Taxes, taxes, taxes and LESS TAXES... wait, what?!?!?

[Hohn]

Not sure how that would work. We are going to pay only those in a higher socioeconomic class to have children? That's going to be more than a little sticky.

By paying payers to have these children, a whole bunch then would be shifted into your ineligible bracket because a couple CTCs will push a lot of people into zero payer status. Never mind that you really stick it to folks who work/earn good money but have big families. (Hint hint)

Wouldnt making it simply non refundable be vastly cleaner (albeit much less effective as an inducement)?

Margins are a witch.

And that's why you don't want such a steep curve on either side of the line between payer/beneficiary.

And it's also why the tax code should contain no subsidies of any kind to any business or person for any reason. When you combine the subsidies and the taxation, nobody really knows what's going on, and it's impossible to determine what works or doesn't or evaluate any particular subsidy or tax on its own merit.

If you want to subsidize fertility, then make people go do the local welfare office and collect their check just like any other kind of welfare.


And measuring poverty by income is exceptionally misleading. The real measure of socioeconomic status is your spending and assets, not your income. A person who has no assets and spends 15k a year is living in poverty even if they are earning 70k a year.


And unfortunately I just opened the consumption-tax-not-income-tax can of worms.

 

[Fargo]

This “net contributor” thing that Romney Republicans are so fixated on is a fascinating concept to me, as well as one of the big reasons I can’t stand Mitt Romney.

I am an attorney who works a full-time job plus a part-time job. I make fine money and provide for my family. However because I have a lot of children, all in wedlock with my one wife, the federal law says that I am not a net contributor of federal income tax.

According to Mitt Romney, and a whole bunch of Republicans, because I have a large family with a mom who stays at home with the children, I am automatically part of the 47% that would never ever support fiscal conservativism or republican ideals.

This comes as a surprise to me, since I’ve been opposed to the legislated welfare state for as long as I knew what it was and grew up working on the campaigns of a number of fiscally conservative Republican candidates and ballot initiatives.

If the Republicans don’t want to be seen as the party of the rich, they should stop broad brushing people based off the abomination that is the federal income tax code.

 

[Hohn]

This “net contributor” thing that Romney Republicans are so fixated on is a fascinating concept to me, as well as one of the big reasons I can’t stand Mitt Romney.

I am an attorney who works a full-time job plus a part-time job. I make fine money and provide for my family. However because I have a lot of children, all in wedlock with my one wife, the federal law says that I am not a net contributor of federal income tax.

According to Mitt Romney, and a whole bunch of Republicans, because I have a large family with a mom who stays at home with the children, I am automatically part of the 47% that would never ever support fiscal conservativism or republican ideals.

This comes as a surprise to me, since I’ve been opposed to the legislated welfare state for as long as I knew what it was and grew up working on the campaigns of a number of fiscally conservative Republican candidates and ballot initiatives.

If the Republicans don’t want to be seen as the party of the rich, they should stop broad brushing people based off the abomination that is the federal income tax code.

Excellent post, Fargo.

It's absolutely true that the "net contributor thing" is horribly mishandled by Republicans (and Romney in particular). If for no other reason than taxes come in many forms, not just income. So if 47% aren't net contributors of income tax, that doesn't mean their overall tax burden is net zero. Not at all.

But there are people-- far below you in the income range-- that are truly net beneficiaries. And there are far too many of them. Instead if it being a tiny slice-- the bottom 5% or 10%-- who are getting net assistance, we have way too many people getting far too much generosity.

You can be as high as 20th percentile and have a -300% effective tax rates, such that you get so much back in taxes that it wiped out every other tax you'd ever pay all year, FICA, Sales tax, you name it.

You can be as high as the 33rd percentile and still have your "refund" pay back all your FICA contributions too, leaving someone's net "contribution" to be only consumption and excise taxes, which are tiny in comparison. (that includes the both halves of the 15.2%, not just the "worker's half")

Is it healthy to have a third of all tax returns exempted from any and all income taxes when those taxes are the vast majority of government revenue? When those non-payers will still expect "their" Social Security and Medicare that they "paid into" only by means of dishonest accounting?

I think you agree that it's not.


Nor would I ever criticize someone for claiming every penny of refund or credit that is legally due to them. One is NOT a hypocrite for both recognizing that our tax code is an abomination while simultaneously advancing their own interests within that code.

And I will persist that taxing someone's income-- as opposed to spending or assets-- is not just economically undesirable, it is immoral.

 

[Fargo]

I am in complete agreement that our current tax structure is simply wretched, and functions in many ways as a concealed extension of the welfare state.

The Republicans are far from being above buying votes and tax credits seem to be their favorite way of doing it, rather than the enforced “charity” of the Democrats.

I am incredibly skeptical that the current system actually can be fixed, as you said income tax bears with it inherent injustice, more so than other forms of taxation.

At this point, I don’t see either party having any interest in doing away with this sort of spending, whether it be credits or welfare, because at the end of the day the treasury is been doled out and it is contrary to human nature to vote against your own interest.

I honestly don’t see there being any significant change until such a time as there is a societal collapse. Historically, that has been the case when societies have grown as large, affluent, and stratified as ours.

 

[Hohn]

Jetta...

Those numbers are WAY too small (though correct in concept) and ignore the bonus for having kids...

The maximum EIC for a single person is $6,431 with THREE KIDS or more for incomes in the range of $14,250 - 18,700.

Add another $6,000 in child tax credits for those three kids and if you're a single mom, making $7-9 per hour, you get a "tax refund" of over $13,000!

Same person, no kids, zilch!

https://taxmap.irs.gov/taxmap/instr/i1040gi-018.htm#TXMP2db1d5c4

Yeah, so effectively your Child tax credit can be more than doubled in a certain income range.

This is what I was talking about heavily subsidizing children in the wrong way.

Their "refund" wouldn't be 13k, as they'd still in theory have 15% tax on their AGI, so they'd have in theory a refund reduced by up to $2805.

 

[MarkC]

I am in complete agreement that our current tax structure is simply wretched, and functions in many ways as a concealed extension of the welfare state.

The Republicans are far from being above buying votes and tax credits seem to be their favorite way of doing it, rather than the enforced “charity” of the Democrats.

I am incredibly skeptical that the current system actually can be fixed, as you said income tax bears with it inherent injustice, more so than other forms of taxation.

At this point, I don’t see either party having any interest in doing away with this sort of spending, whether it be credits or welfare, because at the end of the day the treasury is been doled out and it is contrary to human nature to vote against your own interest.

I honestly don’t see there being any significant change until such a time as there is a societal collapse. Historically, that has been the case when societies have grown as large, affluent, and stratified as ours.

I've been thinking this for a while. So much of our governance and economy have been shaped or created in response to this tax "policy," which has grown so complicated that firms and CPAs and attorneys specialize in structuring businesses and financial dealings to take advantage of our byzantine tax code.

There are just too many powerful interests and so much dependent upon this state of affairs, which will be an impediment to any meaningful reform.

 

[Fargo]

I've been thinking this for a while. So much of our governance and economy have been shaped or created in response to this tax "policy," which has grown so complicated that firms and CPAs and attorneys specialize in structuring businesses and financial dealings to take advantage of our byzantine tax code.

There are just too many powerful interests and so much dependent upon this state of affairs, which will be an impediment to any meaningful reform.

I think the only way we will see a true tax/welfarerestructuring is via plague/solar storm/ famine/nuke/civil war etc.

Like you said, it is built in now, not just a feature.

We are just too big, affluent, and stratified yet incredibly vulnerable via technological dependence.

 

[MarkC]

I think the only way we will see a true tax/welfarerestructuring is via plague/solar storm/ famine/nuke/civil war etc.

Like you said, it is built in now, not just a feature.

We are just too big, affluent, and stratified yet incredibly vulnerable via technological dependence.

Too true, too true.... It's the same institutional inertia that will prevent us from ever getting away from administrative rules, such as the IAC and CFR's, and agency implementation of laws, with agency deference, etc. Too big, too affluent, too complicated today.

 

[Hohn]

I haven't abandoned hope that a very simply tax plan like the FairTax could be gotten through. The agreement that the current code is awful is universal.

If a new proposal doesn't get through, it's mostly because 1) it's too hard to explain to the average American and 2) it has ineffective marketing.

The ignorance of the average American is honestly the greatest barrier to overcome. Even something as incredibly simple as the Fairtax loses people at the idea of a "prebate." If you can't get people to grasp something as simple as that, what CAN you get them to understand?

 

[BugI02]

Orange Man Bad

 

[rhino]

I haven't abandoned hope that a very simply tax plan like the FairTax could be gotten through. The agreement that the current code is awful is universal.

If a new proposal doesn't get through, it's mostly because 1) it's too hard to explain to the average American and 2) it has ineffective marketing.

The ignorance of the average American is honestly the greatest barrier to overcome. Even something as incredibly simple as the Fairtax loses people at the idea of a "prebate." If you can't get people to grasp something as simple as that, what CAN you get them to understand?

The FairTax or something like it would probably result in impressive improvements in economic health both to individuals as well as the country as a whole. It would also remove a huge amount of the power that the US gov't has over individuals . . . which is a good thing of virtually unlimited value . . . but the dweebs in Washington are never, ever going to relinquish the power to tax and individual's income because it benefits them and the people who pull their strings.

 

[BugI02]

As I've said before, you can't really control congress going forward; and they're the ones who open the loopholes in tax code in exchange for future considerations

They sell you the program with a low initial number, say 15 or 17%; but they don't rein in spending or maybe keep increasing it while also opening loopholes for their benefactors (can you say 'carried interest'). Suddenly 17% is no longer enough, the rate gets raised and you have little or no say in the matter, because the people your representative took care of take care of him and the candidate with the most money wins over 90% of the time

I'll take Byzantine over Hammurabi

 

[Hohn]

The FairTax or something like it would probably result in impressive improvements in economic health both to individuals as well as the country as a whole. It would also remove a huge amount of the power that the US gov't has over individuals . . . which is a good thing of virtually unlimited value . . . but the dweebs in Washington are never, ever going to relinquish the power to tax and individual's income because it benefits them and the people who pull their strings.

I think they could be made to. But I think history shows that popular will is surprisingly irrelevant to public policy outcomes. How many times has something been rammed through Congress and--after its passed-- a bunch of marketing done as to why people will be so glad the got something they didn't ask for? (social security, medicare, and now ACA come to mind)

Conversely, something with overwhelming national support like a term limit has gotten nowhere.

The biggest obstacle to something like FairTax is precisely the simplification that makes it so useful. With only two variables (prebate amount and overall tax rate) there's nothing to adjust or rig, no carve-outs with which to reward any particular constituency.

In other words, it's in *everyone's* general interest, but nobody's *special interest*-- that's the problem.

Special interest is what rules, not the general interest. If it benefits everyone but nobody in particular, it's politically useless to a politician.

Which is ironic to the extreme, if you think about it. The entire argument for having the government do certain things like build roads and such is that because it's in everyone's general interest but nobody's special interest, the government must do the building because otherwise it won't get built (nobody's special interest means no free-market profit incentive).

So we carve out certain things for the gov't to do and what do we get? They ignore the general interest and only do the special interests things. Which means the entire argument for even having given the gov't that power is now moot.

And apparently we can privatize just about the whole dang thing, since there's so much profit motive to go around.

 

[Hohn]

The FairTax or something like it would probably result in impressive improvements in economic health both to individuals as well as the country as a whole. It would also remove a huge amount of the power that the US gov't has over individuals . . . which is a good thing of virtually unlimited value . . . but the dweebs in Washington are never, ever going to relinquish the power to tax and individual's income because it benefits them and the people who pull their strings.

And let's call out another factor-- the aggregation of power in Congress to just the few in leadership at the top.

We move to send our reps to Washington and they are essentially powerless to do what they said they will do because their autonomy and power has been sucked away from them and centralized in the Speaker and Minority Leader's hands. Your rep might be a die-hard 2A guy, but he's powerless to even get the time of day on national reciprocity, to even get it into committee (never mind out of it and onto a floor vote). Why? Because unless the actual power centers-- the speaker and other leadership-- are ALSO wanting that legislation, it's DOA. It has no chance, ZERO of getting even the light of day.

And this is where the failure of our Constitutional system is revealed-- it set about making Congress the most powerful of all branches (hence, Article 1, not 2 or 3), but it let that body be free to set its own rules entirely. Which means the rules are carved out by the members to benefit themselves first and foremost. The system of spoils and seniority assures that our most powerful branch is actually operated like the mafia-- each person juggling for seniority and position in the good graces of the Mob Boss (i.e. speaker, leader, whip, etc).

This is what term limits would do the most to eliminate, because no one person could become senior enough to build up such a large and permanent power base. Unlike a parliamentary system where parties often have to form governing coalitions and have to reach across the aisle to get anything done, our system is just a tradeoff of permaent government actors of a UniParty that pretends to oppose each other and really, really look out for you against the other guys, while meanwhile, the leadership of both parties--behind closed doors-- are friendly with each other and all interested in outlasting whatever ephemeral illusion the voters are under that Congress is accountable to the people.

 

[T.Lex]

My income went up almost exactly 5% in 2018. (Odd coincidence, but it happens.) My taxes owed went up ~10%. (Still working on it, but it looks like it'll be in that range.)

Not. Happy.

 

[HoughMade]

I am waiting to see how this works out.

https://www.forbes.com/sites/anthon...deduction-where-do-we-stand-now/#22c4f3943922

And I probably won't have my K1 until late March anyway.

 

[Hohn]

My income went up almost exactly 5% in 2018. (Odd coincidence, but it happens.) My taxes owed went up ~10%. (Still working on it, but it looks like it'll be in that range.)

Not. Happy.

Have you been able yet to diagnose what change got you?

 

[MarkC]

Have you been able yet to diagnose what change got you?

I, too, am interested, if you can identify where the change occurred.

 

[T.Lex]

Have you been able yet to diagnose what change got you?

I'm still working through deductions, but I think it is a cumulative effect. And the exemption issue.

Also... and this is purely coincidence... last year I was just under the max of a bracket. This year, I think I'm right in the middle.

ETA:
In thinking about it more, we are over the cap on SALT and mortgage interest for 2018. That's part of it, too. That actually may be the bulk of it, now that I think about it.

 

[ATOMonkey]

Unless you can itemize $24,000 worth of deductions, you'll be taking the standard.