Category Archives: Taxation

To Do List In Preparation For A Post GOP Tax Plan Life

I’d write a longer post today, but I feel the need to get started on my Post GOP Tax Plan financial life.  First, I need to get cracking on the purchase of my private jet.  I’ve been thinking of a Gulfstream G650,  but I may have to settle for a Dassault Falcon 900.  Either way I am assured that I can deduct the expenses involved in this purchase.  So, some public school teachers have to dig into their pockets for paper, and other school supplies, for someone else’s children? So. What.  If those needy-greedies will just have some patience I might get around to hiring someone who lives in their district who might pay property taxes.  But, maybe not.

Speaking of education,  I should get on the horn and let younger relatives who are in graduate school know that the tax plan benefiting the Rich will mean that they will be liable for taxes on their tuition waivers — that they’re actually earning some sub-minimal pittance for slaving away on research which will never bear their names is of no consequence.  Well, at least they can file their returns on one sheet of paper.

Meanwhile, I ought to look into getting my offspring into some pricier private schools. Why? Because I can deduct the costs of their pricey-private-tuition while those silly grad students, especially the ones in STEM subjects, will be paying on their tuition waivers and  won’t be able to deduct the interest on their student loans. They could be looking at 400% increases in their taxes. Bad for them. So nice for me!

This means I will be able to focus on the important things in my life, like managing my tax deductible golf courses.  After all, golf is relaxing, relaxed people are more productive, and more productive people earn more. Therefore, they are of greater good to society.  Greater, that is, in comparison to those little drones who manicure the greens and keep the landscaping trimmed.

And, what a lovely gift to the Middle Class that they will not have to deduct the interest on their home mortgages on properties costing more than $500K.  They shouldn’t be shopping in those districts anyway.  So, housing prices are a little creepy in some areas? Pretty high in some parts of the country?  Just stay away from high market homes in areas with high paying jobs! Problem solved.

Okay, there might be some security issues — like disallowing deductions for state and local property taxes means that police, fire, and emergency services will get pinched. But, this is a small price to pay for Freedom from Big Government. Or little government. Or, any government.   There could be some quality of life issues too.  Eliminating deductions for SALT could mean further pressure on budgets for public hospitals, schools, parks, and libraries.  Oh well, nothing the Gotrocks Family has to deal with.

The bills could, however hurt my accountant — if the inheritance tax is eliminated and the AMT is gone, then I don’t have to worry about creating elaborate tax dodging schemes to prevent paying “more than I should,” meaning — more than I want to.  However, this doesn’t necessarily mean my accountant should be all that worried. After all, I can still ask him to find ways to further protect my gains — like turning the Gotrocks Family into the Gotrocks Family LLC so we get the benefits of the Pass Through Loophole.

The House version of the Great Tax Shift (Did I mean to type “Shaft?”) eliminates deductions for major medical expenses.  Perhaps my accountant’s employees should hope for the Senate version, in case I give them heart attacks with my continual demands that they find more ways to hide more of my money.  Only old people have big medical expenses anyway.  Ah, the good old days when Grandpa died in his bed at home, surrounded by family.  Why should he go to a hospital for palliative care when it would be cheaper to pass away on the sofa?  The House version also eliminates the deduction for alimony payments — now, this could be an issue!

Too much alimony and I might have to head to a foreign country?  No problem.  The tax plan could help.  Remember that major short term tax breaks go to corporations.  Foreign investors own about 35% of all shares, thus when the short term benefits of the tax plan go to shareholders — Shazaam! — of the $200 billion in savings expected by the corporations 35% will go to foreign investors.  That could be something like $70 billion?

So, as I gaze upon the picture of the Secretary of the Treasury and his bride proudly displaying a whole sheet of wonderful Money, I remember that the Tax Plan is meant for the Gotrocks (LLC) — who benefit from university research but don’t want to pay for it, who benefit from local police, fire, and emergency services, but don’t want to pay for it, who benefit from schools, parks, and libraries, but don’t want to pay for them.

Happy the Gotrocks will be when there is no AMT to insure we pay at least Something. When there is no inheritance tax!  When those Little People Out There In The Dark will be paying to support the services I enjoy!  On behalf of the Gotrocks Family LLC: God Bless America!

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Passing the Tax Burden to Working Americans Via The Pass Through Loophole

Please excuse me while I jump up and down on this keyboard trying to flag attention to one of the most egregious GOP give-aways to the top 1% of American income earners.  It isn’t as though the Pass Through Loophole hasn’t garnered attention, it just doesn’t seem to have broken through the dismal cloud of information and misinformation about the GOP tax plan and into enough sunlight.

“The big one in the tax plan issued last week by the GOP and President Trump involves what’s known opaquely as “pass-through” business income. Even that term might have been too revealing, so the document the Republicans issued described it even more obscurely as a “tax rate structure for small businesses.” That’s also dishonest, however, because the businesses it affects are often nothing like “small.” [LAT]

There’s nothing new about legislative obfuscation of legislative intent — but this one is a major way to ease the burden on the 1% and put more pressure on the working and middle class Americans to make up the difference.   Here’s how it works:

“Pass-through” income is business income that’s reported to the IRS only by individual owners of, or partners in, the business. These businesses can be organized as partnerships, S-corporations, or sole proprietorships. They’re distinguished from C-corporations, which are almost always big businesses with public stockholders; C-corporations pay the corporate income tax, and the shareholders pay personal income tax on their dividends and capital gains.

In other words, if a business is a partnership, S-corporation, or a sole proprietorship it doesn’t pay corporate tax rates.  The income earned is reported by individuals.  Now, here’s how the Republican plan would specifically benefit the top 1%:

Currently, the top marginal individual rate is 39.6%; the new tax proposal would reduce the top rate on pass-through income to 25%. Pass-through income from an S-corporation, by the way, already is exempted from the Affordable Care Act surcharges that raised the top income tax rate on some high-income earners by as much as 4.7 percentage points.

So, if the business is an S-corporation, sole proprietorship, or partnership the tax rate is 25%.   Thus, if Desert Beacon were to become Desert Beacon LLC the income tax reduction would be from a maximum of 39.6% to 25%.   Now, who are those who tend to form the businesses which qualify for the LLC Loophole?

“Pass-through business income is substantially more concentrated among high-earners” than traditional business income, Treasury Department economist Michael Cooper and several colleagues observed in a 2015 paper. They also found that about one-fifth of it went to partners that were hard to identify, and 15% got sucked up into circles of partnership-owning partnerships, complicating IRS analyses.”

I sincerely hope the reader isn’t too surprised that these tax avoidance strategies are practiced mostly by high-earners.   Let’s take a closer look at the summary of that 2015 NBER paper:

Pass-through” businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings. (1) Relative to traditional business income, pass-through business income is substantially more concentrated among high-earners. (2) Partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships. (3) The average federal income tax rate on U.S. pass- through business income is 19%|much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980’s low level, strong but straightforward assumptions imply that the 2011 average U.S. tax rate on total U.S. business income would have been 28% rather than 24%, and tax revenue would have been approximately $100 billion higher. (emphasis added)

Therefore, if someone is trying to pass this off as a “middle class” tax cut, or a “small business” tax cut, the appropriate (and perhaps most polite) response is BALDERDASH.

It should come as no surprise that Kansas, under the spell of Brownback-ism, tried opening the LLC loophole as a way to “create jobs.”  It failed, and failed miserably.  Not only did the state find itself in a terrible revenue position, losing money for schools, transportation, and other government services, but it allowed high-income earners to stash more cash.  Case in point: KU basketball coach Bill Self was avoiding most Kansas income taxes on his $3 million salary by parking most of his earnings in an LLC.  Even some of the tax freeloaders were beginning to feel like tax freeloaders by late Summer 2016.  [see also NYT]

And, no one should suggest the amount of money lost because of the ‘reformed’ Kansas tax structure was negligible:

For fiscal year 2014, which ended on June 30, the state collected $330 million less in taxes than it had forecast, and $700 million less than it had collected in the prior year.  Those are big numbers in a state that spends about $6 billion annually from its general fund, and the revenue weakness led both Moody’s and Standard & Poor’s to cut Kansas’ credit rating this year. [NYT]

The situation hasn’t gotten any better.   There were promises made:

In 2012, Kansas Gov. Sam Brownback signed a bill that, among other things, substantially cut the state’s top tax rate and exempted “pass-through” business income from taxation (President Trump’s tax plan includes a similar loophole). The architects of Brownback’s plan predicted that it would provide an “immediate and lasting boost” to the state’s economy.

And promises not kept. The 2017 numbers are truly remarkable, and not in a good way:

Real GDP growth in Kansas since the fourth quarter of 2012 (Brownback’s cuts took effect in January 2013) has been relatively slow, at 6.1 percent through the third quarter of 2016. That’s about three-fourths of U.S. GDP growth over that same period (8.3 percent). A similar story holds for private employment growth: 5.0 percent in Kansas between December 2012 and March 2017, 9.1 percent in the U.S. overall. [WaPo]

The Kansas Legislature was so disappointed in the Great Brownback Experiment it voted to change the tax law — and the governor vetoed their bill.

“Unfortunately, that part of the plan — what Brownback called an economic “shot of adrenaline ” — hasn’t materialized. The state’s budget deficit ballooned to $350 million. And the small-business provision also created new ways for residents to avoid taxes, meaning more lost tax revenue and compliance headaches for the state.” [Time]

Just what we don’t need — lost tax revenue and compliance headaches.  The bottom line of this easy route to the bottom is that:

(1) Claims that pass through exemptions and tax cuts will create new revenue have already prove erroneous.  Witness what happened to Kansas.

(2) The loss of revenue from the pass through exemptions was serious and exacerbated an already tight budget situation.

(3) Claims that the tax ‘reform’ would help small middle class business owners proved elusive — the overwhelming numbers of those who benefited, and will benefit, were high income earners.

This would be a good time to contact Senator Dean Heller (R-NV) to let him know that no one is fooled by changing the name from “pass through” to “tax rate structure for small business;” it’s still a way to shift the burden of maintaining government services from high income earners to middle and working class Americans.   The Senator can be reached at 202-224-6244; 775-686-5770; or 702-388-6605.

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Filed under Economy, income tax, Politics, tax revenue, Taxation

The Great Republican Giveaway: Their Not So New Tax Plan

Good day, It’s time for our daily reminder that the GOP’s grand idea that Tax Cuts cure all ills is quack medicine. To hear ads from the Business Roundtable and associated PACs one might think that merely enacting a tax cut will cause Business To Boom, Wages To Rise, and, who knows, flowers to bloom.  Probably not, and probably not for some obvious economic reasons.

The proposed tax cut is deficit financed.   Yes, tax cuts are lovely, BUT:

“Tax cuts have the potential to grow the economy, but their benefit depends on how they are structured and financed. For tax changes to promote growth, changes should encourage work and investment through lower rates, efficiently encourage new economic activity (rather than providing a windfall for previous investments), reduce economic distortions, and create minimal (if any) increases in the budget deficit.” [CRFB]

The current proposal doesn’t really encourage new activity, it doesn’t reduce economic distortions (income inequality, etc.) and it certainly doesn’t reduce the budget deficits.

Reducing the statutory tax rate is meaningless if not paired with closing corporate tax loopholes and incentives.   Under the current system AT&T paid an effective tax rate of 8% from 2008-2015.  How do these corporations pull this off?  They can book most of their profits overseas, out of the IRS reach.  The GOP proposal assumes that if the statutory rate is reduced to 20%, the companies will reflexively book profits here, and decide to avoid other techniques which reduce the statutory rate to almost 0.   Here’s a brief list of popular tax dodges:

American Electric Power, Con Ed and Comcast, qualified for accelerated depreciation, enabling them to write off most of the cost of equipment and machinery before it wore out.

Facebook, Aetna and Exxon Mobil, among others, saved billions in taxes by giving options to top executives to buy stock in the future at a discount. The companies then get to deduct their huge payouts as a loss. Facebook used excess tax benefits from stock options to reduce its federal and state taxes by $5.78 billion from 2010 to 2015, the institute found.

Individual industries have successfully lobbied for specific tax breaks that function as subsidies: for instance, drilling for gas and oil, building Nascar racetracks or railroad tracks, roasting coffee, undertaking certain kinds of research, producing ethanol or making movies (which saved the Walt Disney Company $1.48 billion over eight years, the report says).  [NYT]

Nice, and nothing in the current proposal should give anyone any comfort that if given a 20% statutory rate major corporations won’t try to pull the same tricks to get into the 0%-8% effective tax rate.  It just makes it easier to get there.

Reduced statutory tax rates don’t automatically create employment.  For the 1 millionth time (?)  — There is one reason, and only one rationale reason, for hiring anyone ever:  The company doesn’t have sufficient numbers of employees to deliver goods and services demanded by clients and customers at an acceptable level of customer service.   That’s it. That’s all there is to it.  An employer might give preference to a veteran IF there is a need to hire someone (and get a tax break for doing so), or an employer might decide to hire someone to create a more diverse workplace, or a workplace that is more flexible.  However, that hire will take place IF and ONLY if there is a need to hire someone in the first place.  Put more mundanely,  if having four check out clerks on every shift is enough to insure that no one waits longer than 5 minutes in the grocery check out lanes, then the fifth won’t be hired.

Secondly,  there is no evidence that tax cuts themselves produce increased employment.  If one is referring to the Reagan Era tax cuts for evidence — be careful — one of the prime drivers following that tax cut was the Fed’s monetary policy. [CAP] Otherwise there is preciously little research concluding that tax cuts for millionaires and billionaires spurs employment or even wage growth for working Americans.  [CNBC] [CBPP] [NYT] [WallStJournal]

A third point — the argument that “tax incentives” encourage entrepreneurship is almost risible.  No one starts a business because of the “tax environment.”  Listen to one successful entrepreneur:

“While I can imagine tax regimes that would create disincentives for entrepreneurship, we don’t have that situation today in America, where tax rates on capital gains (the primary way that founders of successful start-ups make money) are already far lower than rates on ordinary income. Indeed, some of the most admired entrepreneurs — Bill Gates, Steve Jobs, Jeff Bezos — started their companies under significantly higher tax regimes. This is consistent with empirical research; the economists Robert Moffitt and Mark Wilhelm, for example, found that the large cuts in marginal tax rates in 1986 did not induce high-income men to work longer hours.”

There are two things to unpack from this analysis: (1) Companies aren’t formed because of the tax environment; and (2) Companies ARE formed because of the availability of capital.   Now, take a look at the FRED trends in real gross domestic investment. See any downward trends? Seems like there’s been a steady upward trend from 1950 onward.  This doesn’t argue for a lack of capital being a major problem for start ups.

And then there are the details, summarized by Patriotic Millionaires:

– On the elimination of the Estate tax: “We can’t wait to hear President Trump try to explain how a $4 billion tax cut for Ivanka and Tiffany helps the middle class.”

– On the elimination of the AMT: “The elimination of the Alternative Minimum Tax will virtually guarantee that thousands of Americas wealthiest people will pay no tax at all. How will be left holding the bill for that lost revenue? The middle class.”

– On the territorial tax system: “President Trump’s big plan to boost the middle class starts by helping multinational corporations avoid paying any taxes at all? That is absurd.”

– On reducing the number of tax brackets: “If anything, we need more tax brackets. Someone making $5 million, $10 million, or $50 million a year should definitely pay higher taxes than someone making $400,000 a year. How can we even debate this?”

That last question is a good one, as are the other items in the list.  How is demand for goods and services increased by (1) giving tax breaks to corporations which can use the windfall to pay higher executive compensation, indulge in more mergers and acquisitions, or enjoy the fruits of stock buy-backs; (2) eliminating taxes on millionaires and billionaires and placing more of the burden on working Americans; (3) eliminating the estate tax which doesn’t apply to most American taxpayers and helps only the few at the expense of the many? —

“For decedents in 2017 (with an exemption of $5.49 million), the Tax Policy Center estimates there will be only about 11,300 estate tax returns filed, of which 5,500 will be taxable. Estate tax liability will total $19.9 billion after credits.” [TPC] (Note: There were 150,493,263 returns filed in 2015. (download) Divide 5,550 by 150 million and your plastic brains will yield an infinitesimally small number complete with exponents.]

A final point — Nevadans (and residents of the other 49 states) should be aware that many of the arguments set forth by proponents of the Republican tax plan are couched in vague or highly generalized terms.  Not many politicians want to have to explain why eliminating the Alternative Minimum Tax will benefit lower income Americans.  Quick answer: It doesn’t.  Or, the arguments may be set forth in platitude form, for example: This will put money back in your pockets.  The major question is WHOSE pockets and for how long.  It’s no secret that the GOP tax plan puts the majority of the benefits into the pockets of the ultra-rich, something like 80% of the benefits accrue to the top income earners.

Apologists may take a step or two further.  “Democrats are engaging in class warfare.”  Well, if it’s the ultra-rich vs. the other 99%, so far the 1% are winning very nicely, thank you. And, then there’s the “Democrats want to punish success.” Please spare me.  First, it’s not “punishment” to pay for the military that defends you, the schools that educate you, the national parks you visit, the hospitals that treat you, the roads that smooth the way for you get to work… Secondly, no one is talking about punishing anyone, it’s just a matter of equity — we should all be paying our fair share.

Please contact your Representatives and Senators to oppose this egregious handout to the multi-national corporations and the millionaires and billionaires who stand to reap 80% of the benefits of this Great Republican Giveaway.

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Filed under Economy, income inequality, Politics, Taxation

Think of the Children! GOP tax plan is hazardous for children

I’m so old I remember when Republicans would bellow “Think of the Children” every time tax proposals were discussed and each time there was a proposal to spend a dime on anything.  Now they have a tax proposal which doesn’t help Nevada’s children — no matter how many times they invoke the Growth Fairy and insinuate the new plan will be better for “working families.”  Not so fast.  Here’s what their tax plan does:

Removes the Personal Exemption: The current tax code allows families a tax exemption of $4,050 per person. For some families, the loss of the personal exemption is recovered through the tax bill’s increase of the standard deduction to $12,000 for single filers and $24,000 for joint (married) filers. However, single parents with more than one child and married couples with three or more children would see their taxable income increase. [CFC]

Okay, so that category of families who will be “helped” doesn’t include single parents with more than one child, or married couples with three or more children…and this is “family friendly?” Thus a single parent can only have one child and benefit from the GOP tax plan, and a married couple can’t have three or more … who’s left?  But wait, there’s another blow to follow:

Insufficiently Increases the Child Tax Credit: The tax bill increases the current Child Tax Credit from $1,000 to $1,600, with an additional $300 credit per parent. The addition of the Family Credit is a marginal improvement over current law, but not for families with children who are working-class or living in povertyargues Senator Marco Rubio. Because the increases are not refundable, they won’t apply to families living under the poverty threshold, and the $300 parent credits would expire after five years. The proposal to index the refundable portion to inflation is also insufficient, as it uses a less generous estimate and ceases upon reaching $1600. (emphasis added)  [CFC]

That $600 increase looks good until the curtain is pulled back and the proposal doesn’t really apply to children in working class families…which would be most of them.  Notice the magic expiration date, that’s a recurring feature in the GOP plan wherein breaks for individuals and families expire but the breaks for corporations don’t.   However, we’re not through here:

Repeals the Adoption Tax Credit: The adoption tax credit, which is capped at $13,570 per adopted child is a vital support for families and helps alleviate the costs of adoption fees. The Adoption Tax Credit is an important tool for children in the child welfare system to achieve permanency, as it helps defray the expensive process of adoption, especially for children with high needs. In 2014 alone, 74,000 families claimed the credit. [CFC]

Thus much for the old line about supporting adoptions and being “pro-life.” We’ve posted before about average adoption costs, and here the GOP goes again: The Mouth says one thing while the hands do another.

The bottom line is that as far as Nevada families are concerned (1) the personal exemption is inadequate; (2) the child tax credit is insufficient; and (3) the elimination of adoption tax credits is unconscionable.   This really isn’t a great formula for the benefit of Nevada families and their children.

Voters in Nevada District 2 can let Representative Mark Amodei know how they feel about this at: 775-686-5760; 775-777-7705; or 202-225-6155.

Senator Heller can be contacted at: 702-388-6605; 775-686-5770; and 202-224-6244.

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Filed under Amodei, Nevada politics, Politics, Taxation

Taxscam 101: A Look At Deductions Lost by Individuals and Families (Part 2)

In general, the Republican tax plan makes tax cuts for corporations and businesses permanent while making those for individuals and joint filers temporary.  Further, those closed loopholes are YOURS.  Those special interests are homeowners, students, and employees.  The short version is: The loopholes being closed are those which benefit working Americans and not those which benefit the 1% or corporate America.

Here are a few: (pdf)

Section 1204: Under the provision, the deduction for interest on education loans and the deduction for qualified tuition and related expenses would be repealed. The exclusion for interest on United States savings bonds used to pay qualified higher education expenses, the exclusion for qualified tuition reduction programs, and the exclusion for employer-provided education assistance programs would also be repealed.

One of the ways the tax code can be used to encourage people to do certain things is by giving people a deduction for it — like deductions for the interest paid on student loans.  It really makes no sense to pontificate on the jobs/education mismatch if one isn’t going to help people retrain for new positions.  Nor does it help people wanting to enter STEM jobs to tell them, go ahead but we aren’t going to offer any assistance like a tax deduction for the student loan interest you’re paying.  And you can’t even deduct the interest paid by your US Savings Bonds used to pay educational expenses!

Section 1303: Under the provision, individuals would not be allowed an itemized deduction for State and local income or sales taxes, but would continue to be entitled to a deduction for State and local income or sales taxes paid or accrued in carrying on a trade or business or producing income. Individuals would continue to be allowed to claim an itemized deduction for real property taxes paid up to $10,000.

This provision doesn’t hit Nevada (with no income taxes) all that hard, but it does hurt states that do have an income tax — like the other 43 of them.  Notice the phrase “or producing income?”  if your tax liabilities come from (1) carrying on a trade, or (2) running a business, or (3) producing income — you get to deduct them.   Now, what produces “income” without trade or business activities?  If you guessed “investments” you’d be correct.

Section 1304: Under the provision, the deduction for personal casualty losses would generally be repealed. The provision would be effective for tax years beginning after 2017. The deduction for personal casualty losses associated with special disaster relief legislation would not be affected.

We’ve highlighted this one previously, and no matter how you cut it, unless Congress votes to declare your area a national disaster (like Texas after Hurricane Harvey) your personal casualty losses aren’t deductible.  Thus, if everything you own is pretty much gone after the earthquake, wildland fire, blizzard, or whatever… unless you get the Special Nod from Congress, YOYO.

Section 1307: Under the provision, an individual would not be allowed an itemized deduction for tax preparation expenses. The provision would be effective for tax years beginning after 2017.

Remember the Republicans are touting this bill as a Job Creator — a notion as fictional as the “job creators” who sit around exchanging hybrid and artificial financial products — but consider for a moment the jobs this section eliminates.  About 43% of Americans file their taxes from home (using some tax software or the plastic brains calculator and some pencil sharpening) the rest use a tax preparation service — an industry sector with about 109,000 firms in 2012, and a 2% growth rate to 2015.  Further, “The vast majority of tax preparers are small businesses – 37% are run by a single person, while 53% employ less than ten people.”   And, yet we hear the Republicans claim to be all about “small businesses.”  The big accounting firms are going to do quite well under the GOP plan, those Mom & Pop bookkeeping services or small local accounting firms/franchises are the ones to worry about.

Section 1308: Current law: Under current law, a taxpayer may claim an itemized deduction for out-of-pocket medical expenses of the taxpayer, a spouse, or a dependent. This deduction is allowed only to the extent the expenses exceed ten percent of the taxpayer’s adjusted gross income. Provision: Under the provision, the itemized deduction for medical expenses would be repealed. The provision would be effective for tax years beginning after 2017.

Again, this one! Of all the egregious provisions in the Republican plan this has to be the very worst.

Section 1310: Under current law, a taxpayer may claim a deduction for moving expenses incurred in connection with starting a new job, regardless of whether or not the taxpayer itemizes his deductions. To qualify, the new workplace generally must be at least 50 miles farther from the former residence than the former place of work or, if the taxpayer had no former workplace, at least 50 miles from the former residence.
Provision: Under the provision, the deduction for moving expenses would be repealed. The provision would be effective for tax years beginning after 2017.

And this one again. Notice it’s all on the individual employee — the JCT expects this will put about $10.6 billion in the Treasury from 2018 to 2027. ($1.06 billion each year)  For about a billion bucks a person could buy a couple of Airbus 380s.  Not exactly a major revenue stream for the government in comparison to what employees would face in a major career move or reassignment.

Why are we discussing these items? Because the Republicans want a plan of which 80% of the benefits go to the top 1% of the population.  But, how about those ads on TV about how much money we’ll get back to put in our own pockets?  A bit of unsolicited advice: (1) the numbers are fudgy — too much of it depends on the Growth Fairy waving her magic wand; (2) the numbers are fudgy — the studies from which the numbers are selected aren’t very well tested; and (3) the numbers are fudgy — the numbers actually show us that what the Republicans are proposing is a deficit financed tax cut.  And, here we we’re thinking they were “deficit hawks” and all for “fiscal responsibility” and “lower national indebtedness.”  Maybe not. so. much.

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Filed under Nevada politics, nevada taxation, Politics, tax revenue, Taxation

Taxscam 101 Part One — Satisfy the 1% and Soak the Rest of Us

I think it’s safe to assume that Representative Mark Amodei (R-NV2) will be supporting the House Republican version of the Tax Cut Cut Cut… the last three words indicating what will happen for corporations, not what average Nevada income earners can expect from the proposal.  USA Today has a preliminary summation of some deductions INDIVIDUALS and FAMILIES won’t be able to use, that increase in the standard deduction is supposed to make up for this?   USA Today’s points are listed below, in red font.

Adoption: A tax credit worth up to $13,750 per child would end.  It’s a little hard to explain this one, given the GOP “pro-life” stance. It’s even harder to understand when the average cost for an adoption (2012-2013) was $39,996 using an adoption agency and $34,093 for an “independent” adoption. [AmAdopt]  Eliminating the tax credit to alleviate the impact of these expenses seems a strange way of encouraging couples to adopt children in need of permanent homes.

Alimony: To eliminate what Ways and Means Committee documents referred to as a “divorce subsidy,” alimony would no longer be deductible by the payor for decrees issued after 2017. Payments would be excluded from the recipient’s income.  I’m not at all certain that rebranding alimony as a “divorce subsidy” encourages support for single parents? This would also seem to make it all the more difficult for a parent to make child support payments?

Classroom costs: Teachers could no longer write off the cost of supplies they buy.  The reality is that not so long ago school districts kept supplies from pencils to facial tissues on hand; today these items (along with hand sanitizer) end up on lists of items parents are expected to purchase when the school year begins.  What isn’t subsidized by parents whose children are enrolled in cash strapped districts is usually purchased by teachers, to the tune of an average of $500 per teacher per year, with some teachers spending much more. [CNN money]  It’s been reasonably obvious Republicans aren’t great friends of public school teachers — but this suggestion is a direct slap at teacher’s own bank accounts.

College boosters: Sports fans would no longer be able to deduct 80% of the cost of donations to colleges if they are made only to become eligible to buy seats for games or get preferences such as prime parking spots.  The University of Minnesota isn’t sure what will happen to its program in light of this proposal, and universities in Nevada probably aren’t either.   UNLV and UNR both use booster donations to support their athletic scholarship funds. Perhaps lost in this controversial proposal is the notion that scholarship funds are, in most cases, not limited to a particular program but also support our “Olympic Sports.”  Donors to UNR and UNLV athletic funds might want to ask Representative Amodei why he might be in favor of this Republican plan.

Disaster losses: Currently, losses from theft or events such as flood, fire or tornado that exceed 10% of adjusted gross income are deductible. The bill would repeal that deduction, with one exception — disasters given special treatment by a prior act of Congress. A law enacted Sept. 29 increased the deduction for losses caused by Hurricanes Harvey, Irma and Maria, and it was sponsored by Rep. Kevin Brady, R-Texas. Brady, the chairman of the Ways and Means Committee, is also sponsoring the tax overhaul.  How interesting — the plan doesn’t affect those battered by “Harvey” in Texas — but Florida, Puerto Rico, and others it’s YOYO time as far as the Republicans are concerned.  Since when do we, as a nation, not give people a break when they’ve lost everything, or nearly everything in a natural disaster?

Employee achievement awards: Complicated rules that allowed some cash awards from employers to be tax-free to the worker would become taxable.  Another interesting point — corporations can expect a big tax cuts, but employees earning cash awards from those corporations would be required to pay taxes on these kinds of achievement awards.

Employer-provided housing: Rules allowing for some workers to get housing and meals tax-free from their employers would face a new cap of $50,000, and benefits would be phased out for those earning more than $120,000.  So, if the employer has you (and perhaps your family) parked in “West Moose Bay” where groceries have to be flown in, and “housing” is only provided by the corporation — the subsidy is taxable?  And we haven’t even mentioned that Section 1310 eliminates moving expenses. (pdf)

Home sale gains: Right now, the gain on the sale of a home is not taxable if it is under $500,000 for joint filers as long as the home was the owner’s primary residence for two of the previous five years. New rules would require a home to be the primary home for five of the past eight years to qualify, and the income exclusion would be phased out for taxpayers with incomes over $500,000.  I suppose we can kiss the Bush Administration’s emphasis on home ownership goodbye? Little wonder there’s opposition to this proposal from the housing industry — and from those who construct homes as well. There’s more from USA Today on the topic of housing at this link.

Major medical costs: The decision to eliminate the deduction for medical expenses exceeding 7.5% of adjusted gross income was one of the bill’s “tough calls,” Brady said Friday. “The call is this: Do we want a tax code that has special provisions that you may need once in your life, or do we want a tax code that lowers rates every year of your life?” he said.  This may take the prize for lame explanations — ever.  Consider for a moment the victims of the Las Vegas shooting, some of whom will be facing major medical expenses exceeding 7.5% of their AGI — not just now but for years to come.  The idea that we should eliminate affordable comprehensive health insurance is bad enough, but this notion is downright heinous.  And, this from those who want to cut Medicare and Medicaid?

And this isn’t all — there are more atrocities in the USA Today article, and more specifics in the Ways and Means Committee summary of the bill.  (pdf)

Not to put too fine a point to it, but this bill, which will most likely be supported by Representative Amodei, could have been drafted by accountants and tax lawyers for major corporations and the top 1% of American income owners — to be paid for by those who are working in everyday jobs, who have to move to find employment, who are adoptive parents, who are victims of natural disasters, who are facing major medical expenses…

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Filed under Amodei, income tax, Nevada politics, Politics, tax revenue, Taxation

Everything Old Is New Again: GOP Tax Plan Misses Most Of The Nevada Middle

I think we’re going to have to agree that Republicans will call anything a “middle class tax cut” because it sounds good — not necessarily because the tax cuts are primarily for the benefit of middle income people.  Right off the bat, we have to take some care with what constitutes “middle class” and for this one of the best calculators is provided by Pew Research.

For example, a single person earning $65,000 pretax income living in the Reno area is definitely in the “middle,” like 53% of the income earners in that metropolitan region.  A household of four, in which the annual income is $142,000 is in the same middle position.  However, if we enter an annual income of $250,000 for a family of four in the Reno area, then the calculation is that the family is in the upper income tier, along with about 17% of other Reno area residents.   The status is about the same for this hypothetical family living in the Las Vegas area, only the income is comparable to 15% of the population.  Thus when the GOP discusses incomes above $200,000 as “middle class” they’re out of the calculation range — which maximizes closer to $150,000.

We should note that the middle bracket of the proposed tax plan is at a 25% rate for incomes between $45,000 and $200,000.  This modification allows the inclusion of those who would otherwise be classified as Upper income in Nevada metropolitan areas (those with incomes above $150,000) into the Middle range.  10.2% of Nevada income tax filers in 2015 reported incomes between $100,000 and $200,000.  Only 2.48% of Nevada filers reported incomes between $200,000 and $500,000.  The air gets thinner in the upper reaches:  0.43% reported incomes between $500,000 and $1 million; only 0.26% reported incomes in excess of $1 million.  (The median household income in Nevada is $51,847 and the per capita income is $26,541.)

In addition to artificially inflating the “middle class,” the Republicans have gift wrapped  their Wish List From Christmas Past — ending the estate tax, and eliminating the Alternative Minimum Tax — neither of which have a single thing to do with being in the Great American Middle.

Nevada has no estate tax, and the federal inheritance tax is on estates in excess of $5.4 million, or $10.9 million per family.  There are approximately 30 estates in Nevada liable for the federal estate tax (2016). [cbpp]  Avoidance of liability for federal estate taxes isn’t a common topic of conversation in Nevada’s 1,016,709 households.   Under the GOP plan the estate maximum would increase to $11.9 million and the tax would be eliminated by 2024. [NPR]

The Alternative Minimum Tax is supposed to insure that higher income households pay something into the federal coffers along with the rest of us:

“Taxpayers pay the higher of either their tax calculated under regular income tax rules or their tax calculated under the alternative minimum tax (AMT) rules. Because the 39.6 percent top rate under the regular income tax is higher than the 28 percent top statutory AMT rate, households with very high incomes who do not attempt to shelter much income typically pay based on the regular income tax system. Households that are not at the very top but still have relatively high incomes face somewhat lower statutory tax rates under the regular tax and are therefore more likely to pay the AMT.” [TPC]

Again, we’re not speaking of The Great American Middle — we’re speaking of those in upper income brackets, whether there are four brackets or seven.   Pro-tip:  If your family has spent time discussing the Alternative Minimum Tax and the Estate Tax — you’re not in the Middle of those 1,016,709 Nevada families.

There’s one other major feature of the Republican tax plan which has precious little to do with Nevada’s middle class — the Pass Through, explained as follows by the Washington Post:

“Pass through” companies. Some wealthy Americans who run businesses structured as sole proprietorships, partnerships or LLCs would get a sizable discount on their taxes. Under the GOP bill, these “pass through” companies would pay a tax rate of only 25 percent on 30 percent of their business income, a big reduction from the 39.6 percent rate some pay now. The bill tries to prevent “service firms” like law firms and accounting firms from being able to pay the lower 25 percent rate, but a good tax lawyer can probably make the case for these firms to qualify. Also, on the campaign trail, Trump said that hedge funds were “getting away with murder” on their taxes and that he would take away carried interest, the popular opening in the tax code these Wall Street titans use. But the bill does not change or eliminate carried interest, which is also used by some real estate developers.”

S’cuse me while I run to my attorney and figure out a way to incorporate myself into a lovely little LLC and thus avoid tax rates paid by “ordinary” people — or, I would if I weren’t an ‘ordinary’ person.  And, we still haven’t toted up the lost deductions — home mortgage interest on loans over $500,000, interest on student loans, tax incentives for hiring veterans and disabled people…  Yes, this does get worse.  Stay tuned.

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