refused to commit the President to a veto, but he's threatened some sort of action of they "water down" the trigger.
Vague but threatening.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
Blayne Bradley
unregistered
posted
Today has been a great day, the supercommittee has failed and the defense budget will get cut!
IP: Logged |
posted
The Democrats will probably come out ever so slightly ahead in this. Polls show a majority of people agree with their plan to cut and raise taxes...
But if the trigger does go through it will be a mixed blessing. Most people don't support cuts to defense spending, necessary as I think it might be. The trigger is a pretty harsh mistress. However, cuts are still cuts, and everything has to feel the pinch. If Democrats stick to their guns and let the cuts go through, they might be able to work it to their advantage, especially if it forces Republicans to attack them for cutting spending.
I will say though, that Democratic plans to count less money for Iraq and Afghanistan is exactly what the GOP is calling it; a gimmick. You can't count that as savings.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
quote:The Democrats will probably come out ever so slightly ahead in this. Polls show a majority of people agree with their plan to cut and raise taxes...
I don't know, it strikes me that the Republicans staked out a position (no tax increases) that they knew was going to fail from the very start. I get the feeling they may have put more planning into what they were going to do after the talks failed than the talks themselves. I expect to see their strategy emerge in the next couple of weeks.
---
Although, maybe that is just me seeing strategy behind good old fashioned stupidity. I don't know, I see the Republicans moving more and more away from both what the majority of the country wants and things that would actually work in reality and I figure that they're doing it for a purpose.
Posts: 10177 | Registered: Apr 2001
| IP: Logged |
posted
I think they fully expected the Democrats to cave weeks ago, and have no idea how to get out of this. The only people with them are their core base of voters. Independents are solidly with a tax AND cut plan. If Obama can bring on Candidate 2.0, a souped up version of how he ran four years ago, he'll mop the floor with them AND pick up seats in Congress.
I think they thought the no new taxes plan was going to work great, because they've rolled Obama so much already. Look what happened at the debt ceiling debate. They got an all cuts trillion dollar cut. I think they're floored that Democrats are refusing to do it all on cuts, and the only thing they know how to do is stick to their guns, because caving means that they piss even their base off, who are perfectly content to watch things collapse.
This is all by the seat of their pants.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
That's possible. Did you see Meet the Press this past Sunday? Jon Kyl basically said, "The Democrats just weren't willing to negotiate. We offered a wide range of spending cuts and they wouldn't go with any of them. They kept saying that we'd need to raise taxes as well. I mean how do you deal with people who aren't willing to completely cave and give you everything you want?"
The weird thing for me is that at least some of the Republicans have got to know that the things they are asking for are ridiculous. And I mean, not in the "our opponents aren't going to give this to us", but in the "this doesn't match with reality and/or this will severely damage the country" sort of way. That's the sort of thing you bring as a negotiating position. They shouldn't want to get them, let alone be unwilling to take anything less.
I mean, I'm starting to think that the march of insane plans from fantasyland that we're getting in the Republican primaries represents things that they are actually going to try to accomplish.
Posts: 10177 | Registered: Apr 2001
| IP: Logged |
posted
lol I didn't see it, but I'll catch the clip later. What you just paraphrased has basically been their main talking point for weeks now.
The problem with the GOP is that this line was working fine a year ago. But the time to compromise was a year ago when they had the high ground. But they've ridden this issue into the ground now, and now the Democrats are on top of it. They badly miscalculated after Dems caved on the debt ceiling deal.
I read an article that came out right after the debt ceiling deal about how it wasn't as bad for Democrats as it looked, because Democrats could stonewall for tax cuts during the Super Committee, and if the GOP wouldn't cave, all they had to do was wait. Bush tax cuts are set to expire. Military spending is going to take a huge half trillion dollar hit. Dems are going to get a lot of what they want simply by doing nothing at all. With Obama actually threatening a veto of a GOP plan to kill the trigger, it looks like that's exactly what they are doing, and it's brilliant.
A year from now, the GOP is the party that wanted to sink the nation to protect the rich, and the Dems are the party that made the tough choices to cut spending and raise taxes on the wealthy when the GOP wanted to punt yet again.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
This seems so counter-intuitive I feel like I must be missing a major aspect of this development.
Why on earth is a two month extension of the payroll tax cut, which has extremely broad bi-partisan report suddenly dead in the water? They are saying it's these same freshmen congressmen who fouled up the debt limit deliberations. But if these numbers are accurate, how could the freshmen put a stop to it by themselves? Their numbers are not *that* significant. So what is at work here? Why is Boehner so beholden to this new group?
Either way, not letting the Bush tax cuts expire, while simultaneously letting the payroll tax do just that seems like such a hefty crate of ammunition to just hand the Democrats.
Posts: 14316 | Registered: Jul 2005
| IP: Logged |
posted
I heard a Republican Congressman interviewed about this on my way to work. He says the House wants to extend the payroll tax cut for a year, not two months, and that two months would just be punting -- Congress nominally resumes on Jan 23, so this debate would start up again pretty much immediately with at two-month extension. A year extension, he said, would give workers and employers more certainty.
Posts: 10886 | Registered: Feb 2000
| IP: Logged |
quote:Originally posted by twinky: He says the House wants to extend the payroll tax cut for a year, not two months, and that two months would just be punting
And put the debate right in the peak of campaigning time, which they don't want.
Posts: 32919 | Registered: Mar 2003
| IP: Logged |
Printer-friendly view of this topic
