Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
WSJ: House Republicans Are Still Considering 401(k) Changes in Tax Overhaul
You need to read up, I'd suggest. Except for the third, these are somewhat changed in the context of newly irresponsible budget proposals, but the analyses and thinking behind them might be helpful:
You need to read up, I'd suggest. Except for the third, these are somewhat changed in the context of newly irresponsible budget proposals, but the analyses and thinking behind them might be helpful:
Have you ever heard of confirmation bias? And you do know that most of the analyses out there have been financed by a gov't trying to prove entitlement programs are not a problem, right?
Nobody wants to stick their neck out on capital hill because they'll "look bad." Deep down we all know we can't afford it.
This is a good example of why I'm not fond of relying on opinion pieces. In the 2015 article cited, Krugman presents macro issues - how high a debt/GDP ratio is sustainable, what fraction of GDP is consumed by healthcare spending (both government and private), etc. I don't have any problem with that.
But then he make an unsubstantiated leap from saying that SS (OASDI = OASI + SDI) cost isn't growing significantly as a fraction of GDP to saying that " Nor is there a big rush: nothing terrible will happen if we don’t immediately decide how we’ll pay for projected benefits in the year 2050."
Below are two charts. The first is the 2015 projection he provided (that seems to come ultimately from the SS Board of Trustees). The second is a graph of CBO's 2016 long term projections for SS.
Focus on the OASDI curves. In the first chart, that's the blue line.
The second chart might be called "the rest of the story." Its dotted line (higher) matches Krugman's blue curve - what SS is supposed to pay. The solid line is what cash will be available to make those payments unless we "decide how we'll pay for projected benefits in the year 2050".
ISTM that a 29% shortfall in payments, fully two decades before Krugman's target year of 2050 qualifies as "something terrible." A decade ago, it would have been easy to have made small adjustments in the program to deal with the shortfall. Even now, there are changes that could be made without much pain (other than to the politicians who would have to take a stand). But the clock is running.
Krugman is right - at the macro level, looking at costs and GDP, there's no urgency. But you miss a lot with that 50,000 foot perspective.
You need to study up, too. It all depends, man. It all depends on what we add. And whether we pay. No one with the power wants to do it right.
Debt is not bad till high as a percentage of GDP, but yeah, it is getting there, and this latest crap will make it way worse. So yes. I do sometimes sense you guys just want to be argumentative or kneejerk about debt without understanding the variables. Violent agreement about needing waaaaay higher taxes, if that's what you suggest (the right kind, and properly implemented, bwahahahaha), to do the things that need doing. Since the current view (from complete hypocrisy from those who used to lambaste debt) is that we actually do not need to help others and rebuild things and do some redistribution and fund healthcare for everyone, but rather cut taxes on the richest and fund their plutocratic growth by increasing debt on our children and grandchildren, yeah, your underinformed (seems to me) point is taken.
Enough back and forth --- get specific and substantial or go home.
Just curious...while all the chatter has been elsewhere, the medical expense deduction doesn't get much attention. It should, given the antics which are driving up medical costs. Is this something targeted for the chopping block?
You need to study up, too. It all depends, man. It all depends on what we add. And whether we pay. No one with the power wants to do it right.
Debt is not bad till high as a percentage of GDP, but yeah, it is getting there, and this latest crap will make it way worse. So yes. I do sometimes sense you guys just want to be argumentative or kneejerk about debt without understanding the variables. Violent agreement about needing waaaaay higher taxes, if that's what you suggest (the right kind, and properly implemented, bwahahahaha), to do the things that need doing. Since the current view (from complete hypocrisy from those who used to lambaste debt) is that we actually do not need to help others and rebuild things and do some redistribution and fund healthcare for everyone, but rather cut taxes on the richest and fund their plutocratic growth by increasing debt on our children and grandchildren, yeah, your underinformed (seems to me) point is taken.
Enough back and forth --- get specific and substantial or go home.
@msf, I don't like opinion pieces without data, any of them, and try not to post such. I will dig around to see if Delong or PK or others have dived into re >2030 discrepancies, since your CBO graph is from >10mo ago. Seems likely things have gotten worse since, perhaps not. Will report what I find. Part of my posting motive of course is to show informed (sometimes differing) ways of thinking substantively about issues raised rather than simple automatic debt whines. You have read the work of Munnell at BC, I imagine:
Just curious...while all the chatter has been elsewhere, the medical expense deduction doesn't get much attention. It should, given the antics which are driving up medical costs. Is this something targeted for the chopping block?
That's an interesting thought. Though I suspect that the increases in deductibles and copays alone aren't going to push people above the 10% AGI threshold. Even then, I believe most people take the standard deduction, so they'd need to go way above that 10% threshold for the higher insurance/medical costs to make a dent in tax revenue.
As I already wrote, only 7% of people buy individual policies, and only about 1/3 of those are unsubsidized. So there aren't many people (percentage-wise) who would add soaring premiums to their list of itemized medical expenses.
Strangely enough, it appears that last year Congress was debating the opposite - making the medical deduction more generous by moving the threshold back down to 7.5%. Here's CBPP's take on how that would have helped high earners.
It does say that lowering the threshold would cost $33B over ten years, so you're right that doing the reverse (raising the threshold or getting rid of the deduction altogether) would be a significant source of new tax revenue.
Thanks for the link. Nice clean presentation, good data. I hadn't seen that, though I've seen the SS Trust figures - in many places, they're hard to miss if you read anything on the subject.
As written in that paper: "Social Security faces a manageable financing shortfall over the next 75 years, which should be addressed soon to share the burden more equitably across cohorts, restore confidence in the nation’s major retirement program, and give people time to adjust to needed changes."
As one would expect, little has changed in the past year: "By most measures, there is little change from the 2016 report in the outlook for the combined OASDI Trust Funds, with annual balances slightly better in the short term and slightly worse in the long term."
So much for you dummies actually believing 401(k) limits would go down.
The overall limit and the tax deferral limit are 2 different things. The overall 401k limit can be raised to $20000 (presumably this is for those under 50), but there can still be a cap on tax deferred money. I don't think the cap would be as low as $2400, but I can see it being something like $10000, or 50%. Nobody knows anything yet of course. Hopefully we will know everything soon.
@JoJo26, Who's making up numbers? Make your substantive detailed logical argument.
Or not. It is always fun to simply cry debt, debt, or unsustainable this or that. Of course now no one in the GOP is listening to any of that. Defense budgets bigger than requested and full of expensive items the mil does not even want. Seriously.
My read of PK centered on the preceding part which you appear not to have taken as qualifying: nothing terrible will happen if we don’t immediately decide ...
Why I linked to Munnell, which I trusted would interest you.
I do not believe it accurate or quite fair to characterize his analyses as being from a 50k' perspective. To the contrary, from some criticism I have read.
Something similar could be said of climate change - we don't need to do anything immediately; we can wait until the last possible moment before forcing everybody to move into caves. (Just don't light any fires.)
The Krugman excerpt (which I also quoted) is why I subsequently highlighted Munnel's bottom line. I respectfully submit that finding a difference between immediately and addressed soon is splitting hairs.
@JoJo26, Who's making up numbers? Make your substantive detailed logical argument.
Or not. It is always fun to simply cry debt, debt, or unsustainable this or that. Of course now no one in the GOP is listening to any of that. Defense budgets bigger than requested and full of expensive items the mil does not even want. Seriously.
My read of PK centered on the preceding part which you appear not to have taken as qualifying: nothing terrible will happen if we don’t immediately decide ...
Why I linked to Munnell, which I trusted would interest you.
I do not believe it accurate or quite fair to characterize his analyses as being from a 50k' perspective. To the contrary, from some criticism I have read.
You're the type of person that performance chases back tests.
Weak and disappointing. Step it up. You're babbling, millennial; please don't give your cohort any worse a name by not engaging substantively in this forum. Take your attempted gibes and personal issues elsewhere, okay? Some of us have smart(er) and financially / economically better-informed children who are your age.
Haha, there is no need to, they are already well on their way, and, regardless, are savvier than you based on your contentless generalizations thus far, without any question. I do recognize the snot you have attempted; it suits all the unfair negative imagery of your cohort. So are you ever going to engage with any substance? Last chance. I mean, we all do worry about kids' national future, gov finances included.
Haha, there is no need to, they are already well on their way, and, regardless, are savvier than you based on your contentless generalizations thus far, without any question. I do recognize the snot you have attempted; it suits all the unfair negative imagery of your cohort. So are you ever going to engage with any substance? Last chance. I mean, we all do worry about kids' national future, gov finances included.
You're just as entitled as your children. Quite sad.
As an FYI....I posed a question earlier about whether the medical expense deduction would survive this latest action. Unfortunately, no. This deduction is eliminated. This will by itself, increase my taxes by several thousand...even with the increased personal deduction. I fear that I am not alone, and many don't realize that this is imminent.
As an FYI....I posed a question earlier about whether the medical expense deduction would survive this latest action. Unfortunately, no. This deduction is eliminated. This will by itself, increase my taxes by several thousand...even with the increased personal deduction. I fear that I am not alone, and many don't realize that this is imminent.
Along with the elimination of medical deductions, Ed Slott's website indicates that the current exception to the 10% early distribution penalty from an IRA for medical expenses will also be eliminated :
Deductions
To pay for its lower tax rates, the Act reduces or eliminates many popular itemized deductions. The medical expense deduction is eliminated, which would also eliminate the current exception to the 10% early distribution penalty for distributions from retirement plans that are used to pay deductible medical expenses.
" The medical expense deduction is eliminated, which would also eliminate the current exception to the 10% early distribution penalty for distributions"
Notice that the writer is simply inferring without checking the draft. The inference is wrong; you can still withdraw the same amount of money for medical expenses without an early withdrawal penalty under the new draft.
To show why this thought process (let alone the inference) is wrong, recognize that the tax code (or any set of statutes) is interconnected. If Section A (exclusion to 10% penalty) references Section B (deductible medical expenses), and Section B is removed, Section A can't simply be left dangling.
It's similar to what happens in Excel when you remove a reference. If in one cell you say '= B2' (i.e. use the value from cell B2), and then you delete row 2 (including B2), then that original cell shows a reference error. The system isn't self-correcting.
Likewise, since the draft removes the medical expense deduction, all references to it have to be fixed up. That means that one is guaranteed to find an explicit change to the section of the tax code that excludes medical expenses from the 10% penalty.
Sure enough, there it is, deep within SEC. 1308. REPEAL OF MEDICAL EXPENSE DEDUCTION.
(2) Section 72(t)(2)(B) is amended to read as follows: ‘‘(B) MEDICAL EXPENSES.—Distributions made to an individual (other than distributions described in subparagraph (A), (C), or (D) to the extent such distributions do not exceed the excess of— ‘‘(i) the expenses paid by the taxpayer during the taxable year, not compensated for by insurance or otherwise, for medical care (as defined in 105(f)) of the taxpayer, his spouse, or a dependent (as defined insection 7706, determined without regard subsections (b)(1), (b)(2), and (d)(1)(B) thereof), over ‘‘(ii) 10 percent of the taxpayer’s adjusted gross income.’’.
Section 72(t)(2) is a list of exceptions to the 10 percent early distribution penalty.
The current Section 72(t)(2)(B) says that if you can itemize the medical expense, you can also withdraw money without the 10% penalty to pay for it.
The new explicit text is equivalent to the old text that simply referenced the itemized medical deduction.
Comments
https://krugman.blogs.nytimes.com/2015/07/26/the-disappearing-entitlements-crisis/
https://krugman.blogs.nytimes.com/2016/09/29/a-general-theory-of-austerity/
https://www.brookings.edu/wp-content/uploads/2017/01/ltb-layout-pdf-final-01-05-17.pdf
http://delong.typepad.com/sdj/2013/01/the-theorists-of-the-moocher-class.html
Nobody wants to stick their neck out on capital hill because they'll "look bad." Deep down we all know we can't afford it.
Is automatically charging confirmation bias the new counter?
My God, we can afford all sorts of things, easily. But sure, the new proposals are wack.
Just add it to national debt !!!! Right ?
Derf
So much for you dummies actually believing 401(k) limits would go down.
But then he make an unsubstantiated leap from saying that SS (OASDI = OASI + SDI) cost isn't growing significantly as a fraction of GDP to saying that " Nor is there a big rush: nothing terrible will happen if we don’t immediately decide how we’ll pay for projected benefits in the year 2050."
Below are two charts. The first is the 2015 projection he provided (that seems to come ultimately from the SS Board of Trustees). The second is a graph of CBO's 2016 long term projections for SS.
Focus on the OASDI curves. In the first chart, that's the blue line.
The second chart might be called "the rest of the story." Its dotted line (higher) matches Krugman's blue curve - what SS is supposed to pay. The solid line is what cash will be available to make those payments unless we "decide how we'll pay for projected benefits in the year 2050".
--------------
https://www.cbo.gov/publication/52298
ISTM that a 29% shortfall in payments, fully two decades before Krugman's target year of 2050 qualifies as "something terrible." A decade ago, it would have been easy to have made small adjustments in the program to deal with the shortfall. Even now, there are changes that could be made without much pain (other than to the politicians who would have to take a stand). But the clock is running.
Krugman is right - at the macro level, looking at costs and GDP, there's no urgency. But you miss a lot with that 50,000 foot perspective.
You need to study up, too. It all depends, man. It all depends on what we add. And whether we pay. No one with the power wants to do it right.
Debt is not bad till high as a percentage of GDP, but yeah, it is getting there, and this latest crap will make it way worse. So yes. I do sometimes sense you guys just want to be argumentative or kneejerk about debt without understanding the variables. Violent agreement about needing waaaaay higher taxes, if that's what you suggest (the right kind, and properly implemented, bwahahahaha), to do the things that need doing.
Since the current view (from complete hypocrisy from those who used to lambaste debt) is that we actually do not need to help others and rebuild things and do some redistribution and fund healthcare for everyone, but rather cut taxes on the richest and fund their plutocratic growth by increasing debt on our children and grandchildren, yeah, your underinformed (seems to me) point is taken.
Enough back and forth --- get specific and substantial or go home.
http://crr.bc.edu/wp-content/uploads/2017/07/IB_17-13.pdf
As I already wrote, only 7% of people buy individual policies, and only about 1/3 of those are unsubsidized. So there aren't many people (percentage-wise) who would add soaring premiums to their list of itemized medical expenses.
Strangely enough, it appears that last year Congress was debating the opposite - making the medical deduction more generous by moving the threshold back down to 7.5%. Here's CBPP's take on how that would have helped high earners.
https://www.cbpp.org/blog/keep-the-increase-in-medical-expense-deduction-threshold
It does say that lowering the threshold would cost $33B over ten years, so you're right that doing the reverse (raising the threshold or getting rid of the deduction altogether) would be a significant source of new tax revenue.
As written in that paper: "Social Security faces a manageable financing shortfall over the next 75 years, which should be addressed soon to share the burden more equitably across cohorts, restore confidence in the nation’s major retirement program, and give people time to adjust to needed changes."
Here's SSA's Summary: Actuarial Status of the Social Security Trust Funds, July 2017
As one would expect, little has changed in the past year: "By most measures, there is little change from the 2016 report in the outlook for the combined OASDI Trust Funds, with annual balances slightly better in the short term and slightly worse in the long term."
http://crr.bc.edu/about-us/people/bc-crr_bios/director/alicia-munnell/
You need to study up, too. It all depends, man. It all depends on what we add. And whether we pay. No one with the power wants to do it right.
Your last sentence sums up what I was trying to put front & center.
Have a good weekend , Derf
Who's making up numbers? Make your substantive detailed logical argument.
Or not. It is always fun to simply cry debt, debt, or unsustainable this or that. Of course now no one in the GOP is listening to any of that. Defense budgets bigger than requested and full of expensive items the mil does not even want. Seriously.
@msf,
My read of PK centered on the preceding part which you appear not to have taken as qualifying:
nothing terrible will happen if we don’t immediately decide ...
Why I linked to Munnell, which I trusted would interest you.
I do not believe it accurate or quite fair to characterize his analyses as being from a 50k' perspective. To the contrary, from some criticism I have read.
The Krugman excerpt (which I also quoted) is why I subsequently highlighted Munnel's bottom line. I respectfully submit that finding a difference between immediately and addressed soon is splitting hairs.
I do recognize the snot you have attempted; it suits all the unfair negative imagery of your cohort.
So are you ever going to engage with any substance? Last chance. I mean, we all do worry about kids' national future, gov finances included.
https://www.nytimes.com/2017/10/29/opinion/trump-raise-taxes.html
Notice that the writer is simply inferring without checking the draft. The inference is wrong; you can still withdraw the same amount of money for medical expenses without an early withdrawal penalty under the new draft.
To show why this thought process (let alone the inference) is wrong, recognize that the tax code (or any set of statutes) is interconnected. If Section A (exclusion to 10% penalty) references Section B (deductible medical expenses), and Section B is removed, Section A can't simply be left dangling.
It's similar to what happens in Excel when you remove a reference. If in one cell you say '= B2' (i.e. use the value from cell B2), and then you delete row 2 (including B2), then that original cell shows a reference error. The system isn't self-correcting.
Likewise, since the draft removes the medical expense deduction, all references to it have to be fixed up. That means that one is guaranteed to find an explicit change to the section of the tax code that excludes medical expenses from the 10% penalty.
Sure enough, there it is, deep within SEC. 1308. REPEAL OF MEDICAL EXPENSE DEDUCTION. Section 72(t)(2) is a list of exceptions to the 10 percent early distribution penalty.
The current Section 72(t)(2)(B) says that if you can itemize the medical expense, you can also withdraw money without the 10% penalty to pay for it.
The new explicit text is equivalent to the old text that simply referenced the itemized medical deduction.