Tag Archives: taxes

A Thought on SALT Deductions

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New York Republican Congressman John Tamny had an op-ed in the Wall Street Journal early last week in which he advocated enthusiastically for raising the ceiling on the deduction of State and Local Taxes from Federal income taxes. That deduction currently is capped at $10,000, and Tamny worries that that works a hardship on his constituents, since despite their high incomes, those folks aren’t really all that rich. New York’s high taxes and prices already work to reduce those folks’ relative wealth.

A WSJ reader responded in WSJ‘s Sunday Letters section.

The five New York Republicans in Congress take a page from the Democratic playbook to defend changing the SALT cap (Letters, Aug. 15), “especially since New York continues to be a donor state, paying more in federal taxes than it receives from Washington.”
When did that become the objective? They make it sound like the role of the federal government is to redistribute all funds in a fair and equitable manner. Sorry guys, we send our tax dollars to Washington to pay for essential services like national defense, not to have it parceled out again to the states in equal portions.

It’s true enough that Tamny and his fellow New York Republican Congressmen (all Congressmen, come to that) have to represent his—their—constituents first, and even as Federal Congressmen, our nation second. But as Federal Congressmen, they do have to represent all of us at some stage.

That tension makes the Congressional Tamnys’ collective and individual jobs hard, but if they wanted cushy jobs, they should have taken positions as mattress demonstrators.

That’s not all. Another Letter writer disagreed with Tamny in a different direction.

The New York lawmakers’ argument bears considerable similarities to Mayor Eric Adams’s demands for federal assistance to take care of the illegal immigrants his city invited. Talk about moral hazard. Both amount to pleas from politicians for federal relief from the consequences of their own state or local governments’ policies and, as such, should be summarily denied.

What the letter writers said is spot on, and their words carry national, and moral, weight.

Vivek Ramaswamy’s Brief Thought on Taxation

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And my brief response. Ramaswamy has said in the past that he favors an estate tax as high as 59% on his theory that passing wealth from parents to children breeds inequality and “hereditary aristocracy.” Stipulate that’s reasonably accurate: he needs to show that he’s considered other means of preventing that aristocratic development and how those alternatives are inadequate to the task.

More importantly, though, is this underlying theory of his:

I do believe in a vision of bringing income taxes as low as possible, if one could collect it back on the back end[.]

Collect what back, exactly? The money in question belongs solely to the one who has, or had, the income. Money being retained by its owner rather tautologically leaves nothing for government to “collect back” at some later time; government has lost nothing and so has nothing to regain.

A Rich Property Transfer Tax

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Chicago, already a heavily taxed city, is looking at increasing the tax it claims on the sale of properties valued at more than $1 million. It’s no tweak, either: the increase would be from the current 0.75% to 2.65%. Even so, it’s projected (more like hoped IMNSHO) to raise $163 million per year. The money ostensibly is to be explicitly earmarked for construction of (and, presumably, conversion of existing structures for) permanent supportive housing units for the homeless.

I have questions.

Chicago—Cook County—is losing population at a high rate.

Cook County lost more population than almost any other county in the nation, with the exception of Los Angeles County, from July 2021 to July 2022, according to U.S. Census Bureau estimates released March 30.
The leading cause of the drop was 94,344 residents who moved out of Cook County during the year, completely driving the county’s population to shrink by 68,314 residents.

With the city undergoing such high net outmigration for greener [sic] regions, who’s going to be buying those rich properties? Not folks in the surrounding counties; those regions are losing population, also, and not into Chicago. No one in his right mind is moving into Cook and surrounding counties. Sales are going to fall off year by year, and the sales that do occur are going to be at increasingly lower prices, reducing the number of million-dollar properties that exist, much less that are up for resale.

I have a downstream question, too. What properties does the city plan to seize for the construction/conversion? What does the city plan to do with the residents who will be displaced by this construction/conversion?

A Thought on Moore v US

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Moore v US is a tax case that the Supreme Court has agreed to hear in its next term, beginning 2 October. The case asks whether mere asset value increases—wealth increases—can be taxed as income, just because of that increase, but before it has been realized—before the asset actually has been disposed of for more than the cost of its acquisition, with that value increase turned into actual dollars on the barrelhead.

The proximate subject concerns a provision in the 2017 tax reform that levied a one-time mandatory repatriation tax on foreign companies.

But the tax applied to American shareholders, even passive investors like Charles and Kathleen Moore of Washington state. They were hit by a surprise $14,729 tax bill, though they had never seen a dime of income from their investment in a friend’s company in rural India. They were taxed instead on the unrealized income of the foreign company.

The Moores sued for a refund—because with this IRS, of course they had to—but

the Ninth Circuit ruled that “realization of income is not a constitutional requirement.”

The Wall Street Journal‘s editors argue that

This defies the traditional understanding in US tax law, and in Supreme Court doctrine, that income must be realized before it can be taxed.

I go the editors one further. A homeowner can’t take an increase in his home value (for instance) down to the corner grocer and buy food, or even pay off credit card debt. That last, in particular, requires floating a new loan, even if in the form of refinancing the old. Neither can the Moores take any increase in their investment value on down to their auto dealership and buy an automobile: they must first convert the increase into a loan or into hard cash: they must realize that value increase.

If an increase in value is unrealized—if it hasn’t been converted to actual spendable value—it isn’t income in the first place; it doesn’t exist in any form except as wisps in the æther.

There’s nothing in the æther that’s taxable.

IRS Misbehavior

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The IRS wants to be the one to figure the taxes owed by us average Americans, and the IRS wants to do the figuring based on the data the IRS claims to have collected on each of us average Americans.

The Inflation Reduction Act, that travesty that too many Republicans actually voted for and that is a source of the present inflationary environment (among a number of economic problems inflicted by the IRA), authorized the IRS to explore the concept of a mechanism that would have the IRS figure our taxes for us.

Specifically, the legislation required a study by an independent third party examining the idea’s feasibility, as well as a report by the IRS for Congress assessing the study, the cost of such a system, and taxpayer opinions based on surveys.

In no way did the IRA authorize the IRS to go ahead and build such a facility. IRS Commissioner Daniel Werfel assured the Senate Finance Committee and the House Ways and Means Committee that the IRS that he runs, in fact, was not building such a facility.

No decision has been made on moving forward with direct file solution[.]

And

I don’t know yet whether the direct file solution is the right additional menu item to put in place so that taxpayers that prefer to engage that way can do it. What I’d like to do is have the report issued. And then engage in a conversation with the right set of stakeholders and then figure out what the go-forward is.

Aside: No one on the House committee—to whom that last quote was directed—asked Werfel who he thought were the right stakeholders.

It turns out, though, that the IRS has gone ahead and developed precisely that “We’ll Figure Your Taxes For You; Don’t You Worry Your Little Heads About It” facility.

[T]he IRS had been quietly building an actual prototype of direct file before submitting the report to Congress, as The Washington Post first reported in May. The IRS announced its final report one day after the Post‘s revelation. The IRS system will reportedly be available through a pilot program for a small group of taxpayers by January, when the 2024 filing season begins.

The IRS offered this in response to queries:

[T]he IRS told Fox News Digital that the prototype was built only to help with survey data to gauge the opinions of taxpayers on a direct file system.

Sure. Maybe folks might be interested in some beachfront property north of Santa Fe, too.

Senate Finance Committee Ranking Member Mike Crapo (R, ID) had this:

This suggests a pre-determined outcome and flies in the face of previous commitments Commissioner Werfel made to publicly consult Congress on a potential free-file solution, and for the IRS to not act without explicit legal authority[.]

What he said. Congress needs to drastically reduce IRS funding to little more than its payroll needs (which do not include the $80 billion (only somewhat reduced by the debt limit deal) appropriated for all those extraneous new IRS “auditor” hires). Since the IRS—with Werfel’s acquiescence, if not active permission—is going to misuse the funds it’s allocated, those funds need to be cut off.

Also: Did Werfel lie to Congress when he said no such a thing was in progress? Or was he merely incompetently oblivious to what was going on in his IRS?