Does anyone actually want to discuss tax policy in here?
I actually like discussing tax policy and am pretty good at personal finance and have dozens of excel spreadsheets re: retirement, loan repayment, taxes etc. I figure my taxes out to the dollar at the beginning of the year and adjust withholdings to get an effective zero refund.
I'll try to make this a good thread at least in regards to personal/individual income taxes. Business taxes are above my knowledge.
This white paper is the same stuff Paul Ryan has had published since 2016.
https://abetterway.speaker.gov/_asse...olicyPaper.pdf
Taxes really aren't that complicated. Especially nowadays with tax software, cheap HR Block tax preparatory services, etc. However, one who knows the tax code in and out
can change behavior, defer income/capital gains, to legally lower their tax liability. On a personal income level, it's really not too complicated. Reduce taxable income by maxing out retirement accounts, try to deduct as much as possible (however this only reduces taxable income on the amount that is above and beyond the standard deduction), etc.
It's too early to discuss fundamental "who wins and who loses" because in taxes you plainly need the cold hard numbers where the tax brackets are going to fall and on what income.
I have these early thoughts though:
The more you increase the standard deduction, even if you
keep certain itemized deductions such as charitable contributions or home mortgage interest, you reduce the value of these deductions because less and less people will be able to deduct enough to overcome the standard deduction.
Example:
On tax year 2016 my itemized deductions were: $19,595
However the standard deduction for MFJ was: $12,600.
So the net of itemizing is only $6995 less in taxable income, at 25% marginal rate which is $1748 less in tax.
Some may look at the new standard deduction of $24,000 for MFJ and think this would be a win for many. However, this GOP Tax White Paper also eliminates the current law of "personal exemptions".
Each person, dependent, taxpayer, or otherwise gets a "personal" exemption of $4050.
So based on
current law, not only do you subtract your DEDUCTIONS (standard or itemized) but you also subtract your EXEMPTIONS on your gross income to get to your "taxable income".
Just shooting the numbers on my 2016 taxes:
Itemized Deductions: $19,595
Exemptions: $8100
Total reduction off of income: $27695.
So the larger standard deduction really is less than I currently can write off of my gross income per current law, because it eliminates the personal exemptions. However, it is in the same ballpark, I guess. What would matter is what the tax rates are on the remaining income.
However, if they plan to eliminate the state/local tax deduction, it WILL reduce the value of really everyone's (except states with no income tax) itemized deductions because it means you will have "further to go" before you can overcome the standard deduction and actually "save" any money.
That's really the main point I want to hit here. By increasing the standard deduction, you reduce the value of "all" itemized deductions. But by eliminating even one itemized deduction (whether it's state local income taxes, property taxes, charitable contributions, it doesn't matter, but currently the hot potato is the state/local taxes) you reduce the value of the other ones even if you don't touch them because it's harder to make it up the "hill" of the standard deduction. You don't save one penny in taxes by itemizing until you overcome the standard deduction.
In general, the middle-middle and the upper-middle class that has a mortgage, lives in one of the 43 states with income taxes, currently itemizes their taxes because it's worth more than the standard deduction.
A word on child tax credits. Current law has a $1000 child tax credit. (Phases out >$110k adjusted gross income). Increasing these credits or increasing the phaseouts may very well overcome the loss of personal exemptions. A $1000 child tax credit is worth a $6666 deduction for someone in the 15% tax bracket and a $4000 deduction for someone in the 25% tax bracket.
Anyway....
More to come later during this process.
Cliffs:
Don't let a high standard deduction fool you because the new "standard deduction" is really the old standard deduction plus the old personal exemptions. Frankly the GOP Standard Deduction is old MFJ standard deduction plus 3 exemptions (or the old single standard deduction + 1.5 exemptions).
Cannot tell winners or losers yet until we know where each tax bracket falls.
Larger child tax credits may (or may not) make up the loss of personal exemptions.
Taxes: TOO EARLY TO CALL