6 ms·

Democrats want to give a tax cut to the top%, 6x bigger than any other bracket

43 points by GaryTang 5y ago

mint2 5y ago
Isn’t SALT preventing double taxation? And isn’t this just returning it to the state prior to the trump tax bill?
- seattle_spring 5y ago
  Yes. Not only that, but SALT deductions happen primarily in "blue" states which pay into the federal budget much more than they receive. The SALT cap was put into place as a partisan punishment.
- mcherm 5y ago
  Whether or not a state and local tax deduction counts as "double taxation" depends entirely on what you mean by "double taxation". For example, one could say that sales tax is a form of "double taxation" because you were already charged tax on your income and now you are being charged tax again when you try to spend it. Or, one could say that income tax and sales tax are two unrelated taxes, and they should not be considered "double taxation". In the case of the SALT deduction, it depends on whether you think that states (and local governments) taxing your income is a separate tax from the federal government taxing your income, or whether you think that they overlap and should count as "double taxation". But mostly it just depends on whether you think it benefits your political party or the other political party.
  - stopping 5y ago
    Sales tax is indeed double taxation. That's why you're allowed to deduct it on your federal taxes under the SALT rules.
    - rsj_hn 5y ago
      > Sales tax is indeed double taxation. Yes! > That's why you're allowed to deduct it It's complicated. First, Sales taxes cannot be deducted from SALT if you deduct state income tax. You have to pick which one you deduct. But if the intention was to avoid double taxation, they would have allowed you to deduct both. Second, SALT exists from the era when top marginal rates were 90 percent, so you could end up in situation where you paid more than your income in taxes. Actually this is true even with the SALT deduction, but the deduction was basically a tax break to top earners in order to compensate for very high federal rates. The rationale for it doesn't exist today. Third, double taxation does not refer to the amount of tax paid but to the fact that the same income is taxed twice. Deducting the sales tax (or the income tax) would not eliminate double taxation, it would only reduce it by a small amount. E.g. if you earn $1 in income and spend half of it, and if the sales tax is 10% and state income tax is 10% and the Fed tax is 30%, then: * Without SALT, your liability is 45 cents (thank God you only spent half!) and you have triple taxation on $.50 (sales, state, federal) and double taxation on $.50 (state, federal) * With SALT, your liability is 42 cents and there is triple taxation on $.50 (sales, state, federal) and double taxation on $.40 (state, federal). Thus the SALT deduction saves you 3 cents by reducing your federal liability from 30 cents to 27 cents. But you paid 15 cents to the state. This is because the SALT deduction is not a tax credit, it's a tax deduction that just reduces your taxable income a bit.
  - _3u10 5y ago
    This. I’m a huge fan of tax cuts but the double taxation thing never made any sense to me. But then I realized it resonated with a lot of people so I just went with it. In todays society if someone favors reducing taxes it’s wise to just roll with it. One of the biggest advantages to deriving revenue from taxation is that if you tax everyone 10% by the time the money changes hands 10 times you’ve got your dollar back. It’s all double taxation
- pdog 5y ago
  By this logic, with no SALT deduction cap, a state could simply implement the federal income tax brackets for its own taxes and permanently deprive the federal government of any income tax revenue by allowing it all to be deducted.
  - stopping 5y ago
    Not exactly. The only way a state government could deprive the federal government of federal tax income is to tax their residents at a rate of 100%. Even with an uncapped SALT deduction, the federal government is entitled to tax whatever income you have leftover after paying state/local taxes.
- nanis 5y ago
  > Isn’t SALT preventing double taxation? Alternatively, enabling high-tax states to increase the burden of taxation while depriving federal government of tax revenue.
webinvest 5y ago
What is the SALT deduction?
- spywaregorilla 5y ago
  You can remove state and local taxes from your federal taxes. Blue states have higher state and local taxes, but also contribute far more and take far less from the federal government. Its messy.
- frutiger 5y ago
  If you earn $100k and pay $10k in State Tax, your Federal Taxable income is reduced by that amount to $90k (i.e. a $10k deduction). So you effectively pay less Federal Tax. The SALT cap put a limit on how much you can deduct. So folks paying more State Tax than the limit that previously benefited from deducting that amount could only deduct up to the limit.
cobookman 5y ago
I'm surprised Democrats haven't made taking a loan against an asset a taxible capital-gains event.
- dnautics 5y ago
  Think about that for a moment, why might that be a bad idea?
  - alisonkisk 5y ago
    Would you mind thinking for a moment and then telling us?
  - eganist 5y ago
    > Think about that for a moment, why might that be a bad idea? This isn't obvious to me. Can you help me understand?
    - slickrick216 5y ago
      If you get into financial difficulty and need to remortgage your house technically you would have to pay capital gains on it with this rule. Which punishes poor people for being poor.
      - dnautics 5y ago
        Mostly middle and lower-middle class people really, though imagine it applying to pawn shop collateralized loans. It would probably be deployed in that fashion in some misguided fashion 'to discourage usury', at which point it will really fuck over the poor. When you take out a collateralized loan, you still have to pay it back.
    - PostThisTooFast 5y ago
      Because it’s a loan that carries interest charges already, not income. Do you want to totally kill business investment?
    - 5y ago
hourislate 5y ago
That's racist and just more White Privilege from the Poverty Pimps!
twofornone 5y ago
>Taxpayers making between $500,000 and $1 million are set to see an average tax cut of over $6,000 next year. That...seems pretty negligible. Especially if you consider the number of people actually in that tax bracket. According to this link [0], approximately 1.6MM households are in this tax bracket...so that's about 10 billion dollars in lost revenue, which seems small relative to the size of the spending bills.
bko 5y ago
Is there any reason there shouldn't be a cap on state and local tax deductions (SALT) from the federal tax, apart from it affect people more in blue (high cost) states? Why should the federal government subsidize high state and local taxes? It obviously most benefits the wealthy who are well above the current SALT cap. The standard deduction is already pretty high, ~25k for married couple. And if you're paying that much in state and local taxes, you're pretty well off.
- bink 5y ago
  $25k in California is very different from $25k in Oklahoma. For this to be fair it would need to be adjusted for the COL in each region. Regions with higher taxes also tend to have higher populations and more dense populations and provide more social services. And regions with more dense populations also tend to vote for one party over the other. It was pretty clear to most that this was aimed solely at punishing one party over the other, which to me is enough to support its repeal. But beyond all that, do we support double taxation or not? I think most people would say it's unfair to tax someone on income they derived no value from (beyond the social services aspect).
  - bko 5y ago
    > $25k in California is very different from $25k in Oklahoma. For this to be fair it would need to be adjusted for the COL in each region. So someone in Oklahoma should pay more federal taxes that someone in California ... why? California sets its own policies, whether its housing or the social services they provide, as does Oklahoma. Someone from OK does not benefit from CA policies that provide more social services, so why should they subsidize them? > do we support double taxation or not? I'm taxed on my income and I'm taxed again on sales tax and if i transfer above a certain amount I'm taxed again as a transfer or gift tax, and if I leave an estate I'm taxed again, and if I use it to buy a home, I'm taxed again... If you're actually against double taxation, you should be against all of these taxes because you're being taxed on top of already taxed income.
    - notreallyserio 5y ago
mister_tee 5y ago
I'm not arguing for or against this but there are some points of subtlety: First, this is not at all guaranteed. It's the current state of the bill in the House, and the Democrats are arguing amongst themselves, were on vacation last week, and will return to a list of critical legislation over the next few weeks (debt ceiling, defense, then maybe this if they can pencil in some time to spend $1.75T). This is in regards to the SALT cap, which didn't exist at all until 2017, and in the House bill it's raised to something like an $80k limit. Sen. Sanders in the Senate wants to income-cap it instead. The summary from the article does a better job of explaining than the editor who wrote the headline: "Taxpayers making between $500,000 and $1 million are set to see an average tax cut of over $6,000 next year [...] The bill still raises taxes on the top 0.1%, with the average household making over $1 million paying over $65,000 more." So an overall tax cut for the top couple percent up to the top 0.1% in high-income/property tax states. Which lean blue. Just four years ago much of the press around this was howling at how Trump was doing this to punish blue states (IMO it was primarily to balance the corporate tax cuts for reconciliation, with tax-those-who-didn't-vote-for-me being secondary), and now it seems difficult to repeal since it can be seen as a fresh new tax cut. IMO analyses need to treat the ultra-rich independently; it doesn't seem fair to group a couple making $500k and owning a house in New Jersey with the 0.001% and then to start talking about averages. Though I can understand there's not going to be a ton of sympathy for the plight of a couple making north of $500k. IIUC, SALT tax deduction limit will expire in 2025 naturally. Though Sanders's proposed amendment may extend it indefinitely?
didibus 5y ago
> An analysis from the Tax Policy Center on the latest version of the bill shows that, while nearly all Americans making under $1 million will get a tax cut, those on the upper end of that spectrum — the merely rich making between $500,000 and $1 million — will see a much bigger dollar-value tax cut than the bulk of the working and middle class So everyone under 1 million gets a tax cut, but the 500k-1m range sees a bigger cut. I mean, it seems good at first, it be nice to amortize the break more evenly, but I think it's because it's done through a deduction mechanism instead of altering the brackets themselves, so it's probably harder to control. What exactly is the "bad angle" though here? Is there a different way to do it? P.S.: Also they do the comparison on tax dollar. Which seems strange. Obviously the same percentage cut for someone making more money will be bigger, so if someone makes 6x more money the same cut will result in 6x more absolute dollar no? Is it true that the 500k-1mil earners are getting a special treatment here or is it just the way the same treatment applies to them?
- kbenson 5y ago
  Bigger cut depending on how you look at it. They are very careful to say bigger total dollar value, which is what you would expect when a percentage is applied to a larger base number. My guess (based on the graphs) is that it's extremely close percentage wise, even if slightly lower then the immediately preceding bracket. I skimmed after a bit though, so I'll go back and look closer. Edit: yeesh, phone keyboard really made a mess of that originally.
kbenson 5y ago
I'm sort of at the point where I wouldn't mind news headlines and articles that reported statistics being required to report a disclosure table like loans are required to, which shows total amount, percentage change, and multiples of amount between the things being compared. Then at least even if they make stupid cross comparisons in titles, people would know they can quickly look inside for a breakdown of the reality which can't be confused by wording.
VictorPath 5y ago
The title is clickbaity. Wealthy people are not getting a tax cut with SALT - any federal cut with this would wind up being taxed locally.
- toast0 5y ago
  If SALT goes back to being uncapped (or more precisely, capped by AMT), this is a tax cut for people it applies to. While some states toyed with workarounds to the cap that came with the Trump tax changes, I don't think it happened for the most part and states didn't reduce their taxes to compensate for the increased taxes on their residents. I wouldn't expect to see taxes being raised in the near term to compensate for reduced taxes on residents either.

43 points by GaryTang 5y ago

mint2 5y ago

Isn’t SALT preventing double taxation? And isn’t this just returning it to the state prior to the trump tax bill?

seattle_spring 5y ago
Yes. Not only that, but SALT deductions happen primarily in "blue" states which pay into the federal budget much more than they receive. The SALT cap was put into place as a partisan punishment.
mcherm 5y ago
Whether or not a state and local tax deduction counts as "double taxation" depends entirely on what you mean by "double taxation". For example, one could say that sales tax is a form of "double taxation" because you were already charged tax on your income and now you are being charged tax again when you try to spend it. Or, one could say that income tax and sales tax are two unrelated taxes, and they should not be considered "double taxation". In the case of the SALT deduction, it depends on whether you think that states (and local governments) taxing your income is a separate tax from the federal government taxing your income, or whether you think that they overlap and should count as "double taxation". But mostly it just depends on whether you think it benefits your political party or the other political party.
- stopping 5y ago
  Sales tax is indeed double taxation. That's why you're allowed to deduct it on your federal taxes under the SALT rules.
  - rsj_hn 5y ago
    > Sales tax is indeed double taxation. Yes! > That's why you're allowed to deduct it It's complicated. First, Sales taxes cannot be deducted from SALT if you deduct state income tax. You have to pick which one you deduct. But if the intention was to avoid double taxation, they would have allowed you to deduct both. Second, SALT exists from the era when top marginal rates were 90 percent, so you could end up in situation where you paid more than your income in taxes. Actually this is true even with the SALT deduction, but the deduction was basically a tax break to top earners in order to compensate for very high federal rates. The rationale for it doesn't exist today. Third, double taxation does not refer to the amount of tax paid but to the fact that the same income is taxed twice. Deducting the sales tax (or the income tax) would not eliminate double taxation, it would only reduce it by a small amount. E.g. if you earn $1 in income and spend half of it, and if the sales tax is 10% and state income tax is 10% and the Fed tax is 30%, then: * Without SALT, your liability is 45 cents (thank God you only spent half!) and you have triple taxation on $.50 (sales, state, federal) and double taxation on $.50 (state, federal) * With SALT, your liability is 42 cents and there is triple taxation on $.50 (sales, state, federal) and double taxation on $.40 (state, federal). Thus the SALT deduction saves you 3 cents by reducing your federal liability from 30 cents to 27 cents. But you paid 15 cents to the state. This is because the SALT deduction is not a tax credit, it's a tax deduction that just reduces your taxable income a bit.
- _3u10 5y ago
  This. I’m a huge fan of tax cuts but the double taxation thing never made any sense to me. But then I realized it resonated with a lot of people so I just went with it. In todays society if someone favors reducing taxes it’s wise to just roll with it. One of the biggest advantages to deriving revenue from taxation is that if you tax everyone 10% by the time the money changes hands 10 times you’ve got your dollar back. It’s all double taxation
pdog 5y ago
By this logic, with no SALT deduction cap, a state could simply implement the federal income tax brackets for its own taxes and permanently deprive the federal government of any income tax revenue by allowing it all to be deducted.
- stopping 5y ago
  Not exactly. The only way a state government could deprive the federal government of federal tax income is to tax their residents at a rate of 100%. Even with an uncapped SALT deduction, the federal government is entitled to tax whatever income you have leftover after paying state/local taxes.
nanis 5y ago
> Isn’t SALT preventing double taxation? Alternatively, enabling high-tax states to increase the burden of taxation while depriving federal government of tax revenue.

webinvest 5y ago

What is the SALT deduction?

spywaregorilla 5y ago
You can remove state and local taxes from your federal taxes. Blue states have higher state and local taxes, but also contribute far more and take far less from the federal government. Its messy.
frutiger 5y ago
If you earn $100k and pay $10k in State Tax, your Federal Taxable income is reduced by that amount to $90k (i.e. a $10k deduction). So you effectively pay less Federal Tax. The SALT cap put a limit on how much you can deduct. So folks paying more State Tax than the limit that previously benefited from deducting that amount could only deduct up to the limit.

cobookman 5y ago

I'm surprised Democrats haven't made taking a loan against an asset a taxible capital-gains event.

dnautics 5y ago
Think about that for a moment, why might that be a bad idea?
- alisonkisk 5y ago
  Would you mind thinking for a moment and then telling us?
- eganist 5y ago
  > Think about that for a moment, why might that be a bad idea? This isn't obvious to me. Can you help me understand?
  - slickrick216 5y ago
    If you get into financial difficulty and need to remortgage your house technically you would have to pay capital gains on it with this rule. Which punishes poor people for being poor.
    - dnautics 5y ago
      Mostly middle and lower-middle class people really, though imagine it applying to pawn shop collateralized loans. It would probably be deployed in that fashion in some misguided fashion 'to discourage usury', at which point it will really fuck over the poor. When you take out a collateralized loan, you still have to pay it back.
  - PostThisTooFast 5y ago
    Because it’s a loan that carries interest charges already, not income. Do you want to totally kill business investment?
  - 5y ago

hourislate 5y ago

That's racist and just more White Privilege from the Poverty Pimps!

twofornone 5y ago

>Taxpayers making between $500,000 and $1 million are set to see an average tax cut of over $6,000 next year. That...seems pretty negligible. Especially if you consider the number of people actually in that tax bracket. According to this link [0], approximately 1.6MM households are in this tax bracket...so that's about 10 billion dollars in lost revenue, which seems small relative to the size of the spending bills.

bko 5y ago

Is there any reason there shouldn't be a cap on state and local tax deductions (SALT) from the federal tax, apart from it affect people more in blue (high cost) states? Why should the federal government subsidize high state and local taxes? It obviously most benefits the wealthy who are well above the current SALT cap. The standard deduction is already pretty high, ~25k for married couple. And if you're paying that much in state and local taxes, you're pretty well off.

bink 5y ago
$25k in California is very different from $25k in Oklahoma. For this to be fair it would need to be adjusted for the COL in each region. Regions with higher taxes also tend to have higher populations and more dense populations and provide more social services. And regions with more dense populations also tend to vote for one party over the other. It was pretty clear to most that this was aimed solely at punishing one party over the other, which to me is enough to support its repeal. But beyond all that, do we support double taxation or not? I think most people would say it's unfair to tax someone on income they derived no value from (beyond the social services aspect).
- bko 5y ago
  > $25k in California is very different from $25k in Oklahoma. For this to be fair it would need to be adjusted for the COL in each region. So someone in Oklahoma should pay more federal taxes that someone in California ... why? California sets its own policies, whether its housing or the social services they provide, as does Oklahoma. Someone from OK does not benefit from CA policies that provide more social services, so why should they subsidize them? > do we support double taxation or not? I'm taxed on my income and I'm taxed again on sales tax and if i transfer above a certain amount I'm taxed again as a transfer or gift tax, and if I leave an estate I'm taxed again, and if I use it to buy a home, I'm taxed again... If you're actually against double taxation, you should be against all of these taxes because you're being taxed on top of already taxed income.
  - notreallyserio 5y ago

mister_tee 5y ago

I'm not arguing for or against this but there are some points of subtlety: First, this is not at all guaranteed. It's the current state of the bill in the House, and the Democrats are arguing amongst themselves, were on vacation last week, and will return to a list of critical legislation over the next few weeks (debt ceiling, defense, then maybe this if they can pencil in some time to spend $1.75T). This is in regards to the SALT cap, which didn't exist at all until 2017, and in the House bill it's raised to something like an $80k limit. Sen. Sanders in the Senate wants to income-cap it instead. The summary from the article does a better job of explaining than the editor who wrote the headline: "Taxpayers making between $500,000 and $1 million are set to see an average tax cut of over $6,000 next year [...] The bill still raises taxes on the top 0.1%, with the average household making over $1 million paying over $65,000 more." So an overall tax cut for the top couple percent up to the top 0.1% in high-income/property tax states. Which lean blue. Just four years ago much of the press around this was howling at how Trump was doing this to punish blue states (IMO it was primarily to balance the corporate tax cuts for reconciliation, with tax-those-who-didn't-vote-for-me being secondary), and now it seems difficult to repeal since it can be seen as a fresh new tax cut. IMO analyses need to treat the ultra-rich independently; it doesn't seem fair to group a couple making $500k and owning a house in New Jersey with the 0.001% and then to start talking about averages. Though I can understand there's not going to be a ton of sympathy for the plight of a couple making north of $500k. IIUC, SALT tax deduction limit will expire in 2025 naturally. Though Sanders's proposed amendment may extend it indefinitely?

didibus 5y ago

> An analysis from the Tax Policy Center on the latest version of the bill shows that, while nearly all Americans making under $1 million will get a tax cut, those on the upper end of that spectrum — the merely rich making between $500,000 and $1 million — will see a much bigger dollar-value tax cut than the bulk of the working and middle class So everyone under 1 million gets a tax cut, but the 500k-1m range sees a bigger cut. I mean, it seems good at first, it be nice to amortize the break more evenly, but I think it's because it's done through a deduction mechanism instead of altering the brackets themselves, so it's probably harder to control. What exactly is the "bad angle" though here? Is there a different way to do it? P.S.: Also they do the comparison on tax dollar. Which seems strange. Obviously the same percentage cut for someone making more money will be bigger, so if someone makes 6x more money the same cut will result in 6x more absolute dollar no? Is it true that the 500k-1mil earners are getting a special treatment here or is it just the way the same treatment applies to them?

kbenson 5y ago
Bigger cut depending on how you look at it. They are very careful to say bigger total dollar value, which is what you would expect when a percentage is applied to a larger base number. My guess (based on the graphs) is that it's extremely close percentage wise, even if slightly lower then the immediately preceding bracket. I skimmed after a bit though, so I'll go back and look closer. Edit: yeesh, phone keyboard really made a mess of that originally.

kbenson 5y ago

I'm sort of at the point where I wouldn't mind news headlines and articles that reported statistics being required to report a disclosure table like loans are required to, which shows total amount, percentage change, and multiples of amount between the things being compared. Then at least even if they make stupid cross comparisons in titles, people would know they can quickly look inside for a breakdown of the reality which can't be confused by wording.

VictorPath 5y ago

The title is clickbaity. Wealthy people are not getting a tax cut with SALT - any federal cut with this would wind up being taxed locally.

toast0 5y ago
If SALT goes back to being uncapped (or more precisely, capped by AMT), this is a tax cut for people it applies to. While some states toyed with workarounds to the cap that came with the Trump tax changes, I don't think it happened for the most part and states didn't reduce their taxes to compensate for the increased taxes on their residents. I wouldn't expect to see taxes being raised in the near term to compensate for reduced taxes on residents either.