My income tax results for:
2016 Feds refund of $2,470 State refund of $115.
2017 Feds refund of $2,886 State refund of $56.
2018 Feds refund of $1,380 State refund of $48.
My income has varied only slightly over these years. Middle of the road income, I’d call it.
That only tells us (and you) part of the story. How much was withheld throughout the year in each of those years?
robby’s example of 100% tax if there is no SALT deduction is just as absurd as if there was a SALT deduction and one of the state’s charged a 100% income tax. In that case residents of that state would be paying no tax to the country they live in. I think that people with the same income living in different states should pay an equal amount to the IRS. Why give those living in certain states a break.
Nothing on Schedule A should be deductible. However, it is hard to change the rules when people have been getting certain tax breaks all their lives and have committed to long terms loans based on an understanding that there would be deductions.
bobot, it is the amount of tax that should be compared not the refund. Did your state change withholding rules too? You had the same income, but your state refund is less than half of what it was in 2016.
Absurd or not, given that the top federal income tax rate was historically as high as 94% (in WWII), and still as high as 70% up through the 1970s, but for the SALT deduction you would have indeed have had tax rates that exceeded 100% in WWII, and been close to 100% as recently as 1981 (when the top tax rates were reduced in Reagan’s first term).
Looking at the history of the SALT deduction (as recounted by the conservative Tax Foundation, which is actually against it):
How about people who have committed to living in a given state for most of their lives? I’m not originally from Connecticut, but settled here after getting out of the Navy nearly 20 years ago. (I’m originally from Texas, which has no state income tax.) It seems more than a little unfair to change the rules of the game after I’ve settled down here, bought a house with a 30-year mortgage, and established a career and got a state-specific Professional Engineer license.
Easy solution to avoiding over 100% tax while having citizens contributing more fairly to the IRS is for states to tax the income remaining after federal taxes were removed.
Tax are never going to seem fair to everyone. If a married couple has enough state and local taxes to exceed the $24,000 standard deduction, they are probably pretty well off, and fighting for higher taxes on those with higher income is popular these days, especially if they have been taking advantage of large SALT deduction for years without getting hit by the AMT.
For us, it wasn’t just state and local taxes (SALT). It was SALT plus mortgage interest plus charitable donations that pushed us over the standard deduction…except that this no longer holds with the SALT deduction capped at $10K.
So essentially in 2018 and beyond we are getting no benefit in our taxes by paying a large amount of state and local taxes, or by paying mortgage interest, or by making donations, etc.
This is now true for the vast majority of tax payers who used to itemize. Indeed, the percentage of taxpayers who will be itemizing in 2018 is predicted to drop from an average of 30% of all taxpayers to just 5%, by one estimate.
This actually changes the calculus for all deductions. I always thought the point of the mortgage interest deduction was to encourage home ownership, for example. It seems like it will no longer accomplish this goal in the future for most taxpayers, since almost nobody will be itemizing.
Finally, it’s more than little annoying to be in the one group of taxpayers that got screwed in the tax reform bill. Lower income people got their rates reduced a bit. Very wealthy taxpayers and corporations got huge tax decreases. The only group (generally speaking) that saw their taxes go up were people like us who because of the SALT cap can no longer itemize their state and local taxes, etc.
You didn’t get screwed; you stopped screwing the rest of us.
If itemizing is important to you, you could increase your charitable donations.
This is B.S. Our progressive income tax system means that people with higher incomes pay a higher rate of tax. Based on this data (which predates the recent tax law changes), households in the top 10% income bracket paid a larger percentage of income taxes than their share of earnings for all income received in the U.S.
The recent tax law changes reduced the tax burden on the ultrawealthy (including the top 1%). It also reduced the income tax burden on the bottom 80%, who already paid less in income taxes than their share of overall income (though I understand that other taxes, such as sales taxes and payroll taxes, fall disproportionately on people with lower incomes.)
It’s people in the top 10%, but who are not ultrawealthy and not affected by the AMT, many of whom who previously had a lot of deductions due to state and local taxes and mortgage interest, that are paying for everyone else’s tax cuts (along with the increase in the deficit). Note that this includes professionals who work for a living – including engineers and nurses, like me and my wife.
Considering all of the taxes we have been paying in federal income taxes, state income taxes, local property taxes (on our house and cars), as well as state sales tax, payroll taxes, etc., it’s a bit rich to say we’re not paying our fair share. This was true even before the recent tax law changes – note that even when you could deduct all of your state and local taxes on your federal income tax, it only offset a portion of the money you were paying in state and local taxes.
Thanks for the tip. :rolleyes: It’s not that itemizing is important in itself. It’s that one-third of our deductions have been artificially capped, even though we are paying just as much in state and local taxes (actually, somewhat more) as we were before.
Correction: not the rest of us, as I’m over the SALT cap and not part of “us”.
Again, the exact same argument can be made for not allowing (or for capping) a deduction for charitable donations.
I see no reason for the federal government to effectively subsidize churches, museums, and personal foundations, but that’s what the charitable deduction does when people donate.
The point of allowing deductions for charitable contributions and SALT is really the same: A “more fair” taxation system taxes the money that people have to spend on what they want. If they give it away to charitable causes or have it taken by some other level of government then they don’t have it to spend.
Again, there are arguments for limiting those deductions, or removing them entirely. But the arguments tend to apply to both. And there’s really a stronger form of the argument to limit charitable deductions. Charity is totally voluntary! It’s a lot harder to move to another state than to just reduce your charitable giving by your marginal tax rate. So why are they applied only to SALT and not to charitable deductions?
Because SALT deductions are taken more by Democrats and charitable deductions more by Republicans. Which is fine as far as it goes. Part of politics is that people are in favor of economic policies that are better for them. But it’s a stretch to say that there’s more behind it than that.
Where do you get the idea that the ultra rich are seeing huge tax decreases? As we so often hear, the idle rich get most of their income from long term capital gains. Except for the SALT deduction cap and a relatively small inflation adjustment, the long term capital gains tax rates are essentially the same as last year’s. Thus, those with ultra high income from long term capital gains will see a tax increase due to having SALT deduction capped.
If somebody has no long term capital gains, but very high ordinary income, there could be an increase or a decrease in federal tax depending on state and local taxes. There will be an increase in federal taxes if state and local income taxes exceed about 6.56%. Before counting real estate taxes, the maximum income tax rate for many states already exceeds that, including for some that have plenty of wealthy individuals, such as California, Hawaii, New Jersey, and New York.
There is a lot of complaining about the change in taxes for different levels of income, as if there is somehow a way to make a modification that gives everyone an equal change from a previous equitable system. Some will complain about the percentage change, others don’t like the change in number of dollars. The previous system was not fair; fixing it will not give everyone an equal change.
Seriously? :rolleyes: This is well-documented. Here is a simple chart that sums of the overall effect of the law. Specific provisions that help the ultrawealthy include:
[ul]
[li]The federal estate tax limit was doubled — the new tax law doubles the amount of wealth exempt from the levy, to $11 million for singles and $22 million for couples.[/li][li]The impact of the AMT was reduced.[/li][li]The wealthy also won a drop in the top tax rate, from 39.6 percent to 37 percent, which they can slash further if they’re business owners who qualify for the new 20 percent pass-through break. If they’re corporate stockholders—and the vast majority of rich Americans are in some way—they’re also winning a big benefit from the law’s most expensive perk, the slashing of the corporate rate to 21 percent from 35 percent.[/li][/ul]
Cite. From the same article:
Well, keep in mind that an estimated 35 to 45 percent of wealth is inherited rather than self-made, and the trend is for even more wealth to be transferred by inheritance.
And as this article in the American Prospect states:
Does anyone have a link to a good counterfactual tax estimator? Ideally one that can take numbers from my 1040 and ask a few questions and tell me what I would have paid if the new law hadn’t passed?
I have no idea if the new law helped or hurt me.
Honestly I haven’t seen anything better than just running either last year’s or this year’s 1040 with both sets of numbers.
Bummer. That’s way more work than I’m willing to do just to satisfy my curiosity.
Those links refer to the year 2025 and do not explain how they came up with their conclusions. Based on some of the reasons given, they appear to be assuming that the economy will be stimulated by the business tax cuts and factoring that into the tax cuts for the rich. I have the tax forms for 2017 and 2018, since that is the topic here, and was using the same income for both years to compare. With those forms, it is easy to verify the simple examples I gave earlier that result in a tax increase for ultra wealthy.
The ultra wealthy do not normally pay AMT, since their effective tax rate on ordinary income is usually over 28% and long term capital gains are not subject to AMT. I already gave an example showing that despite the 39.6 to 37 percent rate change, there can still result in a tax increase because of loss of the SALT deduction. The estate tax is a significant boost to the heirs relative to 2017, but the person with the wealth does not receive this and has to die for it to come into effect.
Married, no kids, Oklahoma. Teacher salary and half teacher salary, supplemented with side gigs teaching piano and refereeing.
Income was within 400 bucks of last year. State tax effective rate of just over 3% each year. Last year my effective federal rate was ~12%, this year it was ~8%. We had a not bad combo of the new small business deductions and the increase in the standard deduction being big, with not having extra dependents. Paid about 2500 less.