Yeah, I don’t get it either.
Are you talking about the passive activity loss rules for rental property? If we are talking about rental property then different rules apply.
Yep.
http://www.nationaljournal.com/norquist-says-payroll-tax-cut-expiration-isn-t-a-tax-hike-20111201
And his views on the bush cuts are widely known.
Do you know how much legislative aids make? Its almost impossible to ask any competent legislative aid NOT to become a lobbyist NOT to become a lobbyist after the pittance we pay them while they draft legislation. Unfortuantely, congressmen like to make a big show of how they have cut their own office budgets in an attempt to prove how fiscally conservative they are. I would prefer that they hire good people and pay them enough that they aren’t constantly angling for the best exit opportunities.
Then why isn’t there a phaseout with this deduction like there is with countless other deductions that are intended to promote stuff for poor people but not rich people), instead there is a (very generous) cap of a million dollars AND you can only take the mortgage deduction if you do not take the standard deduction AND you can dedeuct interest on your second home as well. It hardly seems like a deductions aimed at helping the poor.
Its not especially since you are allowed to deduct the interest on a mortgage on your second home.
Its to benefit the real estate industry. Without the home mortgage deduction real estaate brokers would be spending all their time showing folks rentals and collecting a months rent for getting someone to sign a lease instead of collecting 3% of the home value for driving some folks around for a couple of weekends.
Not to derail this thread but Grover thinks that letting the Bush tax cuts expire is a tax hike because Bush WANTED them to be permanent but put an expiration date on them out of political necessity but letting the payroll tax cuts expire is not a tax hike because noone intended the payroll tax holiday to be forever? Are you fucking kidding me?
You think the Democrats in congress intended for the Bush tax cuts to be permament or is it only the Republican intent that matters? If certainly wans’t congressional intent otherwise they would have passed the Bush tax cuts without an expiration date.
You would be correct if the government had a credible ability to retire the existing debt at some point. But there is not enough revenue to do that. They have to continually “roll over” the debt into new debt. At current spending and revenue levels, they must continue to issue bonds, and those bonds will only sell at market rates that cannot be controlled by the government. Most governments and large corporations work this way. Homeowners depending on teaser interest rates worked this way. The Greek government worked this way. It worked just fine until investors noticed that the Greek government looked like it wasn’t taking in enough taxes to pay off the bonds they were issuing. All of a sudden, investors demanded huge yields to buy Greek bonds, which meant Greece had to budget for bigger interest payments, which meant they very quickly ran short of money to meet government expenses.
The Constitution says “the validity of public debt of the United States…shall not be questioned.” That only means the US promises not to default on existing debts. Nobody questions that. But as I said above, the budget now cannot function without continual borrowing. The Constitution does not require that future debt be issued to roll over existing debt. This is why constitutional objections to Congress’s power to prevent raising the debt ceiling did not win the day, and why not raising the debt ceiling was so immediately dangerous to the functioning of the government.
Not what I said - I said the government’s debt is denominated in dollars, the value of which can be manipulated by the government. The government can expand the money supply in many ways, all of which decrease the value of the dollar, whether intentional or not. They’ll never say “we’re devaluing the dollar in order to reduce the value of our debts”; that would create a panic. But they will say, for example, that they are engaging in quantitative easing to “stimulate the economy”.
Sure, though I think it’s less than 1% of the deficit, depending on what you mean by that. Regardless, I don’t think even the Republicans, who seem to be generally out of touch, think this is the only answer to the problem. My point though was that the poster I was replying to was implying that it was a meaningless benefit since, by implication, it wouldn’t amount to anything. It’s not…$20 billion might not solve all our problems, but it’s not exactly chump change. $20 billion here, $20 billion there, and the next thing you know you are talking about REAL money. 
(Put it this way…I wish I could have that $20 billion for NASA, or, even better, for myself. Hell, I’d settle for .1% of that $20 billion)
-XT
CPA checking in. I wanted to clarify the tax laws on the mortgage interest deduction and deductibility of rental losses since there seems to be some misinformation and confusing figures being thrown about.
For the mortgage interest deduction, there are 2 different loan caps that you need to be aware of.
The first type is for loans incurred to buy, build, or improve a main or second home. Interest cannot be deducted on any amount of original principal indebtedness that exceeds a total of 1,000,000 combined (for loans originated after 1987).
For example, a rich person buys a Main home and takes out a mortgage in the amount of $800,000. He also buys a vacation home and takes out a mortgage of $400,000. Since the total of the 2 loans exceed 1 million, he will have to reduce the amount of interest deducted on Schedule A that he paid on the loans by a prorated amount based on the overage.
In the above scenario, if he uses 2 different banks for the 2 loans, it is likely he and the IRS will receive 2 Form 1098’s at the end of the year and each will show the entire amount of interest paid during the year on each loan as deductible since no individual loan exceeds 1 million. It is up to the taxpayer in this scenario to reduce the amount of deductible mortgage interest on his tax return as appropriate as it is unlikely the IRS will catch the error short of an audit.
The 2nd type of loan cap is for Home Equity loans. These are loans secured by your main or 2nd home that are NOT used to buy, build, or improve either home. Interest cannot be deducted on any amount of original principal indebtedness exceeding $100,000 on these types of loans.
Also, any interest deducted on a Home Equity loan is an adjustment for Alternative Minimum Tax (AMT) purposes (important).
For example, the same person as above takes out a $200,000 Home equity loan on his main home and uses the proceeds to buy a boat. He can only deduct 50% of the interest paid on that loan per year for regular tax purposes. Furthermore, he must make an adjustment to his AMT for the exact amount he was able to deduct.
Many high income taxpayers who have large amounts of certain types of itemized deductions (state taxes paid, medical expenses, miscellaneous 2% deductions, home equity loan interest) are hit with the AMT. For any such taxpayer, they will receive no federal tax benefit from deducting Home Equity interest, as the addition to AMT will exactly match the reduction in regular tax.
For rental losses, taxpayers who actively rent properties (other than real estate professionals) may deduct a maximum of $25,000 in rental losses per year. However, this deduction begins to be reduced once the taxpayer’s adjusted gross income (AGI) reaches $100,000 and is completely phased out once AGI reaches $150,000.
Sorry for the list of boring tax laws, but hope this helps clarify a few points brought up above.
I raised the subject of rentals because I could not see why Shodan’s father would need to do any swapping around of mortgages as a mortgage on his second home would qualify for the interest deduction anyway. I was wondering if he rented it out such that it was no longer a “qualified home” for interest deduction.
Yeah, I think it’s fair to say that Norquist is one of the biggest douches in Washington.
Well, I started this thread, so I suppose I should answer my own question.
I don’t have a big problem with extending the payroll tax cut temporarily. I also don’t have a big problem with partially paying for it by raising taxes on upper-income taxpayers, although people need to understand that someone making say $250K a year is already paying about $60K a year in income tax. The rest has to logically come out of what would be paid into the accounts that payroll taxes normally support, with the intent that we’ll make it up if the economy ever comes back.
What I take issue with is paying for it all with a raise in the tax rate from the very, very uppermost taxpayers. I agree that the very, very rich are causing problems in this country, mainly because they can’t account for their tremendous wealth in a way that appears fair to the normal human being. At least someone like Henry Ford could say, well, I built a hell of a lot of cars. What can Lloyd Blankfein say? However, these special, targeted taxes make no more sense than the special, targeted tax breaks they get. The answer to stupid tax loopholes is to close them, not to patch them over with a separate tax.
Some years ago it was thought that too many upper-income people were exploiting loopholes. Did they close the loopholes? No, they didn’t. They created what is essentially a parallel tax system, the alternative minimum tax, and said you have to pay whichever is greater, the regular tax or the AMT. That is an insult to taxpayers and a good example of the crazy things people tolerate from politicians. The loopholes were too valuable to the politicians as goodies to special interests. So they had to stay. But they thought they could make it back with the AMT. It’s not transparent and the politicians like it that way. Stupid.
Probably not, as *making * $250K is not the same as having a taxable income of $250K. But let’s ignore that and add a 5% increase to the marginal rate. How much additional tax does the person with 250k in taxable income pay? 0
When you say a 5% increase to the marginal rate what do you mean? Do you mean a 5% increase to each marginal rate? A 5% increase to the top rate only?
If you mean the latter, you are correct that a person with 250k taxable income would not pay any additional tax since they are in the 33% bracket and not the 35% bracket.
Most people who make enough money to qualify for the top bracket still do not pay 35% though since the majority of their income is capital gains and that portion is therefore taxed at 15%.
If it were me, and I wanted to adjust the tax code to raise additional revenue without hurting the middle or lower classes, I would raise the long term capital gains rate to 25% for anyone whose taxable income (including capital and ordinary income) is in the top 2 tax brackets. This would affect anyone with taxable income (which is usually significantly less than adjusted gross income) above around $212,000 for those that are married or above around $175,000 for single or MFS. I would keep the existing long term capital gains rate of 0% for the lowest 2 tax brackets (the 10 and 15% brackets) and at 15% for the middle 2 brackets (the 25 and 28% brackets).
Some legislators may think such a move would hurt future investment in the capital markets, but I do not think the impact would be very significant.
The “majority of their income is capital gains” part is simply not true. While it may apply to the super-rich, the great majority of top rate payers make the majority of their income from earned income.
The top rate of tax is paid by approximately the top 1% You can see from the table here that of the top 1%, slightly under half of them (48%) had any net capital gains in 2010. For the top 0.1%, it rises to 63%
The average AGI of the top 1% is $1.3m (from here, which is 2009 data, but that is close enough). The average capital gains (calculated from my first cite) is $256k, i.e. about 20% of the total. And much of those capital gains are concentrated at the upper end of the income range. If you extract the 0.1 percent from the top 1%, the remaining 0.9% make an average of $82k per year in capital gains, so clearly the majority of their income is not from capital gains.
They close loopholes all the time. Republicans tend to do this more than Democrats in a broaden the base and descrease ther ate sort of way. We’ve entirely gotten rid of passive loosses as a tax shelter and that came after the AMT.
Going by the table you linked to, which is not going to exactly coincide with the exact numbers of people in the top tax bracket because they go by a different breakoff system, of the top 1%, 83% of them had Qualified dividends which are usually also taxed at 15% and are included when I spoke of changing the long term capital gains rate.
When you include qualified dividends with normal long term capital gains the vast majority of taxpayers in the top bracket benefit from the 15% rate.
The biggest impact by far however, is by the very top wealthiest americans, who earn almost all their income by Capital gains.
According to this report, in 2008 the wealthiest 400 americans paid a total of 13.1% of ALL net capital gains that the IRS received from all american taxpayers. This totalled to approx. $61.5 Billion (down from $91.4 Billion in 2007 because of the down market in 2008) in net capital gains from just 400 people.
Raising the LTCG rate to 25% for the top 2 brackets would likely generate anywhere from an additional 6 to 10 billion in revenue from just these 400 people going forward. When you add in the rest of the people in the top brackets, I would guess that the number would probably approach an additional 100 billion in revenue per year, but that is just a WAG on my part.
Will this change alone fix any of our long term debt problems? Of course not, but it could be used as a revenue offset for the proposed payroll tax cut instead of or as a supplement to the surtax that is being proposed now. The current payroll tax cut costs about $120 billion per year in lost revenue. The change I proposed would likely get you pretty close to offsetting that.
I don’t disagree with any of this, but it is still a far cry from saying that the majority of top bracket payers get the majority of their income from capital gains (and dividends). The average income from dividends is much less than from capital gains, so it does not change my initial calculations much.
I am not trying to nitpick. There is often a significant misunderstanding of who the high earners are (the “top 1%”), with people thinking of people like Warren Buffett and hedge fund managers. These are just a tiny portion of the 1% Very many high-rate tax payers are salaried employees and professionals (doctors, lawyers etc.), or people running relatively small businesses. I was a top rate taxpayer one year. Qualified dividends were 1% of my income, and capital gains were negative.
Yeah but you’d need a hundred things like that to close the gap.
Needing 99 things to close the gap (post-“**xtisme’s **suggestion”, say) is better than needing 100 things to close the gap.