The GOP's tax plan
House Republicans unveiled their tax plan today, and boy do I hate it. And I'm saying this as a conservative Republican who has never voted for a Democrat.
The key components of the plan are as follows:
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Federal tax bracket will be reduced from seven to four: 39.6%, 35%, 25%, 12%
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Corporate tax reduced to 20%
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Child tax credits raised from $1,000 to $1,600
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401K is preserved
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Write off up to $10K in state and local property taxes
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Mortgage interest deduction cut in half
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Repeal of the alternative minimum tax
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Double the estate tax exemption and repeal it altogether in six year
This is a shitty plan. First, I'm a strong believer in a high estate tax, as inherited wealth should be treated very differently from earned wealth. Second, there is very little here for working and middle class Americans. That is important because they are the primary spenders, and we need a boost on the aggregate demand side. And politically, they are the voters who make the difference in elections. This plan only reinforces the conventional view that the GOP only cares about the wealthy. Of course, Trump is not intelligent enough to understand the nuances of the plan, so he will sign whatever the Republicans put on his desk.
Damm, I wish the brilliant Ted Cruz were President.
let's address these one by one (FYI I'm also a fiscal conservative
less brackets - fine
corp tax rate reduced - love it. you forgot to mention no more deductions for interest, which is also something I love. while credit is important in capitalism, financial responsibility is more important.
child tax credits increased - I don't think you should incentivize procreation, but whatever it's fine, it helps the lower class.
401k preserved - love it
SALT, I'm curious what your source is here, the WSJ article I read said they're reducing deductions here - I'm lukewarm on this one, I think you choose to live in an area with high taxes, so you're free to move, so while I agree with the principle here (you want to live in NYC? fine, pay the taxes), this will negatively affect the muni market which ultimately falls back on the feds.
mortgage interest deduction cut in half - wrong. it used to be on loan amounts up to $1mm, they reduced THAT figure down to $500k. while I'm not a fan of just going after the wealthy, this is not a cut by 50% in the amount people are deducting, it's simply washington going after successful americans more and disincentivizing borrowing (which I'm fine with, we should incentivize financial responsibility). at the same time, they eliminated AMT, so I bet this will be a wash for most of those affected (many of whom are my clients).
repeal of AMT - love it
estate tax - studies show that most inherited wealth is spent away by the 3rd generation, so while the estate tax is often sold as an effective transfer mechanism, human behavior is way more effective. this will eliminate many of the needs of estate planning attorneys and challenge my business, but we'll adapt as we always have. so long as they keep the step up in basis, I'm good. overall, I don't care about this one.
how is there very little for working and middle class? they essentially kept all the tax incentives the middle class gets just narrowed the population (taking out the upper middle class deductions for mortgage interest & SALT while simultaneously eliminating AMT).
I'm not in love with the plan, but out of the 8 points you mentioned, I'm unsure how this leads you to hate the plan. if anything, you left out the two things I think are the most idiotic: ending deductions for student loan interest and medical expenses. I suppose most of this gets absorbed with a larger standard deduction, but I'd have to see the numbers on it.
for whatever it's worth, I'm sure you & I share a lot of political commonalities, but try to seek analysis either from the original source (which I couldn't find for the life of me), or from various sources leaning all direction, otherwise you'll end up with false or twisted conclusions. the "mortgage interest deduction cut in half" bit is a ploy by lazy media types who don't understand math and would rather run a sensational headline that gets people angry than actually doing the research and saying "look, most people who have mortgages over 500k aren't middle class, any deductions they lose will be offset by the elimination of AMT and the rejiggering of marginal rates. furthermore, most of the country has mortgages that are far less than 500k, the mean amount of a new mortgage is 244k last I checked, so this doesn't affect most americans. don't believe CNBC, we're not cutting it in half, just changing the calculus to broaden the revenue base."
Every household in Los Angeles has a mortgage over $500k, the idea that you are upper class once you're past that bracket sounds like something cooked up in Tuscaloosa. What the actual fuck.
Oh, cool, and also the high taxes I pay as a Californian to do what the federal government should already be doing won't be deductible anymore. Friggin' sweet.
Finally, no more student loan and medical expense deductions. Just fucking kick me while I'm down.
This tax plan is designed to fuck the upwardly mobile professional class on the coasts. It will MASSIVELY benefit the truly wealthy, though, no worries about that.
Correct. The plan benefits those who are already super wealthy, and I don't mean people like us who slave away in white collar jobs making six figures. I'm talking those who have massive wealth, either through inheritance, or through massive equity ownership in companies.
The upper class white-collar professionals in high-cost cities will get PWND by this tax plan. I also don't get having 4 brackets with no indexing tied to inflation. This will make "bracket creep" a real danger.
this is where I may lose some fans on WSO. have you ever considered that not everyone deserves to be a homeowner? have you considered that the cost of renting in some of these high CoL cities is actually way lower than having a mortgage?have you considered that you choose to live in a high CoL city instead of starting a business in Dallas, a large metro area with more reasonable prices?
I don't feel sorry for the people who live in high CoL areas, it comes with the territory. you make the choice to live there because you think you'll be better off long term. if that works out, you made the right choice, if not, well life's not fair.
I'm not saying the tax plan is fair and equitable (though again I'd like to see how much better off these upper middle class people are with the elimination of AMT and if the mortgage thing really hurts them), what I am saying is that complaining about the plight of living in southern california and saying you're getting fucked is a poor argument and I think fallacious.
would be curious to hear what labanker and jankynoname have to say. I know they're two successful californians...
Housing prices are outrageous in California because of terrible government planning practices that make it extremely difficult to build and bring on new supply. Take it up with your local government.
I'm sorry, but why should high California taxes be my problem in Virginia?
Your standard deduction is doubling. If you were a young professional today making $75,000, you'd need at least $7,500 of qualifying medical expenses just to start writing off the next dollar, assuming you were itemizing your deductions, which at $12,000 and $24,000 of standard deduction, you probably wouldn't be.
It's designed to clean up the tax code by vastly increasing the standard deduction and eliminating tax deductions that disproportionately benefit higher earners.
What do your California taxes pay for that you think the federal government should be taking care of for you?
If your taxes are too high in CA, that's CA's fault. Not the federal government's fault. Are you seriously under the impression that this is the case?
Boom. Nailed it. This just kills the highly educated professional. It’s mostly a transfer from blue states to red states (blue states already transfer a ton). It benefits people who make money the way trump makes money.
Economic theory is strongly in favor of eliminating the estate tax though personally I’m mixed. I think we should either eliminate stepped up basis or have an estate tax.
Funny thing. Most of the best paid blue state professionals most likely vote gop and they are getting hammered. For bankers and traders they largely favor gop on taxes and if they vote blue they are Jewish or don’t agree with gop morality.
Policy highlights:
https://www.documentcloud.org/documents/4172032-Tax-Cut-amp-Jobs-Act-Po…
Full bill:
https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf
Can't get the section by section summary link to work.
"2. corp tax rate reduced - love it. you forgot to mention no more deductions for interest, which is also something I love. while credit is important in capitalism, financial responsibility is more important."
Where did you see that there will be no more deductions for interest, this would be a huge change that I haven't read about yet?
From Wall Street journal: "To partly offset that lost revenue from rate cuts, Republicans plan to curtail the deductions individuals take for state and local tax payments and mortgage interest and the ones businesses get for the interest they pay on debt."
I admittedly have to do more reading on this tonight since I'm swamped today, but didn't they increase (double?) the standard deduction? IF so that is the #1 way to help the middle class.
EDIT: Under current law, in 2018, a married couple with two children making $60,000 would get a $13,000 standard deduction and four personal exemptions each worth $4,150. That means they would pay taxes on $30,400 of taxable income. Their base tax bill of $3,608 would be reduced by $2,000 in child tax credits for a total income tax of $1,608.
Under the House plan, the same married couple with two children would get $3,800 in tax credits, $3,200 for the two children and $600 for the two parents. The same family would get a $24,400 standard deduction but no exemptions, for $35,600 of taxable income. Their base tax bill of $4,272 would be reduced by the $3,800 in credits for a total income tax of $472.
This is from: https://www.wsj.com/articles/republicans-stick-with-big-corporate-tax-c…
outside of your political talking points, not sure how this $60k earning family is worse off. (by the way, I also think they went too easy on the estate tax)
roughly double. here's the WSJ article. towards the end they give a case study for a middle class family
https://www.wsj.com/articles/republicans-stick-with-big-corporate-tax-c…
I like it better than what we have, but I just fundamentally don't agree with our tax system. Capital gains tax and corporate income tax should be 0%.
Federal income tax filings should be 1 page filed by each person who earns any money (so it should be blind of marital status), and there should be only 1 tax bracket.
The form should look something like this:
2017 earnings: $50,000
Tax rate: 12%
Taxes paid: $6,500
Taxes Owed....multiply earnings by 12%: $6,000
Subtract taxes owed from taxes paid (if positive, this is your tax credit; if negative please pay this amount): $500
That's it. Our ridiculous tax code is a bonanza for special interests. And if you run a business, your net income should simply be your GAAP income (with maybe depreciation or amortization excluded). If it ain't GAAP then it is a function of a special interest.
What is your reasoning for 0% corporate and capital gains tax? I'm genuinely interested and never had this theory explained to me
A corporation has $100 of taxable earnings. At a 35% tax rate (U.S.), $35 goes to the government. If you had a 0% corporate income tax rate, that $35 could alternatively go toward one or both of two broad categories:
In either alternative use, that $100 of corporate earnings is still going to produce tax revenue for the government, but, hopefully, with the multiplier effect, it will produce even more government revenue (and more national wealth) than simply taxing the top line earnings would produce.
When a C-corporation's earnings are distributed to shareholders, shareholders are taxed, generally at the individual shareholder's ordinary income tax rate. The shareholder takes those distributions and either reinvests the money or saves the money (although, strictly speaking, saving and investing are the same thing, but that's going down another rabbit hole).
If money is saved (by a shareholder or the corporation) and it does nothing else other than sit in a bank account, our fractional banking system allows for 90% of those deposits to get lent out at a market interest rate that produces earnings for the lender that can be distributed to bank shareholders (and then taxed), and it produces a return to the bank account owner, which can also be distributed to shareholders (and then taxed). Much more importantly, however, is the capital investment--the spending of saved money on capital goods, such as computers, vehicles, and machinery--that occurs as businesses and individuals borrow the available capital (saved money) for their various needs. You can see the multiplier effect here-- businesses borrow money to invest in their businesses, including hiring people, all who pay regular income taxes on their wages, and all who spend money in the economy with their wages, creating earnings that are distributed and taxed.
Of course, putting your money in a low-interest bank account isn't the only way to save. You can buy bonds, stocks, real estate, commodities, or anything else, all which should produce taxable earnings for someone down the line. In addition to those investments, a corporation can also invest its non-distributed earnings in research and development, hiring more people, or capital investment, all which should produce wages and earnings down the line.
In other words, you can send that $35 to the government to use highly inefficiently, or you can put that $35 extra into the economy to multiply the GDP, which should produce government tax revenue anyway through other avenues.
With regard to the capital gains tax rate, capital formation (capital investment) is an absolutely critical component for GDP growth (poor capital formation is the primary reason for slow U.S. GDP growth the last decade). Dropping the rate to 0% would maximally encourage capital investment and the expansion of GDP (and with the alternative minimum tax in place, many individuals would still be subject to some form of taxation).
As Larry Kudlow likes to say, whatever you tax you will get less of. If you want less capital formation then tax capital gains.
Consistent with the other responses, I’ll start by identifying myself as a liberal.
The Good Overall, I’ll admit that the plan, as revealed today, appears to have migrated slightly more towards the middle than what was initially being floated to the media. Not sure if this was pure gamesmanship in terms of strategic leaking, or if it was the result of hard compromises towards the end.
The idea of lowering corporate tax rates to 15%, removing the estate tax, lowering the pass-through tax rate on business income, dropping the cap on pre-tax 401K contributions, and removing personal exemptions would have been akin to a ritual sacrifice of middle America for the economic elite.
Thankfully, the released version of this bill has tempered some of these proposals. Additionally, some of the offsets are levied at the wealthy (capping the local/state property tax deductions at 10k and deductions for mortgage loans capped at 500k)
The Bad This proposal is still asymmetrically steered towards top earners. It reveals the wave of economic populism that Trump stoked and rode to victory for the empty bluster that it was. I see little to no stimulative and substantive catalysts for middle class Americans in this proposal, other than the promise that they’ll eventually benefit from the assumed increase in spending by corporations and the wealthy.
The Ugly. The removal of student loan deductions and medical expenses is utterly asinine to me as well. Especially in a time when many contend that we are on the precipice of a student loan bubble. Equally egregious is removing deductions on medical expenses. This is one of, if not the, biggest driver of personal bankruptcy in the U.S. The desire to shift the tax burden from the healthy, abled, and productive to those afflicted with adverse and costly medical conditions is morally repugnant. There is an economic argument to be made here, but I think its subservient to a basic, human ethos.
I can’t understand why economic polarity/inequality and declining social mobility continue to be overlooked by our government officials. Indifference to these ills poses a grave threat to the legitimacy of democratic capitalism and the growth of our economy. It’s not corporations and the wealthy who drive spending in the real economy; it’s the population with the most unmet needs and desires. Those who have strict budgetary constraints and curtailed spending, in other words the bottom 90%.
Additionally, unemployment is at a 44 year low, we’re experiencing the longest recovery in history, and the stock market has continued to hit new highs. I fundamentally don’t understand the need for debt-fueled growth, primarily aimed towards the super wealthy, that has the capability to add trillions to our growing federal debt load. You can not conserve a system by exacerbating it’s biggest, ugliest problems.
You do realize that with the doubling of the standard deduction and the fact that there is already a hurdle amount of medical expenses you need to hit to write them off on your taxes (10% of MAGI) basically means that only a tiny, tiny, tiny fraction of people would get any benefit from writing off medical expenses, right?
Standard deduction for a married couple would be $~24,000. That is a HUGE bar to meet to be able to itemize your deductions, which means if you're itemizing your medical deductions you are probably a high earner and not likely to be bankrupted by your medical bills. In other words, ending the write-off for medical expenses would already be de facto happening by the doubling of the standard deduction. No moral repugnance here.
This is not a moot point, nor is it lost on me. But it entirely ignores the distribution of healthcare expenditures in the U.S. population. Just 5% of the U.S. population accounts for nearly 50% of medical spending. Often, though clearly not always, this is due to no fault of their own, but a product of end of life care or a congenial condition.
Additionally, some conditions are inherently more expensive to treat than others.
Ultimately though, why take the ability to itemize potentially ruinous medical expenses away from people? If the majority of people will now be sufficiently covered from the larger standard deduction, why penalize those who are not? Clearly, it disproportionately affects those with the most severe and expensive conditions, which is where medical expenses concentrate. We can disagree, but it's simply not the group I'd be squeezing for a potential offset on estate taxes.
Okay, so you believe that people should be taxed at death. Great. Thanks for sharing your thoughts!
I'll get a massive tax cut if this goes through, so not sure what you mean by "there is little here for working and middle class Americans." I see a lot here (child credit, increased standard deduction, lower rates, etc...)
The idea that middle class consumers drive the economy has absolutely no theoretical or empirical support whatsoever. It's a relic of bastardized Neo-Keynesian economics ala Galbraith. There's nothing magical about middle-class spending; it's no different in kind to upper class or lower class spending and yes, savings is just another form of spending (via investment).
4.** The lower middle class need a tax increase. ** The top 20% income earners accounted for 95% of total federal tax revenue. The bottom 50% account for 0% of total federal tax revenue. The lower class and the lower middle class are basically leeching off of the work of the wealthy and upper middle class. This isn't sustainable.
on #3, and you're clearly smarter than I am on econ theory so I'll defer to you, I think he's asserting that because lower & middle class spend a larger proportion of their income on goods & services, and because consumer spending makes up around 2/3 of GDP, that if they have more money in their pockets, more of those dollars find their way into the economy than say a tax cut for the wealthy.
again, not my opinion, just what I think he's asserting. what do you think?
So this is the oldest fallacy in economics. It goes back to at least Malthus. The short answer is that savings is just another form of consumption. It's the consumption of producer/consumer goods. In other words, it's investment. Investment in real capital increases the productive capacity of the economy and, in turn, allows for increased consumption on consumer goods in the longer run.
This shit literally has nothing to do with class. The whole class analysis is a relic of failed Keynesian/Marxists that were thoroughly refuted. Consumption on consumer goods peaks right before every recession. Consumption is a product of wealth - not its driver. The fact that our GDP measure is 2/3rds consumption is a product of historical circumstances related to the international monetary system. It really has no implications on general growth theory.
Let me guess, you went to the Zerohedge school of Economics. Of course, cutting taxes for Middle Class earners has a greater multiplier effect on the economy. You cut my taxes and i'm immediately going to spend that money on Amazon. You do that for someone poorer, they're immediately going to spend that money at Walmart.
America is not/should not be an oligarchic society. Inheriting wealth is just unfair.
I can't, for the life of me, understand how this would be a sound economic policy. This is simply a product of how wealth in the U.S. is distributed. I'm going to assume the numbers you provided are accurate and not hyperbole. Here are the exact numbers for wealth distribution in the US: Top 10% hold 76% of all family wealth, families in the 51st to the 90th percentiles hold 23 percent, and those in the bottom half of the distribution hold just 1 percent. You can't tax wealth or income where it does not exist. Source: CBO Report
Again, the concentrated tax burden is an obvious function of wealth concentration. To belabor the point, here is the top income tax rate in the U.S. trended over time .
The top marginal tax rate has been on a consistent trend downward since 1980. Now, juxtapose this next to income growth by percentile from 1980 onward:
To analyze the tax burden outside of and separate from the income distribution is plainly a distortive practice. Furthermore, the implication that the bottom 50% needs to contribute their "fair share" in taxes means that as inequality rises, tax rates on the bottom 50% would need to rise in proportion to the acceleration of income inequality. In more prosaic terms, as the bottom 50% make less relative to others, they need to be taxed more to reach their fair share. THIS would be unsustainable. The thought that income inequality should be higher post tax than pre-tax is more absurd than having no tax structure at all.
Lastly, I'd be glad to debate the importance of spending by the bottom 90%, and to provide the theoretical framework that underpins it as well as empirical analysis that supports it.
So here are the facts. No charts required. It's pretty straightforward.
From 2015
The top 1% income earners paid 40% of total taxes but accounted for 20% of total income The top 10% income earners paid 70% of total taxes but accounted for 47% of total income The top 25% income earners paid 87% of total taxes but accounted for 70% of total income The bottom 50% income earners paid 2% of total taxes but accounted for 12% of total income
I don't have the 2017 data on me at the moment, but it looks even worse. The top 20%, in 2017, paid 95% of all federal income taxes.
So the question is why do liberal liars such as yourself always try to obfuscate things by focusing on "household wealth" as opposed to just straightforward income? Wealth is a proxy for income. In theory, assets generate income (of course, this is often not the case. Assets frequently become liabilities). And why focus on households when the size of households frequently vary over time?
The answer is quite obvious. So it's just a fact: the high income earner disproportionally carry the tax burden while the low incomer earners free ride. This is not sustainable. You can only 'milk' the rich for so long.
I'm a big fan of getting rid of the estate tax (reducing the mortgage interest deduction seems somewhat incongruent w/ that, though).
I get the argument against reducing the estate tax in "spirit" (although I disagree w/ that argument in spirit) but the logical incentives that high estate taxes create are terrible.
thebrofessor is (as usual) correct that most inherited wealth is gone before grandkids ever see it. Also, the campaign trail line about the estate tax beating the shit out of farmers is not untrue. Anectdotally, most generational farms in the area I grew up are no longer in possession of the family.
Why should inherited income not be taxed when every other type of income is?
Because it's already been taxed as income when it was earned.
If all familial cash/asset transfers were taxed, I would have declined allowance income and going out with friends income as a kid.
https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax
this is an interesting premise, no double taxation. I wonder how this would work, if everything was only taxed once.
take a pair of shoes made from 100% leather. do you tax the farmer on the sale of those cows to a processor? the processor turns the rawhide into leather and then sells it to a distributor, do you tax the processor? the distributor sells it to allen edmonds, do you tax the distributor? allen edmonds sells it to nordstrom, do you tax allen edmonds? I buy from nordstrom, do you tax nordstrom? and do you charge me sales tax?
I think the difficult thing with physical goods is eliminating multiple layers of taxation, which is the argument for the VAT (I can't remember from my UG days if this is something that works well or not), I'm just saying you may be too idealistic assuming that because something is taxed once it ought to never get taxed again.
The fact that a compromise can't be reached on the estate tax speaks volumes about Washington. Either the GOP is abolishing it or the Dems are lowering the threshold to $1 million and increasing the rate.
You'd think there would be some middle ground of $5-10 million and flat rate of something like 15% at numbers above the threshold. But also, the main issue with the estate tax is that legitimately medium-sized family businesses are encountering tax nightmares upon death. You'd think legislation could be passed instructing the IRS to work in good faith with these family businesses to figure out a payment plan for the tax.
But compromise doesn't really help anyone, so don't hold your breath on it.
edited.
You forgot to mention the standard deduction has been nearly doubled and they dropped the pass through rate (LLCs and S-corps) to 25% vs. the individual rates you currently pay. Those are both huge.
My quick take is that there are goodies in the plan for everyone except for high income W-2 earners with a pricey mortgage in CA and NY.
I'm curious to see how the S corp stuff will actually change. I wonder if most people will just reincorporate as C-corps
And I think it was planned that way.
4 makes me laugh. Like this is even a fucking option.
There was some talk about limiting the deduction because most people don't max out and those who do are wealthy (in essence, another way to fuck w2 employees)
Lots of trust and estate attorneys and life insurance salesmen having an extra drink or five at happy hour tonight!
I've voted Republican consistently but the inbred rednecks want to fuck us conservatives in blue states, the hell with it, I might even vote for a Democrat in 2020.
A tax cut for the wealthy? Let’s define wealthy....
If you make between $500k-$1MM and live in a decent home in the tri-state area, this is an automatic tax increase. Probably hits a lot of higher incomes as well. People complain about Obama, but this is going to hit the average Wall Streeter worse than anytime during his regime. This all but ensures no Presidential Republican victory in any high earning state for the foreseeable future. The tax cut is the only reason people in or around NYC voted for Trump.
I’m tired of paying my ‘fair share’.
A fucking men! I HATE the Democrats when they talk about the wealthy not paying their fair share blah blah blah.
First of all what's considered wealthy? Also what is fair share?
Can we just go off the deep end and scrap Medicare, Medicaid, SS, and ALL forms of government aid from Section 8 to whatever else and just take that amount and give tax credits and leave it up to the individual to make the right decision for him or herself?
LOL, like the limousine libs in NYC or Cali would ever let the state turn red anyways. Blame your shit state and city for excessive income and sales tax, not the federal government with their very reasonable federal tax rates (along with fewer loopholes) based on an income of half a mil to a mil.
I'm going to need to see some analysis on how exactly this will help the working class people in the midwest and Appalachia that supposedly elected the president. How is this helping poor West Virginians?
These people need to seriously consider packing their bags and joining the rest of civilization. Living in the middle of bum fuck of nowhere doesn't work out for everyone and you should relocate to where the jobs and opportunities are at instead of longing for the good ol' days.
As a smug arrogant (classical) liberal from the northeast I am sometimes tempted to write them off but then it's not easy to just pack up your things and move to a city (possibly out of state) to get some low level cashier job for $8 an hour.
On the contrary, these very people are putting off retraining because they believe Trump is going to Make Coal Great Again. They are actively hurting their own futures thanks to empty promises.
Other interesting things from the tax bill:
1) Eliminates the $7,500 electric car tax credit;
2) Creates a hidden marginal tax bracket of 46% for those earning between $1 and $1.2 million.
This article explains the reason: https://www.politico.com/agenda/story/2017/11/02/the-gops-hidden-46-tax…
And the deductibility of alimony payments has been eliminated. The government's war on men continues. Thanks Trump, this is precisely what men needed: Another reason to avoid marriage.
Hadn't heard that. In Trump's defense (and I'm no Trump fan), I can almost guarantee his proposal did not include this because his tax plan's architects believe the tax cuts will pay for themselves through economic growth, so it was probably a provision put in by the House to try to get the tax plan to "balance" without requiring 3-4% economic growth in the models. In fact, any tax increase is not part of the vision of the Trump tax plan architects (namely, those at the Heritage Foundation and Larry Kudlow).
I think we are missing the real heart of this discussion, every WACC calculation ive ever done is now worthless. Im all for tax reform, but at what cost???
Agreed, I abhor the provision that eliminates interest as a tax deductible expense.
You claim to be a conservative but just parrot the typical prog talking points re: "middle class isn't getting enough"
The wealthy pay a vast majority of the taxes in this country - like it or not, any tax breaks will favor them the most since they pay the most. Why is that such a problem for so many? It's just math.
Also, please indicate why the wealth someone has earned over the course of their life should then be confiscated by the state once they die. I truly cannot wrap my mind around the way you people think.
No one who thinks the gov't should confiscate wealth should be calling themselves a conservative...
I think it's also interesting that the bill cut a tax incentive, which allowed biotech companies to get 50% tax credits on orphan drug R&D.
Even more interestingly the Biotech Innovation Organization still thought the bill is a good idea, because of the over all corporate tax cuts, even thought they would prefer it if the tax incentive was not cut.
https://www.bloomberg.com/news/articles/2017-11-02/drugmakers-rare-dise…
The one thing that I noticed about the whole plan especially in relation to how it would affect private equity/ the tax benefit of debt. Is that outside of extremely levered companies it still ends up being a net benefit. Especially given the provision allows interest deductibility up to 30% of EBITDA
One of my associates an I ran a quick dummy analysis and up until you have a company at 6.5x Debt/EBITDA with a weighted average interest rate of >9.0%, your company still winds up with a greater net income than under the current U.S. tax structure.
Overall, my opinions on the reforms for individuals are pretty neutral, but the lower overall tax rate should encourage investment in the U.S., and reduce the number of tax inversion/reduction plans in place by American companies, thus increasing the overall tax base and improving the economy. However, the effects on individual taxes seem to do very little for the average middle class American/ or the 1%-ER type American (contrary to what the common internet outrage might believe). Then again I am Canadian and used to getting fucked by personal taxes so my knowledge on the U.S individual tax system is limited.
Reddit is going to be so salty with this tax plan. You American guys have it so good, in Australia we haven't had a tax decrease in a good 15 years. This plan I think aims for smaller government which is exactly what America needs.
The idea that poor states are ‘subsidizing’ states like, CA, NY, NJ, etc is simply not true.
https://mobile.nytimes.com/2017/11/03/us/politics/fact-check-state-loca…
100% true. SALT deductions just equalize things more.
One of my big question is whether high state taxes are necessary for running high productive industries. Do high state taxes fund the infrastructure needed to create great cities? And thus the high salt taxes are basically a business expense that should be deductible. Or do high income areas attract parasites around them and find locked in host to tax. Or a bit of both.
The biggest problems everyone should have with the estate tax is the non-valued add shell companies that are created to shield people from it. Whether its a holding company that gets to buy a company for less than FMV because the owner-operator is getting old and doesn't have the cash to pass on to his/her heirs to pay the taxes or the estate planers with lawyers and tax accounts that will make a nice commission shielding them from it. Keep in mind that in the former scenario, a holding company will likely sheds jobs in order to make use of synergies.
Even Stiglitz thought the inheritance tax might actually increase inequality.
It appears Senators are learning what it feels like when your boss gives you comments you can't read on a Friday night Comments
Senate bill looks substantially better than the House version. For all intents and purposes, this is a resounding Republican victory.
Key Highlights: -7 discrete tax brackets from current tax law preserved, but tax rates lowered across almost every bracket -Interest deduction preserved on mortgages of $1 MM or less (amended from House cutoff of $500 K) -Standard deductions for individuals / married couples nearly doubles from existing levels, to 12K / 24K -Individual mandate for insurance markets repealed (bye bye Obamacare) -Top tax rate for pass through business entities, such as LLCs, lowered from 39.6% to 25.0% (hello small business boom) -Repatriation tax on multinational corporation assets reduced / statutory corporate tax rates lowered
they shifted some brackets down so it's not actually lower. I ran my taxes through my model and at 300k a year in nyc with no mortgage i pay 1% less. Model includes AMT, SALT repeal, doubled exemption and other considerations.
While our senior partners got ~10+% tax cuts as their income from the GP (which is pass through) is now taxes way lower lol. Real beneficiaries of this are your LLPs, LLCs, (law firms, hedge funds, consulting and accounting partnerships, PEs etc.)
Theoretically though if the market for PE professionals is competitive enough the "incidence" of the tax cut should flow to IPs so depending on the elasticity of demand for associates / vps/ and principals, we should see comp bumps in the next few years.
Hopefully the Trump policies will make FINANCE GREAT AGAIN.
I come from the lower-end side of the equation. Grew up low-income, etc., food stamps. Simply an opinion from a general viewpoint growing up in the inner city ghetto.
People worked cash-based jobs so they can lie on their taxes to qualify for free-health coverage, food stamps, Section 8. Growing up, I seen these kids and their parents driving luxury vehicles while their expenses are paid, for the most part, by the government. They utilized having kids as their form of tax deductions, including student loans. Going to college and then a year at the local state university, the lines for Federal Student Aid were at best, 2-4+ hours wait time at the start of the school year. These students had the latest fashion wear, phones, cars, etc.
I am mixed on this, but from reading what has been stated, I think by passing this tax bill it makes the more conscious spending person to be more on top of their finances and debt. By hitting people who are top earners (but not super wealthy) makes it less appealing but still will not stop me from pursuing where I want to get to.
So my question is, now that it has passed, what does the average "Joe" or aspiring finance professional have to do should and/or when they hit the higher income brackets to reduce paying out of pocket?
Thanks.
While I appreciate your story and your perspective, it's a bit anecdotal. Rather than attempting to argue your experience with you (such arguments are always futile), I'll talk about the bill a bit. Firstly, the bill hasn't 'passed' yet. There are two different bills--one in the House and one in the Senate. They have to go through 'reconciliation' before we have a bill, and there are some notable differences between the two bills.
While much interest in the above thread was paid to the student loan interest and medical deductions, the comments eventually shifted to the pass-through entities and the estate tax. I generally don't have a lot of problems with this tax bill, but would change the provision on the estate tax. Inherited and earned wealth ought to be treated differently. You're not getting taxed when you die. You're dead. You're not getting taxed at all. Your progeny are getting taxed on their lottery winnings. They won the life lotto, and their bill comes due when they receive payment (just like every actual lotto in the US).
The provision associated with the estate tax isn't cheap, and could be used to pay for the student loan interest and medical deductions for the families not covered by the doubling of the standard deduction. Or the money could be used to invest in infrastructure projects or a Marshall Plan-sized re-education fund for the millions of workers (including some on this forum) who will be displaced due to AI or automation in the next 15 years. It's just not the most efficient use of the money.
And while the government generally only moves money around with a leaky bucket, the 'free market' water pale has a lot of cracks in it as well. I don't believe the inheritors of vast fortunes spend their money wisely. As thebrofessor mentioned, they tend to squander their wealth within a couple of generations. Maybe they'll spend their money on schools and ed-tech companies needed to retrain the displaced masses, but I think it more likely that the sum total of all purchasing and investing decisions made across all of those exceedingly wealthy individuals won't be as productive as the infrastructure plan or training programs I mentioned.
That said, my opinion on the matter is irrelevant on its own. I understand the arguments against the estate tax. I'd be happy for provisions protecting legitimate transfers of mid-sized family businesses from one generation to the next so as not to destroy a business, but the mechanics of doing so without allowing for the ultra-wealthy to take advantage of those loopholes are (sadly) quite difficult to codify. In the end, I come down on the side against the repeal of the estate tax, as I don't like the economic or philosophical rationales for eliminating it.
The SALT deductions are clearly designed to fuck people like me. Our tax code has long fucked people with high incomes with no ability to shield wealth. This bill hurts a lot of people on this website who have high income jobs in high cost-of-living jurisdictions. I sure feel like I am paying 'my fair share' and would like to see a similar level of tax paid by people who make more than me on a percentage basis.
It's already immensely hard to buy property in places like New York. Your first place will suck. And buying into New York real estate has been immensely profitable for the past 30 years, but it's already at something of a tipping point. But that second place and that third place suck less and less. At least, that's how it used to work. That was the original intent of 'jumping on the property ladder'. That's not an economic reality for most people in their 20s in NY, and while owning property is not a natural right of the citizenry, property ownership has a lot of benefits for communities. Still, the mortgage interest deduction doesn't really seem to stimulate ownership as much as it artificially inflates housing prices. As I have always favored renting over buying, I wouldn't mind seeing a drop in real estate prices in high cost areas, but I can't imagine that a retiree on a fixed income will be happy with the value of their assets decreasing, but not by enough to cover their larger tax bill.
The Democrats seem unable to find sympathetic retirees and families to make their case against this bill, so I think most of the provisions will stay. There is very little you can do as a kid coming from a working class background to shield yourself from these taxes if you intend to become a W2 worker. By that, I mean, you work for someone else. Until you save enough capital to try your hand at entrepreneurship (in which case, you can set up your pass-through entity for beneficial tax treatment), you don't have a lot of wiggle room.
Just be frugal with your first couple of bonuses, save the proceeds, and go into business for yourself. Or wait until the Democrats get back in power, and assume the tax code changes again. I predict volatile political swings for the foreseeable future.
Well written reply. I appreciate the insight into all of this. +1 SB
Training schools are expensive, most programs for Medical field costs around $40,000 to $70,000 (Surgical Technician to Nursing, worthwhile ones at least). The hours are unforgiving when you go into these professions and Over-Time (16 hour days) are likely to happen. In the end, you still get taxed the same way.
My quick question to you, would you rather purchase a business or build something of your own? What kind of business would you look into? This is again, simply out of curiosity.
I'm also someone (like most people here) for whom the loss of SALT will be a big hit, but objectively it should go. There is no reason that the federal government should be subsidizing bloated mortgages, bubblicious housing markets and piss poor local tax policies for people who are already in the top 10% of wealth in the country.
This tax plan is just GOP engineering to remain the relevant grand ole party. Economic conditions hurting this country right now are low investment spending and low household income and consumption. Cutting taxes only makes sense if it can somehow be done to boost household income by lowering their tax burdens while also not drastically increasing the deficit. The supply side argument only works if there isn't already an abundance of capital. There is and even if you argue the AMT repeal or reduction, lower corporate and pass through rates, will unleash more capital, I have a hard time believing there will result in higher investment.
Capital from central banking around the world and from foreign investments to the US has provided loads of liquidity for the past decade. Returns are already squeezed and I don't see costs falling in comparison with the rest of the world to make the US the best place for the tradeable goods sector to invest, based on the repeals and lower statutory rates. I don't see this bill being a stimulus over the next ten years because the effects will probably be minimal or only gradually start to take effect in the market.
So whats your solution (genuinely curious)? All the Democrats can cobble up is raising taxes or in Bernie's view to the highest levels possible and for the government to use those funds to expand the safety net (as if the government has been fiscally disciplined and no prone to waste taxpayer dollars).
For me the problems that ail this country go beyond tax code and hint at areas that would make people uncomfortable. Single mothers with husband's nowhere to be found or locked up, unemployed factory assembler who worked for 30 years but never educated himself or thought beyond his job and now has nothing to show for, students who attend college even if they have no business going to one and graduate with degree's that don't lead to sustainable, good-paying jobs.
Our government wastes money in essentially keeping people alive from cradle to grave so the thought that an expanded safety net will somehow benefit us all I find hard to believe.
The relevant grand ole party is only mirrored by the pandering donkey party. Trump is a dealmaker, right? So, cut deals. The reason why the US has seen slow growth and expansion of credit and the deficit is because we import tons of capital from China, due to China's falsely insatiable appetite for investment. The US is right not to start a currency war with China or else it could probably lead to an arms battle. But we do need to work with China to resolve its imbalanced economy and really at an even faster rate. Collecting less tax revenues does not seem to be the best move, as it will definitely add to the deficit rather than shrink it.
If the tax bill had even greater implications for increasing household income, I'd be all for it. But all it looks to be doing is moving money around and a lot of it is ending up in the hands of corporates and the top 1% through lower statutory rates, expanded AMT exemptions, and ultimately through the purchase of shares and dividend payments. I like the Senate bill as amended more than the House bill because it keeps the corporate AMT and individual one and some deductions for mortgages and house costs, as well as the 7 brackets. But, ultimately, the deficit burdens just look unhealthy.
Agreed.
Uh no. Why? The Top 1% shouldn't have to carry the burden of those who don't contribute a penny yet take in all the benefits?
Nope again. Government involvement and meddling in education is why colleges are so expensive compared to yesteryear. This would not only make it worse but further dilute the value of degrees and turn education and home ownership as simply a means to lower taxes.
Fine with me. Or abolish tax deductions on all kids if you receive benefits (i.e. SNAP, Section 8, etc)
As much as the fucked up part of me would entertain this idea as a method of getting rid of the bottom barrel in society I don't agree with you here.
very great topic! i learned more than uni courses!!!
If you see this article it'll show the ways that Trump's promise to the middle class is being unfulfilled, including his false statements about how hurt he'll be (lower pass-through rates and AMT repeal/reduction). The Senate bill goes further than the House bill and it sounds like they're negotiating a 22% corporate rate vs a 20% rate, probably to raise more money to close the fiscal deficit gap.
I think the Senate actually fucked up. They left in corporate AMT as a 'pay for'. The JCT when they were forced to score the bill in a far shorter time than they would like, underestimated the impact. Leaving in the corporate AMT seems to actually raise taxes on businesses by 2027. I have other issues with this bill, but have no tolerance for shitty policy when it stems from bad math.
https://www.vox.com/policy-and-politics/2017/12/7/16742046/senate-tax-b…
Bloomberg and a few other sites have similar articles. They're either wrong, or the Senate fucking sucks at math. Any thoughts?
Sounds like it could be rewritten to expand exemptions from the tax further. It's a mistake, but one that is fixable without a full repeal. The main issue sounds like it interferes with specific goals such as territorial treatment and the GOP's interest in stimulating investment.
Tax Reform - Implications on PE (Originally Posted: 02/05/2018)
Unsure if this topic has been explored, but I would like to hear some thoughts on how people are expecting the new tax law to affect performance of PE firms. Specifically, it would be interesting to hear what people think about the cap on interest deduction at 30% of EBITDA, ability to expense 100% of capex in the first year of purchase, and the tax changes for LLC business entities. Net-net, I think it's at best a break-even proposition for PE, and more likely not good for the industry in general. Looks like the cost of capital will be going up, so likely to see less highly levered transactions going forward.
Hi iggs99988, don't worry, the WSO Monkey Bot is here.... I'm hoping one of these links will help find your answer:
If we're lucky, the following pros may have something to say: PEguy2011 samoanboy dferris77
Fingers crossed that one of those helps you.
New tax bill info (Originally Posted: 12/15/2017)
All,
What do you guys think about the new tax bill. RIA guys how are you doing compared to the other guys? My friends at BB said they aren't worried and won't see much impact.
Buyorsell, bummer your thread hasn't had a response yet. Maybe one of these threads could point you in the right direction:
Who will rescue this thread? Rodrigo Jesús-Hernández Martínez CapTrade eriginal
Fingers crossed that one of those helps you.
Tax Bill Effects on Lev Fin? (Originally Posted: 12/21/2017)
With its limits on interest expense deductibility for companies, how badly will the new tax bill hurt Leveraged Finance groups at IBs?
Probably will limit high-interest borrowing somewhat, but could be counteracted by both yield flattening and the 14-percentage-point drop in corporate income tax; for the latter, depends how much is returned to investors.
S&P wrote a nice piece it that is free on their site.
Is this the one you're referring to?
https://marketintelligence.spglobal.com/documents/our-thinking/research…
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