Will The GOP Tax Reform Bill Hurt Cities Like Detroit?

[swingline]

If a project doesn't make economic sense, we don't need it. Part of that problem went away in the 1986 tax bill where they took away a lot of real estate deductions. Office buildings were going up that didn't make economic sense, only tax sense. This bill takes away some deductions. If that is accompanied by lower tax rates, that is a positive. The tax code should not create winners and losers.

The “winners” created by historic rehabilitation tax credits [[HTC) are often blighted, polluted and economically challenged communities where the cost of development can’t compete with greenfield communities bootstrapping their subsidized roads and other infrastructure to attract new growth. The HTC levels the playing field while at the same promoting sustainable, green development, creating more construction jobs than greenfield projects, and slowing harmful sprawl. The new tax revenue generated by HTC projects exceeds the tax expenditure cost to the government. The program is a classic win/win.

[emu steve]

Couldn't find the Economist link, but here's the NYTimes Economix from 2013:

As one can see in this table from Congress’s Joint Committee on Taxation, the vast bulk of returns claiming the Salt deduction and the greatest proportion of the dollars deducted are from those with higher incomes. Almost half the dollar amount of the deduction is claimed by those with incomes above $200,000.
Photo
CreditJoint Committee on Taxation
Here, you can see that for 2010, the tax dollars paid by those with less than $100,000 was 14.4%. Thus 85.6% were paid by those making over $100,000.

This is a tax deduction for the rich, not the middle class. Unless you consider over $100,000 [[2010) middle class.

Even if you take the up to $200,000 figure as 'middle class'... then still half the benefit goes to those making OVER $200,000!

This deduction gotta go if you want to reduce income inequality [[which I don't).

reference: https://economix.blogs.nytimes.com/2...d-local-taxes/

Not sure I agree with your categorizations.

First, ~20% of those in 50 - 75 and 75 - 100K take the deduction. That is middle class if I understand what middle class is. 20% is a lot. It isn't 2%.

And remember, it isn't just SALT, if one has big SALT, but not itemize medical expenses, no mtge, little charity, etc. then they aren't likely to itemize.

Folks who itemize typically have significant mortgages, maybe significant charity [[say 5% of income), maybe medical expenses, etc. as well as SALT.

The ones who get hurt the most are those who live in areas with high housing values and costs. But I'm not talking about folks living in Hollywood, the Hamptons, Miami Beach, etc. MANY metro areas do not have much cheap housing at all. It isn't a case of folks wanting 6 bedrooms and 4 baths.

To give corporate America a tax break they have to take it to some people and folks in many metro areas, including mine, are going to take it up the ***.

Here is a story on California. They plan to phase out property casualty insurance losses for fires and earthquakes but keep them for hurricanes and floods.

"The bills would phase out the ability to deduct personal casualty losses from wildfires and earthquakes — a constant threat in vast parts of the state — but keep the deduction for damage from hurricanes and floods like those in Florida and Texas this year."

This bill should be called the "ABC Tax Bill of 2017" [[ABC - Anybody But Californians).

https://www.nytimes.com/2017/11/10/b...=top-news&_r=0

[Wesley Mouch]

Not sure I agree with your categorizations.

First, ~20% of those in 50 - 75 and 75 - 100K take the deduction. That is middle class if I understand what middle class is. 20% is a lot. It isn't 2%.

And remember, it isn't just SALT, if one has big SALT, but not itemize medical expenses, no mtge, little charity, etc. then they aren't likely to itemize.

...snip...

Looks like some clarification of the NYT's percentages is in order.

Column 1 lists what percentage of the total NUMBER of returns were in each bracket. Its not that ~20% of filers in the $50-75 and $75-100 bracket filed for SALT deduction. Its that 20% of all SALT deductions taken were by people in that bracket.

Column 2 is what percentage of tax break in dollars was given to which bracket. So if you sum that last two figures, you will see that over 85% of the tax break is given to high income. Hence, most of this break benefits of SALT go to the wealthy!

Yes, you are right. SALT does help people itemize. The rich mostly.

[BankruptcyGuy]

In this room, nobody will raise the hands about having an $11m estate. It seems to me that you're not looking outside your bubble. There are rooms out there where some elderly widow would sheepishly raise her hand when you asked about $11m estates. She might make you re-think your zealous and joyful pursuit of populist rhetoric.

I'd be curious to hear what CorktownYuppie or BankruptcyGuy think. What's the view from the inside.

Estate tax hits a VERY small percentage of the population:

1) People with super-huge [[technical term) wealth, where paying a large check to the government is no big deal; and
2) People who aren't aware enough about their estates to know how much they are worth.

I think the tax reform is trying to give relief to group #2. I would imagine you could do this by increasing the limit from $5M to $25M just as easily. Then you'll still get revenue from group #1.

This is one of the many areas where what most would think are sound theoretical taxing policies conflict:

a) we want people to keep what they earn; and
b) we want to discourage dynastic wealth by forcing either transfer or investment, etc.

I probably land more on the [[a) side, but I can see the other side.

These sorts of tax changes will affect very, very few people in the Detroit metro area. Probably less than 1,000, maybe less than 100.

[aj3647]

First, the state and local tax deductability is one of the most odious and unfair things in the current tax code. Why? Because it amounts to people living in low-tax states paying a higher effective income tax rate than those living in high-tax states.

You want to talk about the fairness of high-tax versus low-tax states in terms of "paying their fair share in federal taxes?" OK then, let's go there.

https://mises.org/blog/which-states-...deral-spending

Low-tax states have their very existence subsidized by those "high tax" states because those low tax [[mostly red) states receive far more in federal funding than they pay in federal taxes.

Could Mississippi and Alabama afford to function as states and keep their taxes so low if they weren't being subsidized at the federal level by states like New York, Connecticut, and Massachusetts?

You want to make things fair? Let's do that. Turn off the federal spigot to the moocher states like Mississippi, Alabama, South Carolina, West Virginia, etc. You get no more in funding than you pay into the system. Equal shares based on contribution. Let's see what happens to their state tax rates once they stop receiving $3 or $4 in federal spending for every $1 they pay in federal taxes. Think their taxes will go up or down?

[emu steve]

You want to talk about the fairness of high-tax versus low-tax states in terms of "paying their fair share in federal taxes?" OK then, let's go there.

https://mises.org/blog/which-states-...deral-spending

Low-tax states have their very existence subsidized by those "high tax" states because those low tax [[mostly red) states receive far more in federal funding than they pay in federal taxes.

Could Mississippi and Alabama afford to function as states and keep their taxes so low if they weren't being subsidized at the federal level by states like New York, Connecticut, and Massachusetts?

You want to make things fair? Let's do that. Turn off the federal spigot to the moocher states like Mississippi, Alabama, South Carolina, West Virginia, etc. You get no more in funding than you pay into the system. Equal shares based on contribution. Let's see what happens to their state tax rates once they stop receiving $3 or $4 in federal spending for every $1 they pay in federal taxes. Think their taxes will go up or down?

Yep. Voters in those states [[AL, MS, etc.) seemingly aren't too well informed, but I'm not too surprised.

I've never looked to those states for my source of enlightenment.

And the GOP congress in their tax bill wants to sock it to California. Ugh.

President Trump better hope that California doesn't leave the union. A whole lot of red states ain't going to cut it w/out CA.

[Hermod]

Lets compute apples and oranges here. Social security payments, military and civil service retirement, and maintenance of military bases are the responsibility of the federal government. For a variety of reasons [[most very good reasons) southern states will get more of this spending than northern states. This is not "mooching".

[Don K]

Yes, you are right. SALT does help people itemize. The rich mostly.

Well, I don't consider myself to be rich [[rich on a worldwide scale certainly, but not on a U.S. scale), and SALT helps me get to itemization. But then if you ask people how much income it takes to be rich, they usually will answer twice what they make now [[ so I suppose someone making ten bucks at Tim Horton's considers someone making $50K to be rich - it all depends on your point of view).

Now, whether or not one considers the SALT deduction to be justified, getting rid of it is a tax increase, no? Based on what has been published, I figure i would be out around $2,000/year under the Senate proposal - not unaffordable to me, but still annoying.

I'm willing to pay taxes, and would pay more if it meant we could have nice things like good schools, good roads and bridges, etc. I resent paying higher taxes in order for D. J. Trump and his kids to save hundreds of millions or potentially billions. I willingly pay Bloomfield Township taxes because we get great schools [[that support the value of my home), really fast emergency response times, and quick plowing of the subdivisions in winter - all amenities that I appreciate.

Funny thing about how Republicans go on about how eliminating the estate tax will really benefit family farms and small businesses, but can't come up with one example of a farm or business that's been sold to pay estate taxes when pressed on the matter. No doubt there are lots of farms where the land value alone would trigger estate taxes, but I would bet those farms have mortgages that would offset part or most of the value of the land [[estate tax is based on net, not gross, asset value). To me, the estate tax is useful as a means to avoid having a hereditary aristocracy of descendants who never have to work a day in their lives because of the wealth of the founder. [[Face it, there aren't many families like the Fords who feel an obligation to work in the family business.)

A final reason to oppose this tax proposal is that it will explode the deficit, and once that becomes plain to even the dimmest dimwit, Republicans will use the deficit to argue that we need to reduce federal spending even more because we just can't afford what we're spending [[never mind that the highways, bridges, and schools were built in a time when the U.S. was demonstrably poorer, and now a richer country can't afford to maintain these assets).

[Canadian Visitor]

I can't say that I think this variation of proposed US tax reform either benefits 'competitiveness' or achieves any other particularly useful social objective.

Perhaps its greatest failing and one we have to work on in Canada too, is greater transparency.

The tax systems have become so opaque that 'sticker' rates are meaningless for most businesses as well as middle, upper-middle and high income individuals.

In order to have a rational discussion of what to spend public money; and how much of it; its necessary to see what is being raised now and from whom.

That information can be found, but you have to be willing to do some research and reading, and it would confusing to many.

This 'reform' does little to address that.

****

Purely on the corporate side, the NYT posted a graphic of corporate taxes in the G7.

What was particularly interesting to me, was that they posted both the 'sticker' rates, and the 'as actually paid' rates. [[effective tax rate)

The US was fairly close to the 'average' when looking at the 'effective rate' but on the high end on the sticker rate.

Canada's sticker rate is also notably higher than its 'effective' rate.

I noted with great interest Canada has the 2nd lowest effective rate of corporate tax.

https://www.nytimes.com/2017/11/12/o...-cuts-gop.html

Makes for good reading.

[aj3647]

Lets compute apples and oranges here. Social security payments, military and civil service retirement, and maintenance of military bases are the responsibility of the federal government. For a variety of reasons [[most very good reasons) southern states will get more of this spending than northern states. This is not "mooching".

OK then, let's ignore money paid by the federal government to individuals [[retirement pension payments, social security, etc) and money spent directly by the federal government [[like military spending) and look at money given by the federal government directly to the state governments. Which states are most reliant on federal money as a percentage of their general revenue?

https://taxfoundation.org/which-stat...federal-aid-0/

The top 5 "moocher" states, in order:

1) Mississippi [[~43% of their state government's general revenue is from federal funding)
2) Louisiana
3) Tennessee
4) South Dakota
5) Missouri

Maybe instead of complaining about "coastal elites", people who live in the moocher states should just say "thank you" to the tax-paying residents of New York, Connecticut, Massachusetts, and the other "contributor" states that heavily subsidize their existence.

[Wesley Mouch]

Back to the main point here.

SALT deductions mean that people in places with high state income taxes get a break. And people in low income tax states don't.

'aj' reminds us that there may be justice in this redistribution, but redistribution it is. I think its a distortion that's inappropriate. If cities and states wish to tax, they should be incremental taxes paid by the beneficiary, not subsidized in part by the general taxpayer.

Our goal in taxation should be to eliminate 'loopholes' such as SALT and mortgage dedutions. And especially since the cash is flowing towards the wealthy for both of these, its very hard to justify. Sure, Joe Plumber saves a thou. But Mr. Trust Fund Baby in Grosse Pointe saves tens or hundreds of thousands. And there's no 'justice' in that, is there.

[emu steve]

I don't know. If Midtown continues its upward trajectory, it will have more of those paying high SALT.

[Bham1982]

Back to the main point here.

SALT deductions mean that people in places with high state income taxes get a break. And people in low income tax states don't.

No. The places that benefit the most from SALT pay the most in federal taxes. It's disingenuous to say they're getting a "break" when they're paying more proportionally than in other states.

Again, net donor states have the most income overall. It stands to reason that they receive the most deductions. It's a deduction, not an exemption or credit. Deductions are specifically aimed at reducing high taxable incomes.

This is another stupid Trump cult idea to punish the productive, educated, non-backward states, and will fail, just like everything else in this carnival clown administration.

[emu steve]

My take if this REALLY about tax simplification:

Increase the amount of the combined standard deduction and exemption [[even more than proposed) so that more and more taxpayers can use it, BUT do NOT penalize those who use the deductions.

Mr. Ryan, I am NOT complaining that my taxes are too complex, and don't PENALIZE me.

When I have high charity, SALT, medical expenses, etc. I am HAPPY to deduct them and complete the necessary schedules.

And I don't think someone with a simple tax situation begrudges me the option of filling the required schedules.

My problem, Mr. Ryan, is that you are raising the taxes on SOME Middle Class tax payers to give it to your corporate donors through a big, big tax cut.

I'm shocked that the Dems have not argued that 35 --> 20% is way too much of a tax cut. How about 35 --> 27.5% over 3 years.

[aj3647]

My problem, Mr. Ryan, is that you are raising the taxes on SOME Middle Class tax payers to give it to your corporate donors through a big, big tax cut.

Hey, you are forgetting that that wealth will "trickle down" to rest of us peons! Just ask the people of Kansas, they'll tell you all about the fiscal paradise they're living in thanks to going all-in on trickle-down economics back in 2012.

[emu steve]

Hey, you are forgetting that that wealth will "trickle down" to rest of us peons! Just ask the people of Kansas, they'll tell you all about the fiscal paradise they're living in thanks to going all-in on trickle-down economics back in 2012.

If Macy's needs a Santa Claus maybe Sam Brownback is available.

He gave away state revenues as if it were Christmas candy.

[emu steve]

https://www.washingtonpost.com/local...=.bb107e7a30e3

[3WC]

Take this to the bank; the federal estate tax is going away, if not all at once, over time with the current per person exemption going to $10 million immediately.

According to my lawyer, the best estate tax lawyer in MI, consider the following:

The federal estate tax costs more to collect than it generates in revenue.

It is manifestly unfair as it results in double taxation for almost all payers by taxing them on assets upon which they have already paid taxes, usually at the highest rate.

It’s the only “voluntary” tax in the code; if you pay it you’ve had no, or lousy, tax advice.

In my opinion, the federal estate tax just makes Liberals feel good by socking it to the man.

[Wesley Mouch]

No. The places that benefit the most from SALT pay the most in federal taxes. It's disingenuous to say they're getting a "break" when they're paying more proportionally than in other states.

Again, net donor states have the most income overall. It stands to reason that they receive the most deductions. It's a deduction, not an exemption or credit. Deductions are specifically aimed at reducing high taxable incomes.

This is another stupid Trump cult idea to punish the productive, educated, non-backward states, and will fail, just like everything else in this carnival clown administration.

'ham, it is a break -- because it reduces overall taxes. In fact, it reduces the federal tax because you democratically decided to pay state and local taxes.

As you said above, 'Deductions are specifically aimed at reducing high taxable incomes'. This deduction does that. It shields some taxable income from paying federal tax.

I get your point. Yes, the high-SALT states also in many cases are net donors to the federal taxroll. I don't see why this is relevant. Their donor status isn't relevant. The question is whether when you pay your state and local government taxes... why should that reduce your federal taxes? I see no logic in it. Because your state pays more overall already? Not logical.

If you decided to pay SALT taxes, it should not change your federal tax burden. Look at the Pacific Northwest for an example of two similar states with different taxes. Why should Oregon residents pay less federal tax [[for same income) than Washington State residents? Both pay.. but one pays via income tax, and the other sales tax. [[Washington > 8%, Oregon no sales tax). See: http://kuow.org/post/washington-and-...e-tax-who-wins

[Bham1982]

Take this to the bank; the federal estate tax is going away, if not all at once, over time with the current per person exemption going to $10 million immediately.

According to my lawyer, the best estate tax lawyer in MI, consider the following:

The federal estate tax costs more to collect than it generates in revenue.

It is manifestly unfair as it results in double taxation for almost all payers by taxing them on assets upon which they have already paid taxes, usually at the highest rate.

It’s the only “voluntary” tax in the code; if you pay it you’ve had no, or lousy, tax advice.

In my opinion, the federal estate tax just makes Liberals feel good by socking it to the man.

LOL to all this. You have no such lawyer.

Estate tax currently is set at $11 million for a couple. Boo-hoo if you have to pay a few shekels to the feds so that your kids don't get 100% of massive inherited wealth tax-free.

There is no "double-taxation". The tax is on wealth gifts. Where is the other tax?

Estate tax in the U.S. is basically lowest in the developed world. It's a disgrace. The fact that right-wingers want to completely eliminate it is a real tragedy. Even sadder, the people voting for these idiots barely have two nickels to rub together.

The gangsters in the White House are looting this country.

[aj3647]

The federal estate tax costs more to collect than it generates in revenue.

That doesn't even pass the smell test. The estate tax brings in $16-18 billion in tax revenue annually. You're telling me that it costs MORE than $16 billion to collect this single tax each year? I'm going to have to ask for a source on that, other than your "best estate tax lawyer in MI."

It is manifestly unfair as it results in double taxation for almost all payers by taxing them on assets upon which they have already paid taxes, usually at the highest rate.

The largest estates consist mostly of “unrealized” capital gains that have never been taxed, this is one of the reasons why the estate tax was created in the first place. At the very least, it has to be replaced with a tax on unrealized capital gains.

[3WC]

Bham:spoken like a guy with no estate who doesn’t understand the Code or basic economics.

The estate tax is a tax on assets, not income. The Estate has already been taxed in most cases - and is taxed [[to those subject to the tax) again upon death.

You expose yourself as a true know-nothing when you say “there is no such lawyer.” Bet you wish you needed one.

[Bham1982]

Bham:spoken like a guy with no estate who doesn’t understand the Code or basic economics.

The estate tax is a tax on assets, not income. The Estate has already been taxed in most cases - and is taxed [[to those subject to the tax) again upon death.

You expose yourself as a true know-nothing when you say “there is no such lawyer.” Bet you wish you needed one.

Now I'm 100% certain there is no such lawyer, and you're just parroting some dumb stuff you saw online or somewhere.

No one was talking income, obviously. No clue why you're bring up income.

Capitol gains are NEVER double taxed; they're taxed at 15% almost always [[which is ridiculously low compared to everywhere else) and you're only paying inheritance taxes on previously unrealized capital gains.

[BankruptcyGuy]

The vast majority of people in this country do not itemize. In 2013, it was around 100 million returns, or something around 68% of households.

Virtually everyone who earns less than $50,000 does not itemize. Up to 93% of people who earn more than $200,000 itemize.

There are interesting talking points both ways, but increasing the standard deduction and limiting itemization are non-regressive tax policy items. That is, those two features put a larger burden on the wealthy than on the poor. If you believe that is good policy, and it seems like many here do, then you should be in favor of increasing the standard deduction by eliminating some of these deductions.

[3WC]

Bham, stop embarrassing yourself. Your ignorance of tax law is only exceeded by your ridiculous statements re my lawyer.

There are two types of capital gains, short term and long term. Short term cap gains are taxed at the taxpayer’s rate on ordinary income.

Long term capital gains have not been taxed at 15% since Dec. 31, 2012. Subsequent to Jan. 1st, 2013 and currently, LT cap gains are taxed at 20%, plus of course the 3.8% Obamacare tax on invested income.

Comprende?