Weekly Roundup: And All The Mortgages Are Above Average Edition

Although I was a homeowner before my thirtieth birthday, I’ve never felt that the mortgage-interest deduction was a particularly good idea. It’s led to higher house prices, decreased economic mobility, and higher levels of debt across the board. The fact that a HELOC is also tax-deductible verges on madness. I could buy a Viper with a HELOC and deduct the interest. Does that seem reasonable to anybody besides, um, Viper fanatics like me?

If you’ve looked through the tax plan then you’ve probably figured out that it amounts to a declaration of war against the State of California. For a couple of decades now, the Golden State has taxed its residents at rates bordering on criminal, and those taxes have been deductible against Federal taxes. California was basically stealing federal tax money for its own purposes. Well, ask anybody who was a pre-teen member of the Branch Davidians, assuming you can find one alive: you never know when Uncle Sam is gonna burn your house down.

The new tax plan is good news for me. I am largely self-employed and I earn a fairly modest income nowadays. I expect it to put the equivalent of a Tudor Black Bay watch back in my pockets every year. And the only way my house will ever be worth $750,000 will be if I put two Aventadors in the garage. Let’s take a look at what I wrote last week and see if I’m ever going to earn those Aventadors through sheer weight-of-pages.

For R&T I wrote about a challenge from the Tire Rack and an encounter with the future of motoring enthusiasm.

At TTAC I discussed Civic pride, Chicago politics, and the proverbial shit-ton of triggered nerds.

As you’ve no doubt noticed, we are accelerating the pace of contributions here at Riverside Green. This week will feature several guest posts ranging from philosophical wanderings to automotive reviews. Stick around!

76 Replies to “Weekly Roundup: And All The Mortgages Are Above Average Edition”

  1. Daniel J

    Low Interest rates and low cost of living here means that for most middle class married couples, the Standard Deduction is more than mortgage interest deduction unless the home is about 250K or more. Until interest rates go up, it doesn’t matter for many Americans.

    If the cost of living is driving home prices so high and that 750K cap for interest deduction is that big a problem, it sounds more a problem at the state an local level on why the home prices are so high. 750K is a mansion in most parts of the country. I surely don’t feel bad for those folks.

    If anything, Real Estate shouldn’t be propped up by mortgages deductions at tax time.

    Reply
  2. -Nate

    Ooops ~

    You ignored the fact that California pays in ore taxes than it gets back in Federal help, unlike most states .

    Without this deduction I would never have been able to afford to buy a home .

    -Nate

    Reply
    • Jack BaruthJack Baruth Post author

      Two things:

      * Without the deduction, your house would have been cheaper and you still would have been able to afford it.

      * The old chestnut about California taxes is almost entirely due to imports and exports. The same is true of Washington State. It’s not because California is somehow short on welfare cases or federal emergencies.

      Reply
      • phr3dly

        This. Not to mention, if you can’t afford your house without your neighbor’s helping to pay for it, you probably can’t afford it on your own.

        But yes, there’s a long list of things that are more expensive precisely because the government has chosen to subsidize them with OPM. Housing and college education are two of the most obvious.

        Reply
  3. Felis Concolor

    $750K would get me a seriously huge chunk of land with riparian rights to play on, along with a thoroughly modern construction Victorian to view it all from. I’d easily have enough left over for a decent condition Sno-Cat for emergency extraction purposes.

    Jack, ever since you were prescient enough to publish your post of Sep 6, 2014, I have enjoyed seeing the fallout from that little lover’s spat into today’s grand, all encompassing chaos.

    I’m not certain of which iteration of “Jack Baruth: The Triggering” we’re up to, but TYVM for that TTAC post.

    We now return you to the wild, out of control Internet of 2015.

    Today’s supposed to be the day of The Great Twitter Purge, which not coincidentally happens to be the birthday of the beloved Josef Stalin.

    Be careful not to stand to his right!

    Reply
  4. Dirty Dingus McGee

    Around my parts, 750 large would likely get me 150 acres, with a 3000 SF house and who knows what else. For comparison; earlier this year I bought a 1750 SF ranch style on 15 acres, detached 3 car garage, 40′ by 70′ barn, 20′ by 20′ metal building for $194 K out the door. House had been updated in the last 5 years with new kitchen, HVAC, and roof. When I’m done with the barn, concrete floor and upgraded electrical service (PO had horses) I’ll have another 12-15K in it. My old property(owned free and clear for 5 years now) is under contract for 102K ( 1300 SF 2 bed, 2 bath ranch, two 20′ by 30′ metal buildings on just over 6 acres, closer to the metro area so more desirable) Because of my partnership in our business, overall the mortgage deduction(when I had a mortgage) was a drop in a bucket compared to other deductions. IF i have read the highlights in the new tax plan correctly, and our accountant hasn’t blown smoke up my ass, the effect on the majority of home buyers will be negligible.

    Reply
  5. Tom KlockauTom Klockau

    AVERAGE home prices of 750K?! Holy crap. I could get like, five decent houses here for that. And a couple of nice cars. #livinginthemidwestrocks

    Reply
    • Eric H

      #livinginthemidwestrocks? more like #livinginthemidwestsucks — I lived in the worst part of Michigan (Flint) for a short while for work.

      Any place where it’s desirable to live the housing is expensive.

      Reply
        • Eric H

          I’ll still take the sky-high real estate prices here in Vancouver BC over anything in the Midwest. I like civilization.

          Reply
          • Jack BaruthJack Baruth Post author

            Well, I think if you’re going to assert that the Midwest is uncivilized, it’s fair to note that Vancouver is basically an occupied territory.

            We *could* put your assertion to the test. Three years ago I got on a plane and accidentally left my Boxster outside with the top down, my non-travel wallet sitting on the center console, and a $2,000 ThinkPad in a bag on the passenger seat. It stayed that way untouched for five days, although Ohio being Ohio it *did* get wet.

            Can you do the same thing anywhere in Vancouver?

          • Eric H

            I can guarantee it will get wet, so long as it was left out between October and May 🙂

            Your car would be fine, depending where you left it a wandering meth addict will grab your stuff but it’s nowhere near as bad as it was. The fentanyl “crisis” is killing off the addicts at at a near unbelievable rate. It’s heartless but it’s a self-solving problem. They also finally locked up a couple of the “most wanted” thieves, they had HUNDREDS of convictions with almost no jail time.
            If you left it in my driveway it would be there when you got back. I’ve done similar things myself with no issues. I’ve even left my garage door open for several days that backs on to a dark lane next to a good size park with nothing being stolen. It’s full of tools of all shapes and sizes.

          • Kevin Jaeger

            There’s a lot to like about Vancouver and the geography of BC in general. I’ve spent lots of time there and loved it.

            But Vancouver is a de facto colony of Asia now. If you like Hong Kong you’ll certainly love Vancouver. But if you like North America it’s hard to say Vancouver is still a part of it.

      • Dirty Dingus McGee

        Having traveled to the west coast many times over the years, I’ve yet to find the desirable part of it. Same with the northeast. If I had to choose between the 2, I would live in a van down by the river in El Paso. Actually, anywhere closer than 40 miles to a major city, is too close for me. #deathbeforeurbanlife

        The reason most folks live where they do is because they WANT to live there.

        Reply
        • DirtRoads

          OMG by the river in El Paso? Brother, come to north Idaho. It isn’t the coast, but the coast is full of tourists and coasties. We have mountains, lakes with clean water, fresh air — woops, I mean come to Detroit, man, it’s really happenin here. North Idaho is the sticks, er, shits. Avoid it at all costs!

          Reply
          • Dirty Dingus McGee

            I’ve been thru northern Idaho 3 times. If it was a more temperate climate, I would live there in a heartbeat. Sadly, I’m allergic to snow.

        • Eric H

          I’m sure you believe that.

          I’ve lived in a whole bunch of places.
          Born on Long Island, grew up in NJ, lived as an adult in NJ, Virginia, Florida, Michigan, Manitoba and BC.
          Each place before BC seemed nice to me while I was there.
          Then I discovered what a nice place really is.

          I don’t want to be an ass about it, but have you at least tried living outside the Midwest?

          Reply
          • Tom KlockauTom Klockau

            OK, I’ll take this as a legitimate comment rather than trolling. I grew up in my city, and always enjoyed it. It’s big enough that there are things to do, but small enough that it’s easy to get around. I like the fact you can hop in the car, and in 20-25 minutes, be in the countryside. We’re on the Mississippi, so there’s lots of boating opportunities (big boating fan here), riverside restaurants, and the like. All my family is here, too. So, yes, I enjoy this area. If you love your city of choice, that’s great too. To each their own.

          • Jack BaruthJack Baruth Post author

            I will freely confess my jealousy of British Columbia’s mountain bike trails.

            Speaking for myself and not Tom, I’ve been almost everywhere that matters and I call Ohio home by choice.

          • -Nate

            Yes, BC is nice, I have been there and really enjoyed it but would not live there for free ~ not because it’s bad in any way, just because I like where I live, in town .

            -Nate

          • Eric H

            Fair enough, guys.

            And yes, Flint is an armpit. Don’t go there if you don’t have to.

            jack, if you and your son ever make it out this way to ride the trails or if we ever have an open seat in the Fox, I’ll buy you a libation of your choice.

  6. Widgetsltd

    The “dealership Neutrality” argument is BS, and I think that you know so. It’s fun to stir the pot, though. Regarding the possible elimination of the mortgage interest deduction: It sounds like you are asking for the elimination of ALL subsidies and incentives offered by the tax code. Those incentives warp the market in all cases, not just when applied to the deductibility of mortgage interest. Right? Flat tax, here we come!

    Reply
    • Jack BaruthJack Baruth Post author

      I’d be fine with a flat tax.

      But in this case you’re willfully engaging in the beard fallacy. It’s Econ 101 that people will buy a home based on their ability to pay. It’s Econ 102 that lower interest rates led to a housing-price bubble because you had the same monthly payment chasing more expensive houses. It’s obvious that the mortgage deduction simply increased the amount people were willing to spend on their homes.

      Consider the old 1-to-100 ratio that people use to judge the price of a rental property. There are a lot of $750,000 homes out there that wouldn’t rent for $7500. The reasons for that include low interest rates and the mortgage deduction.

      Honestly, Greg, I figured you’d be against the mortgage deduction since it amounts to government subsidy of the middle class at the expense of the renting class.

      Reply
      • Dirty Dingus McGee

        “I’d be fine with a flat tax.”

        It would be better than what we currently have, but I’ve been more in favor of the Fairtax (a consumption tax). The only stumbling block in my eyes, would be that the government could at any time re institute an income tax.

        Reply
  7. Widgetsltd

    If I’m going to lose my pet deduction under the assertion that it distorts the market, then why shouldn’t other deductions (as well as favorable tax treatments in general) be eliminated as well, for the same reason? I acknowledge that all such deductions/perks may not be equally harmful. I don’t think that the deductibility of mortgage interest goes very far in explaining the various inflated markets; certainly not at today’s ~ 4% rate on a 30-yr fixed. Also: Can you tell me more about how California (and certain other states) are not actually “donor states.” Or, could ya at least point me at a link where someone is making that case.

    Reply
    • Jack BaruthJack Baruth Post author

      “I don’t think that the deductibility of mortgage interest goes very far in explaining the various inflated markets; certainly not at today’s ~ 4% rate on a 30-yr fixed”

      Alright, let’s do quick calcs.

      $750,000 mortgage at five percent.

      Year One, your interest is $37,248.71.

      Let’s say you make $417,000 a year, which would be reasonable if you’re gonna buy a $750k house.

      Your base rate is 28% of your AGI between 98k and 417k

      28% of $37,248.71 is $10,429.

      So the federal government just gave you an amount that is just about one-quarter the median family income in Cincinnati.

      How much house could you afford without the federal subsidy, paying the same amount net?

      $575,000.

      So the Fed just gave the $750,000 buyer the equivalent of a free $175,000 house. Or, put another way, without the interest deduction the $750k buyer is a $575k buyer.

      As for California’s impact on America, a significant percentage of it is due to trade (which is an accident of location and has nothing to do with the state itself) and tourism (which is income taken mostly from other states). It’s also worth nothing that California is the primary facilitator of illegal immigration, which has an astounding negative impact on the United States in everything from welfare spend to criminal activity.

      Reply
      • Jack BaruthJack Baruth Post author

        Responding to myself to explain a bit of a hand-wave:

        The credit requirements to get 4.25 or thereabouts on a jumbo loan are strenuous to say the least. The vast majority of these loans are going out the door higher because of the risk posed by overextended house-poor borrowers.

        Reply
      • widgetsltd

        I stand corrected, then, on the mortgage interest issue. Here’s a step further: cap the deduction at the median sale price of new homes sold in the USA as of January in the prior year. According the US Census Bureau, that would be $315,200 for January 2017. Doing this would automatically adjust the amount for changing market conditions, and it would greatly reduce the extent that certain high-cost states are benefiting at the detriment of others. This step would cost me some money, but I’ll take one for the team.

        Reply
    • Yamahog

      It comes down to what you want to accomplish with taxation. Most orthodox economists think the goal of a tax system is to raise revenue with the least amount of distortions and this new tax bill is certainly less distortive than the status quo. Though another orthodox view is that the corporate tax rate should be 0.

      Some economists think that the tax code should be used to encourage people to consume better – like vegetables should be taxed less than sugar. Generally, most people support these ‘sin taxes’ which are probably just closer to ‘making the item cost as much as it would cost if the buyer had to pay for the externalities’.

      Reply
  8. Ronnie Schreiber

    My late uncle was a mortgage banker and also the executor of my grandparents’ estate, from which my ex and I bought their house. While we were arranging the purchase I happened to say something about “Well, when you figure in the tax deduction it makes sense.” He told me, “If a business deal is only profitable because of the tax implications, it’s not a good business deal. A business deal has to make sense on its own.”

    Reply
  9. -Nate

    FWIW,

    I rather like the Mid West and would likely live there if it was dry like where I live now .

    I live in a rough part of town and was shocked one day as I drove up to see my back gate wide open, keys dangling in the lock, nothing inside touched nor gone missing .

    I haven’t been able to ride a bicycle for some time so when I get free ones I clean ’em up, make sure the chain and cables are lubricated and lean them under the tree on my parkway where the folks who live in the welfare apartments down the block, walk by constantly on the way to the bus stop .

    It usually takes 36 hours before the bike is gone, a few time after three days I made a “FREE BIKE” sign and taped it to thr seat, then it was gone in five minutes .

    My point here is : no matter where you are most folks are fairly honest and want to be good neighbors .

    -Nate

    Reply
  10. I COME IN PEACE

    I read the blog here often, rarely post, but this is kind of relevant to my interests. I live in our People’s Republik of Kalifornicationstan, The Land of Fruits & Nuts. A lot of people use a general range of nicknames for our state, depending on their feelings about living here. I’ve only lived here a total of 13 years, before that, all my life was spent in the southeast.

    The real estate sticker shock has never gone away for me. I was fortunate enough (very) to own a house for a couple of years in a great city, but the sale of it was poorly timed/thought out and I ended up taking a hit. Fuck you, 2007. Eventually I recovered, but unfortunately I relocated (for a job) to probably the best seller’s/rental property owner’s market in the state, the SF Bay Area. THE WEATHER..! SURF AND SKI ON THE SAME DAY…! Eventually I will own property again, but it’s going to take some (not insignificant) saving/begging/borrowing/maybe stealing. There are some incredible positive things about the state of California, but I would give it all up for what $750k can buy elsewhere. In 20-25 years, I hope that I either 1) retire out of state, or 2) retire in CA somewhere out in the sticks, away from the shit show, while collecting a nice rent check at the first of every month. Plenty of people who rent here are funneling embarrassing amounts of money into their landlords pockets. It’s one of the top cottage industries here.

    Reply
  11. -Nate

    @ICIP :

    You forgot _flakes_ ~ I’m pretty sure that’s where I fit into California .

    For those who don’t know, California is a _very_ red, Conservative state the instant you leave the few larger coastal cites .

    Anyone who doesn’t like it here can and _should _leave ~ you can live very well in Nevada, Arizona, New Mexico and so on for _far_ less taxes .

    -Nate
    -Nate

    Reply
    • I COME IN PEACE

      Indeed. As I get older, I feel like I would be happier living in those red parts, but the money keeps me in The Heart of (Blue) Darkness. Gotta keep ridin’ this gravy train until it runs out of steam.

      Reply
        • I COME IN PEACE

          Nope, not a landlord, just another common rentoid-serf. If and when the next house is purchased, it will be kept as residence, rental property, or passed on to future generations.

          Reply
  12. Mopar4wd

    The tax plan is definitely aimed at hurting parts of the middle class in Blue states. That said the dems aren’t being all that honest, many middle class families will see their taxes go down. Mine would go down mostly because I live in a small house and have 3 kids. Property taxes over 10k a year are common here but luckily mine aren’t that high. But say I lived a life style of Bark or Jack here in CT with less kids I would likley pay far more in taxes. My main reason for being against the tax plan was laid out by Paul Ryan. The budget hawks are letting this pass so they have a reason to slash medicare and SS next year. As some one in the lower middle class, I’d much rather those programs exist then have slightly lower taxes.
    On the wealth transfer in taxes from blue to red states that’s a very real thing. It’s not just imports exports anymore either. 20% of Californias economy is business and information services (Silicon Valley) Another 20% is real estate and finance. (self perpetuating machine). No more people have higher incomes in places like SF and NYC. It’s so much higher that even with the tax deductions the are indeed subsidizing wellfare in KY and TN. I live in CT we pay an absurdly large amount of the fedral tax like the 4th highest per capita. CT sends 16k per capita to the feds Kentucky sends 7K. For that CT gets 24% of its operating budget from the feds where as KY gets 39% from the feds. Even with the deductions etc in place the blue states fund the red states as well as funding themselves.

    If you look at a map if US GDP by location it’s easy to see why. The midwest generates a fair amount mostly around Chicago but nothing compared to the elite urban metros.
    https://www.weforum.org/agenda/2016/02/this-map-will-change-the-way-you-see-the-us-economy/

    Reply
    • Jack BaruthJack Baruth Post author

      California may well be subsidizing welfare in the Midwest, but without the Midwest and South the United States Armed Forces would be three guys named Sergeant Sanchez and a polyfat diversity coordinator from Rowayton.

      The red states also feed the East Coast and, to a much lesser extent, California.

      Last but certainly not least, the red states are used as dumping grounds for hundreds of thousands of Somalis, “Syrians”, and God knows what else.

      Reply
      • Arbuckle

        The blue states complain about subsidizing welfare and social programs in the red states and then throw a fit when the red states try to cut out those same programs.

        Reply
        • -Nate

          No they don’t ~ you’re simply lying .

          This tax deal is a clear rip off and you’re going to be crying the blues sooner than later as the tiny tax cuts you’ll (maybe) get are TEMPORARY whilst the corporate welfare tax cuts are permanent, this will shift the burden onto_your_ shoulders but hey, why deal with facts and logic when you can troll about “!lib’rals!” and all those uppity non white folks .

          -Nate

          Reply
      • Mopar4wd

        I have worked with a number of veterans over the years including special forces guys who were born right here in NE suburbs. Also a lot of officers. Now that said You are right the midwest and South send way more to the military then the coastal states. Wealthy people generally avoid their kids going in.
        The food thing is interesting.. I agree but it seems less and less is coming from the midwest to grocery stores here. Lots of produce seems be coming from South America and Canada. But yeah all the chicken Pork and grain likely comes from the midwest.
        On the migrants as a percentage of population the migrant populations match with the GDP maps. Lots more in the blue states and IL then in red states. For instance here in CT it’s 16% of the population vs less then 5% in Ohio.
        http://www.pewhispanic.org/2017/05/03/facts-on-u-s-immigrants-current-data/
        Here in CT I know we have quite a few Syrians in the New Haven and Hartford areas. We have also had large Mexican Dominican and other Hispanic populations for a long time. My kids go to school with Indian, Colombian, Mexican and Ukrainian immigrants, for instance.

        Now this has turned into a midwest vs coastal states thing. Honestly that’s not helpful. And that’s the issue with the tax plan they could have cut the corporate rate less they could have eliminated some of the corporate cronyism, instead they decided to give a temporary middle class tax cut while taking in more revenue almost exclusively from Blue states that drive most of the economy.
        On a personal level I love parts of the midwest, but in my case it’s better to stick to the NE (well it would be better with my line of work in FL but I detest FL) . Good schools ease of getting to just about anything and a decent wage compared to COL works but it won;t work for everyone.

        Reply
        • Jack BaruthJack Baruth Post author

          My father went from Flatbush to Vietnam but if you look at the composition of today’s military it is overwhelmingly rural.

          Blue states have more immigrants, but red-state immigrants are often there because the federal government forced them on the red states. Here in Columbus, Ohio, for example, the vast majority of our murders come from a relatively small Somali population resettled here by the Feds. The same is true in Minneapolis.

          Reply
    • Yamahog

      It’s unfair to characterize wealth transfers via tax as subsidies and pretend those are the only subsidies.

      California and New York metros support the headquarters of all the rentiering companies. A lot of TARP money probably went to NYC landlords, the government’s top cover for Google’s monopolies goes to Mountain View CA. Verizon enjoys a lot of government money, where are they headquartered?

      Reply
  13. Spud Boy

    As a Silicon Valley resident, I’m pretty sure I subsidize the rest of the country because my salary is quite high to compensate for the high cost of living here. $100K annual salary is pretty good in most of the country; if I had to live on that, I’d apply for an EBT card.

    The fact that federal income taxes are not somehow indexed by cost of living is one of many flaws in the system.

    Reply
  14. Brawnychicken

    The real benefits to the tax bill (or negatives, depending on your point of view) aren’t related to personal taxes. The real money is in the cap on business income for pass through entities, the reduction in corporate tax rates, and changing the corporate tax code from global to territorial. What does all this mean:

    1. Using myself as an example-I own a small S Corp business. The profits of my business get passed through to my personal income-so I pay on them as personal income-even though nearly all the money stays in the business. This has the perverse effect of doubling my income on paper- So my family is taxed at an obscene rate for our lifestyle. I pay about 2K per week in federal income tax alone. I don’t earn that kind of money. Capping that business income at 20% tax rate saves me 40K per year give or take.

    2. Lowering the corporate tax rate should, in theory, encourage investment in the USA. I don’t think that needs further explanation.

    3. Currently, the Feds tax corporate income no matter where it was earned (Americans are taxed globally). So a subsidiary of a US company operating in another country pays taxes on the profits in both the US and that country-though I believe they get to deduct foreign taxes paid. This puts US companies at a disadvantage globally, discourages investment, and incentives moving headquarters out of country. Making corporate taxes territorial-like most of the rest of the world BTW-means money earned in other countries only gets taxed once. This should encourage repatriation, incentive domestic investment for exports and other activity, and help get the economy moving.

    Trump is a buffoon-but I think this tax plan is going to give us dramatic economic growth similar to the 1986 tax reform under Reagan. The democrats believe this too, that’s why they are so insanely against it.

    Reply
    • Spud Boy

      “Trump is a buffoon…”

      The case for that is becoming harder to make given his effectiveness. I’m old enough to remember people saying that about Reagan, the greatest president of our era.

      Reply
      • Mopar4wd

        Um he’s been pretty ineffective so far other then getting a bunch of federal judges onboarded. Even the tax plan is more of congress finally doing something then him. In all he seems pretty unable to get much done despite holding the house and senate. We’ll have to see how it plays out later thou.

        Reply
        • Dirty Dingus McGee

          One thing Trump has been VERY successful at; Having both the Democrat and Republican establishment despise him.

          Reply
    • -Nate

      “2. Lowering the corporate tax rate should, in theory, encourage investment in the USA. I don’t think that needs further explanation.”

      Only fools and trolls plus of course the 1% would ever believe this as it’s never worked that way in the entire history of the world .

      Dreaming is good but not when you’re deliberately obtuse .

      -Nate

      Reply
      • Brawnychicken

        Would you agree that one way to reduce usage of something is to raise the price? In the case of government-when they want less of something they tax it. Tobacco is an obvious example. When you want more of something you reduce taxes or subsidize it (uh, home ownership through mortgage interest deductions as an example).

        So if we want more business-taxing business less is pretty fricking obvious. You cannot be pro jobs and anti business.

        Reply
      • Mopar4wd

        We have record profits but little wage growth right now. Something tells me giving the companies more money isn’t going to help. There seems to be something fundamentally broken in the US economy that’s preventing money from moving to the middle and tax cuts won’t fix it.

        Reply
        • Spud Boy

          “We have record profits but little wage growth right now.”

          Wages have been stagnant for three reasons:
          1. Illegal immigration
          2. Global competition
          3. More women in the workforce

          Trump is trying to address the first two.

          The third is a cultural phenomenon with positive feedback: The more two-earner families there are, the more women have to work to be able to afford housing, food, health care, etc.

          Reply
    • dave

      “1. Using myself as an example-I own a small S Corp business. The profits of my business get passed through to my personal income-so I pay on them as personal income-even though nearly all the money stays in the business. This has the perverse effect of doubling my income on paper- So my family is taxed at an obscene rate for our lifestyle. I pay about 2K per week in federal income tax alone. I don’t earn that kind of money.”

      This is either the dumbest thing I have ever read or you have the worst accountant in your time zone. I’m a consultant who owns two LLC’s taxed as S-corps so either you or your accountant have no idea what you’re talking about. The point of electing to be taxed as an S-corp is to reduce your tax burden. Your client pays you, you pay yourself a reasonable salary from that (55%) which is subject to payroll taxes, and the rest is retained income which is paid to you as a distribution and only subject to your personal income tax rate. There is no possible way for this to allegedly “double your income on paper”. Plus you can deduct everything under the sun related to your business: lunches, business travel, 100% of self-paid health insurance premiums, mileage, percentage of your vehicle used for business, etc. If you’re paying more with an S-corp then you either need to get an accountant or fire the one you have because they are worthless.

      “Capping that business income at 20% tax rate saves me 40K per year give or take.”

      Sorry, you fell for the Trump long con. I’ll just quote from this link: https://yhoo.it/2yZ8cGk. “The Senate bill had a list of business types not eligible for the new break, including doctors, lawyers, engineers, architects or “any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees.” THIS MEANS YOU. The 20% doesn’t count for what is essentially wage income so consultants, small business owners, and gig-economy workers aren’t eligible, only pass-through businesses with passive income. This is not new and has been a ‘feature’ since the original proposal. So, Warren Buffet and other hedge fund managers get the 20% rate, and the rest of us get screwed including you since you won’t be saving $40k. I do have an LLC where I receive passive income from rental properties, but capping the property tax deduction at $10,000 means I’ll be paying more.

      Reply
  15. Paul M.

    Frankly I have no issue with changes to exemptions for interest deduction or limits on states tax deductions. If you can afford homes above 750k, honestly even above 500k, you can afford to not have those exemptions.

    My problem is with corporate tax deduction and no strings attached to corporations that will get that break. I wish it could be such that they have to bring outsourced jobs to America, or invest more locally as opposed to just giving it to shareholders and executives.

    Reply
  16. Grahambo

    I think a lot of people with dependents are unaware of the loss of the $4,000+ personal exemption — or, perhaps more aptly, the impact that this will have on their tax liability. For many people who itemize deductions, the increase in the standard deduction is irrelevant (or will be a wash). But, by way of example, a married couple with four children just lost personal exemptions totaling over $24,000. So, if nothing else, the tax bill serves as an incentive not to breed.

    Reply
    • Mopar4wd

      True but they upped the tax credit to 2k a kid. For me based on last year that means I no longer pay federal taxes, if I’m doing the numbers right. Being able to keep my property and income tax deductions is a big part of why it works for me. Still the killer for me is I’m sure they will go after medicare and SS next year.

      Reply
      • Grahambo

        Yep, but that $1000 increase in the child tax credit (limited by income — although that limit went up — and by age; once your kids are 17, it goes away (its a good thing college is so cheap, right!!?)) won’t come close to making up the loss of the $4000 exemption for that same child – much less the loss of the $4000 exemption for you (and, if you have one, your spouse). So unless you were previously taking the standard deduction — which doesn’t sound like it applies to you (just like it doesn’t apply to most homeowners in areas with even average property values and decent homes) — at $12K and now get to take it at $24K, I think you are going to take a decent sized hit under this tax bill as compared to pre-existing law. (Indeed, even if you were previously taking the standard deduction and will continue to do so, the $12,000 increase in the standard deduction still doesn’t offset your net $14,000 loss of exemptions ($16K less the $2K increase in the child tax credits.)) The slight decrease in marginal tax rates may help a bit, but I think the net effect for you – and, again, many in a similar situation as you – is not going to be as positive as many assume and could be downright awful. I’m gobsmacked by how few media stories have highlighted the loss of the personal exemption and how few people seem to know about it. Once the general population (especially wage earners with families) realizes the impact of this loss on their tax liability, there could be a fair amount of rage at the current administration/ Republicans in Congress — who have portrayed this a break for working families when, in reality, its a give-away to (certain but by no means all, as referenced in an earlier comment) corporations.

        And, yes, the stated goal is indeed to go after Medicare, SS, Medicaid next year to try and make up the revenue losses. So it’s best to be a “winner” I suppose.

        Don’t get me started on the increase in the federal deficit. During the Obama administration, the Republicans at least purported to be fiscal conservatives. Turns out that’s not the case – or perhaps they have a different meaning of fiscal conservatism than I do. I’m the oddball team player who would gladly pay more in taxes if it meant eliminating or at least significantly reducing the federal debt. Looks like I’ll get the former but not the latter.

        Reply
        • mopar4wd

          Yeah I think it depends I might not be doing it right. They way I show it my Taxable income is now almost twice what it used to be thanks to the loss of deductions. But 3 kids under 17 means I get 6K back instead of 3K which actually puts me right around $0 in federal taxes if I’m doing it right.

          But I live in a 1,100 sqft so my Property taxes (around 4K) and Mortgage deductions are no where near as high as the average family here in CT.

          Now if I ran it in other years when my itemized deductions were well over 20k I think I would pay slightly more.

          Reply
          • Grahambo

            Good luck! I hope it works out well for you and your family – maybe the marginal tax rate decreases will be a more significant factor than I am anticipating Until we actually plug everything in to the real deal 1040s and TurboTaxes of the world, none of us will know for sure precisely how things shape up as I think the tax rate calculators are pretty much operating in the realm of rough justice.

  17. stingray65

    I thought all those blue state rich people wanted to pay higher taxes. Didn’t they say it was our patriotic duty to pay high taxes? Aren’t they in favor of government “investments” such as renewable energy, high speed trains, electric vehicles, sanctuary cities, generous public pensions, etc? Hard to understand why they are complaining when the new tax bill targets them so effectively to give them exactly what they said they wanted, or could it be that the higher taxes were supposed to be for those “other” rich bastards behind the tree.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *