Tag Archives: taxes

Tax Deductions

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Republicans disagree among each other about the deductibility on Federal personal tax returns of property and sales taxes levied by States, with most of the objections coming from Republicans whose constituents are in high-tax States (which is to say, primarily Progressive-Democrat-led States like New York and California).  I’ve written elsewhere about the nature of that beef.

In my infinite wisdom, I offer a couple of alternatives for compromise.

One is to allow Federal income taxpayers to deduct either their State’s property tax or its sales tax, but not both.  Another is to allow the deductibility of both, but only part of the taxes—say 50%—not all of them.

In either case, after a year or two for transition/adjustment by both the taxpayer and the State of which he’s a citizen, eliminate altogether the deductibility of State taxes on individual Federal income tax returns.

The NLMSM touts the deductibility as Federal government redistributions, but the plain fact is those redistributions are of the monies paid by citizens of other States laundered through the Federal government.

I repeat my chorus: there’s no reason the citizens of Texas or Illinois should pay for the spending decisions of New York or California.  It’s true enough that all the States are in the Union together, and we’re all bound to help each other.  But that’s a two-way street: no State should be creating itself a burden on the other 49 by being irresponsible in its spending and taxing and then demanding those others make it whole from its foolishness.

Federal Deductibility of State Taxes

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The current Republican Federal tax reform plan on offer, at least as described by the NLMSM, includes elimination of the deductibility of State taxes on our Federal tax returns.  Naturally, Progressive-Democrats object.  Here’s New York Governor Andrew Cuomo (D), as a canonical example:

This is probably one of the most destructive policies to the state of New York I’ve heard proposed in 30 years[.]

What Cuomo and his ilk carefully ignore is that with significantly lower tax rates and a doubling of the standard deduction the value of a state tax deduction—even for high-tax States—is markedly lowered.  What they also carefully ignore is that it’s primarily their hated rich who use the deduction at all—most of the rest of us don’t incur enough expenses to be able to itemize our deductions, even (especially) medical expenses, which must exceed 10% of our AGI, anyway (and which threshold those same Progressive-Democrats want to preserve).

That doesn’t seem very destructive.

Guys like Congressman Peter King (R, NY), on the other hand, simply misunderstand the situation.  King insists, for example,

The deduction is essential for these people to get by.

His beef and that of his fellows in high-tax States, though, is with those State governments, not with the tax reform plan.  What’s essential is that those States’ usurious tax rates be lowered, so “these people” can get by with more of their own money left in their own pockets.  King and his fellows should be working to lower their States’ taxes, not preserve them.

The National Association of Realtors Objects

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The NAR is objecting to the current tax reform plan’s essential doubling of the standard deduction to $12,000 for single filers and to $24,000 for married couples.

The Realtors are upset because they say this middle-class tax cut would make fewer taxpayers use the mortgage-interest deduction. The National Association of Realtors trashed the framework in a statement, saying it “would all but nullify the incentive to purchase a home for most, amounting to a de facto tax increase” and ensure “that only the top 5% of Americans have the opportunity to benefit from the mortgage interest deduction.”

This is beyond disingenuous; it’s dishonest.

Doubling the standard deduction to $24,000 leaves an extra $12,000 in that family’s take-home income. That means that that family can accumulate a 20% down payment on a $240,000 home (in well-off Plano, TX, real estate market, that works out to a roughly 2,300-2,600 sq ft, 4-bedroom home) in just four years, instead of forever. That’s a strong incentive to buy a home—and these folks, shorn of the mortgage interest deduction as the NAR bleats, are not in those 5%.  They wouldn’t need the “benefit from the mortgage interest deduction.”

Oh, wait—that family might choose to replace their beater with a new, or a newer used, car that would be cheaper to run instead of buying a house. The family could pay cash for that car, rather than borrow for it, in just two years.

NAR knows all of this.

Estate Tax and Tax Reform

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Senate Republicans seem unable to understand this subject, also.

Others [Republicans] say their desire to eliminate the [estate] tax must be balanced against other priorities including tax cuts for businesses and middle-class families.

This is disingenuous. Eliminating the estate tax explicitly favors middle-class families and businesses: it’s the small businesses and farms that are owned by middle class families that are the most harmed by this death tax.

Aside from that is this piece of irrelevancy:

Estate tax repeal would reduce federal revenue by about $239 billion over the next decade, according to the Tax Policy Center.

Interesting, but unimportant here. Government has yet to show a need for that money.

Some Early Thoughts on the Tax Reform Proposal

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…triggered by Laura Saunders’ piece in Wednesday’s Wall Street Journal.

Beginning with the headline and thesis of her piece: Winners and Losers Under the Trump Tax Plan. Because Government should be about picking winners and losers instead of just protecting a level free market for all.  Sure.

Now a couple of specifics.

People with large medical or disaster deductions. Each of these write-offs on Schedule A has significant hurdles and is only available to taxpayers with large unreimbursed expenses

This one isn’t particularly relevant to tax reform. It just means that four Republican Senators who prefer preserving Obamacare intact over even a first step toward repealing/replacing it need themselves to be replaced with Republican Senators who are serious about getting rid of Obamacare and its destructiveness.

Losing the State tax deduction? That only impacts a couple of States with enormous spending habits; those citizens need to correct their State government errors.  The citizens of the other States don’t need to be dragooned into indemnifying the foolishness of those couple of States.

The mortgage deduction loses value under tax reform? Yeah, and? Punish those who don’t itemize by taxing them more (vis., not raising the standard deduction) so others can have a deduction? Beyond the cynicism of this special interest nonsense, our tax code shouldn’t be in the business of social engineering in the first place.

This proposal is a good first step in tax reform.

Now we just need to disabuse politicians that every bill is the last word on a subject rather than an interim as we move toward our goal: a flat tax in the neighborhood of 10% on all income, regardless of source, and the elimination of all deductions, credits, and other froo-froo.