Will The GOP Tax Reform Bill Hurt Cities Like Detroit?

[Junjie]

Estate tax hits a VERY small percentage of the population:

...

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.

Not in conflict at all. The person who earned the money is, by definition, dead. Since the person receiving the money did nothing to earn it, there's no moral imperative that they be allowed to keep it.

[emu steve]

Non-profits, like churches, medical societies, etc. etc. will take a big hit under the proposed tax changes.

Here is an article with some data on itemize-rs under current and proposed tax law.

https://www.npr.org/2017/11/04/56197...ritable-giving

Bottom line [[from the article) currently 1/3 today itemize deductions [[which include charity).

Under the proposed tax simplification it would go to 1 in 20 [[5%).

So according to this article there is NO financial incentive for 95% to give to charity as it relates to charity. Rewards will solely be in heaven.

BTW, the 1/3 figure for those who currently itemize makes sense. I assume EVERYONE who has a mortgage [[including second mtges), pays state or local taxes including property taxes on the house, gives even a few percent of their income to charity, etc. have a real incentive to itemize.

I think the tax bill is a Trojan Horse.

[emu steve]

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.

I think I can simplify this discussion without referring to income, per se.

I would bet that most folks who consider themselves middle income [[maybe higher, maybe lower) itemize because they have a MORTGAGE.

So someone has a lot of mortgage interest which means they are also paying property taxes. Most states levy state income taxes. Add those three together = bet most itemize.

[313WX]

I'm going to discuss the bigger travesty with this tax bill, beyond the impacts on an individual level.

Fiscal conservatives [[GOP and neoliberals) are still peddling this "tax reform" as some economic panecea for those who are not members of the 1% or Wall Street. However, the below article dispels that myth thoroughly.

Cut Corporate Taxes To Boost Investment And Wages?


https://seekingalpha.com/article/412...vestment-wages

That being said, I'm concerned that because of the run on the stock market in anticipation of tax reform happening, there will be a severe correction some time next year if it fails to pass, and possibly a recession due to the subsequent slow down in investment that will occur in response to the stock market correction.

[emu steve]

I'm going to discuss the bigger travesty with this tax bill, beyond the impacts on an individual level.

Fiscal conservatives [[GOP and neoliberals) are still peddling this "tax reform" as some economic panecea for those who are not members of the 1% or Wall Street. However, the below article dispels that myth thoroughly.

Cut Corporate Taxes To Boost Investment And Wages?


https://seekingalpha.com/article/412...vestment-wages

That being said, I'm concerned that because of the run on the stock market in anticipation of tax reform happening, there will be a severe correction some time next year if it fails to pass, and possibly a recession due to the subsequent slow down in investment that will occur in response to the stock market correction.

Agree 100%. The big stock market run up was founded mostly on expectations of a big corporate tax cut [[and also helped by better than expected corporate profits).

Politically, the GOP is benefiting from the higher stock market and the support of corporate America.

IF the tax bills go down, yes, there will be a real correction to the stock market and corporate America will punish the GOP, the way they know: withholding financial support to re-election campaigns.

Sometimes I don't know if this is more about the stock market or political support [[$$$$$$$$$$$$$$$$$$).

Either way, it is NOT about some guy making $60K a year with a mortgage, state and city [[yes, there is in Detroit and for non-residents as folks here know) taxes, property taxes, etc.

This guy may well be a loser in this tax saga, unless he hit big the stock market lotto.

[oladub]

Both the House and Senate version limit home mortgage deductions to $10,000 and offsetting this with a larger standard deduction for everyone. Since the deduction was to help working people afford their own homes, even allowing $10,000 of home mortgage deductions seems extravagant. This change will benefit the lower middle class at the expense of the rich. This sounds like a reasonable proposal. Opposition comes from the rich who hate to give up any part of their higher income bracket tax deductions. The opposition also comes from blue state Democrats and Republicans who have made housing more expensive in blue states.

[Hermod]

The premise of the tax cut for corporate taxes is to make the US tax system competitive with other countries. Right now US corps are "merging" with companies in low corporate tax jurisdictions [[like Ireland) and keeping their profits off shore. The thought is that by reducing US corporate tax rates, more money will be reported here by ending this practice and the net result to the government will be positive.

For the average taxpayer [[$50,000-$100,000), you will get a small tax cut if you have few deductions and a possible small tax increase if you claim a lot of deductions.

The rich won't see a tax reduction, but they will benefit IF the corporations pass through their tax savings in the form of increased dividends or stock buybacks.

[aj3647]

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.

OOOOOOOOO! What's next, gonna impress us all with a picture of your certified pre-owned BMW?

Still waiting on that source that the estate tax costs more to collect than it takes in in revenue...

[emu steve]

Both the House and Senate version limit home mortgage deductions to $10,000 and offsetting this with a larger standard deduction for everyone. Since the deduction was to help working people afford their own homes, even allowing $10,000 of home mortgage deductions seems extravagant. This change will benefit the lower middle class at the expense of the rich. This sounds like a reasonable proposal. Opposition comes from the rich who hate to give up any part of their higher income bracket tax deductions. The opposition also comes from blue state Democrats and Republicans who have made housing more expensive in blue states.

Guys, we are really having problems analyzing different housing markets.

Folks here seem to have myopic vision, maybe based on what folks see in the Detroit metropolitan area.

A 30 year loan just under 500K would cost $2,500 /month, most of which is initially interest.

Or a 330K mortgage [[10% down) would yield roughly a 300K mtge of $1,500 /month most of which is mostly interest. The owner of this mortgage would have his/her mortgage interest deduction seriously limited.

A 330K mortgage in the D.C. area buys a small condo for the most part. Very hard to find a town home or single family for that number.

Nationally, it would be a typical or 'median' value home.

https://www.money-zine.com/financial...e-home-prices/

"With an improving economy, the recovery of the housing market continued to accelerate over the last six years. In 2016, the median price paid for a new home was $332,500, while the average price paid was $384,000. This represents a 9.8% increase in median home values, and an 8.0% increase in average price paid."

[Wesley Mouch]

The premise of the tax cut for corporate taxes is to make the US tax system competitive with other countries. ...snip...

We certainly should be competitive, but that's not the best moral nor economic argument for cutting corporate tax rates.

The best reason to cut corporate taxes is because taxation discourages activity. We want jobs. We want corporations [[large and small) to have spend their money on improving their products. On being better than others. Better than other countries. A too-high corporate tax harms our economy.

Zero corporate tax is a non-starter, in a world where corporations are seen as evil. But a 10% tax might be reasonable. That, combined with a revenue-neutral increase on dividends and gains might be real 'reform' Would certainly be better than the current extremely high rate [[30+) with loopholes for companies with political clout and the sleaziest lobbyists.

[aj3647]

The best reason to cut corporate taxes is because taxation discourages activity. We want jobs. We want corporations [[large and small) to have spend their money on improving their products. On being better than others. Better than other countries. A too-high corporate tax harms our economy.

What actual historical economic evidence suggests that cutting the corporate tax rate will result in greater product innovation, technological advancement, or economic expansion? Instead of, oh let's say, corporations using their increased profit from the massive tax cut to buy back more of their own stock or issue higher dividends to shareholders or up the compensation packages of their own executives?

http://www.epi.org/publication/ib364...onomic-growth/

Or I'll give you a more recent example you can look to: Kansas. In 2012, Republican Governor Sam Brownback with the support of a heavily Republican state legislature passed a sweeping and massive tax cut bill, cutting both individual and business tax rates. Brownback called it the "red state experiment" and promised that it would spur immense economic growth and job creation that would more than make up for the lost tax revenue. That didn't happen. In fact, it was a spectacular failure. Things go so bad in Kansas that its own Republican legislature overrode a veto from the Governor to RAISE taxes.

https://www.npr.org/2017/09/30/55450...cut-experiment

https://www.brookings.edu/blog/unpac...ut-experiment/

[313WX]

The best reason to cut corporate taxes is because taxation discourages activity.

Oh really?

These CEOs don't seem like they would be engaging in much "activity" if taxes are cut...

http://nymag.com/daily/intelligencer...-say-ceos.html

[Wesley Mouch]

What actual historical economic evidence suggests that cutting the corporate tax rate will result in greater product innovation, technological advancement, or economic expansion? Instead of, oh let's say, corporations using their increased profit from the massive tax cut to buy back more of their own stock or issue higher dividends to shareholders or up the compensation packages of their own executives?

Should they do either of those two, that would trigger additional taxation on those individuals. I'm not saying there should be no tax. Just that its better to tax as it is consumed, not as a tax on profit.

http://www.epi.org/publication/ib364...onomic-growth/

Are they a real economics group, or an advocacy organization. Seems they only talk party line. Not impressed by them.

Or I'll give you a more recent example you can look to: Kansas. In 2012, Republican Governor Sam Brownback with the support of a heavily Republican state legislature passed a sweeping and massive tax cut bill, cutting both individual and business tax rates. Brownback called it the "red state experiment" and promised that it would spur immense economic growth and job creation that would more than make up for the lost tax revenue. That didn't happen. In fact, it was a spectacular failure. Things go so bad in Kansas that its own Republican legislature overrode a veto from the Governor to RAISE taxes.

https://www.npr.org/2017/09/30/55450...cut-experiment

https://www.brookings.edu/blog/unpac...ut-experiment/

Kansas was a spectacular failure. Doesn't mean the theory is wrong. Brownback appears to have take things too far, too fast.

You clearly think that taxation doesn't discourage productivity. Believe as you wish.

But reducing the corporate rate, and eliminating loopholes written by the powerful is a great reform. Don't ignore it just because you think a lower rate is a gift to corporations.

[3WC]

OK, aj3647: based on your comments, how can we not conclude you have a Masters in Taxation from NYU law school [[ the best.)

So, you obviously know there have been numerous studies over the years proving the direct and indirect costs of the federal estate tax far exceeds any benefits it produces.

The web addresses of some are so long the entire address was not visible [[at least on my iPad.) But you can Google the following: “Costs and consequences of the federal estate tax.”

Also, for your information, my BMW is not pre-owned. Neither is my Bentley convertible.

[Wesley Mouch]

After some enjoyable SALT, back to the basic question. [[List from mentions in Freep article cited.)

Yes, the GOP reforms seem to be a general negative for cities like Detroit.

Deductibility of SALT bad [[just a little, as its a deduction, not credit, and Detroiters tax isn't really that much).

Reduction in Historic Presservation Tax Credit, bad [[free cash always good.)

Reduction of Mortgage Interest Deduction [[mostly a nothingburger due to Detroit home prices)

Taxation of big non-profit / university salaries [[irrelevant to Detroit).

Easing rules on churches for activism [[bad, since Detroit activism tends to be self-destructive Black Nationalist and anti-gentrificaiton stupidity).

Summary... the only thing that really matters is the Historic Preservation Credit elimination. But is it really a big deal? Seems that Preservation in Detroit is doing well on its own merits. Are older buildings being preserved only because of this credit? Or do developers realize how they can spend less and get more on the project's merits? I think a building re-use nudge is good for Detroit [[and the Nation), but fewer tax games from the coastal elites in their own benefit is probably a net gain for Detroit.

Verdict... Go for it, Donald. We'll make it on our own. And knocking the elites back to parity, yes parity in taxation will be good for the country.

[ABetterDetroit]

The Republicans have the ball and if this is what they want to do with it so be it.

Just please during the next election cycle do we have to hear about the trillions and trillions of government debt and how the party of “fiscal conservatives” is going to save us from all the debt yet again?

That bullshit has be one of the biggest lies in politics ever.

It's hard to believe that anyone would be that stupid to still believe it.

[Canadian Visitor]

Verdict... Go for it, Donald. We'll make it on our own. And knocking the elites back to parity, yes parity in taxation will be good for the country.

There is certainly virtue in simplified taxation.

There is little virtue in a litany of loopholes and deductions both well-intended and bought.

However, the underlying notion that 'lower' taxes are good is dubious.

Ireland does not have the most successful economy in the E.U. let alone the world.

While Canada.....

Hey we have lots of issues up here.........but....

I know that not one, not two, but three Fortune 500 companies are shifting a substantial amount of their employment to the GTA [[Greater Toronto Area).

You know, its not our low taxes that's the draw.

#1, I guarantee, is the educated workforce.

#2 is social and immigrant acceptance

#3 is safety, stability and low-corruption

To be clear, I know many of the players.

There take is that taxes on profit are not irrelevant, but that cost-structure and success are more important.

Put another way, a cheap supply of educated workers, is much more valuable than one or two points less corporate tax.

[emu steve]

This tax bill will cause a lot of changes and if it takes effect Jan 1, 2018, watch out...

I remember the tax bill of 1986 which eliminated interest expense on credit cards, installment loans, etc. [[leaving 1st and 2nd mortgages, though). Folks paying 18% interest on credit cards at least got a tax rebate to compensate.

1). Home equity loans interest deduction would be gone. So two years ago someone takes out a 50K 10 year 2nd, and they will be screwed as they lose that deduction. If this HELOC is adjustable and interest rates rise then they will get a double whammy. The 2nd mtge loan industry will get hit.

2). Maybe worse is I fear CHARITIES will get hard. I read a story that maybe only 5% will itemize. Under the current system with a marginal income tax system, someone donates $100 to a charity and gets back say $25 - $35 in savings on their federal and state taxes. If someone donates say 5K/year and now fears losing that deduction.

P.S. if the GOP wants to stimulate the economy and not simply boost the stock market and pay off their corporate special interests, I would have much preferred a 100B / year infrastructure plan. That would directly boost the economy and have a positive effect on the lives of folks in U.S.A. with better roads, bridges, etc. [[now where is 100B going to come from????)

[313WX]

I know that not one, not two, but three Fortune 500 companies are shifting a substantial amount of their employment to the GTA [[Greater Toronto Area).

You know, its not our low taxes that's the draw.

#1, I guarantee, is the educated workforce.

#2 is social and immigrant acceptance

#3 is safety, stability and low-corruption

Don't forget Single-Payer Healthcare.

We'll get a clue in the US one day...

[313WX]

This tax bill will cause a lot of changes and if it takes effect Jan 1, 2018, watch out...

I remember the tax bill of 1986 which eliminated interest expense on credit cards, installment loans, etc. [[leaving 1st and 2nd mortgages, though). Folks paying 18% interest on credit cards at least got a tax rebate to compensate.

1). Home equity loans interest deduction would be gone. So two years ago someone takes out a 50K 10 year 2nd, and they will be screwed as they lose that deduction. If this HELOC is adjustable and interest rates rise then they will get a double whammy. The 2nd mtge loan industry will get hit.

2). Maybe worse is I fear CHARITIES will get hard. I read a story that maybe only 5% will itemize. Under the current system with a marginal income tax system, someone donates $100 to a charity and gets back say $25 - $35 in savings on their federal and state taxes. If someone donates say 5K/year and now fears losing that deduction.

P.S. if the GOP wants to stimulate the economy and not simply boost the stock market and pay off their corporate special interests, I would have much preferred a 100B / year infrastructure plan. That would directly boost the economy and have a positive effect on the lives of folks in U.S.A. with better roads, bridges, etc. [[now where is 100B going to come from????)

$100B wouldn't cut it. It should be more like $1 Trillion.

It can come from cutting the extremely bloated military budget [[yeah, I know, that's like suggesting to kill your first born in this country) and increasing the top marginal tax rate to at least 1970s levels.

[oladub]

Guys, we are really having problems analyzing different housing markets.

Folks here seem to have myopic vision, maybe based on what folks see in the Detroit metropolitan area.

A 30 year loan just under 500K would cost $2,500 /month, most of which is initially interest.

Or a 330K mortgage [[10% down) would yield roughly a 300K mtge of $1,500 /month most of which is mostly interest. The owner of this mortgage would have his/her mortgage interest deduction seriously limited.

A 330K mortgage in the D.C. area buys a small condo for the most part. Very hard to find a town home or single family for that number.

Nationally, it would be a typical or 'median' value home.

https://www.money-zine.com/financial...e-home-prices/

"With an improving economy, the recovery of the housing market continued to accelerate over the last six years. In 2016, the median price paid for a new home was $332,500, while the average price paid was $384,000. This represents a 9.8% increase in median home values, and an 8.0% increase in average price paid."

The question was, "Will the GOP Tax reform Bill hurt Cities like Detroit". Answer: the intent to limit itemized tax deductions to $10,000 will help Detroit and other places with less expensive housing because the $10,000 deduction will go further in such places. It gives the Detroit area a relative advantage. The median home price in Michigan is $135,000 [[Detroit $47,700)[[California $393,000) and the median home listing price presently listed in Michigan is $169,900 according to Zillow.

Why should, for instance, Michigan taxpayers have to subsidize California borrowers for political decisions California voters made that created a shortage of housing while increasing the demand for housing; a supply demand situation resulting in higher housing costs? California should create its own home loan program instead of depending on federal subsidies from Michigan taxpayers. A $10,000 cap on housing deductions that would only concern rich people in Michigan would be offset by larger standardized deductions benefitting others in Michigan including anyone with a mortgage on an average or or less expensive than average house in Michigan. Businesses would find an advantage in expanding in areas like Michigan where employees could find cheaper housing. It makes no sense to continue subsidizing rich individuals and corporations with unlimited personal housing deductions. Those deductions were supposed to be to help less affluent Americans purchase houses not millionaires.

Using the example you gave of costs involved with a $330,000 house, a more typical $150,000 house in Michigan would have a $682/month mortgage x 12 months = $8181/year even if it was all interest. That's well within the $10,000/year cap.

It also makes no sense to allow richer people taking out, for instance, $500,000 loans to deduct 30%+ of their interest amount if they are in that income tax bracket while someone in a 15% income tax bracket can deduct only 15% of their $150,000 loan. The first person gets a $15,000 tax break while the second person gets a $2,250 tax break.

[emu steve]

I understand the points you are making but because our tax code is progressive the effects on marginal income is higher for some people than others.

Someone with an adjusted gross income of say 50K is taxed marginally [["each additional dollar") at 25%. This means that for anyone itemizing any amount itemized be it mortgage interest, charity, property tax, medical expenses are worth more to that person than a low income person.

Those who pay higher marginal rates get greater savings for itemizing deductions. I don't see a problem.

[oladub]

I understand the points you are making but because our tax code is progressive the effects on marginal income is higher for some people than others.

When wealthy taxpayers paying the highest top marginal tax rate of 39.6% get to deduct 39.6% of whatever home mortgage interest they assume, the progressive tax system suddenly becomes a lot less progressive. The irony here is that Republicans are being more progressive on this one line of the tax bill than are Democrats.

[emu steve]

When wealthy taxpayers paying the highest top marginal tax rate of 39.6% get to deduct 39.6% of whatever home mortgage interest they assume, the progressive tax system suddenly becomes a lot less progressive. The irony here is that Republicans are being more progressive on this one line of the tax bill than are Democrats.

Only if you are thinking of absolute dollar amounts.

You are right that every $1,000 that Mitt Romney gives to charity is worth more to him [[$396), in ABSOLUTE terms, than to me [[$250).

But RELATIVELY that $1,000 [[$396) is much different to him than to me $1,000 [[$250).

I dare say that the $250 federal tax savings I get for $1,000 gifts to charity is worth more to me than the $396 that Mitt gets.

[emu steve]

Quick pivot back to housing and mortgage interest deductability.

The deductability of mortgage interest, second mortgage interest, property taxes, etc. are all designed to foster home ownership.

That has become a sacred cow in America, but it has become a bedrock of American society. The view that neighborhoods with high ownership rates are more stable, better kept up, more community involvement, etc. etc.

The GOP needs to think and rethink how they wish to handle these deductions.

The GOP could eliminate all of them and housing prices would probably decline 10 - 20% across the board.

And Quicken Loans might be in deep do-do if the number and amount of their mortgages decline sharply and their second mortgage business declines even more.