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The Tax Cuts and Job Act made some positive changes to the tax code. The reduction in marginal rates, especially on the corporate side, is noteworthy. However, there were several changes on the individual side which were absolutely ludicrous. These are noted below:
Without any discussion, Congress eliminated the miscellaneous itemized deductions. As I have written about before, in actuality, this one is truly the only legitimate deduction and is absolutely necessary to maintain the integrity of the tax code. With the new change now removing the miscellaneous itemized deduction, this person now has to pay taxes on the full amount earned without being able to deduct expenses accumulated while earning the income they are taxed on.
Another deduction Congress removed summarily is the moving deduction. Similar to the miscellaneous itemized deduction, this is a real expense that is incurred when moving to get a new job (in order to earn the income that will be taxed.) Now with the elimination of the deduction, taxpayers are no longer allowed to write off this cost.
The casualty loss deduction was also eliminated. This enabled you to deduct a loss that was due to a sudden unexpected event — such as a fire, hurricane, or robbery. Now if your house burns down, you can no longer write it off. The exception to this change is if your loss is in a federally-declared disaster area. So if your house burns down due to faulty wiring, you get no deduction. But if it burns down in a large wildfire that was later declared a disaster, you can claim the deduction. This is very egregious because the effect on the individual — the loss of a house due to a fire — is absolutely the same. This deduction elimination is unacceptable.
Furthermore, the alimony deduction was thrown out. The alimony deduction is a mechanism that prevented an inequitable tax burden to be created when a married family unit is split into two. Now, one can no longer deduct alimony payments, a move that is mean-spirited and creates a targeted tax burden on people who suffered a family breakup.
Additionally, there were two business-related deductions that were unnecessarily changed. The first one now caps the limit on the amount of business losses one can deduct at $250K ($500K if married), whereas the prior tax law did not. Furthermore, carryover losses are now limited. It used to be that you could carryover losses from one year to the next; for instance, if you had a $1 million loss on year but a $1 million gain the next, you could use that gain to offset the prior year loss. With the tax law changes, you can now only offset up to 80%.
While eliminating these important and equitable donations, Congress left in place a number of purely political/social engineering deductions and credits. Congress left in a substantial part of the mortgage deduction, which is really nothing more than a government subsidy to the real estate industry. They left in energy credits, rehabilitation and low income housing credits, and the Alternative Minimum Tax (AMT). It’s disappointing to see Congress talk about simplicity, efficiency, and equitability, while simultaneously removing good provisions from the tax code and leaving in parts that are merely political appeasements to various groups and industries. It would be wise for Congress to reinstate these various deductions as a means to truly maintain fairness within the IRC.
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House Republicans have put forth a bill that would make some of the tax cuts and changes permanent instead of expiring after a few years. This includes:
- The reduction in the individual tax rates
- The increased new standard deduction, which went to $12000/individual and $24000 married couples
- Special deduction for pass-through business owners
It’s worth noting that the corporate tax reduction was already permanent with last year’s law. Other additional financial parts of this new legislation include:
- Allowing employers to join together to offer 401Ks in order to lower costs
- Allow 401K users who have an annuity to transfer it tax-free to an IRA
- Remove the age ceiling (70½) requiring distributions from IRAs and 401Ks, and continue to contribute up to $6,500/year in an IRA
- Create a new universal savings account with a maximum of $2,500/year
after tax funds that can used for non-retirement purposes
- Allow parents to remove up to $7,500 from a retirement plan without penalty under certain child-related conditions.
- Allow 529 college savings accounts to fund various other educational expenses, including apprenticeship programs, home schooling, or child student loan payments.
As if on cue, Democrats rebuke the legislation as being overly beneficial to the wealthy — as if the economic upswing which has helped everyone across-the-board, has not happened. They also chide the bill for adding to the federal deficit, even though Democrats were virtually silent when Obama had very sizeable deficits throughout most his administration. However, putting forth the legislation at this time indicates that Republicans are interested in talking about the strong economy ahead of the midterms elections — which is the smartest thing they can do right now. The GOP missed the chance to make the Bush Tax cuts permanent. They would do well not to make the same mistake twice.
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When is a tax not a tax? When it’s a user fee — at least in New Jersey. That’s what one lawmaker is attempting in the legislature. A bill that would tax water based on use, in order to “ is fix a crumbling water delivery infrastructure in the state.”
The problem is that a tax already exists for that purpose. It was enacted in 1984, and is charged as a public utility franchise tax on water system operators of $0.01 per 1,000 gallons of water delivered to a consumer in order to “ensure clean drinking water in New Jersey.” This new tax/fee would be instituted on tap water, adding 10 cents for every 1,000 gallons of water a home uses.
Considering that the governor of New Jersey, Phil Murphy, just raised taxes roughly $2 billion, this new “user fee” is utterly ridiculous. New Jersey must be trying to catch up to New York, which already taxes water (albeit bottled, not tap.) New Jersey should kill this bill.
by | ARTICLES, BLOG, CONSTITUTION, FREEDOM, GOVERNMENT, HYPOCRISY, LAW, TAXES
New York Governor Cuomo leads a four-state lawsuit against the federal government over the tax reform law that passed last fall. Governor Cuomo declared it “a practical act of self-defense against an adversarial federal government” and suggested that the bill was aimed to target left-leaning states.
But everybody who has any knowledge of taxation and its constitutionality knows that Cuomo’s assertion is ludicrous. The SALT deduction – and ALL deductions – are at the complete discretion of Congress. And as long as deductions apply under the same rules to every taxpayer no matter where situated, constitutionality can never be an issue.
Cuomo’s sudden role as tax crusader is laughable at best, hypocritical at worst. Cuomo and his cronies would do well to focus on reducing their states’ tax burden for their citizens instead of over something that is patently constitutional.
by | ARTICLES, BLOG, CONSTITUTION, FREEDOM, GOVERNMENT, IRS, TAXES
The State Department, in tandem with the IRS, has stepped up enforcement of an Obama-era law that blocks Americans with ‘seriously delinquent’ tax debt from receiving new passports — and will, at some point — be allowed to rescind existing passports of people who fall into that category.”
The roots of this law began back in 2012, when a report issued by the GAO suggested the possibility of tying tax collection to passport issuance, in an effort to collect revenue. Soon thereafter, Senator Harry Reid introduced a bill in Congress that did just that, with a threshold of $50,000 in delinquency. The bill had been attempted several times in Congress over the last few years before finally being passed in late 2015; it was quietly tucked into a highway-funding bill (HR22).
Though there are exceptions to the rule (emergency and humanitarian travel, for instance), valid criticisms of the rule were raised. For instance the law isn’t limited to criminal tax cases or even situations where the government fears you are fleeing a tax debt; your passport can now get revoked merely because you owe more than $50,000 and the IRS has filed a notice of lien. Yet a $50,000 tax debt is easy to amass today and tax liens are pretty standard. The IRS files tax liens routinely when you owe taxes. It’s the IRS’ way of putting creditors on notice so the IRS eventually gets paid; the Joint Committee on Taxation estimated that the new law would raise about $400 million over the next decade.
A serious problem, however, looms for millions of U.S. citizens living abroad. Passports, obviously, are essential for travel, residency permits, banking, school, and work visas; yet, the IRS has documented trouble with getting mail properly to expats.
Furthermore, National Taxpayer Advocate Nina Olson, say the notices to debtors often come at the same time the State Department is notified of the taxpayer’s debt, in some cases leaving not enough time to resolve tax issues before passport problems occur.
None of that seems to matter to the IRS, which has reported that 220 people have turned over $11.5 million to repay their full debts as of late June, while 1,400 others had set up payment plans to reduce their debts. Essentially, more than 350,000 Americans face passport denial when applying or renewing, with little to no recourse for an agency plagued with problems.
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FEE.org recently shed light on the ridiculous behavior of Oxfam, a charity that is supposed to be dedicated to fighting poverty. Indeed, their statement of purpose proclaims “The purpose of Oxfam is to help create lasting solutions to the injustice of poverty. “
However, careful reading of their most recent report show that Oxfam spends most of its time, energy, and our donated funds monitoring and writing about the false “need” to reducing wealth and income inequality – the very opposite of fighting poverty. If poverty is the “state of being very poor” then it follows that the elimination of such destitution would mean moving from being very poor to less poor, i.e., increasing wealth. Thus, it would follow that an increase of wealth would to be an inherently good as a means to achieve the goal of poverty reduction, right? Not so with Oxfam. Growing wealth is increasingly seen as a bad thing.
Indeed, last year, Oxfam seemed preoccupied with the notion that some people have too much wealth. In their 2017 report, “Oxfam condemns the fact that there is now a dramatic increase in the number of billionaires around the world. It considers this phenomenon as indicative of “extreme wealth.”
The fact is that economic growth is NOT a zero sum game – the more growth there is, the more benefits to all levels of society. There is no doubt that the creations of Bill Gates and Steve Jobs have had enormous effects in reducing world poverty – despite the fact that they became billionaires in the process.It is also the fact that an increase in the amount of wealthy persons indicates that upward mobility can and is being achieved by more people. In fact, “global extreme poverty has fallen dramatically over recent decades. It is likely that extreme poverty will be eliminated within the current generation. This won’t satisfy Oxfam, however, because it concerns itself with the rich, not the destitute.”
Not content with having mismatched priorities, Oxfam has also cobbled together a list of suggestions for global, national, and local governments, suggestions that do not relate to poverty reduction. Oxfam urges “policies to tackle all forms of gender discrimination, promote positive social norms and attitudes towards women and women’s work, and rebalance power dynamics at the household, local, national and international levels.”
When a charity loses its purpose and becomes a social engineering, social justice organization, one should not be supporting it. Poverty is egregious. Lifting folks out of poverty is important. To not realize that increasing world economic growth and wealth – yes, and even making many more billionaires – has been what has been so effective in reducing world poverty, simply shows economic illiteracy. berate an increase in wealth and instead desire to “level the playing field” betrays its mission; Oxfam is to be avoided.
by | ARTICLES, BLOG, CONSTITUTION, ECONOMY, FREEDOM, GOVERNMENT, SCOTUS, TAXES
This week, the Supreme Court ruled in favor of taxation for businesses that lack a physical nexus. Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch, writing for the majority opinion, believed that the emergence of the internet as a mainstream medium for interstate commerce caused the physical presence rule to become further removed from economic reality and resulted in significant revenue losses to states.
The revenue loss argument is nonsense; it is a back-door way for states to add additional levies on their citizens under the guise of leveling the playing field . For years now, we’ve been hearing the protestations that there is dearth of tax revenue from which states are suffering terribly.
But this is simply and patently untrue. State legislatures have always set their tax rates with the full understanding that they would not actually collect that supposed billions of internet “slippage”. It’s not like there is a line item in state budgets that lists “uncollected online tax” or “tax cheats” with a number attached. Sales tax is merely one of many levies whose revenues positively fund government spending. This online tax will now just be yet another tax (and therefore revenue) for the coffers. Higher marginal rates exists because state-government spending levels are higher — not because of some “absence of tax” nonsense that forces states to raise rates.
In our states’ budgets, current taxes rates (income + sales, if applicable) are set at levels appropriate to cover the calculations of state spending. 49 out of 50 states require a balanced budget. These states are fully aware that taxes are “avoided” (internet and out-of-state) and therefore don’t even count them in their budget calculations. So there is no concrete “absence of revenue”. Instead, by passing this new internet tax, states are now given free reign to add a tax without taking the political heat for it, under the guise of “fairness”.
Looked at it another way, it is unconscionable for this ruling to stand without Congressional action that requires states to lower their marginal rates so that the new tax makes everything revenue neutral. Higher marginal rates as they are already burden taxpayers. This internet tax doesn’t fix anything — because there is nothing in their budgets to be “fixed”. True tax reform (a true “fix”) always means broadening the base and thereby reducing the overall burden of taxes. Instead of that, what we have with ruling will be a revenue grab.
Another fallacy for supporters is that including the internet tax in transactions is simply a matter of adding a quick, little tax line where there was none before. But it is highly irrational for legislators to believe that compliance with multiple tax jurisdictions for vendors will be an easy and unburdensome process. The recordkeeping will be excruciating. From an accountant’s perspective, here’s how:
The effect of distressing our businesses to comply with this online tax collection will be a drag on the economy. Can you imagine vendors needing to figure such things as whether marshmallows are a taxable food/candy in some jurisdictions while it might be a non-taxable food in others? To think that software can seamlessly make this distinction is ludicrous (especially software run by the government.) When has the government ever actually streamlined anything?
Internet tax collection for 10,000 local tax jurisdictions or even just 50 states is too much. If such a tax is to be implemented, it should be either a tax in which every state accepts one set of rules OR a tax payable to the state-of-sale only — which would ultimately be better for tax competition overall. Without a fix, compliance will certainly be massive and burdensome — which will hurt this economy that is slowing but surely recovering from the last ten years.
Arthur Laffer observed that “the principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems”. But a hodge-podge “internet tax” doesn’t do that. Without a solid Congressional solution for correctly calculating and remitting sales tax in 10,000+ jurisdictions, we will have a nightmare for accountants and businesses — at the cost of grabbing another revenue stream for our bloated, overspending government.
by | ARTICLES, BLOG, ECONOMY, HYPOCRISY, OBAMA, POLITICS, POTUS, TAXES, TRUMP
The Washington Post recently published a ridiculous article about deficit spending and entitlements from a group of former chairs of the White House Council of Economic Advisers. Unsurprisingly, these economists scoff at the idea that entitlements are a cause for alarm, and predictably attack the Jobs and Tax bill that passed last year by President Trump. Of course, it’s to be expected, as the author-contributors were hand-picked from either only the Clinton or Obama administrations. Let’s take a closer look at some of their assertions:
“It is dishonest to single out entitlements for blame. The federal budget was in surplus from 1998 through 2001, (read: Pro-Clinton), “but large tax cuts and unfunded wars have been huge contributors to our current deficit problem” (read: anti-Bush). “The primary reason the deficit in coming years will now be higher than had been expected is the reduction in tax revenue from last year’s tax cuts, not an increase in spending” (read: anti-Trump). “This year, revenue is expected to fall below 17 percent of gross domestic product — the lowest it has been in the past 50 years with the exception of the aftermath of the past two recessions” (read: anti-Trump).
What’s noticeably absent? Any mention of Obama. Where were these so-called economists when Obama went spending crazy? When the deficit doubled in the eight years of Obama’s administration? Deficit spending is an undisputed crisis and a large driver of that is, in fact, entitlements — a problem that has continued to be punted each year; in fact the latest SSA report, released June 5, plainly states that Medicare’s Trust Fund is set to run out in 8 years, and Social Security’s in 16. The Social Security program’s costs will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits. But these numbers and projections are nothing new, so it is right for the Hoover Institute to continue to insist on reform in the face of years of inaction.
At a time when these very authors note that “the U.S. unemployment rate is down to 4.1 percent, and economic growth could well increase in 2018. Consumer and business confidence is high,” to then hold up Clinton as the pinnacle of economic excellence, spear Bush and Trump as reckless, and to completely ignore the profligate spending of Obama is disingenuous. The bias of the Washington Post shines through with this one.
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Now that home-buying season is upon us, is it any wonder that high income tax states and property tax states are again seeing an exodus from the excessive burden? With the Jobs and Tax Cut Act — which rightly capped deductions of state and local taxes — some taxpayers are feeling a “disproportionate” share of cost as taxation is properly realigned. It’s no wonder that high tax states such as New York and California are being traded for places like Florida and Nevada. When lawmakers recklessly spend their constituents money and then finally have to reconcile it, taxpayers who are fed up with mismanagement are smart to seek refuge elsewhere.
by | ARTICLES, GOVERNMENT, OBAMA, POLITICS, POTUS, TAXES, TRUMP
Part of Obama’s terrible legacy was his frequent abusive use of Executive Order, even maintaining a “We Can’t Wait” page on the White House website. From changing student loan rules to immigration reform, Obama was rightly chided for making major policy changes without going through Congress.
It is therefore egregious that President Trump should decided to enact a 25% tariff on imported steel and a 10% tariff on imported aluminum products under section 232 of the Trade Expansion Act of 1962 (the provision that allows additional tariffs when national security is affected).
When our largest importer of steel is Canada, followed by Brazil, South Korea and Mexico, it is abhorrent to invoke such a tariff under these pretenses. This particular Executive Order rivals Obama in making up lies to justify illegal executive action.
It also makes it possible for the next Democrat President to abuse presidential power by saying: “It’s not as big a whopper as Trump’s saying that tariffs on steel are needed to protect our nation’s security”. This is truly a terrible precedent.
