Eliminating SALT is double taxation

Critter7r · Dec 14, 2017

jonny5 said:
Im going to go ahead and guarantee that your tax preparer wont need to bill as many hours under this new bill. Which means theyll need to compete on price and thus lower their prices. Ill also guarantee that many more people wont need tax preparers in the first place.

Well, I'm not wealthy enough to require a tax preparer that bills by the hour, she bills at a flat rate based on the type of return you're filing. If it's less this year, I'll let you know. But I don't expect I'll be letting you know, because her rates are not going to go down.

JasperL · Dec 14, 2017

jonny5 said:
They are certainly simplifying. The increase in the standard deduction alone, and elimination of many deductions will mean probably millions will no longer need to itemize.

OK, but how long does it take you to get your 1098 for mortgage interest, your property tax bill, pull out your old return to see what you paid in state income taxes, add up your charity? Then you either hand it to people like me who might take 5 minutes to enter it, or you put it on your own copy of Turbotax online or whatever? This kind of stuff just is NOT where the real "complexity" is in the IRC, or tax regime. Heck, taxing social security, and claiming EITC are far more "complex" than itemized deductions, which are about as simple as tax gets, really. There are obviously exceptions but for 99% of us, itemized deductions requires very simple record keeping that you then enter into lines like "charity" and "property taxes" and "mortgage interest." And the places where the real complexity already exists - business activity - was made worse.

If I could find the data to make this bet, I'd bet and give you good odds that billable hours for tax lawyers and tax accountants gets a huge boost for several years because of this bill. I can promise you there aren't any tax people looking at this as a threat to their business in the next few years - the opposite seems clearly more likely to me, based on what I've seen so far.

JasperL · Dec 14, 2017

jonny5 said:
Im going to go ahead and guarantee that your tax preparer wont need to bill as many hours under this new bill. Which means theyll need to compete on price and thus lower their prices. Ill also guarantee that many more people wont need tax preparers in the first place.

No offense, but I don't think you understand where the hours come from in preparing returns, or what keeps people from doing it themselves. If they can do it AFTER these changes, they could do it before because if you can compile the expenses to put on Sched A for a preparer, then if you're comfortable with tax software AT ALL (and really no one should prepare returns without software - too many places to screw up), you can find the line in Turbotax to put "charity." And if you give me your 1098s for interest, taxes, and the detail for charity, that's a 10 minute job at most entering it, depending on how many charities and how many I feel I need to list separately.

And that 10 minutes in the context of the time it takes a preparer and staff to do all that's associated with your return is not noticeable in the big picture for most preparers. It might be for the outfits that also make refund anticipation loans, but for those guys the return is a loss leader anyway, and the actual money is made by giving you a short term loan at VERY high interest and fees.

Gaius46 · Dec 14, 2017

eohrnberger said:
The feds have their taxation, and the state and local government add their taxation. Loss of deducting state and local taxes from federal taxes doesn't represent double taxation. It represents the loss of a tax deduction.

Maybe it'll turn out that way, and maybe not.

I get it. You appear to be from a high state and local tax area, have been deducting your state and local taxes from your federal tax obligation for years, and you don't like it that it's been proposed to eliminate those deductions.

My suggestion would be to lobby your state and local governments to reduce their spending and taxation by the same amount that used to be deducted from their electorate's federal tax obligations.

It is every government's responsibility to live within their means, which is their taxation. When the taxation becomes too high, the electorate objects, and the government needs to cut back on its spending to match what their taxpayers are willing to be taxed.

I live in high tax New York. Even with my SALT deduction about 15 cents of every dollar I pay in taxes goes to one of the net recipient states, like Washington, that get more back from the feds than they spend in taxes. You can take the SALT deduction away - just give me back my money first.

eohrnberger · Dec 14, 2017

Gaius46 said:
I live in high tax New York. Even with my SALT deduction about 15 cents of every dollar I pay in taxes goes to one of the net recipient states, like Washington, that get more back from the feds than they spend in taxes. You can take the SALT deduction away - just give me back my money first.

Who 's taking your money?

Feds take their share
SALT takes their share.
Shouldn't you be talking to State and local about that, if that's what's high?

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jonny5 · Dec 14, 2017

JasperL said:
No offense, but I don't think you understand where the hours come from in preparing returns, or what keeps people from doing it themselves. If they can do it AFTER these changes, they could do it before because if you can compile the expenses to put on Sched A for a preparer, then if you're comfortable with tax software AT ALL (and really no one should prepare returns without software - too many places to screw up), you can find the line in Turbotax to put "charity." And if you give me your 1098s for interest, taxes, and the detail for charity, that's a 10 minute job at most entering it, depending on how many charities and how many I feel I need to list separately.

And that 10 minutes in the context of the time it takes a preparer and staff to do all that's associated with your return is not noticeable in the big picture for most preparers. It might be for the outfits that also make refund anticipation loans, but for those guys the return is a loss leader anyway, and the actual money is made by giving you a short term loan at VERY high interest and fees.

They dont have to do it after this, thats the point. Theyll save time and money by just filling out the basic form, instead of keeping reciepts, waiting on forms, itemizing, being audited, etc. It may be a little per person, but it adds up to billions in the long run. Hopefully its just a first step.

Gaius46 · Dec 14, 2017

eohrnberger said:
Who 's taking your money?

Feds take their share
SALT takes their share.
Shouldn't you be talking to State and local about that, if that's what's high?

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Feds take about 15% of my federal taxes and distribute it to other states. As far as I can tell 14 of the 50 states pay more taxes than they get in benefits from the Federal government. The other 36 get more federal dollars than they pay in taxes. So yes I am subsidizing other people in other states with my tax dollars and removing SALT will mean that I am likely to subsidize others even more.

eohrnberger · Dec 14, 2017

Gaius46 said:
Feds take about 15% of my federal taxes and distribute it to other states. As far as I can tell 14 of the 50 states pay more taxes than they get in benefits from the Federal government. The other 36 get more federal dollars than they pay in taxes. So yes I am subsidizing other people in other states with my tax dollars and removing SALT will mean that I am likely to subsidize others even more.

All government shouldn't have their hands in everyone's pocket as deeply as they do.

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Gaius46 · Dec 14, 2017

eohrnberger said:
All government shouldn't have their hands in everyone's pocket as deeply as they do.

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On that we agree.

JasperL · Dec 14, 2017

jonny5 said:
They dont have to do it after this, thats the point. Theyll save time and money by just filling out the basic form, instead of keeping reciepts, waiting on forms, itemizing, being audited, etc. It may be a little per person, but it adds up to billions in the long run. Hopefully its just a first step.

All that is true, but IMO it will be pretty meaningless in the big picture. All that stuff is pretty small potatoes for the system as a whole. Those forms will still need to be prepared by all the lenders, tax offices, charities, etc. so there is no efficiency gain at all on the 'provider' side. Every single form prepared now has to be prepared and mailed under the new law. What it does is save taxpayers a very small amount of time by no longer having to track that stuff. OK. Fair enough. If it ended there, I'd agree that the tax system was simplified - not much but some!

But the problem is the real complexity, where all those hours and $billions in time and money get spent is really on everything BUT Schedule A - itemized deductions. It's on compiling business records, then dealing with the tax law about business activity, and the fact is the new rules INCREASE complexity there - or likely will depending on what is in the final package. The pass through stuff creates another type of income that is taxed at preferential rates, so tax people will spend a lot of time figuring out how to deal with that - just by itself, because of the rules to prevent "abuse" and converting salary to 'pass through' income. And the big issues will be in how to convert ordinary income into both lower taxed C corp income and hopefully double up and get some income subject to lower pass-through rates, then the lower corporate rate. All that will require complex rules to prevent "abuse" which adds to system complexity, likely substantially!

And then there's the issue of reasonable compensation. If salary is taxed at 37% but pass through income at 30%, or corporate income plus dividend taxes at 30%, then every business owner wants $0.00 in salary! But IRS will require it and now tax people have to figure out what is the minimum amount of salary to pay the owner of a company. Who knows?

jonny5 · Dec 15, 2017

JasperL said:
All that is true, but IMO it will be pretty meaningless in the big picture. All that stuff is pretty small potatoes for the system as a whole. Those forms will still need to be prepared by all the lenders, tax offices, charities, etc. so there is no efficiency gain at all on the 'provider' side. Every single form prepared now has to be prepared and mailed under the new law. What it does is save taxpayers a very small amount of time by no longer having to track that stuff. OK. Fair enough. If it ended there, I'd agree that the tax system was simplified - not much but some!

But the problem is the real complexity, where all those hours and $billions in time and money get spent is really on everything BUT Schedule A - itemized deductions. It's on compiling business records, then dealing with the tax law about business activity, and the fact is the new rules INCREASE complexity there - or likely will depending on what is in the final package. The pass through stuff creates another type of income that is taxed at preferential rates, so tax people will spend a lot of time figuring out how to deal with that - just by itself, because of the rules to prevent "abuse" and converting salary to 'pass through' income. And the big issues will be in how to convert ordinary income into both lower taxed C corp income and hopefully double up and get some income subject to lower pass-through rates, then the lower corporate rate. All that will require complex rules to prevent "abuse" which adds to system complexity, likely substantially!

And then there's the issue of reasonable compensation. If salary is taxed at 37% but pass through income at 30%, or corporate income plus dividend taxes at 30%, then every business owner wants $0.00 in salary! But IRS will require it and now tax people have to figure out what is the minimum amount of salary to pay the owner of a company. Who knows?

More work to do then. Hopefully some day we'll get to a flat tax with only a standard deduction, and no business tax.