The grift goes on

Smoking in His Car - LOL!

Why do the arguments for small government start with the programs that benefit people with the lowest economic income/wealth rather than the programs that benefit the highest?

Let’s get the government out of subsidizing the rich.

  1. The mortgage interest deduction for big houses and second homes.
  2. The yacht tax deduction.
  3. Rental property.
  4. Fancy business meals.
  5. The capital gains tax rate.
  6. The estate tax.
  7. Gambling loss deductions.
  8. The Social Security earnings limit.
  9. Retirement plans.
  10. Tax prep.

list taken from https://www.washingtonpost.com/news/wonk/wp/2015/04/09/the-rich-get-government-handouts-just-like-the-poor-here-are-10-of-them/

After that we can talk about giveaways and protections for corporations.

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Funny list. Seem to ignore big ones and focus on small things.

I believe TCJA lowered the limit on #1. #2 is just a special case of #1. Yes, we should get rid of it entirely, but the very wealthy don’t need to get mortgages for their houses.

#3 strikes me as allowing a business to deduct necessary business expenses. That’s fine with me.
But, they ignored RE depreciation. That’s a bigger issue. Also, what about 1031 exchanges.

#4 TCJA removed deductibility for “lavish” meals, but I haven’t found IRS guidance on what that means.

#5 This is a big one. They mention the rate, but don’t mention step up in basis or not taxing unrealized gains. Both bigger than anything else on this list for the very wealthy.

#6 The estate tax of course is an extra tax aimed exactly at the wealthy. We could talk about lowering the exemption, but the bigger deal is actually collecting it from the very wealthy.

#7 seems perfectly reasonable to me.

#8 yes, though wage earners as a class aren’t super wealthy. How about applying the SS tax to investment earnings? Or, funding SS from general revenue?

#9 Probably not relevant to the super wealthy. They have a point that the tax break is large and mostly used by higher earners. Yep, actuaries get more than I’d give them.

#10 I think this went away with TCJA.

Not a bad list, but some of these items need some qualification rather than flat out 100% disallow.

  1. for instance. Do you set the (first)HMI to phase out at an income level, or solely base on size of mortgage?
  2. not sure what that is (not having a boat let alone a yacht)
  3. could have some unintended consequences, like driving rental rates up, or crushing the rental market. Not everyone is in the position to buy and assume risk of owning a home. Given that it affects a base human need, I’d go slow in this area.
  4. if you mean making non-deductible to business, that is fine. I’d also consider making it imputed income to the recipient. Company cars became less popular after mileage was imputed to employee (maybe not directly as a result). I think business owners, especially small business owners, transfer a lot of wealth to themselves in this untaxed way (not just meals, but other items provided), but that is a feelz.
  5. To me, some of CG tax differential makes sense since inflation drives some of the gains. I think society sees a benefit from some deferral of consumption. You want to incentivize personal savings for retirement (at the very least). So along with 9) you might have a lower differential in CG vs earned income, up to a limit based on income. To my actuarial mind, retirement plan balances that qualify as “rich” would vary by the cost of life income.
  6. You must mean increase the estate tax. I don’t really understand how the existence of an estate tax subsidizes the rich.
  7. I don’t know how many returns use this deduction. Are there many professional gamblers?
  8. Reforming SS is a huge discussion in itself. SS is already progressive on the whole.

Next we should talk about simplifying the tax code

If you read the WaPo link, it has more explanation of some of these.

  1. I’d eliminate it entirely. If we want to help low income people buy houses we should design a targeted subsidy on the spending side of the leger.

  2. Article says if your boat is big enough to be a house, it gets the second home mortgage interest deduction. I’m not sure if that is still true.

  3. I’ll agree with that. Meals shouldn’t be deductible to the business unless there is a 1099 transferring the tax to the employee/customer.

  4. Ordinary workers don’t pay capital gains tax because they shelter their long term savings in qualified accounts. CG taxes are for higher income workers but especially for the wealthy. 75% of reported capital gains go to the top 1% and 55% to the top 0.1%. (and lots are never reported due to deferral and step up in basis) I’m okay with a modest asset tax hidden in the income tax code for wealthy people. (the effect of taxing nominal vs. real gains).
    I don’t think that deferral of consumption is any more socially beneficial than working, for example. I don’t think it should get any special tax treatment. I’d even back off on the benefits of qualified savings plans.

  5. Yes, SS is modestly progressive as a whole. But, why settle for that? To me, the point of an income transfer program is to shift income from those with more to those with less. There are practical limits, but SS could/should be more progressive than it is.

I can’t read the WaPo because I don’t pay for it. Is there a way to read it for free?

Actually, unless you are using a Roth, you lose the CG rate differential because IRA income is taxed at ordinary rates. Also if elimination of retirement plans is on the table, CG rate differential becomes more important to middle class.
Deferral of consumption is important because there are times you can’t work, like retirement. People who have less job/income security also need savings for unexpected temporary job loss.

I don’t think everyone agrees SS is designed to be/intended to be a wealth transfer program. OASDI. A program that supplements income in old age should be stable since its beneficiaries can’t adjust as well as workers. You don’t want degree of transfer subject to prevailing political winds.

Nicely ask someone here to paste it here.

I think you questioned these two:

  1. The yacht tax deduction.

If you’ve got a boat and you’re paying interest on it, that interest is tax-deductible – provided your boat is really, really big. If it has sleeping quarters, a kitchen and a toilet – e.g., it is a yacht – then it can be considered a second home and any interest you pay on it is deductible. But if you just have a garden-variety fishing boat or canoe, sorry – no deduction for you.

Beyond that, if you have a yacht you can loan it out to a charter business for part of the year, and keep it for personal use the rest of the time. This allows you to deduct the purchase price, insurance, maintenance and slip fees too.

  1. The estate tax.

“The Estate Tax is a tax on your right to transfer property at your death,” according to the IRS. Without the estate tax, super-wealthy families would be able to hoard that wealth in perpetuity, becoming ever more powerful in the process. The tax, as it currently exists, only kicks in on estates worth $5.4 million or more, affecting about the top 0.2 percent of households. For everyone else in the top 1 percent, congratulations! You can pass on your riches to your heirs tax-free.

It looks like they thought the estate tax didn’t tax enough of the “merely rich”. Note that the deduction has changed since 2015 when this article was written.

I think we’re agreeing that people who us traditional IRA/401k don’t care what the CG rate is because they never pay CG taxes. That was the point I was trying to make.

I would like to modify, not eliminate, qualified plans. I think good public policy says their tax advantages should be reduced but not eliminated (because I think we should be getting some revenue there). If that’s may opinion, I don’t want to keep CG rates so low that they are better than my modified qualified plans.

I should clarify my opinion on “deferral of consumption”. I think that ordinary people who are simply trying to consume less today so they have money to spend in retirement should be able to do that without tax consequences. That means I’m fine with not taxing investment income that simply keeps up with inflation.

But, I think they should pay tax on investment returns in excess of inflation. That’s “real” income that allows them to increase consumption, not just defer it. We tax labor income, I think we should tax real capital income as well.

People have strange ideas regarding SS. I think some still believe that the “trust fund” is filled with the taxes they paid, except for some amount that “the politicians stole”.

I follow the money. Current workers pay taxes. Those taxes are used to pay benefits to prior workers. I call that “income transfer” (not “wealth” transfer), but you don’t have to. I think that if the gov’t takes income from some people and gives it to others, the taking should generally be from the higher income group and the giving should be to the lower income group. SS does a little bit of that, I think it should be modified to do more. On the tax side, fund it with a progressive tax instead of a regressive tax. On the benefit side, go to a flat dollar benefit.

I was going to say NJ had a pretty low exemption for estate tax from my memories of when I set up my will but it looks like NJ no longer has an estate tax…

1 and 2 are basically the same: get rid of the mortgage interest deduction for a second home. I agree with that. If your boat is your home (and I know multiple middle class people for whom that’s true) then it makes exactly as much sense as the mortgage interest deduction for any other home.

People who don’t like 10 should be thrilled that TCJA got rid of that deduction.

You don’t seem to understand how compromise and negotiating works. Further they use nonsense names for bills all the time. It’s hardly a valid criticism of the contents of the bills.

I hate talking about this topic. Turbo tax & HR Block are the reason we can’t have nice things. Filing our taxes should be simple but the tax prep lobby keeps it a nightmare.

FYP for me LOL!

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There is a difference between

  1. using computers to make it easier to accommodate overly complex rules that most people don’t understand
    vs
  2. simplifying the tax code so people understand the law and don’t need black boxes to help them file

I can buy the notion that TurboTax and H&R Block lobby to prevent the IRS from providing free convenient tools for #1

I don’t blame them for the lack of progress on #2.

I just had a random idea that’s not fully fleshed out, so bear with me and feel free to point out flaws in my logic. I’m not married to this idea.

Actuarial work has become more complicated with the advent and advancement of computers.

We (actuaries as a whole, not any given person) didn’t used to have to stress test interest rate assumptions by running simulations on various scenarios… because we couldn’t. We didn’t have tons of bells and whistles that we could add or not add to products because calculating the costs would have been too time-consuming. And SO much more that we didn’t used to do because we literally couldn’t.

But as our ability to cope with complexity increased, so did our use of complicated methods.

Maybe an ever more complicated tax code is the same way.

But there’s a big BUT coming… of course we shouldn’t add complexity for the sake of adding complexity. But if it makes something better…

A lot of things in the tax code don’t make much sense. Fewer things in actuarial work make no sense, but they exist too. So I’m certainly not defending things that make no sense (a subjective standard). But if we can make the tax code fairer and now have the capability to do so, maybe it’s not so bad in some cases???

I think the complexity increase is certainly enabled by the advancement of the tools. I think one thing I’d point out though is the parting of interests. In the case of actuarial the people/companies making the models more complex are the same people using those results, so if they found that an extra level of complexity for slight increased precision in rating was too cumbersome to be worth it the incentives would be well aligned to not add that marginal level of complexity.

The same isn’t true for taxes. We’ve got effectively a hoard of interests hoping to add complexity and then random guy at YE having to figure out how to file his taxes, or now more likely he is having to pay someone to help him. And the misalignment is made even more evident by the fact that the very tools that help random guy file lobby for complexity for complexity’s sake.

The FAP modules used to, maybe still do, explicitly state that a fairer tax code has to be more complex. So whoever wrote that portion of the materials for the SOA agrees with you.

The problem is that it isn’t clear whether the current complexity of the tax code is from a desire to be fairer or to cater to special interests who lobby for specific provisions. Or more likely both. Personally I’d be ok eliminating some of the complexity aimed at fairness in exchange for eliminating a lot of the complexity aimed at special interests as I feel the latter create more unfairness than anything gained from the former.

This

YES