Why is the new proposed tax bill be bad for lower and middle income people?

We'll have to wait and see if there is an increase in wages. The unemployment rate was already low and the stock market was already breaking records before Trump even won the electoral college. If the only major change people see is an increase in debt, then it might lead to fiscal conservatives being less enthusiastic about voting.

 

I don't know much about the tax bill and expiration dates are pretty trivial matters because a subsequent congress and president can change the tax code anyway, regardless of sunset clauses. One thing I do like about it is the enormous U.S. corporate tax rate has been driving a lot of tax revenue overseas (just ask Ireland, one of the largest beneficiaries of this), and we're long overdue for a reduction there.

 

I suspect that wages are more a function of competition than tax rates.

 

I've never seen so many people complaining about the government taking less money from their paychecks.

Even left-leaning outlets admit that 80% of taxpayers will benefit from this, both a bump in wages in February 2018 and then an increased tax return for 2019. Many companies have increased wages & benefits and given out bonuses in response to the corporate tax cuts.

As for the deficit, we don't have a revenue problem, we have a spending problem, which I expect President Trump to make a priority in 2018. Also, I don't remember any of these Democrats who are suddenly concerned about the deficit say a single word of protest when Obama added more to the national debt than all his predecessors combined.

 

Um...what corporations and businesses? Please name names.

Can't really argue with the entitlements spending claim. I don't know what the answers will be but Social Security and the various health care programs add up to slightly over half of all federal spending and the costs are rising. It is possible to embrace that increase in a responsible way or control the spending in a responsible way but it is not fiscally possible indefinitely to spend in an irresponsible way. Politically possible, yes, but only for a while longer.

 

Let me guess: "entitlement reform". This is why low- and middle-income people believe this "reform" is not in their interests. Maybe they don't see a case for cutting Medicaid to pay for the Corker/Trump Kickback.

So, it's official: any Republican complaining about "deficit crisis" (a bulk of which was due to bipartisan bailouts back in 2009, plus continuing Bush wars, btw) were blatantly lying.


See, I'm not anywhere close to a tax expert, and didn't really have anything to contribute until these Republican talking points arrived. Keep this up, folks, all the way through 2020.

 

Trump has to be portrayed as an ogre for anything he does. It's even worse if he does something that people will like, simply because people will like it. So whatever his action is, it has to be deconstructed and attacked.

Ah, but those remaining 20% are disproportionately New Yorkers. And where is most of the national media based?

https://nypost.com/2017/12/16/what-the-reducing-the-salt-deduction-means-for-your-wallet/

This newspaper story (in a somewhat conservative paper) imagines what the author calls a "middle class" home in NY with a household income of $190,000. The wife is an attorney and the husband an associate TV producer. (That "middle class" description is probably just a dream in rustbelt places like Youngstown OH.)

This hypothetical NY "middle class" family supposedly pays $36,206 in state, city and local taxes "a common level for many hard-working New Yorkers". Capping the SALT deduction at $10,000 means a $26,206 hit to this hypothetical couple. True, other changes in the tax bill will probably reduce that, but this is the kind of person in that 20% who hates the tax bill. And it's probably the class that many NY-based "journalists" find themselves in, so the rest of the country hears all about how horrible it is.

It isn't popular here in California either, particularly Silicon Valley where I live. California has the highest state taxes in the US and astronomical property taxes where modest homes average close to $1.5 million. Wealthy people here are probably going to be paying more taxes. But... if you visit Palo Alto, all the college-town academic bookstores are long-gone and the whole place is hugely overpriced restaurants full of expensively dressed diners, womens clothing boutiques, designer home furnishing stores and art galleries. The streets are filled with Teslas. Everyone claims to be "middle class" but it's not a middle-class lifestyle that anyone in Flint MI would recognize.

Of course, compared to Los Alto Hills, Palo Alto is kind of modest. See here and here. They are just millionaires, not billionaires, the real rich. They are suffering, don't you know. (Everyone compares themselves to someone.)

The question is, why should people in low-tax states pay more federal tax per dollar of income than people in high-tax states? What justifies the federal tax system subsidizing exorbitant state and local tax rates in such a way that the burden is passed on and local taxpayers don't even see most of it?

By making taxpayers in high-tax states actually pay the price for the cost of their state and local governments, maybe they will exert some fiscal-reponsibility pressure on those governments. New Yorkers or people in San Jose might stop automatically voting 'yes' on every tax increase on their local ballot for what's essentially just free stuff that reduces their federal taxes.

I'm less interested in increasing existing workers' salaries and benefits than I am in attracting new enterprises into devastated rust-belt communities. People here in Silicon Valley already make ungodly amounts of money (while crying poor due to the cost of living). I'd like to see some of the benefit extended out to middle America, to flyover country. That NY lawyer and TV producer don't need their salaries to increase to $250,000 nearly as badly as somebody in Kalamazoo needs a $36,206 job.

 

"Name names" indeed! Apparently AT&T for one. Interesting.

 

It's common to add to the deficit during economic downturns. Why is the "fiscally conservative" party adding to the deficit when the economy is doing well? How much will they be able to cut when they want to spend more on military, and Trump wants an infrastructure spending bill?

A lot of these tax cuts aren't true tax cuts. No one wants to say it after Mitt Romney was cursed for doing so, but almost half the people in this country end up paying no federal taxes. As a result, these "cuts" are just another form of welfare because people will get back even more than what they paid in.

Why are New York, New Jersey, and California subsidizing states like Louisiana and Mississippi? Those two and several other low-tax states are basically receiving welfare from the federal government because they receive a lot more than what they pay in.

 

New York because of NYC. The annual budget of the City of New York is now nearly 85 billion dollars. That money comes primarily from businesses and gives an idea of how much they send to FedGov.

 

"HARRY Truman famously asked to be sent a one-armed economist, having tired of exponents of the dismal science proclaiming "On the one hand, this" and "On the other hand, that". "


https://www.economist.com/blogs/buttonwood/2010/06/inflation_deflation_and_asset_allocation

 

American Companies Rain Down Cash On Employee | The Daily Caller

 

Indeed. As I said above, interesting.

I thought of something else this morning. Larger middle class families may see their taxes go up. The reason is, the new bill doubles the standard deduction and lowers marginal rates but it also eliminated the personal exemption. For a married coupe the standard deduction went from about $12000 to about $24000 but that couple lost the ability to claim $4000 per person in in exemptions so the net result is that $4000 more in income will be excluded. But suppose they have a child? The net change is about zero so any tax reduction will be in marginal rates. Okay, suppose they have two, three or four children? Now the amount of excluded income drops fast, at $4000/child. There is a child credit but it applies only to the poor as I understand it. The new lower tax rates apply to everyone meaning that the Code now punishes people for having large families!

 

If my analysis is correct, the public will be well aware of the difference long before November because of withholding. I'd be pretty concerned if I were a GOP congressman from an even moderately purple state!

 

I'm certainly not a tax professional, I've always found the IRS both perverse and Byzantine. But here's my take.

Then they can claim the increased $2000/child tax credit. My understanding is that doesn't come off their income before calculations, it comes off their final write-a-check tax amount. So if they made $50,000 and owed $5,000 let's say, their tax goes down to $3,000. And $1,400/child of that is 'refundable' in some cases, so lowest income individuals may actually see the IRS sending them money.

The standard deduction is higher for single individuals who are over 65 or disabled and for couples in those categories. I mention that since the 65 part impacts me.

But the tax credit rises even faster, at $2,000/child. Your family with four children can subtract $8,000 from their final tax amount. It's true that $2,000 isn't $4,000, but it's coming off the final tax amount, not off taxable income.

The IRS-pays-you part only applies to those for whom the refundable credits exceed the taxes they owe. They get a check from the IRS for the difference. And there is a 'phaseout' of the child tax credit entirely for high income earners, but that only starts to kick in at $400,000 adjusted gross income. I'm not tremendously concerned about that, but again, some of the NY "journalists" might be.

Another thing middle-class people might like is a new $500/dependent non-refundable tax credit for adult dependents, such as elderly parents. The poorest class puts their elderly parents on welfare, I guess, while the richest families have all the funds they need. It's the middle that seems to get squeezed here.

https://www.forbes.com/sites/kellyphillipserb/2017/12/17/what-the-2018-tax-brackets-standard-deduction-amounts-and-more-look-like-under-tax-reform/

https://www.forbes.com/sites/kellyphillipserb/2017/12/21/how-will-the-expanded-child-tax-credit-look-after-tax-reform/#40bab7f34205

 

Okay, so the $2,000 per child credit is essentially not income dependent? That will more than cover the difference and being a refundable credit it's worth more to lower income taxpayers. So that's what Paul Ryan was holding out for?

 

The amount that's refundable seems to be.

The $2000/child credit seems to exist for everyone until they hit $200,000 "modified adjusted gross income" for individuals and $400,000 for couples filing together. Then the $2000/child credit shrinks by $50 for each additional $1,000 of MAGI above those levels. That means a rapid fade-out of the credit, which disappears entirely at the $240,000/$440,000 levels.

https://www.forbes.com/sites/kellyphillipserb/2017/12/21/how-will-the-expanded-child-tax-credit-look-after-tax-reform/#40bab7f34205

 

Returning to Abner's original question, it seems that, at least for now, the new tax law isn't particularly bad for lower and middle class taxpayers. It will be interesting to see what the Democrats do with it. The bill was very unpopular but perhaps not deservedly so.

 

That doesn't change the fact that states, such as Louisiana, Mississippi, and New Mexico, receive more in federal assistance than what they pay in federal taxes because they're poor. A high percentage of their residents are too poor to pay any federal taxes, and a high percentage of their residents are on welfare. Republicans say that they'd rather money stay in the states so that they can spend it how they want, but they're penalizing high-tax states that take care of their own residents rather than take money from other states.