Tag Archives: tax deductions

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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Filed under Economy, Politics, Taxation

Trump’s Childcare Plan: Advantage to the Advantaged

Econ value of tax deduction

NBC offers this summation of a crucial portion of the Trump and Clinton child care proposals:

“Trump: Working parents – and parents who stay home to care for children – can deduct the costs on their taxes via the Earned Income Tax Credit. The campaign estimates that middle class families could receive a $1,200 tax break.

Trump also proposes a Dependent Care Savings Account that allow the accumulation of funds and are tax deductible and appreciate tax free. Dependent care accounts already exist but must be used by the end of the year and only available through an employer.

Clinton: She wants to cap child care costs at ten percent of a family’s income. To do that, she’d rely on tax cuts or state block grants for the government to subsidize costs exceeding ten percent.”

Fuzzy stuff:  Notice the portion of the Trump explanation which says  the family can deduct the costs on their taxes via the Earned Income Tax Credit.”  Tax deductions and tax credits are two very different animals.

“Deductions reduce taxable income and their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Credits reduce taxes directly and do not depend on tax rates. However, the value of credits may depend on the taxpayer’s basic tax liability.” [TaxPolicyCenter]

Drilling down we find some more variations:

“Some tax credits, however, are fully or partially refundable: if their value exceeds a person’s tax liability, the excess is paid to the filer. The earned income tax credit (EITC) is fully refundable; the child tax credit (CTC) is refundable only if the filer’s earnings exceed a $3,000  threshold.” [TaxPolicyCenter]

The problems with interpreting Trump’s proposal is the conflation of a tax credit with a tax deduction.  It’s either a deduction or a credit but it can’t be both at the same time.   And, some families need help before April 15th:

“Experts say that Trump’s plan is a good start and a recognition that the issue is important to women and families, but Vivien Labaton, co-executive director of Make It Work Action, said Trump’s plan offers less than Clinton’s.

“His childcare proposal is really designed for the Ivanka Trump’s of the country more than the working families who need help,” Labaton said.

She said any plan, including Trump’s, that offers a tax rebate won’t work for many lower income families. Many struggling families don’t make enough to pay taxes and other struggling families who do pay taxes need up-front relief up before tax time.” [NBC]

And, from the Los Angeles Times:

“On child care, Trump would lessen the burden by giving parents a tax deduction for the average cost of child care in their state. For example, his campaign said a family earning $70,000 and paying $7,000 a year in child care would get an $840 tax cut — or about a month’s worth of day care. But the deduction would provide the greatest benefit to wealthier families, who pay more income tax. Low-wage workers, who often spend a disproportionately large share of the income on child care, pay little or no income tax. For families that pay no income taxes, Trump would increase the Earned Income Tax Credit by as much as $1,200 a year. But a once-a-year-check from the government is not always helpful for families struggling week-to-week to pay their childcare bills.”

When comparing the proposals on their potential immediate and positive impact on working families, score the point for Secretary Clinton.

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Filed under family issues, Hillary Clinton

To Heck With It? Rep. Heck Tries To Explain The Inexplicable

As if Nevada Representative Heck (R-NV3) didn’t make sense on the Benghazi Bluff, he’s released a little video of some 2.07 minutes to offer up his explanation of his “position” on the Fiscal Cliff/Austerity Bomb/Bunny Slope GOP poutrage du jour.

Representative Heck seems to have missed the part of the election in which the President won.  He does appear to cling to the message that the electorate wants the Congress to cooperate and negotiate with the Administration on how to address deficit reduction.   Let’s go back to the beginning.

There would be NO Fiscal Cliff, Austerity Bomb, or Bunny Slope had the Congressional Republicans not decided to make the debt ceiling such a humongous BFD, as the Vice President might say, in 2011.   Here’s the core of the problem:

“* 2010. Obama signs healthcare overhaul into law. Obama creates Simpson-Bowles deficit reduction panel. Its plan for drastic fiscal reform is largely ignored. Led by Tea Party conservatives, Republicans win control of House of Representatives in midterm elections. Obama agrees to extend Bush tax cuts for two years. Deficit shrinks to $1.3 trillion. (emphasis added)

* 2011. Treasury Department request for increase in U.S. debt ceiling becomes focus of fight in Congress. Republicans, Democrats settle dispute by forming “super committee” to examine fiscal reform. Debt ceiling raised. U.S. credit rating downgraded. Super committee collapses in discord. Deep, mandatory budget cuts triggered for 2013. Stock market makes choppy advance. Deficit estimated at $1.6 trillion.” [Reuters/Yahoo]

One might think a shrinking deficit, followed by economic recovery weak enough to create a bulge in 2011, would be sufficient to take some of the wind from the Free Marketeer Frigate sails, but since “Tax and Spend Democrats” have been the target of choice for Republicans since the New Deal, the GOP/Tea Party can’t quite manage to free itself from the bonds of its traditional narrative long enough to make sense in a reality based universe.

Here’s the reality:

Slowest Spending in Decades

Yes, that’s right — St. Ronald de Reagan’s terms showed annualized federal spending growth of 8.7% and 4.9%.  George W. Bush’s administrations saw annualized federal spending growth of 7.3% and 8.1%.  Even if we attach the 2009 stimulus package to the Obama Administration, his first term only saw annualized spending growth of 1.4%.  [HuffPo] [WSJ/Marketwatch]

So, terms like “out of control spending” and similar hyperbole from the right wing of the right wing party, become a fictional narrative rather than an accurate description of our current federal fiscal issues.   Representative Heck seems to prefer the comforting fiction of campaign rhetoric to current economic realities.

But wait, there’s more!  Representative Heck is worried about our fragile economic recovery… “We should not be raising anyone’s tax rates.”  This is boilerplate.  If the economy is booming, by GOP lights we can’t raise taxes because this would impinge on our prosperity; and, if the economy is fragile we can’t raise any taxes then either.  In short, we can never ever never raise anyone’s taxes even if we have to pay for two wars and keep the basic government services afloat during a recession.

Thirty seconds into Rep. Heck’s presentation he notes the House has passed a bill that would continue the Bush Tax Cuts of 2001 and 2003 for another year so we can “work on a permanent solution.”   Yes, that would certainly make the top 1% happy little campers.  This is also known as kicking the can down the road.  Anyone notice the conflict here?  On one hand Representative Heck is telling us that the federal deficit is a horrible no good thing which MUST be addressed — while telling all who will click on his little video that it’s perfectly all right to take yet another year to deal with it.

There’s more boilerplate to come, “the tax increases,” by which he means rate increases will cost 700,000 jobs.  In this instance he’s parroting Speaker Boehner, who in turn is mashing up a study by Ernst & Young:

“Boehner repeatedly cited an Ernst & Young analysis to claim that raising taxes on upper-income earners would “destroy nearly 700,000 jobs in our country.” But that analysis assumes revenue from the taxes would be used “to finance a higher level of government spending,” even though Obama would use the added revenue to reduce the deficit. The analysis also takes an extremely long view: Only “two-third to three-quarters of the long-run effect” is expected to occur within a decade.”  [Politifact]

Thus, even if we take the Ernst & Young study at face value, the effects are far less dramatic than Representative Heck’s intonation.   Those who looked into the Chamber of Commerce sponsored study found the assumptions flawed: “It is telling that when the additional tax revenues are used for across the board tax cuts, then the negative GDP impact is largely washed out and the employment impact is positive,” Zandi says.”  (Moody’s) [TPM]  However, removing the assumptions from the study wouldn’t achieve the Chamber of Commerce’s political interests, nor the interests of the Wall Street traders who are delivering Republican marching orders.

So, no one should be surprised when Rep. Heck parrots another line, this time from the Romney Campaign that we can fix all our troubles with “pro-growth tax reform which eliminates loopholes and deductions…”

OK, which ones?  Let’s look at the deductions first.   The most common tax deduction is on home mortgage interest.  In the reality based portion of the United States of America about 70% of the tax benefit from home mortgage interest deductions goes to taxpayers earning less than $200,000 per year. [NAHB]  Further, “Households with incomes between $40,000 and $75,000 receive, on average, $523 from the mortgage interest deduction. Households with incomes above $250,000 receive $5,459, or more than 10 times as much.”  [AProg] [Original Wharton Study pdf]

The second most common tax deduction is for charitable contributions.  Needless to say, some eleemosynary institutions are loath to see caps on this kind of expenditure.  However, the deductions nearer and dearer to people’s hearts are the deductions for state, local, and real estate taxes.  “You can deduct state and local income taxes paid during the year with one important exception: You cannot deduct state and local income taxes you pay on income that is exempt from federal income tax, unless the exempt income is interest income.” [Daily Finance]  And, “You can claim a deduction for real estate taxes on any state, local or foreign taxes on real property so long as they are based on the assessed value of the real property.” [Daily Finance]

Finally, the last on the list of most commonly itemized deductions are for medical expenses.  “You can deduct expenses for the diagnosis, cure, mitigation, treatment or prevention of disease. This generally includes the costs of physicians, surgeons, dentists and other medical practitioners as well as medical equipment, supplies and diagnostic devices prescribed by a physician. Deductible medical expenses also include the cost of health care insurance premiums and the costs of getting to and from your appointments.” [Daily Finance]

So, if we cap all itemized deductions at some contrived number like the 2% Solution, what happens?   We get a big middle class tax hike, illustrated below:

Tax Expenditure Cap

If we look specifically at what the Republicans were offering in the last presidential election another reality comes to the fore — the ARITHMETIC doesn’t add up:

“According to the Tax Policy Center, “the Romney plan would lower federal tax liability by about $900 billion in calendar year 2015 compared with current law, roughly a 24 percent cut in total projected revenue.”

So for Romney’s tax plan to be revenue neutral, as he has pledged, he would need to close tax breaks to the tune of $900 billion in 2015. That is not going to happen. Every tax break together costs about $1.1 trillion annually according to the Congressional Research Service — so Congress would need to make a nearly complete sweep to get the math right under Romney’s plan, a politically unrealistic outcome.” [HuffPo]

If we conclude that the deductions aren’t going to make the numbers, then what about those “loopholes?”

No one’s given a precise answer to this question — and we may not get one.  One insightful article may have grasp the key point, “Tax loopholes have become the modern equivalent of wasteful spending–a generic and vastly overestimated pool of money politicians can cite as offsets for their expensive policies.” [USNWR]   When some members of Congress have been pressed for details the minutiae makes its appearance — close the deduction for luxury skyboxes in athletic arenas, close the deductions for rum manufacturers and racetracks, eliminate deductions for second homes… [HuffPo]

While it might be nice to eliminate some of the special interest deductions in an overhaul of the tax code, (1) it shouldn’t take a year to find them — most of them are well known to those who make the tax code their life’s work, and (2) closing them won’t provide nearly enough revenue — unless we start talking about The Big Five Deductions, and the attendant tax hike on the middle class.

We’re only a bit over a minute into Representative Heck’s video when he observes the horrible state of affairs we must face if the Pentagon budget faces the Sequester Monster… but that’s a post for another day.

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Filed under Economy, Federal budget, Heck, tax revenue, Taxation