How would you adjust these bracket-schedules?

[Wonkish1]

Alright fine I'll give in! Ultimately though it depends upon whether or not we are supposed to pick them based upon similar spending levels to what they are currently or what we would have them at.

Personal(individual)
1) 0-20k = 0%
2) 20-40k = 10%
3) 40k+ = 25%
(married)
1) 0-30k = 0%
2) 30-60k = 10%
3) 60k+ = 25%
+5% (capped at $100k) mandatory contribution to SSA(Social Security Account-Untouchable til age 60)
+5% (capped at $100k) mandatory contribution to MSA(Medical Savings Account untouchable for non insurance premiums. Option of liquidation or transfer to heirs accounts at death. And different from HSA because that can be used on non premium health expenses, can be withdrawn with penalty before 60, and can withdrawn without penalty after 60)

NIT = $8k and drops $1 for every $2 in income(phasing out completely at $16k). (most additional lower income benefits for married and kids would be paid out in voucher format some explanation provided here: https://uselectionatlas.org/FORUM/index.php?topic=141747.15 )

Limitless charitable deduction
All of these remain deductible: HSA boosted to $10k, ESA boosted to $5k and becomes deductible(529 gets killed and folded into ESA), 401k/403b/TSP/SEP/Simple rolled into 1 type that gets mostly boosted to $20/$40 instead of $16.5K/$49k. tIRA stays exactly where it is and income phaseout for deductibility ends. Catch up is marked at 20% of retirement account limit from here on out.
Roth officially loses its income phaseout(since today the phaseout is unofficially gone). Municipal interest no longer tax free.
All remaining exemptions, standard deductions, itemized deductions, state tax deductions, etc. killed across the board.

Corporate
$0+ = 20%
Change to 100% expensing, the only 4 forms of employee compensation that are deductible are cash, stock, stock options, and qualified account matching. Ends the deduction for corporate health insurance and kills the defined benefit plan. Obviously expense accounts(which can be a grey area) can stay.

Capital Gains
Short term(less than 1 year)
$0+ = 20%
Long term(1 year +)
0 - 50k = 0%
$50k+ = 10%
Re-imposition of capital gains on primary home sale, end of "in kind transfers" such as 1035, 1031, etc., and a step down in basis to 0 at asset transfer or death (instead of step up) which would result in a capital gains tax levied against all inherited assets whenever the heirs decide to sell(I realize that it would encourage people to sell property and pay taxes only on the gains before death, but I also think that little illiquid and not easily dividable assets at death is a good thing). That applies to life insurance as well and is triggered immediately at payout.

Dividend taxes = same as capital gains
Held for less than 1 year = 20%
Held for longer than 1 year = 0% or 10%

Irrevocable Trust
$0+ = 25% on income producing assets
$0+ = 10% on long term capital gains

Payroll and SE taxes = scrapped
AMT = scrapped
Death tax = scrapped(step down will result in future 10% against all or 10% on part early)
Generation Skipping tax = scrapped
Gift Tax = scrapped
Gasoline tax = scrapped



I'm kind of curious if I'm missing any behavioral effects here from our tax accountant. I'll avoid the ones that are even remotely disputed like cutting corporate taxes will reduce prices, growth will increase, etc.

-corporations would cease providing health benefits and disability benefits(people would instead get them on their own)
-permanent life insurance would lose its corporate and trust appeal
-municipal interest rates would come more in line with corporate ones over the long term and  municipalities and states wouldn't be able to issue as much debt
-people would try to liquidate assets before death or transfer
-people would gift much more unneeded assets to heirs earlier in life
-obviously loss of mortgage deduction wouldn't be good for long term home ownership
-corporate capital equipment purchasing would increase
-corporations wouldn't be as inclined to 0 out as much and would instead maintain higher retained earnings making companies more stable(caused by 25% personal vs. 20% corporate)
-personal tax accountants like Ice Hockey lose work
-the estate planning and business consulting parts of my business get hit pretty hard!


P.S. under a system like this I could scrap unemployment and welfare benefits and the unemployed would enjoy the same standard of living. I could phase out both Social Security and Medicare for all of those between the ages of 40 and 50 and replace it with a $1-2k each annual government contribution to lowest of earners and people would have better insurance and retirement incomes(and achieve universal coverage). I could offer low income young folks a voucher to buy health insurance(because they are very cheap relative to older folks) and scrap Medicaid. And I could even scrap the minimum wage since it wouldn't have any affect on low earners standard of living(better to pay some benefits out to a low wage worker than all benefits to someone unemployed).

[Verily]

No clue what I'm talking about?  Try again, I passed the CPA exam and I'm FAR better at taxes than I am at audit.

And the "personal exemption" is $3,700 for 2011, not $10,000 as you said.  There's also a Standard Deduction or Itemized Deduction you can take, whichever is more advantageous to arrive at taxable income.  And current tax law phases exemptions and itemized deductions out over a certain amount.  Just MUCH higher than $50,000 for both phaseouts.  I understand the reason for such deductions and phaseouts.

I was quoting my plan, not the current reality (although I did say that $10,000 approximates the personal exemption plus the standard deduction, which it does--since I'm eliminating the standard deduction, the personal exemption is essentially absorbing it). And the current law does not phase out the personal exemption completely, nor does it phase out the standard or itemized deductions at all--you really have no clue what you're talking about, which makes your claims to have been an IRS auditor terrifying.

There is a cap to the amount of itemized deductions you can claim, but it's as a percentage of total income, so it rises as your income rises and thus never phases out the itemized deduction. Plus, the cap is not exactly ungenerous--if you have enough of your income in itemized deductions that you reach the cap, you donated a TON to charity (since that's the only itemized deduction that it's really possible to get very large).

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Poor taxpayers do not have the EITC. The EITC is phased in before it is phased out, such that the poorest taxpayers get little or no benefit from the EITC. Those who benefit most from the EITC are somewhat poor but not destitute.

[TeePee4Prez]

No clue what I'm talking about?  Try again, I passed the CPA exam and I'm FAR better at taxes than I am at audit.

And the "personal exemption" is $3,700 for 2011, not $10,000 as you said.  There's also a Standard Deduction or Itemized Deduction you can take, whichever is more advantageous to arrive at taxable income.  And current tax law phases exemptions and itemized deductions out over a certain amount.  Just MUCH higher than $50,000 for both phaseouts.  I understand the reason for such deductions and phaseouts.

I was quoting my plan, not the current reality (although I did say that $10,000 approximates the personal exemption plus the standard deduction, which it does--since I'm eliminating the standard deduction, the personal exemption is essentially absorbing it). And the current law does not phase out the personal exemption completely, nor does it phase out the standard or itemized deductions at all--you really have no clue what you're talking about, which makes your claims to have been an IRS auditor terrifying.

There is a cap to the amount of itemized deductions you can claim, but it's as a percentage of total income, so it rises as your income rises and thus never phases out the itemized deduction. Plus, the cap is not exactly ungenerous--if you have enough of your income in itemized deductions that you reach the cap, you donated a TON to charity (since that's the only itemized deduction that it's really possible to get very large).

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Poor taxpayers do not have the EITC. The EITC is phased in before it is phased out, such that the poorest taxpayers get little or no benefit from the EITC. Those who benefit most from the EITC are somewhat poor but not destitute.

I stand corrected.  Prior to 2010, I'd be right though.  I was thinking the 3% over a certain AGI phaseout.  Whoops.

I would re-institute limitations on itemized deductions based on AGI however.  No need for the insults.

[Wonkish1]

Alright fine I'll give in! Ultimately though it depends upon whether or not we are supposed to pick them based upon similar spending levels to what they are currently or what we would have them at.

Personal(individual)
1) 0-20k = 0%
2) 20-40k = 10%
3) 40k+ = 25%
(married)
1) 0-30k = 0%
2) 30-60k = 10%
3) 60k+ = 25%
+5% (capped at $100k) mandatory contribution to SSA(Social Security Account-Untouchable til age 60)
+5% (capped at $100k) mandatory contribution to MSA(Medical Savings Account untouchable for non insurance premiums. Option of liquidation or transfer to heirs accounts at death. And different from HSA because that can be used on non premium health expenses, can be withdrawn with penalty before 60, and can withdrawn without penalty after 60)

NIT = $8k and drops $1 for every $2 in income(phasing out completely at $16k). (most additional lower income benefits for married and kids would be paid out in voucher format some explanation provided here: https://uselectionatlas.org/FORUM/index.php?topic=141747.15 )

Limitless charitable deduction
All of these remain deductible: HSA boosted to $10k, ESA boosted to $5k and becomes deductible(529 gets killed and folded into ESA), 401k/403b/TSP/SEP/Simple rolled into 1 type that gets mostly boosted to $20/$40 instead of $16.5K/$49k. tIRA stays exactly where it is and income phaseout for deductibility ends. Catch up is marked at 20% of retirement account limit from here on out.
Roth officially loses its income phaseout(since today the phaseout is unofficially gone). Municipal interest no longer tax free.
All remaining exemptions, standard deductions, itemized deductions, state tax deductions, etc. killed across the board.

Corporate
$0+ = 20%
Change to 100% expensing, the only 4 forms of employee compensation that are deductible are cash, stock, stock options, and qualified account matching. Ends the deduction for corporate health insurance and kills the defined benefit plan. Obviously expense accounts(which can be a grey area) can stay.

Capital Gains
Short term(less than 1 year)
$0+ = 20%
Long term(1 year +)
0 - 50k = 0%
$50k+ = 10%
Re-imposition of capital gains on primary home sale, end of "in kind transfers" such as 1035, 1031, etc., and a step down in basis to 0 at asset transfer or death (instead of step up) which would result in a capital gains tax levied against all inherited assets whenever the heirs decide to sell(I realize that it would encourage people to sell property and pay taxes only on the gains before death, but I also think that little illiquid and not easily dividable assets at death is a good thing). That applies to life insurance as well and is triggered immediately at payout.

Dividend taxes = same as capital gains
Held for less than 1 year = 20%
Held for longer than 1 year = 0% or 10%

Irrevocable Trust
$0+ = 25% on income producing assets
$0+ = 10% on long term capital gains

Payroll and SE taxes = scrapped
AMT = scrapped
Death tax = scrapped(step down will result in future 10% against all or 10% on part early)
Generation Skipping tax = scrapped
Gift Tax = scrapped
Gasoline tax = scrapped



I'm kind of curious if I'm missing any behavioral effects here from our tax accountant. I'll avoid the ones that are even remotely disputed like cutting corporate taxes will reduce prices, growth will increase, etc.

-corporations would cease providing health benefits and disability benefits(people would instead get them on their own)
-permanent life insurance would lose its corporate and trust appeal
-municipal interest rates would come more in line with corporate ones over the long term and  municipalities and states wouldn't be able to issue as much debt
-people would try to liquidate assets before death or transfer
-people would gift much more unneeded assets to heirs earlier in life
-obviously loss of mortgage deduction wouldn't be good for long term home ownership
-corporate capital equipment purchasing would increase
-corporations wouldn't be as inclined to 0 out as much and would instead maintain higher retained earnings making companies more stable(caused by 25% personal vs. 20% corporate)
-personal tax accountants like Ice Hockey lose work
-the estate planning and business consulting parts of my business get hit pretty hard!


P.S. under a system like this I could scrap unemployment and welfare benefits and the unemployed would enjoy the same standard of living. I could phase out both Social Security and Medicare for all of those between the ages of 40 and 50 and replace it with a $1-2k each annual government contribution to lowest of earners and people would have better insurance and retirement incomes(and achieve universal coverage). I could offer low income young folks a voucher to buy health insurance(because they are very cheap relative to older folks) and scrap Medicaid. And I could even scrap the minimum wage since it wouldn't have any affect on low earners standard of living(better to pay some benefits out to a low wage worker than all benefits to someone unemployed).

Ice Hockey no comments? I was hoping you would point out any key changes in behavior on the credit, deduction, etc. front that I'm missing here.

[opebo]

And I could even scrap the minimum wage since it wouldn't have any affect on low earners standard of living(better to pay some benefits out to a low wage worker than all benefits to someone unemployed).

Having no minimum wage and paying income support is just a subsidy for low wage employers.  If there is an alternative to paying the bare subsistence to keep their miserables coming back for more abuse day after day, slave-camps like WalMart and McDonalds will just pay a couple of dollars an hour and the public treasury will have to support their work force for them.  (of course in effect now we're already providing them a nearly free work-force at $7/hour or whatever it is, because society is paying for the enormous social problems resulting from such low-wage employment).

[TeePee4Prez]

Wonkish going back to your ideas-

Not a fan of your brackets.  Of course mine would be more progressive as stated earlier.  I've never been a fan of MSAs by the way.  In fact since their implementation, health care costs have skyrocketed, especially out of pocket costs.  My proposal was to eliminate all regressive payroll taxes altogether.  I still like the Charitable deduction limits of 50%/30%/20% as is.  No limitless.  I like your pension "rollup" plan except that there should be income and amount limitations.  I also think capital gains should be ordinary income on assets held less than a year but reduced, depending on bracket on for long term.

More comments to come on AMT.  Stay tuned.....

[Wonkish1]

Wonkish going back to your ideas-

Not a fan of your brackets.  Of course mine would be more progressive as stated earlier.  I've never been a fan of MSAs by the way.  In fact since their implementation, health care costs have skyrocketed, especially out of pocket costs.  My proposal was to eliminate all regressive payroll taxes altogether.  I still like the Charitable deduction limits of 50%/30%/20% as is.  No limitless.  I like your pension "rollup" plan except that there should be income and amount limitations.  I also think capital gains should be ordinary income on assets held less than a year but reduced, depending on bracket on for long term.

More comments to come on AMT.  Stay tuned.....

I didn't really expect you to like my brackets, and I wasn't holding out hope for the MSA's either. I should point out to you that the only plans that are dropping in cost this year are HDHP's. So you can't say that the plans aren't doing their job and that is keeping costs down.


But what I was really hoping to get your insight on is in the deduction front some of the more fine points. First of all, what do you think of step down in basis at death to encourage people to move out of illiquid assets if they can unless its something important like a business. And it effectively creates a small taxable event when the elderly gentlemen decides to liquidate a little or a bigger taxable event down the road to be taken at a time of convenience instead of the problem of estate fire sales like in the case of the estate tax.

What do you think of my decision to ban in kind transfers?
What do you think of my NIT plan?
What can you think of as being the worst consequence of getting rid of the gift tax assuming there is no death tax?
Any personal deductions you don't think I should have scrapped?

[TeePee4Prez]

With Sec. 1031 (LKEs), I agree.  Ban them.  By the way, the CPA exam goes to town on them.  Taxable income should be "realized" gain regardless of whether it was a "like-kind" asset exchange or not.

I actually think your NIT plan  maybe better than EITC.  Again, it is an area that is greatly abused.  There are people that create fake Schedule Cs just to claim the EIC.  There are people who also purposely understate income to get it as well.  The internal controls with it need to be greatly improved.

The gift tax is funny.  I agree with it in part.  I disagree with it as well.  I agree with it because a lot of income taxes can be avoided by giving gifts tax free.  OTOH, it's generally on income already taxed.  I would be open to a much higher exemption for gift taxes, say $25,000 as opposed to $13,000 and an estate tax exemption of about $5 million.

As for the estate tax, I agree with a step down in basis for all assets.  Should be valued at original cost.  But would the capital gain only be assessed on the asset itself on an individual's income rather than included in the taxable estate?  Most estates, say in the high 90s percentage wise never see the "death" or estate tax anyway.  The accounting would be very hairy on that aspect.

I like itemized deductions as is for the most part.  In fact with the higher rates I've proposed, I'd be open to even adding non-mortgage interest paid on all indebtedness up to $100,000 as a deduction.  Even work related expenses and medical expenses, I'd eliminate the AGI floors for them except for AMT purposes.

[Wonkish1]

With Sec. 1031 (LKEs), I agree.  Ban them.  By the way, the CPA exam goes to town on them.  Taxable income should be "realized" gain regardless of whether it was a "like-kind" asset exchange or not.

I actually think your NIT plan  maybe better than EITC.  Again, it is an area that is greatly abused.  There are people that create fake Schedule Cs just to claim the EIC.  There are people who also purposely understate income to get it as well.  The internal controls with it need to be greatly improved.

The gift tax is funny.  I agree with it in part.  I disagree with it as well.  I agree with it because a lot of income taxes can be avoided by giving gifts tax free.  OTOH, it's generally on income already taxed.  I would be open to a much higher exemption for gift taxes, say $25,000 as opposed to $13,000 and an estate tax exemption of about $5 million.

As for the estate tax, I agree with a step down in basis for all assets.  Should be valued at original cost.  But would the capital gain only be assessed on the asset itself on an individual's income rather than included in the taxable estate?  Most estates, say in the high 90s percentage wise never see the "death" or estate tax anyway.  The accounting would be very hairy on that aspect.

I like itemized deductions as is for the most part.  In fact with the higher rates I've proposed, I'd be open to even adding non-mortgage interest paid on all indebtedness up to $100,000 as a deduction.  Even work related expenses and medical expenses, I'd eliminate the AGI floors for them except for AMT purposes.

Well on the gift tax just because you make it tax free doesn't mean that you have to scrap the some of the arms length rules for relationships like employer vs. employee. The current exemptions can be abused on fronts like that anyway.

Otherwise I don't see gifting as a problem in regards to income tax. Your income taxes are paid first before you can gift. The only real "tax strategy" I can see here is if someone gifts to a relative in a lower tax bracket. But if you ask me if your going to gift a bunch of money to your 30 year old daughter who earns less that $50k as is than why is that a bad thing?

Again assuming there is no estate tax, the current ban on gifting between certain relationships stays, and gift in gift out strategies are annulled then do you see any real way to game abolishing the gift tax?

Step down would mean that the asset would transfer to the heir and when the heir sold it he or she would have to pay tax on the whole asset because of no basis. Of course if the heirs decided to liquidate at death then you would pay then. So it removes the liquidity problem in family owned businesses hurt by the estate tax while at the same time being a compromise because a taxable event will triggered either early or late on inherited property. Also, a life insurance claim would be considered a "liquidation event" at death and its basis would also drop to 0 and the taxes would have to paid right then. I would think that the tax accounting would be quite easy at death since all of the assets are being stepped down and will stay there. That means nobody has to what the basis was stepped up to when they inherited from their parents. Let me know if I'm missing anything here.

I hate the deductibility of debt when it comes to peoples personal balance sheet. To much personal damage occurs when it gets out of control relative to parties like companies, banks, and governments. So I just don't like the idea of encouraging it. And home office deductions are jokes that most people don't even realize how to correctly do, and that ends up costing them when the IRS catches them on that. Then writing down non insured losses on property just encourages people to not have insurance. I mean don't like many of the perverted incentives itemized deductions have created in encouraging bad behaviors.

Well I should point out that HSA contributions in my system gets you your medical deduction but you have pre fund as opposed to post deduct it.

[TeePee4Prez]

Hmm... not agreeing with the step down or getting rid of the estate tax.  IMO, gains to heirs should have basis at date of death.  I'd get rid of the 6 month alternative valuation date.

With individual itemized deductions, yes there should be some offsets to income.  Not everything on an itemized deduction is for a perverse purpose.  Again, I've harped on smaller businesses needing some of these deductions larger businesses are afforded.  There is a lot of room for fraud with them, but determining taxable income should have some expenses as deductible.

[Wonkish1]

Hmm... not agreeing with the step down or getting rid of the estate tax.  IMO, gains to heirs should have basis at date of death.  I'd get rid of the 6 month alternative valuation date.

With individual itemized deductions, yes there should be some offsets to income.  Not everything on an itemized deduction is for a perverse purpose.  Again, I've harped on smaller businesses needing some of these deductions larger businesses are afforded.  There is a lot of room for fraud with them, but determining taxable income should have some expenses as deductible.

So whats the problem with the step down then?

Small businesses can deduct even more than they can now under my plan 100% expensing added. Its just personal deductions that are cut because I don't think you should encourage things like lack of medical, homeowners, etc. insurance. I don't think you should encourage debt on a home. I don't think you should encourage margin debt on a brokerage account. I don't think you should encourage co-mingling of personal and business for people would earn 1099 and should instead incorporate themselves. I don't think you should encourage employers to not expense real business expenses by having the *employee* pay for them and then take a tax write off.

So under my set up. If your actually engaging in business activities on your own then incorporate get your deductions and invite the higher scrutiny. Since its business only your wages and dividends are going to be spent on personal expenses, luxuries, etc. so of course its right to allow deductibility for businesses. And if your earning W2 than its your employer that should be expensing miles for long distance work travel, its your employer who should be expensing business trips, its your employer that should be expensing the work cell, etc. It shouldn't be up to you to pay for a lot of these expenses for doing your job. And offering deductions for a lot of these things allows the employer to not be pressured into paying for them, themselves.