Here Are The New Proposed Individual Tax Rates

Ted

FYI: Last-minute changes to the Republican tax bill contain an unpleasant surprise for married couples who make between $600,000 and $1 million: They won’t be getting as big a tax cut as lawmakers planned earlier.

The final bill would include those households in the highest individual income-tax bracket, which would pay a marginal rate of 37 percent, according to a summary of the bill’s changes obtained by Bloomberg News, as well as a person familiar with the bill’s contents.
Regards,
Ted
https://www.bloomberg.com/news/articles/2017-12-15/gop-tax-plan-s-top-rate-of-37-said-to-hit-earners-at-600-000

msf

That summarizes the tax brackets. Here's a more extensive set of bullet items. And an initial analysis from Vox. Finally, the text of the bill itself:

Highlights: http://www.businessinsider.com/trump-gop-tax-reform-bill-final-text-details-brackets-rates-2017-12

Analysis: https://www.vox.com/policy-and-politics/2017/12/14/16773202/republican-tax-bill-reform-cuts-conference-committee-senate-house

Full text: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

(It's only 1097 pages. A really streamlined, simplified tax system )

EDIT: I fixed the link to the full text. I'm so disappointed that no one caught the error (i.e. that no one wants to read over 1000 pages of legislation)

msf

For the big investing news that I'm sure everyone has been waiting for (see pdf p. 898):

House Version: No provision
Senate Version: Any security sold after 1/1/18 is sold FIFO
Conference Agreement: "The conference agreement does not include the Senate amendment provision."

No new FIFO only rule; the Senate version didn't make the cut.

--------

IRA recharacterization rule (pdf p. 639)

House and Senate versions agree: no recharacterizations for tax years after 2017.

Conference Agreement: fixes the flaw I identified earlier - this version does not prohibit recharacterizing contributions (e.g. contributing to a Roth when you meant to contribute to a traditional); it will only prohibit the unwinding of Roth conversions.

davidrmoran

SaLT deduction limit kept at $10k, which is a serious fuckjob for many.

>> Within the middle quintile, people earning $54,700 to $93,200 a year, 62.2 percent would see their taxes go up. (vox article)

So much for that.

MikeM

@davidrmoran, are you arguing that there are many "middle class" home owners paying over $10,000 in property taxes? Certainly not in the very high-taxed area of western NY I live in. Don't get me wrong, there are plenty of people in our Rochester suburbs that do pay that. Hell, if you want to live in a big home on Lake Ontario or on one of the Finger Lakes you will pay in the $20-30k range. But their income is also much higher than the average bear. Gets tricky classifying people per income status, but the people paying that type of property tax maybe could be called upper-middle class? I don't know. I don't think there are "many" people earning $54,700 to $93,200 a year living in houses paying in excess of $10k in property taxes across the country. I have no problem with the $10k ceiling myself. That one seems geared towards eliminating a tax break to the rich(er).

p.s., not defending this bill. Just that this lone comment doesn't make sense to me.

davidrmoran

don't have the numbers of how many people across the country pay >$10k in property plus state taxes, and some would argue that if you do, then by definition you are middle-class or above

will look into it a little and see what I find and report.

msf

The $10K limit is for combined property and state income (or sales) tax.

The median US home costs $320K, per St. Louis Fed. While western NY home prices are still quite depressed, Hudson Valley homes seem to be in line with US averages. According to Zillow, the median home in Fishkill (there is and IBM plant near there) runs about $300K.

Here's Dutchess county (including Fishkill) home prices overall: https://www.zillow.com/dutchess-county-ny/home-values/
Rochester NY: https://www.zillow.com/rochester-ny/home-values/

NYS property tax rates tend to run high (except for NYC where there's an income tax):
https://www.google.com/search?q=New+York+State+property+tax+rates

Let's use a conservative rate of 2%, and a home value of $320K. That's $6.4K in property taxes.

For the state income tax, let's take an individual with total income (wages, investment income, etc.) of $80K. Subtract a $6K 401k contribution and $8K for the NYS standard deduction, and this person has NYS taxable income of $64K. According to the tax tables, the state income tax for 2017 is $3,791. We're working with round numbers, let's call it $3.8K.

$6.4K + $3.8K > $10K. The new cap is cutting into this person's deductions.

Take an above average home, a higher tax rate that's found in much of the state, or a higher income, and the impact on deductions becomes more sizeable.

davidrmoran

The average prop tax in NJ and NY is around or above $9k as of a couple years ago, not that you can fully understand anything from averages. All of NE, Illinois, Wisconsin, and Florida appear to be not far behind; guess it depends on which part of the state. (These are states that are givers, not takers, meaning more goes fed-ward than comes from the feds.) You can say of course that a significant proportion of these people are not middle-class. Not sure that is accurate for Fla and NH, where I do not live. Certainly in an expensive suburb that pays teachers and cops and firefighters truly healthy salaries, lots of middle- or upper-middle-class people like me and my wife pay well over $15k in property taxes with non-mansion housing. Will poke around further, maybe. Lots of data but not specific answers yet.

MikeM

My confusion is what this SaLT deduction is. I thought we were talking property taxes only. I guess I didn't understand it was property tax and state income tax paid. So, yes, given msf's scenario, this surely does affect me, that middle class guy.

BUT... here is a quote from a NY Times article. Basically these deductions that go away are compensated for by a much higher standard deduction. I don't know what the final outcome of all this is, but I'm really feeling it will probably be a wash for me.

Even as it repeals several itemized deductions, the bill nearly doubles the standard deduction to roughly $12,000 for individuals and $24,000 for couples.

While many lower-income people take the SALT deduction, many would end up better off under the bill because the new standard deduction would be worth more than what they deducted in SALT and other itemizations.

https://www.nytimes.com/interactive/2017/12/05/us/politics/tax-bill-salt.html

davidrmoran

obvs, if the new standard deduction is higher, sure, and not if not

one other point I read, not in NYT I think, but maybe, was that on paper this makes taxation more progressive, which most want, but NOT when it actually goes to marginal cuts for the rich, as this does

expatsp

I read somewhere that payroll taxes remain deductible. Can't high income tax states just move to payroll taxes instead? My impression is that this bill was written so quickly, gaming it is going to be child's play -- and skyward goes the deficit, which Paul Ryan won an award for saying that he cared about, while we're in the late innings of the business cycle.

Dolphin

Sorry, but the "doubling" of the standard deduction is really a myth. These articles often use 2017 numbers as the baseline for comparison and fail to mention the loss of personal exemptions and additional standard deductions. Assume a married couple with no children for simplicity...

Under the existing plan, standard deduction for 2018 MFJ was set at $13000. Personal exemptions were $4150 each. So a married couple would deduct $21300.

If you are age 65+, you would add additional deductions of $1300 each. That brings your total to $23900.

So that's a 12.7% increase for age < 65. And a 0.4% increase for age > 65.

msf

Tax bill, pdf p. 604:

Under the provision a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married taxpayer filing a separate return) for the aggregate of
(i) State and local property taxes not paid or accrued in carrying on a trade or business, or an activity described in section 212, and
(ii) State and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the taxable year.

Emphasis added.

"While many lower-income people take the SALT deduction, many would end up better off under the bill because the new standard deduction would be worth more than what they deducted in SALT and other itemizations."

Apparently the breadcrumbs I left weren't big enough. Look at my example - the total is under $12K. Even allowing for modest charitable deductions, it still doesn't exceed the (new) standard deduction for an individual, let alone a couple. What often makes itemizing work for the middle class is adding in mortgage interest.

The NYTimes has an article on that, too, where they note that under the current law "a little under half of American homes are worth enough to justify itemizing mortgage interest and property taxes [but] Under the tax legislation, that figure would fall to close to 14 percent."
https://www.nytimes.com/2017/12/16/business/economy/tax-bill-housing.html

The Times cites a Zillow study: https://www.zillow.com/research/mortgage-interest-deduction-750k-17620/

Which raises the question for people choosing to hold a mortgage because it is "cheap money". Rather than pay off the mortgage, they're using the money to invest. What are they going to do now?

For a household in the 25% bracket (today's rates), the cost of that mortgage may have gotten 1/3 more expensive.

If a couple is paying $4K on a mortgage (say, $100K remaining on a 4% loan), their current after tax cost is $3K (assuming 25% bracket). If they lose the value of the mortgage deduction, their after tax cost is the full $4K, or 1/3 higher than $3K.

msf

davidrmoran said:

The average prop tax in NJ and NY is around or above $9k as of a couple years ago, not that you can fully understand anything from averages.

Glad to see you acknowledge that there's not much to be gleaned from mean averages. Especially in New York, where (a) almost half the population lives in NYC, (b) most of NYC residents are renters, and (c) NYC property tax rates on co-ops/condos are about five times what they are on houses.

Since we're playing games with numbers, how about a different warped calculation:
state median home value x state median property tax rate

Calculated this way, the typical NYS property tax is 4th highest, but at "just" $4600, behind NJ, Conn, and NH, and a bit ahead of Ill, Mass., RI, and VT.
https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/

msf

Dolphin said:

Sorry, but the "doubling" of the standard deduction is really a myth.

That's part of the deception in the selling of this bill. However, it is one of the few parts of the bill that actually does serve to simply taxes. By increasing the standard deduction (though not significantly increasing the total reductions in taxable income), more people wind up taking the standard deduction instead of itemizing. That is a real simplification for tax filers.

(The tax bill as a whole was written so quickly, with so many loopholes as to make the idea or calling this a tax simplification bill as a whole laughable.)