Trump's Full Court Press on Tax Reform

[pr0ner]

Thanks to malchior and stessier for bringing up that point which I didn't make in my own response.

[Isgrimnur]

Some states get twice as many dollars back as they pay out and the high tax states almost all get less than a dollar back on their dollar.

Wallethub data

[PLW]

Sales tax is deductible on your federal return. Well, it's either sales or income - you can't do both. But I've always thought that was stupid and you should be able to deduct both.

Most people don't take that deduction, and I've never heard someone complain that they are getting "Double taxed." That suggests to me that "double taxation is wrong" is a moralizing canard and what people really mean is "I want to pay lower taxes." And, again, that's a sentiment I totally stand by.

[malchior]

Again, you are the one needs to make an argument about why "double taxation" is bad. I don't have to make an argument for that claim, because I don't believe it. I did make an argument for why a SALT deduction is bad.. it distorts consumption decisions (see ponies, above). Your comments quoted here to speak to that argument at all.

At this point you still haven't acknowledged that your pony example is inherently flawed. Your consumption decisions are distorted as well because we are paying for your ponies. Food stamps, medicaid, medicare, and social security payments are flowing into the lower tax states from the high tax states. And this policy increases the inequity. That is what you are ultimately arguing for.

[PLW]

If that was all the federal government did, you'd have a case. But it also includes welfare programs and block grants that bolster services low income tax states lack. At that point your argument falls apart.

Can you say more? I'm not following. Some states have lower incomes than others, and they are (appropriately) net beneficiaries of federal redistribution. I don't see how that directly ties to state-level tax systems. Could you make the connection clearer?

[pr0ner]

There's some real irony in your argument when you have a "But Her Emails" avatar.

I don't understand the irony. Everyone who supports Hillary over Trump is supposed to support SALT deduction?

And I shouldn't have to pay taxes to the feds on taxes I pay to Virginia because that money is never part of my adjusted gross income.

That's still not a reason. The policy proposal is exactly to make it part of you adjusted gross income. You are literally saying "We shouldn't change the policy because it would change the policy".

On the flip side to your argument, why should someone who has kids pay lower federal taxes than I do, assuming all other circumstances are the same? If we're taking SALT away, we might as well take tax credits away for having children, too. Or get rid of the mortgage interest deduction entirely, because it's not fair that I get to pay less in taxes because my mortgage is bigger than yours. Or any other deduction that makes things "unfair".

Again, you are the one needs to make an argument about why "double taxation" is bad. I don't have to make an argument for that claim, because I don't believe it. I did make an argument for why a SALT deduction is bad.. it distorts consumption decisions (see ponies, above). Your comments quoted here to speak to that argument at all.

A) That the irony is lost on you is pretty great.

B) Calling something a tax cut by making a policy change that will raise my taxes is not a tax cut.

C) I've made my argument as to why it's bad. Clearly you don't agree with it. But since you argued fairness as part of your argument (i.e. why should you pay more when I pay less), I gave other examples to show that the tax code isn't fair, and we might as well get rid of those deductions, too, so that we both pay the same.

But as others have shown, it doesn't work that way, so no, we shouldn't pay exactly the same simply because you live in South Carolina and I live in Virginia.

[PLW]

Again you are completely missing that the Federal government is pouring more money into the lower tax states. That is part of why they have lower taxes. Some states get twice as many dollars back as they pay out and the high tax states almost all get less than a dollar back on their dollar.

I don't know of any major Federal policies which depend on state's tax systems. I know lots of policies that direct money from rich people to poor people. Some states have more rich people and some have more poor people. The states with lots of rich people tend to have higher taxes (probably because public goods are like most all other goods, and people want more of them as they get richer). You are claiming that California gets less federal money because their taxes are higher. I'd like to see some evidence for that, because I doubt it. For example, the Medicaid expansion worked in exactly the opposite way. You got MORE federal money if you promised to raise your taxes (essentially).

[raydude]

Because the federal government shouldn't get to tax me on taxes paid to my state.

But WHY? You just restated your position. You didn't give any reasons.

You choose to live in a high-tax state, which (hopefully) provides high levels of public goods. I choose to live in a low-tax state. Why do you pay lower federal taxes than I do, when we make the same levels of income? We both get the same levels of national defense, EPA enforcement, etc.

You are ignoring the value of "high level of public good" in your equation. Take the case of Kansas vs. that of Connecticut. Connecticut has a high state income tax, part of which goes toward providing a good public education. To my recollection Connecticut has some of the better public schools in the country. Maybe not the best but better than average.

In contrast the low tax rate put in place by Gov Brownback of Kansas is such that public schools are at risk, pre-K programs are cut, and generations of kids are being provided less than adequate education.

The people who live in a high-tax state value the high levels of public good that the state provides which are not being provided by the federal government but arguably should be. They shouldn't be taxed twice on the high levels of public good that are being provided.

[PLW]

Some states get twice as many dollars back as they pay out and the high tax states almost all get less than a dollar back on their dollar.

Wallethub data

This is super useful. To my point above, compare two graphs under the section "Correlation Analysis". There seems to be no relationship between tax rates and "federal dependency", but there is an obvious negative correlation between state GDP and "federal dependency".

[malchior]

Here is another stab at the apple on the double taxation front - my state chooses to have social services. So I pay taxes that support those social services. According to those against the SALT deduction I'm supposed to be ok with paying taxes on those states taxes paid so that their state can get those services from the Federal government instead. Again this isn't an argument against redistribution because that ship sailed after the Civil war. What we are saying is that it is unfair to put further burden on us. Especially to give corporations which are making record profits a tax break. And to send more money to other states so that their citizens enjoy lower taxes. And spoiler alert this is political warfare of the worst sort. They are putting the screws to their enemies financially for political gain. This is wrong on several levels.

Ultimately this issue is very similar to part of what is fueling the issues we see in places like Quebec or Catalan. Eventually the wealthy regions start wondering when enough is enough. I imagine when hundreds of thousands of people in the NE get hit with a massive tax hike while they are struggling already that they'll start wondering about that too.

[Blackhawk]

Wallethub data

That map looks oddly familiar, like I've seen it somewhere else. Does it come in different colors?

[Octavious]

I see people on the NJ site believing still that this will cut their taxes. I hope this passes just to watch what happens. Who cares if it dooms our future and generates an even more gigantic income gap? Nice of them to let the companies keep their deductions. The 15% cut wasn't enough.

[malchior]

I don't know of any major Federal policies which depend on state's tax systems. I know lots of policies that direct money from rich people to poor people. Some states have more rich people and some have more poor people. The states with lots of rich people tend to have higher taxes (probably because public goods are like most all other goods, and people want more of them as they get richer). You are claiming that California gets less federal money because their taxes are higher. I'd like to see some evidence for that, because I doubt it. For example, the Medicaid expansion worked in exactly the opposite way. You got MORE federal money if you promised to raise your taxes (essentially).

That is because you've got the relationship completely backwards. The state's tax system depends on the Federal policy. Medicaid expansion (when taken) led to major inflows of cash to their state. Often from high wage states. Federal highway tax money flows from high tax to low tax states. Military bases were intentionally moved from high tax states to low tax states. Partially for the cost savings and partially for political reasons. That lead to massive flows of cash from high tax to low tax. Federal education dollars flows from high tax to low tax to attempt to bring them up to standards comparable with the high tax states. There are literally thousands of programs that operate this way. It isn't simply from rich to poor. That is definitely part of it but more so the low tax states balance their budgets on the backs of high tax states. And the high tax states are being asked for more. That ain't right.

[LordMortis]

Sales tax is deductible on your federal return. Well, it's either sales or income - you can't do both. But I've always thought that was stupid and you should be able to deduct both.

Most people don't take that deduction, and I've never heard someone complain that they are getting "Double taxed." That suggests to me that "double taxation is wrong" is a moralizing canard and what people really mean is "I want to pay lower taxes." And, again, that's a sentiment I totally stand by.

Weird. I have. I first heard about when someone went off on a grocer charging sales tax on a stamp.

Also if you could tax a tax then you could end up in a position where there is a never ending increase in the amount you owe if the aggragate tax exceeded 100%.

At the same time the logic confuses me because there are taxes built into tobacco and alcohol and then those taxes have an additional sales tax on them (in my state)

And if we take away all of the deductions Pr0ner questions then I'd be sitting pretty. No kids. No morgage. I pretty much pay for everyone all of the time. *shrug*

[malchior]

And if we take away all of the deductions Pr0ner questions then I'd be sitting pretty. No kids. No morgage. I pretty much pay for everyone all of the time. *shrug*

That is another unconscionable thing - some of us planned long-term using the tax landscape as it has existed since the tax code was created. This overhaul pulls the rug out from under us and NJ is already one of the lowest growth states in the country. This will have a severe impact on the local economy as potentially billions of dollars are suddenly sucked out of the local economy and shipped off to support the low tax states and corporations.

Edit: Wouldn't it be ironic if this finally leads to a big financial crisis as NJ starts defaulting on pensions/bonds.

[PLW]

B) Calling something a tax cut by making a policy change that will raise my taxes is not a tax cut.

I'm not sure who you are arguing with. I never called removing the SALT deduction a tax cut. It's clearly a tax increase.

C) I've made my argument as to why it's bad. Clearly you don't agree with it. But since you argued fairness as part of your argument (i.e. why should you pay more when I pay less), I gave other examples to show that the tax code isn't fair, and we might as well get rid of those deductions, too, so that we both pay the same.

I see the confusion. There are two streams of argumentation.

First, is "double taxation" bad? You said it was. I said, "why?" And you still haven't given a reason.

Second, is the "SALT deduction bad". I said it was, because it distorts consumption decisions, both along the public vs private dimension (public ponies versus private ponies) and along the intensive dimension (yes to ponies or no to ponies). I'm 100% confident in this argument. It's basic economics.

I also said it was bad because it wasn't "fair". Why should you contribute less to the federal government than I do, just because you chose to live in a locality that provides more local public goods? You then cite some other cases where some people don't pay the same as others "just" because they make other sorts of decisions: taking out a mortgage, having kids, etc. I agree with you on mortgage deductions. I think they are dumb.

Kids are a tougher case. We subsidize kids in lots of ways, public schools being the obvious one, and generally this is for paternalistic and/or demographic reasons. Either, we subsidize kids because they can't subsidize themselves (but would), or we subsidize kids because they pay tomorrow's social security. Lot's of countries do this, and we can argue about it, if you want. But I think there is at least a colorable economic argument to be made.

But, in general, we require a public purpose for a deduction. I just don't see it for SALT.

[malchior]

Second, is the "SALT deduction bad". I said it was, because it distorts consumption decisions, both along the public vs private dimension (public ponies versus private ponies) and along the intensive dimension (yes to ponies or no to ponies). I'm 100% confident in this argument. It's basic economics.

Funny because many economists would claim you are 100% wrong. This has been argued to death for years. FWIW your model is likely wrong because it is far too simplistic. You are completely ignoring all the factors I'veseveral of us have pointed out.

Edit: To further flesh out the thought - you are 100% right about 10% of the issue. Sure there is some incentive for higher property taxes. But Federal spending and tax policy in other areas leads to other states not relying on state or property taxes. Moreover if SALT is bad policy why is it still good for Corporations? The bottom line is this isn't some thoughtful plan that brings fairness or restore economic parity back to the tax code. It is political at best. And a recipe for disaster at worst.

[pr0ner]

https://twitter.com/hillhulse/status/926130941847842816

[Remus West]

First, is "double taxation" bad? You said it was. I said, "why?" And you still haven't given a reason.

Allow me. Pay me a slight tax on your income. Say 15%. Now pay LordMortis a slight tax. Say 10%. Right now your have been double taxed and are out of 25% of your income. Now think of us as your local tax gathering entities. Now add in State and Federal level. Give them 30% and 35% respectively. You are now out of 90% of your income due to being double taxed on it. Do you see why the practice is bad?

But, in general, we require a public purpose for a deduction. I just don't see it for SALT.

If I pay a high local tax rate to provide good schools, police, firefighters, medical facilities, etc. Why should I pay again from the same pool of money to provide someone who pays a lower rate of tax than I do the same benefits. If every State had the exact same tax rates then I would agree with you that SALT deductions are silly. Trouble is you have some States paying way higher rates - not dollar amounts, rates - and sending their federal dollars to States that tax at a much lower rate. It has nothing to do with the dollar amount raised but the rate at which it is collected.

[Pyperkub]

Again you are completely missing that the Federal government is pouring more money into the lower tax states. That is part of why they have lower taxes. Some states get twice as many dollars back as they pay out and the high tax states almost all get less than a dollar back on their dollar.

I don't know of any major Federal policies which depend on state's tax systems. I know lots of policies that direct money from rich people to poor people. Some states have more rich people and some have more poor people. The states with lots of rich people tend to have higher taxes (probably because public goods are like most all other goods, and people want more of them as they get richer). You are claiming that California gets less federal money because their taxes are higher. I'd like to see some evidence for that, because I doubt it. For example, the Medicaid expansion worked in exactly the opposite way. You got MORE federal money if you promised to raise your taxes (essentially).

Unfunded mandates depend on state's tax systems. E.G. No Child Left Behind.

[PLW]

Funny because many economists would claim you are 100% wrong.

Remember this guy? Obama's chief economist Jason Furman:

https://twitter.com/jasonfurman/status/ ... 7401812992

[Zarathud]

I've always thought the mortgage interest deduction was dumb, because subsidizing large mortgages doesn't seem to have a clear public purpose. I never really understood the point of SALT deduction, either. It makes it "cheaper" for state and local gov'ts to raise taxes, which gives them bad incentives to do so.

The SALT deduction means you're not getting double taxed on that money, though.

Repealing the SALT deductions shows the Republicans are committed to states rights and federalism only when convenient. As I explained before, the SALT deduction is to recognize that the federal income tax should come AFTER you're taxed by the states.

If you're rich and have an estate between $11-22 million, double taxation is BAD and you get 6 years of tax relief! If you're in a Blue State, double taxation by paying taxes on your state taxes permanently is OK! WTF?

The other winners and losers are interesting. Private colleges and universities get hit with an extra 1.4% investment income tax. Lawyers, doctors, and other licensed professionals aren't eligible job creators for those tax cuts. But if you're investing in robots over the next 5 years you get to deduct 100% now.

It's a shit show I get to review and follow in horrible detail over the next few months.

[PLW]

I don't know of any major Federal policies which depend on state's tax systems. I know lots of policies that direct money from rich people to poor people. Some states have more rich people and some have more poor people. The states with lots of rich people tend to have higher taxes (probably because public goods are like most all other goods, and people want more of them as they get richer). You are claiming that California gets less federal money because their taxes are higher. I'd like to see some evidence for that, because I doubt it. For example, the Medicaid expansion worked in exactly the opposite way. You got MORE federal money if you promised to raise your taxes (essentially).

Unfunded mandates depend on state's tax systems. E.G. No Child Left Behind.

I should have been clearer with what I mean by "depend on". I mean, I don't know of Federal Programs which give your state more money if you tax/spend less. Rather, most go the other way, with some sort of matching deal.

[PLW]

duplicate

[PLW]

First, is "double taxation" bad? You said it was. I said, "why?" And you still haven't given a reason.

Allow me. Pay me a slight tax on your income. Say 15%. Now pay LordMortis a slight tax. Say 10%. Right now your have been double taxed and are out of 25% of your income. Now think of us as your local tax gathering entities. Now add in State and Federal level. Give them 30% and 35% respectively. You are now out of 90% of your income due to being double taxed on it. Do you see why the practice is bad?

I agree that 90% tax rates are bad. I don't know why it's worse when it comes from summing rather than from multiplying.

[Pyperkub]

the Health Care deduction elimination is going to absolutely crush us next year if it becomes law.

[malchior]

Funny because many economists would claim you are 100% wrong.

Remember this guy? Obama's chief economist Jason Furman:

https://twitter.com/jasonfurman/status/ ... 7401812992

Again you keep focusing on one element - I don't think anyone would argue it doesn't distort. That isn't 100% of the story. Picking out one part of tax policy and saying it is bad and ignoring all the other factors that influence it doesn't make a lick of sense. And again if SALT is so bad despite being in code in form or another since 1862 then why do Corporations keep it?

[PLW]

Again you keep focusing on one element - I don't think anyone would argue it doesn't distort. That isn't 100% of the story. Picking out one part of tax policy and saying it is bad and ignoring all the other factors that influence it doesn't make a lick of sense. And again if SALT is so bad despite being in code in form or another since 1862 then why do Corporations keep it?

Sorry, I thought you were disputing the distortion point. I didn't see your addendum. I take it we're all on board that SALT deduction has one drawback. I also had a fairness argument, but I admitted it was more speculative.

Now, I'm all ears. What are the economic or philosophical advantages of the SALT deduction? So far I see:

1. It's been with us since 1862.
2. People have planned on it.
3. Double taxation is bad.
4. It federal taxes in CA/VA more than in SC, and that's not fair.

What am I missing?

[malchior]

Again you keep focusing on one element - I don't think anyone would argue it doesn't distort. That isn't 100% of the story. Picking out one part of tax policy and saying it is bad and ignoring all the other factors that influence it doesn't make a lick of sense. And again if SALT is so bad despite being in code in form or another since 1862 then why do Corporations keep it?

Sorry, I thought you were disputing the distortion point. I didn't see your addendum. I take it we're all on board that SALT deduction has one drawback. I also had a fairness argument, but I admitted it was more speculative.

Now, I'm all ears. What are the economic or philosophical advantages of the SALT deduction? So far I see:

1. It's been with us since 1862.
2. People have planned on it.
3. Double taxation is bad.
4. It federal taxes in CA/VA more than in SC, and that's not fair.

What am I missing?

You are completely missing the point is what I'd continue to argue. Look at the big picture. The only reason they are eliminating it is to give that money to Corporations. That it punishes blue states is a nice bonus. That it also continues to subsidize low taxes in red states is yet another bonus. If you are ok with that. Cool. But again that is what you are arguing for. Making some theoretical argument about distortions around one component of tax policy while ignoring all the other distortioning factors again does not *make any sense*.

[PLW]

Woah.. let's separate that. I'm not arguing for this bill. It's a disaster from lots of perspectives. My only argument is that eliminating the SALT deduction (and lots of other deductions) makes a lot of sense. If I had my way, we'd eliminate them and use the money we get to lower the bottom two tax rates. Heck, I'd push the bottom rate to be essentially zero (even negative).

[El Guapo]

I think PLW is arguing for the SALT deduction elimination in the abstract, rather than as a part of this bill.

And for what it's worth I think most people would be far more receptive to restrictions / elimination of the deduction if it were part of a genuine tax reform package, as opposed to a tax giveaway to the rich.

[Grifman]

The insane thing about this plan is that the tax cuts of $1.5 trillion that has been bandied around is really much greater than that. The cuts add $1.5 trillion off of the proposed total Republican budget. And that budget already has cuts in Medicare, Medicaid, etc of $1.8 trillion, along with other massive cuts in other programs. So the actual cuts are much greater than $1.5 trillion because the $1.5 trillion addition to the deficit assumes these cuts happen. If these cuts never happen, which is highly likely, the deficit impact will be much worse. I’ve read it’s more like $5 trillion. It’s a giant shell game.

[Zarathud]

Time to peel away the idea of the effects of tax policy and the theory for taxing.

Taxes always have some distortion in their effects. A good tax policy gives some outside justification other than its effects.

This bill has no consistent tax policy to justify it other than the effects benefiting Republican constituencies.

That's way a long-standing principle of federal tax supporting SALT deductions is so important. Federalism and the idea that states tax first are important non-economic justifications that should outweigh who gets to buy ponies.

It's part of the continuing Trump/Republican way of undermining rational government for power politics.

[malchior]

Woah.. let's separate that. I'm not arguing for this bill. It's a disaster from lots of perspectives. My only argument is that eliminating the SALT deduction (and lots of other deductions) makes a lot of sense. If I had my way, we'd eliminate them and use the money we get to lower the bottom two tax rates. Heck, I'd push the bottom rate to be essentially zero (even negative).

Fair enough and I'd agree if that was what was being proposed that'd be fair game. The way I see it is that what is in front of us is a political attack on the blue states to fund tax breaks for wealthy donors. I only wish this was about a principled debate about tax policy.

Edit: Well said Zarathud. I agree 100%. In effect, it punishes the blue states' method of raising revenue in favor of the red state way...which so happens to be subsidized by the blue state way.

[pr0ner]

1. It's been with us since 1862.
2. People have planned on it.
3. Double taxation is bad.
4. It federal taxes in CA/VA more than in SC, and that's not fair.

Item 4 is partially wrong - your state income tax rate in SC is higher than mine in Virginia.

[Smoove_B]

My people online are reporting that the Cut Cut Cut Plan will allow you to purchase a 529 College Savings account for your unborn child, i.e. a developing fetus.

Because if you can purchase a college education for a fetus, life must have started at conception ERGO no abortion. I really don't know any other way to interpret that, but clearly this is a well-thought out policy adjustment designed to really address taxation issues in the United States.

[malchior]

Well that is completely bonkers. The courts must look forward to untangling that shit show.

[Isgrimnur]

I look forward to fetuses being issued SSNs and qualifying as dependents.

[Ralph-Wiggum]

Someone needs to learn the correct way to write out Linnean nomenclature. But, then again, maybe that would be too close to providing tacit approval of science.

[Kraken]

the Health Care deduction elimination is going to absolutely crush us next year if it becomes law.

I'm surprised that nobody is talking about this...maybe because the threshold is so high? People with huge medical bills need relief more than anyone. And with the Republicans actively working to ruin the health insurance marketplace as the American population ages, that's going to be more and more of us.