I completely overlooked the loss of property tax deduction as well. This would be a big tax increase for me unless the 12% bracket goes out to a really high income.
When people are presented with a governing philosophy that gives them more money and the warm feeling that they are doing so for the good of the country, there is a powerful incentive to believe in it. Mere facts pale in comparison.
Meanwhile, they’ve decided to do to all of America what they did to Kansas. Except *this *time it’s going to work.
I can’t imagine that will fly. CA might actually secede over something like that. It would be a huge tax increase for many of us. Or is it expected to be offset by lower rates?
The idea just *may *be that California is full of Democrats, so screw 'em.
The part I bolded is what I understand the intent to be, although it sure looks like it’s not designed to actually accomplish that. But again, the details are lacking – where are the bracket lines?
I’m still ok with removing that deduction. Probably should kill the mortgage interest one too, but they’re not attempting it with this proposal.
The problem is, you’re going to have some people where it’s not so big a deal and others where it really is a big deal. One size does not fit all. I, too, am OK with the elimination of the mortgage deduction, but to be fair to people it should be phased over time, allowing folks to make adjustments. As for eliminating the property tax deduction, I’m less inclined to agree with that, but even more I’d like to see that phased out over time.
On second thought, does this plan have the proverbial snowball’s chance in hell of passing? I’m thinking it hasn’t.
I don’t think so. And the thing is I think they could have proposed one that does. This just seems sloppy.
Regarding SALT deductions, it covers income (or sales, not both) and property taxes. IIRC lower-income itemizers predominantly benefit from the property tax deduction and higher-income itemizers from the income tax deduction. Obviously this varies by state. Texas has monster property tax but no income tax.
But we’re already seeing issues with this proposal on the lower end. Fixed-income Granny in TX doesn’t look to be doing so well under this plan.
Where I am at with housing prices, a lot of folks that aren’t wealthy bake in the mortgage deduction into their cost calculations when purchasing a home. Same with property tax to an extent. Changing these could have some significant ripple effects on the housing market I’d imagine.
Yes. With housing costs around here (SC Valley) easily toping $1M, you can expect to pay about $10K - $12K in property taxes. If you’er in even a mid bracket of 25%, that’s still several thousands of dollars in taxes, and that’s at the media price.
Kind of a middle of the road example.
$1M house with an 800K mortgage at 4% would be just shy of $32K in interest, and $11K in property taxes.
If you’re income is $150K/year and you’re paying 22% effective tax rate, that’s a $10K tax hike which represents something like probably 20% or more of your disposable income. That’s pretty suck.
Agreed, if that’s the ‘major’ change then the measure can’t be actual revenue. It’s little more than a rounding error in revenue.
It is a social policy. Thing is though, one of the reasons the revenue is so small is that there are so many ways effectively around it for really rich (far above the ~$10mil couple’s exclusion),in social terms. By which I mean mechanisms like multi-generation family trusts and foundations don’t necessarily allow ‘indolent consumption’ of vast amounts by the following generations. But they do tend to keep the influence of those families intact.
And there’s never been any sign that the Democrats really want to go after generation to generation influence. Ie radical invasion changes to take influence away from the next generations of progressive families (Soros, Steyn, Clinton, etc). People here can say ‘oh no, we’d do that’. I say ‘never gonna happen’.
So in practical reality the estate tax is aimed at people yes in the 1%, but not really against the influence of scions of the .01, .001% etc. where the social issue of generation to generation influence is real. And the increasing tendency of prosperity to carry over from one generation to another of Americans is really more a top 20% issue. ‘The 1%’ was a catchy phrase for whoever coined it, but isn’t that relevant, so the importance of a social policy aimed there is also questionable, besides the non-debatable fact that the revenue is relatively minor.
Most developed countries have estate taxes, but mainly lower % rate than the US (though might have lower thresholds) and 15 other OECD countries don’t have one. The US will not be in outlier if we repeal it.
Could be. But by my count, 14 of our Reps are Rs, and they better not go voting a tax increase like this. Granted, they probably come from lower cost housing districts, but that’s lower, not low.
When you’re taxing additional income, don’t you need to calculate the additional tax at the marginal rate, not the “effective” rate?
That may be the idea, but it’ll fuck over a bunch of working home owners, especially singles, in Ohio, Michigan, Wisconsin etc. that have a moderate Property tax and income tax. Considering that is the GOP base in those states, and the teetering balance of the electoral college, it’s hard to imagine them being that stupid.
I’m trying to find info on typical itemizations. I’m guessing that $40k+ is on the large side, but I really don’t know.
Of the ~30% of returns that are itemized,
I’m looking at the 2014 report here: https://www.irs.gov/statistics/soi-tax-stats-individual-statistical-tables-by-size-of-adjusted-gross-income#_grp2
They report by large income chunks.
If I’m reading it correctly, for $75-100k returns, 7.0MM returns itemized for a total of $27B in SALT. Or $3900 per return. $3700 per return for real estate taxes. And $7600 for mortgage interest
For $100-200k returns, that’s $6400 (SALT), $4900 (real estate taxes), and $9300 (mortgage interest) per return.
Obviously returns may include one, two, or three of these.
I’d prefer to know median itemizations. The first time I itemized I come out less than $500 above the standard deduction.
I agree with above, you’d want to use the marginal rate, though maybe that’s what you mean by ‘effective’.
But this example seems to assume the mortgage interest deduction would go away which is not proposed. There has been talk of it being limited (to mortgages smaller than the current $1mil) but that wasn’t an explicit part of the vague outline.
OTOH there could, most likely would, be state income tax which was no longer deductible, so $20k state income and property is plausible, $5k in extra tax at 25% marginal (the now prevailing federal marginal for a couple at $150k). The exemption/deduction/child car credit changes would reduce that depending.
Is elimination of 'SALT’deduction going to generate opposition from, most critically, 33 GOP House members in the top several states hit by it? Sure. But people in the 88%-tile nationally ($150k income) paying a few $k more in tax isn’t exactly a groundswell ‘au barricades’ argument. 
Also one of the obvious places for dealing on this proposal is to limit rather than eliminate SALT, so the impact is just on relatively high income blue staters. As is it could be say $1k or 2 for people actually near ‘middle of the road’, which is more politically challenging.
I thought upthread there was mention of the mortgage tax deduction.
In any case, the effective tax rate is the blended overall rate, not the marginal rate. I think the effective tax rate is more informative when calculating net impact since an overall reduction in taxable income affects the entire pool of income, not just the top portion removed when comparing net net.
When I’m calculating what my effective income is after deductions for purposes of adjusting my withholdings, I certainly use the effective tax rate on an all in basis for the year, not just the marginal rates.