I lost my deduction for a college student and had my youngest age out of the child tax credit so my numbers would change anyway. The increase in standard deduction means I did not have to itemize for federal but it pays to do the math for the state. Property tax, mortgage interest, charitable were the three biggies I used to use. The first two went down a bunch this past year (refinance and re-assessed.) Income stayed about the same. Mine is heavily dependant on how much overtime I choose to work and what excess I dump into my retirement accounts. Bottom line is my total tax went down about 8%.
Why should we let people out of their federal obligations for having kids? Buying a house? Donating money? Having business losses?
Do you think we should? If yes, how about you tell us why rather than asking others to make your arguments for you.
For the most part, I don’t think we should be allowing any of those deductions. I also believe this for corporations (they have different deductions, but they shouldn’t get by without paying their portion as well).
Does that help answer your question?
Out of curiosity, how do you come up with that conclusion? According to the givers/takers link upthread, 14 states get back less than they send. (And that’s without trying to define your use of “much more.”). I had trouble understanding the charts on the states that benefit from the SALT deduction.
If you can’t deduct losses to calculate net income, then it’s not an income tax. Deducting losses to get net taxable income is pretty far from arbitrary.
Donating money is a little further over on the scale. I think this is a positive feature, not even a politically necessary evil, because it gives more power to individuals to decide how they will support society’s needs, rather than it all being collectively determined. But, everyone is free to have their opinion about that.
Deduction for mortgage interest is IMO a distortion that should be eliminated, but it’s very hard to do that politically. The 2018 tax law by cutting the size of mortgages eligible from $1mi to $750k and moreover by increasing the standard deduction reduced the cost of the mortgage deduction to the treasury by more than half (from around $80-some bil a year to less then $40). That is progress at least.
Likewise IMO I could take or leave credits/deductions having to do with kids and their education and care. But good luck with that, it’s one of a limited number of things anymore with strong support across most of the political spectrum.
The state and local tax deduction though was a particularly distorting feature of the code that needed to go, and so that’s a positive element of the 2018 tax law (though it cost me around $3k: I tested it by putting 2018’s income and deductions in Turbotax 2017 and it came out $3k less than the actual amount due in Turbotax 2018). And fortunately, I believe it will be difficult to restore that deduction because it won’t necessarily be supported by Democrats from the states which would provide them a margin of victory if they gain one in House, Senate and WH. It is a subsidy mainly for pretty well off people, as well as generally detaching state politicians from having to fully justify the taxes they impose solely for their own state’s benefit. It makes less sense IMO than any of the other examples, though again doesn’t mean those all make sense either.
You also have to take a step back and realize how doubtful those rankings are to begin with as to relevance to the SALT deduction.
I think many people see those numbers and figure it’s all about money appropriated by the federal govt by state. But very little of the differences are that. The biggest element is simply that people with higher incomes pay higher taxes as individual US citizens/residents and there happen to be more in some states than others. It’s not their state paying those taxes, it’s them. The SALT deduction therefore is a give back to individuals in certain states but not others, for no particular reason.
Second, most federal spending is also to individuals who qualify for a particular program and would no matter which state they moved to (Social Security, Medicare, several $100’s bil/yr in means tested federal poverty spending, etc). Only a small % of federal spending is subject to smoke filled room discussions as to which state ‘gets’ it (‘congratulations on your new road’, peanuts in the big picture). And if for example the country has a powerful navy it can’t base the major surface units in Vermont or Wyoming, and the weather for training, property costs etc might be lower in GA than NY. So including defense spending in those breakdowns, which they generally do, is also pretty pointless.
The federal spending actually divided by state is a small % of the total. And the states as entities don’t pay taxes. So those rankings are basically irrelevant to the validity of the SALT deduction for individuals. It isn’t just a matter of nitpicking one item or another or exactly which states come out high or low.
Corry El, I think your arguments for the limited SALT deduction are equally valid for donations.
Donation deductions are also primarily a subsidy for well-off people. State and local taxes give more power to small governments to decide how they will support society’s needs, rather than it all being determined nationally, etc.
And while SALT deductions are primarily used by the top, say 5% of income earners, really large donations are often used (and abused) by the top 0.1%, who do things like set up dodgy foundations, or make self-serving “donations” that pay for themselves in social capital and prestige.
I think there are arguments for the limit, but I’m pretty sure the changes were intended to shaft the urban professional class (largely Democrats) while leaving the wealthy elite lots of flexibility within the tax code.
The giver/taker rankings are obviously pretty dubious. The site upthread is from 2014. This site relies on a 2016 NY State report (and now gives us 13 net “giver” states). The perception that is intended by those who post these rankings is to imply that federal “spending” is direct transfers to the state to make up for money that is not collected in state tax (hence the claim: “The states that get more from the Federal Government than they pay have more money available to keep their taxes lower than they otherwise would be.”).
That’s obviously highly misleading since we know from the lists themselves that “federal spending” for these lists is largely made up of federal benefit payments to individuals, government procurement in the state, and salaries to government workers. (This is why DC is, according to the NY State Comptroller, is “is the biggest net taker by more than a factor of five compared to all the states.”). Almost none (if any) of these payments are payable to the state; many of them are taxable by the state.
But I was more interested in the claim that “without exception” the states that were adversely affected by the SALT cap were net “givers”. I thought it was an interesting claim and I was wondering what the support for it was (regardless of how “giver” was defined).
I didn’t make the claim that this was true “without exception,” but I did provide a cite upthread for which states were most harmed by the cap on the SALT deduction. See Table 2 here, which is based on data from 2016 tax returns (i.e. predating the changes in the tax law).
I think we probably saved a little bit this year, which I won’t lie - I like. But in terms of the long-term value, in terms of the massive deficits that jeopardize the long-term health of medicare and SS, I think that we’re not saving anything. We’re probably going to pay much, much more than we ever could save. At least it seems that way based on where we’re headed.
Thanks for your well thought out response. I think we are mostly on the same page: Deductions for children, mortgage interest, donations and state taxes should all be eliminated (although you might side with keeping donation deductions).
And I agree my business loss was not a well-thought out argument. However, corporations are able to exploit so much that something needs to be done. If it’s true Amazon paid no federal taxes, that’s wrong.
I also liked the reply by iamthewalrus(:3= . State taxes allow for more local control of applying money where there is need rather than allowing the Feds to determine this.
Corry El, I fail to see why you can’t make the exact same argument for state and local taxes. This is particularly true in the case of state income taxes, which are primarily paid by employer withholding, just like the federal income tax. In other words, the taxpayer never even sees the money. Why then should this be included in the taxpayer’s net income for federal income tax purposes?
Also, unlike paying mortgage interest or making donations, an individual taxpayer has no say in the matter (other than by moving out of the state), and cannot simply choose not to pay state and local taxes.
Finally, for all of the noise that we’ve been hearing for years from Republicans bleating that the estate tax (aka the “death tax”) constitutes double taxation as if it were the worst thing imaginable (which it really doesn’t, since much of the income is unrealized capital gains that have never been taxed before the person dies), it’s more than a little hypocritical that the first thing they do when they get unified control of the government is to institute an actual double taxation scheme (that just happens to also preferentially impact blue states to a large extent). :rolleyes:
Okay, but the overlap doesn’t seem to help the argument as well as you’d like. We know from here that there are 13 “giver” states. Four of them (Texas, the Dakotas and Wyoming) are in the “least” harmed by the SALT cap. Six of them are in the “most” harmed by the SALT cap. Some of the “most harmed” as big “takers” (DC, Maryland) but so are some of the “least harmed” (Mississippi, Alabama). I guess I’m not seeing a lot of support for this argument once you get past New Jersey.
Well they did eliminate the the child deduction; it’s a (mostly) refundable credit. Pretty close to a straight-up cash subsidy. Whether that’s good policy or not, or whether doing this through the tax code makes sense is another matter. But at least now someone in a higher bracket doesn’t get a larger discount than someone in a lower bracket. Which I think makes sense?
Do we have more to talk about re: deductions and credits? Should I make a GD thread?
First off, DC isn’t even mentioned in the report you cite. The report does mention Maryland, but also notes the following:
The same reasoning would apply to DC to an even greater extent, of course, which is even smaller with a high number of government workers.
In any event, without doing a statistical analysis (which would be right up Nate Silver’s alley), it is clear that the top four states harmed by the SALT cap (New York, New Jersey, Connecticut, and California) are all net donors; and the top three states that are harmed* (New York, New Jersey, and Connecticut) constitute 3 of the 4 top donor states.
*that is, the top three states who previously most benefited from the SALT deduction as a percentage of AGI
As the report explains, DC is not listed because its “off the charts” but is a net “taker” “by more than a factor of five compared to all the states.” For the reasons I already mentioned, I find the “giver” versus “taker” analysis to be pretty flawed, and you’ve pointed to an obvious reason why. I think the rankings tell you a lot more about the people citing them than about the states themselves.
Sure, 3 of the top 5 “giver” states are “most harmed”. 2 of the top 5 are “least harmed”. I guess you can draw a conclusion from that.
Yes, and 4 of the top 6 “giver” states are “most harmed”. As are 5 of the top 7.
There’s an even bigger correlation that I mentioned in my first post in this thread, which is that the new tax law appears to have been precisely targeted to screw over people living in blue states (like me). Going back to this table, 10 out of the top 10 “most harmed” states went for Hillary Clinton in the 2016 presidential elections (i.e. “blue states”).
Conversely, 9 out of the top 10 “least harmed” states went for Trump in the 2016 presidential elections (i.e. “red states”).
The SALT deduction seems to me somewhat the inverse of Obamacare, or at least the concept of a private/public hybrid health insurance system based on a mandate to buy insurance. A lot of conservatives were for that until it became Obama’s idea. 
It’s hard for me to imagine a lot of the people, besides just those arguing their own narrow self interest (hardly anybody wants to pay more tax) now defending the SALT deduction doing so if eliminating if it came from the left, which is not inconceivable in theory, it is/was in fact a tax break mainly benefiting high income people. The effect of eliminating it got washed out by the increase in standard deduction and cuts in rates for most people even in the states whose politicians are complaining about it. But it’s the GOP’s and worse yet Trump’s idea.
I don’t see much merit in arguments you gave with due respect. Income tax gets withheld or paid as estimated what difference does that really make on what tax should be assessed? (I pay estimated, I paid more in 2018 net because of the new tax law, I checked it out exactly correcting for change in income). And it is absolutely not double. I pay high NJ income tax because the NJ state govt spends a lot on things in NJ. It’s a separate debate if it spends too much or too little or wisely or unwisely, but none of my state income tax is sent to Washington. My federal tax payments support the federal govt’s activities nationally. My state tax payments support the NJ state govt’s activities in NJ. I don’t see any overlap in those. Completely different from profit of a corporation being taxed twice by the same entity for the same purposes as for example income earned by a public stock company being taxed as corporate income and again as dividends received by me, or yet again as estate tax if that were to ever apply. I think one might justify the estate tax, but it is double (triple, etc) taxation of an income flow by the same entity, NJ and federal income tax really is not double taxation in the generally recognized sense.
And I do have a choice. I can live in NJ or I can move. Which eventually I might do. And I see no reason for the federal govt to effectively pay part of the NJ tax burden (which is what the SALT deduction eventually does) to prevent that. If states with much lower spending and taxes than NJ are really Dickensian hellholes, then there’s nothing for NJ to worry about. If it really has to compete to provide value for service, then maybe it should be worried. And nobody really likes to compete either, no matter how much they are in favor of competition in abstract. But competition is generally good for society overall and the SALT deduction was a pretty egregious case of making high tax states not really have to compete for the value they provide to their taxpayers, by the federal govt effectively taking up to around 40% of the state tax burden on the highest rate taxpayers in lost revenue to the federal govt. Sharply curtailing SALT deduction and effectively halving the mortgage deduction were big positives of the 2018 bill toward the goal of a more efficient tax code. Other parts of it, like big increase in the deficit, I’m not as favorable toward.
I don’t care whose idea it is…I still think it’s a bad idea. First off, while it did mostly benefit higher income people (because they’re the ones who itemize), it didn’t really affect the 1%, because they are so rich they’re far more concerned with other parts of the tax code, or are dealing with the AMT. The cap in the SALT deduction really affected those who made enough to itemize, but not enough to be affected by the AMT. In some states, this is a lot of people – for example, approximately 42% of filers itemized their taxes in NJ and CT, and 95% of itemizers took the SALT deduction.
While it’s true that the other changes in the tax law mostly washed out the impact of capping the SALT deduction, it’s bad precedent to set, IMHO. As I mentioned upthread, there was a time when federal tax rates were so high (a top rate as high as 94% in WWII, and still as high as 70% up through the 1970s), that you could easily have had a situation were the combined tax rate of federal, state, and local taxes could exceed 100%, which makes absolutely no sense. In this situation, it would actually penalize you to make over a certain income, which is surely a perverse outcome.
First off, I referred to it as “double taxation” because it is two separate income taxes being imposed on the same income.
Secondly, if you are going to allow any deductions to calculate federal income tax, it seems perverse to exclude or cap state and local taxes. Why should a person be able to deduct mortgage interest and donations from their federal income, but not SALT? Is it right that the federal government should subsidize a person’s voluntary donation and support of the Flat Earth Society, but not my state government?
I’m not sure it really serves the public interest for changes to have been made to the federal tax code that result in encouraging people to leave one state and move to another. Or maybe that’s the point, considering who pushed these changes through.
I don’t think it’s a coincidence that the authors of these tax changes went looking for ways to pay for the huge tax cuts on corporations and the ultra-wealthy and hit upon a tax increase that mainly affects higher-income people (who tend to vote Democratic) living in blue states. Again, it’s not the ultrawealthy who are particularly concerned about the SALT deduction.
With respect to comparing states, while it might be attractive to think of states competing, it seems more likely to result in a race to the bottom.
On this we agree.