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Thread: Deduction Limits Pose Test for Donald Trump’s Tax Plan

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    Senior Member JohnDoe2's Avatar
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    Deduction Limits Pose Test for Donald Trump’s Tax Plan

    Deduction Limits Pose Test for Donald Trump’s Tax-Cut Plan

    Changes to existing tax breaks may not offset revenue loss from lower rates


    ENLARGE
    The largest deductions are those for mortgage interest, charitable contributions and state and local taxes. PHOTO: BLOOMBERG NEWS


    By RICHARD RUBIN

    Updated Nov. 30, 2016 9:20 p.m. ET 0 COMMENTS

    Itemized deductions are on the chopping block as President-elect Donald Trump looks for ways to offset the revenue loss from his proposed tax-rate cuts.

    Experts say the challenge—besides the political popularity of tax breaks for mortgage interest and charitable contributions—is that there isn’t enough money there to accomplish his goal.

    “There’s just no way that restricting the deductions that Trump has talked about comes anywhere close to eliminating the tax cut for the wealthy in his plan,” said Bill Gale, a senior fellow at the Brookings Institution. “It’s just arithmetic.”


    Steve Mnuchin, Mr. Trump’s pick for Treasury secretary, said Wednesday that high-income households would get no net tax cut as a group, a statement that is at odds with every analysis of Mr. Trump’s plan.

    Stephen Moore, who helped develop Mr. Trump’s tax plan, said the proposal was designed so the deduction cap offsets the revenue loss from lowering the top tax rate on ordinary income from 39.6% to 33%.


    The idea is that high-income households would get no net tax advantage from that swap. But that approach means the deduction limits don’t offset the tax cuts on business income, estates and capital gains, which all flow disproportionately to top earners.


    Tax cuts on capital gains, dividends, businesses and estates are especially skewed to the high end of the income and wealth distribution, said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a group that advocates for low-income families.


    “You have all these other tax cuts that are disproportionately targeted to the wealthiest people in the country,” he said.

    “That’s the core element of the plan.”

    Taxpayers under current law can itemize their deductions if they exceed the standard deduction, which this year is $6,300 for individuals and $12,600 for married couples. Most taxpayers don’t exceed that threshold, and fewer than 30% are projected to itemize in 2017.

    The largest deductions are those for mortgage interest, charitable contributions and state and local taxes. Those three breaks alone total $200 billion in forgone revenue in 2017, according to the congressional Joint Committee on Taxation.


    Mr. Trump would squeeze deductions from both ends. He would more than double the standard deduction and limit itemized deductions to $100,000 for individuals and $200,000 for married couples.



    That deduction cap would raise about $559 billion over a decade, according to the Tax Policy Center, a project of Brookings and the Urban Institute. Even with that cap, Mr. Trump’s plan would reduce government revenues by about $6.2 trillion over a decade.

    One thing that will become more apparent as Mr. Trump’s plan moves through Congress is that the impact of deduction limits doesn’t fall evenly. The state and local tax deduction tends to benefit residents of high-tax states such as California and New York.


    The mortgage interest deduction helps the upper middle class, especially in areas with high housing costs. More than 60% of the tax break goes to households between the 80th and 99th percentiles of income, according to the Tax Policy Center.


    And the charitable deduction helps the highest earners. According to Internal Revenue Service data, the top 0.001%—that is about 1,400 households—reported 9.5% of charitable contributions.


    The focus on deductions ignores other tax benefits that high-income households get. They receive the bulk of capital gains and dividends, which are taxed at preferential rates.


    They also control the timing of those gains, deferring taxes for years and not paying anything as the value of their stocks and other assets appreciate.


    Mr. Trump’s plan is the latest attempt to curb deductions as part of a tax code overhaul. The House Republican plan would eliminate the state and local tax deduction while preserving write-offs for mortgage interest and charity.


    President Barack Obama proposed a different idea. His plan would cap deductions and other tax breaks for top earners as if they were in the 28% bracket. That means a $1,000 deduction would be worth at most $280 in lower taxes, even if the taxpayer was in the 39.6% tax bracket.

    That plan went nowhere in Congress.

    http://www.wsj.com/articles/deductio...lan-1480555670

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    Senior Member Judy's Avatar
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    LOL!!! Look at all the stupidity!! Blah, blah, blah, blah while Rome and Tennesses Burn. There is only one solution to this "caste" system absurdity called the Federal Income Tax and that is the FairTax. You'll see.

    Trump will rush through a major tax cut plan for 2017 and 2018, that keeps our corporations in the US and gives tax relief to income earners to rejuvenate the economy, Republicans will finally pass the FairTax that will go into effect in 2019 under the statute. And this political game of how to fund the federal government by pitting one American against another by stealing from one to give to another will be over. We will be one nation of one people operating under one set of rules as it should be.
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    MW
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    Senior Member Judy's Avatar
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    Posting socialist lies and misinformation about the FairTax is like CNN lying about Donald Trump. It may feel good, but it won't get you anywhere.

    People in 45 states know how a sales tax on retail new goods and services works which is exactly how the FairTax works.

    There is no national ID and won't be. There is a Rebate for anyone who wants to sign up for it. You need a valid Social Security number and the Social Security Administration handles all of it, from approval of your application to sending the payments to enforcing compliance with the law.

    The issue of illegal aliens will not be problem because Trump's going to have them all out here before the FairTax implements in 2019.

    Get ready! It will happen fast. Trump has no patience for failure.
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    MW
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    Quote Originally Posted by Judy View Post
    Posting socialist lies and misinformation about the FairTax is like CNN lying about Donald Trump. It may feel good, but it won't get you anywhere.

    People in 45 states know how a sales tax on retail new goods and services works which is exactly how the FairTax works.

    There is no national ID and won't be. There is a Rebate for anyone who wants to sign up for it. You need a valid Social Security number and the Social Security Administration handles all of it, from approval of your application to sending the payments to enforcing compliance with the law.

    The issue of illegal aliens will not be problem because Trump's going to have them all out here before the FairTax implements in 2019.

    Get ready! It will happen fast. Trump has no patience for failure.
    Let the people judge for themselves.

    http://www.fairtaxfraud.com/fallout.asp

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    Senior Member Judy's Avatar
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    Sure! Most people already have, at least most Republicans have.
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    MW
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    Quote Originally Posted by Judy View Post
    Sure! Most people already have, at least most Republicans have.
    Yep, that's why the plan has been floating around for well over a decades without ever making it out of committee. There's a reason for that.

    http://www.fairtaxfraud.com/fallout.asp

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    Senior Member Judy's Avatar
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    LOL!! I sure hope whoever chairs the committee that reviews it reads the bill instead of your link that was clearly written by someone with the IRS.
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    Certainly, we need an overhaul of our tax system - decades ago.

    A 'fair', across the board, sales tax does seem like a good idea.
    Unless they have changed the idea, though, the provision of a 'prebate' needs to be forgotten. No prebates, no rebates - just pay the taxes when you make the purchase. When you start rebates, etc., it just adds a layer of complications that are not needed. An across the board tax on stated items will absolutely give the individual a lot of control over the amount of taxes they pay.

    Perhaps some exemptions are needed. Every state I have visited has some things that are exempted, some are taxed that aren't taxed in Texas, vice versa. There again, the exemptions are going to have to be fair and reasonable, and not allow the lobbyists (or their bought and paid for lawmakers) to decide the exemptions in favor of one group of the other.

    The idea of taxing the purchase of a home, needs some thought. Will the tax be due in full at time of purchase? Will it be added into the total of the loan - and mortgage. If it is added to the mortgage, then people are going to be paying interest on those taxes for years to come. The banks and mortgage companies will love that. Also, many sell homes before the mortgage is paid off, so the unpaid portion of the taxes will have to roll over into the new mortgage. That's taxes upon taxes.

    No taxes are going to keep the government from 'taking from some and giving to others'. That's going to take lawmakers with backbones - and citizens holding their feet to the fire.

    Taxes are a burden, no doubt about it, but unless, and until, we force our government to go on a diet, no amount of taxes, or tax reform will make a difference.

    Just my thoughts.

  10. #10
    Senior Member Judy's Avatar
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    Quote Originally Posted by nntrixie View Post
    Certainly, we need an overhaul of our tax system - decades ago.

    A 'fair', across the board, sales tax does seem like a good idea.
    Unless they have changed the idea, though, the provision of a 'prebate' needs to be forgotten. No prebates, no rebates - just pay the taxes when you make the purchase. When you start rebates, etc., it just adds a layer of complications that are not needed. An across the board tax on stated items will absolutely give the individual a lot of control over the amount of taxes they pay.

    Perhaps some exemptions are needed. Every state I have visited has some things that are exempted, some are taxed that aren't taxed in Texas, vice versa. There again, the exemptions are going to have to be fair and reasonable, and not allow the lobbyists (or their bought and paid for lawmakers) to decide the exemptions in favor of one group of the other.

    The idea of taxing the purchase of a home, needs some thought. Will the tax be due in full at time of purchase? Will it be added into the total of the loan - and mortgage. If it is added to the mortgage, then people are going to be paying interest on those taxes for years to come. The banks and mortgage companies will love that. Also, many sell homes before the mortgage is paid off, so the unpaid portion of the taxes will have to roll over into the new mortgage. That's taxes upon taxes.

    No taxes are going to keep the government from 'taking from some and giving to others'. That's going to take lawmakers with backbones - and citizens holding their feet to the fire.

    Taxes are a burden, no doubt about it, but unless, and until, we force our government to go on a diet, no amount of taxes, or tax reform will make a difference.

    Just my thoughts.
    The Rebate is an automatic payment if you apply for it, everyone is eligible if you are a US citizen or legal resident, illegal aliens are not eligible. It's x amount for an adult and then a much smaller amount for a child. Each household that wants it sends in a simple form with name, address and social security numbers of each eligible person, Social Security Administration handles it, they review, verify, and set you up in the computer for the payments. You then receive the amount each month by direct deposit, smart card or check, your preference, they really want to limit the checks if possible. There's no income verification, just age, address and eligibility through the Social Security process.

    They did this to avoid the exemptions of items which then encourages the lobbying they're trying to get rid of, and equate it to the personal deductions people are used to under the income tax. It's the same type of benefit to avoid tax on necessities. The amount is based on the Household Consumption Allowance determined by Department of Health and Human Services. The amount for 2016 is $226 a month for an adult and $80 a month for a child.

    It's voluntary, you can sign up or not.

    The FairTax only taxes new goods and services at the final point of sale. Used items are exempt, like used homes, cars, clothing, equipment, appliances, books, whatever it not brand new is exempt. So if you purchase an existing home, it's exempt. If you buy a brand new home in a new development, the FairTax is charged and is part of the purchase price, so if you purchase a home for $100,000, 23% of that is forwarded to the state and the seller receives the $77,000. Your mortgage would be based on the $100,000 and amortized as such. When you sell that home, it's considered used and there is no tax ever charged on that home again. Same with cars and other products. It's paid one time when it's new but not on resales thereafter. It just applies to new goods and services.

    If you rent an apartment or home, the rent will include the FairTax and because that is considered a service, all retail rents will include it.

    Because it's replacing income taxes that are already embedded in prices and rents now, it won't change prices overall.

    It also funds Social Security and Medicare, there will be no more payroll taxes for employee or employer. The rate is split by statute with 14.91% earmarked for general revenue and 8.09% for Social Security and Medicare.

    Also, when you see a price on an item or service, that price or service will already include the FairTax, like gas prices include gas taxes. It's not here's the price of the item and when you get to the register here's the price with the FairTax added on. It's already in your price, your receipt will show the breakdown.

    Consumers who pay the tax have no paperwork. The retailers who collect the tax on their sales and services, transmit the tax on the state sales tax report with 2 additional lines added for the FairTax each month. It's very simple procedure. If you collected $1 million in revenue, you send in 23%, $230,000 less your fee as a retailer which is 1/2 of 1% or $200 whichever is greater. The states collect it from the retailers at the same time on the same form as their state sales tax and enforce it as they collect and enforce their own sales tax and are also paid a fee for their services like the retailers, and they send in the state total less their fee to the US Treasury Department. So the US Treasury Department would have 50 state payments to review each month and that's it. Right now there are only 45 states that collect a sales tax of their own, so the other 5 can set up a bureau to collect the FairTax, engage by contract another state to help them or the Treasury Department will use their people to collect it for them. Those states who don't collect it of course would not collect a fee.

    No business pays any FairTax on any item it purchases for business purposes and only final point of sale retailers dealing with final consumers collect it.

    Today taxpayers spend approximately $500 billion a year on compliance including their own time on income tax compliance. This time and expense for a non-productive purpose will now be saved and redirected to positive worthwhile fruitful endeavors such savings, investment, expansion, consumption, leisure, enjoyment. Our country will be much happier, freer and more private, productive and efficient. No one has to worry about it any more. They never have to worry about not having paid enough and not having it when it's tax time. No one ever has to worry about mistakes or threats or tax liens or foreclosures or fines or penalties. There are fines and penalties for the Retailers who collect the tax if they don't comply because they're being paid to provide this service to our country.

    To me, I would have no objection to eliminating the Rebate and reducing the rate, but a rate reduction doesn't have the save effect to meet the goal of having essentials up to the HCA, tax-free. But if that were to be the case, that would be fine with me. People on fixed incomes like seniors on retirement and low incomes even middle incomes with children in the home do need it seems to me.

    I think it's a great plan. I've studied it for years and so far I can't find anything about it I don't like. It robustly funds SS and Medicare so that's taken care of. It discourages illegal immigration because American Workers have the Rebate, illegal aliens don't, so it will make it very hard for them to continue to undercut American Workers. It balances our trade issues because all final goods including imports will be taxed the same as domestic products under the FairTax in addition to any tariffs, duties and so forth, in which case our producers have an advantage over imports.

    It was developed by a team of 10 economists, and one of them is Stephen Moore who is an economic advisor to Trump, you probably see him on television speaking about economic and tax issues for the Trump Campaign and now Trump-Elect.

    They really did a great job. Their assignment was to develop the best tax plan for our country to make federal taxation simpler, easier and voluntary and that would help business, increase expendable income for our people, and grow our economy. And they did just that in my opinion.

    The FairTax is only about a better system, it generate the same revenue as income taxes did in 1999 when the legislation was drafted, it doesn't have anything to do with spending or appropriations. However, because of the economic benefits, it will create jobs, reduce unemployment and welfare, reduce our trade deficits and illegal immigration, and protect our businesses and jobs, it will reduce the need for spending on unemployment and poverty.

    Another great thing about the FairTax is how it treats 501 C 3 entities. It basically shuts the charity frauds down, because while they remain tax exempt, they are only exempt from collecting the FairTax on that which they give away. Any service or product they sell for money, they are treated like any other business and required to collect the FairTax.

    Savings and investment are exempt from the FairTax but for any service fees charges on the accounts or transactions by the service providers. But there is no charge on the amount you save or invest so it also encourages nest egging and investment in our money supply and capital funds.
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