5 ms·

Looks like high income (250k-1.2million)/small investment portfolio people (doctors and lawyers) are going to be even more screwed since they already pay high t

Looks like high income (250k-1.2million)/small investment portfolio people (doctors and lawyers) are going to be even more screwed since they already pay high taxes and probably have enormous student loans.

tobias3 14y ago
Can't you substract the interest from your income?
- prostoalex 14y ago
  Ability to deduct phases out rather quickly (as soon as you hit $300k in income with current bill, looks like).
  - Nrsolis 14y ago
    Not exactly. The student loan interest deduction gets phased out pretty early. It's gone once your AGI is over $75k. ITEMIZED deductions get reduced by 3% of every dollar you make over a specified threshold. That's 300k in 2013 with this bill. It's called the Pease phaseout and its back after being partially or completely repealed in previous years.
    - techsupporter 14y ago
      If you are married, filing jointly, the student loan interest deduction is fully gone at $150,000 of adjusted gross income. Yet another in a long line of reasons why DOMA sucks.
      - Nrsolis 14y ago
        One of many. But I think my main point was that a lot of deductions disappear once your AGI reaches a point where people feel that you don't need the benefit of that deduction. With Pease Itemized Deduction phaseouts, the effective tax rate for high wage earners goes up independent of their marginal tax rate because more of their income is taxed at those rates.
- Nrsolis 14y ago
  No. That deduction gets phased out at higher incomes.
- petercooper 14y ago
  Non-American here. Was there/is there a rationale for allowing people to deduct interest from their incomes? It has always seemed odd to these English eyes. Is it considered a way to encourage people to buy property/invest in their education or is there more to it than that? As a home owner, I would love this deduction ;-)
  - mhw 14y ago
    I think we used to have something similar in the UK: http://en.wikipedia.org/wiki/Mortgage_interest_relief_at_source http://en.wikipedia.org/wiki/Mortgage_interest_relief_at_sou... Seems to be another one of those perks that got removed just as I reached the point in life where I'd benefit from it.
  - cperciva 14y ago
    Was there/is there a rationale for allowing people to deduct interest from their incomes? Yes. The situation is analogous to borrowing money to invest in the stock market: Your profit is the profit you make from the stocks minus the interest you pay on the loan, and that difference is what you pay tax on. In Canada, a mortgage on a principle residence is not tax deductible, since Canadian tax law doesn't consider where you live to be an "investment"; this is balanced by a principle residence being exempt from capital gains tax.
    - Kroem3r 14y ago
      If you have a 'home office' then the interest you pay on your mortgage is an expense, and is thus a business deduction, as are hydro, gas, communications, etc. If you have a business that borrows to buy and then rent houses, the same principle pertains; the interest on the mortgage is an expense.
      - cperciva 14y ago
        If you have a 'home office' then the interest you pay on your mortgage is an expense, and is thus a business deduction, as are hydro, gas, communications, etc. Only in proportion to the fraction of the house which constitutes your home office. If you have a business that borrows to buy and then rent houses, the same principle pertains; the interest on the mortgage is an expense. Right -- mortgage interest is a business expense when it's paid for a business reason. A principle residence is not considered to be an investment; it's considered to be a home.
sliverstorm 14y ago
I'm confused how someone who makes 250k-1.2million in income, could be crushed by student loans. Are you telling me there are an appreciable number of people with student loans of several million?
- fossuser 14y ago
  Well if you consider 4 years undergrad, 4 years medschool (medschools offer no aid and routinely cost 70-95k a year), 4 years residency, 3 years fellowship it can add up (you're not making too much in residency/fellowship). Additionally this would be basically your entire twenties so if you made an effort to have friends or get married (possibly have a kid) you'd be in even more trouble. Assuming a generous starting salary of 320k for some higher end specialty if you're getting taxed at nearly 50% of total income, leaving 160k take home, it would be a pretty poor ROI and you could be nearly a half million in debt. I assume the low capital gains tax is because the money is 'at risk' in the market, but for professions with long expensive educations - the risk is in the time and money investment up front. Additionally doctors/lawyers are more likely to actually spend their money locally to buy and fund local business since they're not moving around millions of dollars or just leaving their wealth in the market - taxing them harder just means they won't pay local contractors to have an addition on their house and they'll pay taxes instead.
  - sliverstorm 14y ago
    Kind of sounds to me then like it's tuition fees that need to be fixed, not the tax code.

tobias3 14y ago

Can't you substract the interest from your income?

prostoalex 14y ago
Ability to deduct phases out rather quickly (as soon as you hit $300k in income with current bill, looks like).
- Nrsolis 14y ago
  Not exactly. The student loan interest deduction gets phased out pretty early. It's gone once your AGI is over $75k. ITEMIZED deductions get reduced by 3% of every dollar you make over a specified threshold. That's 300k in 2013 with this bill. It's called the Pease phaseout and its back after being partially or completely repealed in previous years.
  - techsupporter 14y ago
    If you are married, filing jointly, the student loan interest deduction is fully gone at $150,000 of adjusted gross income. Yet another in a long line of reasons why DOMA sucks.
    - Nrsolis 14y ago
      One of many. But I think my main point was that a lot of deductions disappear once your AGI reaches a point where people feel that you don't need the benefit of that deduction. With Pease Itemized Deduction phaseouts, the effective tax rate for high wage earners goes up independent of their marginal tax rate because more of their income is taxed at those rates.
Nrsolis 14y ago
No. That deduction gets phased out at higher incomes.
petercooper 14y ago
Non-American here. Was there/is there a rationale for allowing people to deduct interest from their incomes? It has always seemed odd to these English eyes. Is it considered a way to encourage people to buy property/invest in their education or is there more to it than that? As a home owner, I would love this deduction ;-)
- mhw 14y ago
  I think we used to have something similar in the UK: http://en.wikipedia.org/wiki/Mortgage_interest_relief_at_source http://en.wikipedia.org/wiki/Mortgage_interest_relief_at_sou... Seems to be another one of those perks that got removed just as I reached the point in life where I'd benefit from it.
- cperciva 14y ago
  Was there/is there a rationale for allowing people to deduct interest from their incomes? Yes. The situation is analogous to borrowing money to invest in the stock market: Your profit is the profit you make from the stocks minus the interest you pay on the loan, and that difference is what you pay tax on. In Canada, a mortgage on a principle residence is not tax deductible, since Canadian tax law doesn't consider where you live to be an "investment"; this is balanced by a principle residence being exempt from capital gains tax.
  - Kroem3r 14y ago
    If you have a 'home office' then the interest you pay on your mortgage is an expense, and is thus a business deduction, as are hydro, gas, communications, etc. If you have a business that borrows to buy and then rent houses, the same principle pertains; the interest on the mortgage is an expense.
    - cperciva 14y ago
      If you have a 'home office' then the interest you pay on your mortgage is an expense, and is thus a business deduction, as are hydro, gas, communications, etc. Only in proportion to the fraction of the house which constitutes your home office. If you have a business that borrows to buy and then rent houses, the same principle pertains; the interest on the mortgage is an expense. Right -- mortgage interest is a business expense when it's paid for a business reason. A principle residence is not considered to be an investment; it's considered to be a home.

sliverstorm 14y ago

I'm confused how someone who makes 250k-1.2million in income, could be crushed by student loans. Are you telling me there are an appreciable number of people with student loans of several million?

fossuser 14y ago
Well if you consider 4 years undergrad, 4 years medschool (medschools offer no aid and routinely cost 70-95k a year), 4 years residency, 3 years fellowship it can add up (you're not making too much in residency/fellowship). Additionally this would be basically your entire twenties so if you made an effort to have friends or get married (possibly have a kid) you'd be in even more trouble. Assuming a generous starting salary of 320k for some higher end specialty if you're getting taxed at nearly 50% of total income, leaving 160k take home, it would be a pretty poor ROI and you could be nearly a half million in debt. I assume the low capital gains tax is because the money is 'at risk' in the market, but for professions with long expensive educations - the risk is in the time and money investment up front. Additionally doctors/lawyers are more likely to actually spend their money locally to buy and fund local business since they're not moving around millions of dollars or just leaving their wealth in the market - taxing them harder just means they won't pay local contractors to have an addition on their house and they'll pay taxes instead.
- sliverstorm 14y ago
  Kind of sounds to me then like it's tuition fees that need to be fixed, not the tax code.