You know how people are always saying we could pay for xyz new social service program by closing the tax loopholes? (Someone mentioned this in the daycare thread). What would these be?
The only one I'm aware of is that some hedge fund and orivate equity managers can opt to have their income taxed at the lower long term investment rate of 20% if they want (but I think they have to reinvest that money back in the fund? Idk what the rules are, how does that work?). I certainly understand why that is irritating to the rest of us who pay at the regular income rates but are there really enough of them that closing that loophole would make a big difference? Like if they had to start paying the regular rate on their income, we could subsidize a year of maternity leave for new moms?
I don't care what it would pay for - it would mean that hedge fund managers would pay their fair share. They also don't pay FICA on their earnings. THIS is my hill to die on with that particular loophole.
Eh I don't have a problem with this one because everyone can take advantage of it. And those people make too much money to have a traditional, deductible IRA anyway.
Honestly, when people refer to vague "tax loopholes" I generally assume they mean either deductions they don't agree with (like the mortgage interest deduction) or that even they aren't quite sure what they're talking about. For example, I'm aware of the debates over huge multinational corporations paying little to no federal taxes by the way they structure their businesses, but I don't know if the claims are really true, much less the specific tax law that enables it.
I am not an accountant, though. I'm sure there are people who know what they're talking about; I just expect something less vague from them.
Honestly, when people refer to vague "tax loopholes" I generally assume they mean either deductions they don't agree with (like the mortgage interest deduction) or that even they aren't quite sure what they're talking about. For example, I'm aware of the debates over huge multinational corporations paying little to no federal taxes by the way they structure their businesses, but I don't know if the claims are really true, much less the specific tax law that enables it.
I am not an accountant, though. I'm sure there are people who know what they're talking about; I just expect something less vague from them.
Getting rid of the mortgage interest deduction would be a huge new source of revenue for the government. It could potentially pay for a lot of good things. I said this in the other thread but I wonder why this is considered a third rail in politics. It's almost never brought up as a possibility.
When I referred to tax stuff in my post, I mostly meant what I consider to be unfairness in income levels at which some deductions phase out. In particular the one that chaps my ass is that the deduction for real estate losses starts to phase out at $100K of income - but its the same income level for single and for married filing jointly. That income level has also not been adjusted since the late 1980s.
A private person can claim the mortgage interest deduction on multiple houses. The mortgage interest deduction should be limited to your residence not the beach house, the ski chalet, the pied a terre in the city. When DH & I married, we each owned a house. It took a couple of years to sell...I was astonished when our tax accountant said that we could write off both mortgages even for those years when neither of us was living there. Some websites with more loopholes:
When I referred to tax stuff in my post, I mostly meant what I consider to be unfairness in income levels at which some deductions phase out. In particular the one that chaps my ass is that the deduction for real estate losses starts to phase out at $100K of income - but its the same income level for single and for married filing jointly. That income level has also not been adjusted since the late 1980s.
This is a good point. I think a lot of the tax laws haven't been changed since the 80s which is weird (except that the highest rate which was changed a couple years ago). There are a lot more millionaires and billionaires than there used to be 30 years ago. Why not recalibrate stuff to catch more of that new money?
Honestly, when people refer to vague "tax loopholes" I generally assume they mean either deductions they don't agree with (like the mortgage interest deduction) or that even they aren't quite sure what they're talking about. For example, I'm aware of the debates over huge multinational corporations paying little to no federal taxes by the way they structure their businesses, but I don't know if the claims are really true, much less the specific tax law that enables it.
I am not an accountant, though. I'm sure there are people who know what they're talking about; I just expect something less vague from them.
Getting rid of the mortgage interest deduction would be a huge new source of revenue for the government. It could potentially pay for a lot of good things. I said this in the other thread but I wonder why this is considered a third rail in politics. It's almost never brought up as a possibility.
Yes, of course it would. I just don't see it as a "loophole" - it's a policy that was decided upon and voted on, and people use it. I'm not even saying it's good or bad policy. It is interesting that you say you never hear it brought up as a possible deduction to eliminate because I do frequently. I absolutely think it's fair to have a discussion over whether promoting homeownership has the appropriate cost-benefit to be part of our federal taxes (and I say this as someone who saves considerable tax $ through this particular deduction), just like all other deductions. Is the societal benefit of a church donation worth the social costs of programs the federal government can't pay for as a result? What about deductions associated with children? Does your answer change if we start to realize that we can't depend on "growth" forever to promote economic well-being?
We probably need to have a lot of conversations about our tax policy, but frankly I don't see it happening.
When I referred to tax stuff in my post, I mostly meant what I consider to be unfairness in income levels at which some deductions phase out. In particular the one that chaps my ass is that the deduction for real estate losses starts to phase out at $100K of income - but its the same income level for single and for married filing jointly. That income level has also not been adjusted since the late 1980s.
This is a good point. I think a lot of the tax laws haven't been changed since the 80s which is weird (except that the highest rate which was changed a couple years ago). There are a lot more millionaires and billionaires than there used to be 30 years ago. Why not recalibrate stuff to catch more of that new money?
Student loans are even worse. It's capped at $2500 whether single or married. Because you know only one person in a marriage usually has student loans.
Agree with the carried interest and international tax issues posted above.
In addition to federal credits, there are all kinds of state and local incentives for real estate development. The developers are definitely not passing the savings onto the tenants. For example, I can get a credit for a specific type of tenant upfit, and then charge the tenant increased rent to cover the cost. I get the credits which either reduce taxable income or can be sold for cash. The government is paying me to collect a higher than average rent essentially.
Am I reading this correctly that dual-income households earning $100k total but split nearly 50/50 are actually better off married? I did not realize that.
ETA what I'm trying to comment on is the big green spike coming down to nearly $100k that indicates marriage benefit.
For individuals, big money is in the mortgage interest deduction and the tax-favored status for employer sponsored health insurance. You could probably phase out the interest deduction at or near the jumbo loan cutoff. If ACA/Obamacare plans were a little bit stronger -- like the average silver plan had a $1k deductible -- then unwinding ESI would probably work. Yes a lot of workers would then get subsidized insurance through the ACA, but the increase in tax revenue and wages is a net win for almost everybody.
The other big piece is what to do about unearned income. If I had a pony I would probably just tax wealth at something tiny like .1% above a certain accumulation, or have a financial transactions tax (which has the bonus effect of making high frequency trading disappear). But as it is I would just raise the dividend & long-term capital gains rate a little bit. Right now the top rate is 23.8%, you can probably get to 25 or maybe 30% without too much distortion.
The Obama administration has floated capping 401k and retirement contributions (and possibly taxing the dividends?) once the assets in your retirement accounts hit a certain threshold. Probably also a pretty good idea.
The corporate tax code has a lot more loopholes. It's very hard to estimate how much. Some of them just generally privilege this or that business investment, but some of them are straight up giveaways to specific industries or even specific companies. And similar to what aurora said, one person's "corporate tax loophole" is another person's "sound public policy". But the statutory rate is 35% even though no one pays it. Usually what people say they want is a lower statutory rate, fewer loopholes, and a few billion in net revenue.
I think it's also worth noting that high tax/high public service areas in the US have top marginal tax rates close to Europe. You would probably have to lower tax rates in NYC, NYS, CA, maybe MA, MD, etc., if you raised federal rates.
I am crying into a river full of the world's tiniest violins for 2x150K/year households (these households do exist -- I know lots of them! -- but, eh).
The stuff at the bottom left is a real problem. The Child Tax Credit and Earned Income Tax Credit interact with marriage in really wacky ways. Throw in ACA/Obamacare subsidies, there are now some households that have effective marginal rates of 100% at certain income ranges.
Most of the things I can think of relate to US taxation of international companies since this is where I had some tax planning experience.
There are all sorts of loopholes in what is and isn't income or deductions for the foreign tax credit. The company I used to work at had all sorts of planning to reduce tax based on how we set up new business or through restructuring. We tax sheltered mega (eventual... No chance of sale in sight) capital gains out of the U.S. with the way companies were setup....
There was also a big loophole in the research and development credit. It was specific to the business but basically there was very little traditional R&D but we claimed R&D went into each transaction basically. So there was a huge calc on that.
The loopholes are mainly on the corporate side because it's big dollars and corporations can pay tax attorneys lots of money to work around the actual tax code.
The other things they worked on were recalculations of inventory and also depreciation.
Oh another thing that's brought up is attributing income to foreign subsidiaries. So, Apple has a bunch of patents, they license some of them to other companies, then they attribute that revenue to their subsidiary in Luxembourg that doesn't have any tax on that income, or something. And then they whine that the US tax code makes it hard for them to "repatriate" the money from foreign subsidiaries.
And, some of this is legit (the US tries way harder to tax income of foreign subsidiaries than other countries?) but especially with revenue coming from patents or e-commerce or what have you it starts to look a little shady.
Eh I don't have a problem with this one because everyone can take advantage of it. And those people make too much money to have a traditional, deductible IRA anyway.
Well, no, people making close to $200k/year can take advantage of it, which puts you close to the top 10% of income in the US. Hardly "anyone."
In fact, tax loopholes are usually things that only the rich can take advantage of or that disproportionately benefit the wealthy, hence why they shouldn't exist. Like the mortgage interest deduction. 2009-ish would have been a fantastic time to get rid of that, as people were losing their homes and people realized owning real estate wasn't all it was cracked up to be and maybe shouldn't be something the government was subsidizing.
I am crying into a river full of the world's tiniest violins for 2x150K/year households (these households do exist -- I know lots of them! -- but, eh).
The stuff at the bottom left is a real problem. The Child Tax Credit and Earned Income Tax Credit interact with marriage in really wacky ways. Throw in ACA/Obamacare subsidies, there are now some households that have effective marginal rates of 100% at certain income ranges.
I don't think it's fair for them to be penalized as dual earners over one person working in the family.
Eh I don't have a problem with this one because everyone can take advantage of it. And those people make too much money to have a traditional, deductible IRA anyway.
Well, no, people making close to $200k/year can take advantage of it, which puts you close to the top 10% of income in the US. Hardly "anyone."
In fact, tax loopholes are usually things that only the rich can take advantage of or that disproportionately benefit the wealthy, hence why they shouldn't exist. Like the mortgage interest deduction. 2009-ish would have been a fantastic time to get rid of that, as people were losing their homes and people realized owning real estate wasn't all it was cracked up to be and maybe shouldn't be something the government was subsidizing.
I meant this means everyone can now take advantage of a Roth IRA which were previously not possible because of the income phase out. So yes only top earners get a backdoor Roth but now everyone gets one.
Well, no, people making close to $200k/year can take advantage of it, which puts you close to the top 10% of income in the US. Hardly "anyone."
In fact, tax loopholes are usually things that only the rich can take advantage of or that disproportionately benefit the wealthy, hence why they shouldn't exist. Like the mortgage interest deduction. 2009-ish would have been a fantastic time to get rid of that, as people were losing their homes and people realized owning real estate wasn't all it was cracked up to be and maybe shouldn't be something the government was subsidizing.
I meant this means everyone can now take advantage of a Roth IRA which were previously not possible because of the income phase out. So yes only top earners get a backdoor Roth but now everyone gets one.
To that end, though, not everyone even has a 401(k) or equivalent available, and those are probably disproportionately lower and middle income earners. I would like to see tax advantaged retirement savings not depend on whether one's employer offers such a program.
I am crying into a river full of the world's tiniest violins for 2x150K/year households (these households do exist -- I know lots of them! -- but, eh).
The stuff at the bottom left is a real problem. The Child Tax Credit and Earned Income Tax Credit interact with marriage inĀ really wacky ways. Throw in ACA/Obamacare subsidies, there are now some households that have effective marginal rates of 100% at certain income ranges.
I don't think it's fair for them to be penalized as dual earners over one person working in the family.
I agree with this. I don't think households earning $300k/year are in dire need of tax relief, but I don't think it's fair (or even logical policy) to tax that household at a much higher rate if both make $150k than if one makes $50k and the other makes $250k.
I meant this means everyone can now take advantage of a Roth IRA which were previously not possible because of the income phase out. So yes only top earners get a backdoor Roth but now everyone gets one.
To that end, though, not everyone even has a 401(k) or equivalent available, and those are probably disproportionately lower and middle income earners. I would like to see tax advantaged retirement savings not depend on whether one's employer offers such a program.
Absolutely! Why should I be able to put away $23k/year ($17.5k 401(k) + $5.5k IRA), but my husband only gets $5.5k, just bc he is at a tiny, tiny firm that doesn't offer anything?