The Effects of Higher Rates and Cap on Deduction on NoVA (health insurance, movers)

[IndiaLimaDelta]

Originally Posted by CAVA1990

Not posturing. Raising rates on income above a certain level is more acceptable to the electorate than any of the other options. Second most acceptable would be defense cuts. Most of the country is not in favor of entitlement reduction. They would likely be in favor of reform that lowers the cost without reducing services such as more effective and efficient health care delivery to Medicare and Medicaid recipients.

The proposals to increase tax revenues by targeting upper income families are not supposed to be punitive (although they increasingly appear that way). They are supposed to be a part of an overall package, including serious and substantial entitlement reforms, so that the federal government does not face a spiraling mountain of debt. While "tax the rich and keep givng me my freebies" might be popular with the electorate, the problem is that this is not a sustainable solution in the long run. Because of the drastic reduction in revenues due to the recession, this problem is now exacerbated. Ultimately, you cannot tax highly to offset ballooning entitlements as there are not enough of these "rich" people to offset the significant growth in entitlement outlay. You have to either 1) grow the economy massively or 2) drastically cut the entitlements or more realistically 3) grow the economy and cut the entitlements. The Obama administration's approach appears to be 4) none of the above -- let's tax "the rich" and call the problem solved.

One of the main problems with past tax cuts, including, yes, the cuts from the Bush 43 years, is that now a substantial portion of the population pay no to little income tax and have absolutely no incentive to support reforms that reduce entitlement benefits.

This is the perennial problem of a democracy -- two wolves and a sheep deciding what to have for dinner. While the sheep is first to suffer, the wolves will still have a big problem after the said sheep is consumed. See Greece (or any other social welfare state where costs exceed revenues, as inevitably they will sooner or later).

Originally Posted by CAVA1990

I realize we likely have an unusual number of people making over $250K but to most of the country that's a fantasyland they really can't relate to. It is amazing how the GOP is willing to throw the upper middle class under the bus to protect the really high earners. I'll bet they'd be willing to shred the mortgage interest deduction versus raising the rates a couple of points on income over $1 million. Has their base now shrunk to the top 2% plus some delusional Joe the Plumber wannabes?

This is indeed an area with an unusually high number of those families with annual income over $250,000 and presumably it is also an area with an unusually low per capita entitlement receipt. I read frequently on this forum that Northern Virginia sends more money to Richmond than the latter spends for the region (transportation and so on). I find it odd that the same people who complain about this imbalance vociferously seem now perfectly willing to accept the federal tax/entitlement receipt imbalance.

As for the tired meme of Republicans "protecting the really high earners," it's not so much that the GOP wants to protect high earners, but rather that there is not enough of them to tax to prevent the oncoming deficit tidal wave as I explained above. Oh, yeah, and there is that principle thing -- free enterprise and limited government are both enduring elements of the GOP agenda. Even though a lot of super rich people, especially in major metro areas, are "liberal" and never vote Republican, that does not stop the GOP for sticking up for principles that benefit their political adversaries. Silly idealists, I know.

[IndiaLimaDelta]

Obama makes fresh demands on ‘fiscal cliff’ - The Washington Post

President Obama offered Republicans a detailed plan Thursday for averting the year-end “fiscal cliff” that calls for $1.6 trillion in new taxes, $50 billion in fresh spending on the economy and an effective end to congressional control over the size of the national debt.

The proposal, delivered to the Capitol by Treasury Secretary Timothy F. Geithner, mirrors previous White House deficit-reduction plans and satisfies Democrats’ demands that negotiations begin on terms dictated by the newly-reelected president.

The offer lacks any concessions to Republicans, most notably on the core issue of where to set tax rates for the wealthiest Americans. After two weeks of talks between the White House and aides to House Speaker John A. Boehner (R-Ohio), it seemed to take Republicans by surprise.

This seems to me like someone who is drunk on his rather modest victory. Reminds me so much of GW Bush c. 2005. and that did not end well.

This is not going to end well for areas like NoVA, for that matter, that has high income households and high mortgages/deductions.

[CAVA1990]

Originally Posted by IndiaLimaDelta

This is not going to end well for areas like NoVA, for that matter, that has high income households and high mortgages/deductions.

Maybe those NoVA households will just need to work a little harder to pull in more pre-tax dollars. There is a school of thought that says that in the face of higher taxes, people will do more to maintain a certain after-tax lifestyle.

[stpickrell]

Originally Posted by IndiaLimaDelta

One of the main problems with past tax cuts, including, yes, the cuts from the Bush 43 years, is that now a substantial portion of the population pay no to little income tax and have absolutely no incentive to support reforms that reduce entitlement benefits.

I remember St. Ronald saying a good thing about his income tax reform of 1986 was that it took millions of people off the tax rolls. It was also a selling point of Bush's 2001-02-03 tax cuts.

Now, it seems conservatives are fretting more about the 47% than about say, the loophole that lets hedge fund types pay themselves in long-term capital gains.

And then they wonder why the poor (other than Southern Whites) don't seem to be buying the conservative message. (Then throw in the apparent distaste for non-Whites among some elements of the conservative base, and you see Blacks breaking 95-5 D and Latinos breaking 70-30 D.)

FWIW, the market above 800k or so has been less solid than the market below that since the bubble burst. This "borderline" might go down somewhat, but absent a significant reduction in employment, Northern VA will not be all that affected by slight changes in marginal tax rates. (Or, did the place become a ghost town in the 1990s?)

[boyd888]

Originally Posted by IndiaLimaDelta

Obama makes fresh demands on ‘fiscal cliff’ - The Washington Post
This seems to me like someone who is drunk on his rather modest victory. Reminds me so much of GW Bush c. 2005. and that did not end well.

This is not going to end well for areas like NoVA, for that matter, that has high income households and high mortgages/deductions.

What's the point of this thread? There is a politics section if you want to complain about Obama. Clearly the end result will be some sort of compromise so both sides can claim they are happy, but not before months (well years now) of yelling at each other. And yes, BOTH sides, not just the evil democrats.

Whatever they decide, it won't effect NOVA in the slightest. They may cap overall deductions, but the mortgage interest deduction itself is untouchable....way too much lobbying from those industries to ever see that reduced.

[claremarie]

Originally Posted by CAVA1990

Maybe those NoVA households will just need to work a little harder to pull in more pre-tax dollars. There is a school of thought that says that in the face of higher taxes, people will do more to maintain a certain after-tax lifestyle.

In the face of higher taxes, people will do what they can do avoid them.

That means taking their capital gains this year, accelerating income and deductions into this year, giving money to their kids this year, pre-paying college tuition this year, and calling their tax planner about next year.

[Alley01]

Originally Posted by claremarie

In the face of higher taxes, people will do what they can do avoid them.

That means taking their capital gains this year, accelerating income and deductions into this year, giving money to their kids this year, pre-paying college tuition this year, and calling their tax planner about next year.

That is already happening. I work in a field that involves such things and I can tell you that we are swamped all of a sudden for that very reason. It isn't just people in NOVA, but all over the country. But, that of course applies to anyone that actually has any wealth which I still doubt NOVA truly has a lot of. I don't see that most people have much in this area, and that the decrease in income based on higher taxes will affect many more than they could ever imagine. Perhaps a lot of one income families are going to have to turn into two. I am a bit surprised at how many of my neighbors are stay at home Mom's or Dads.

[CAVA1990]

Originally Posted by Alley01

That is already happening. I work in a field that involves such things and I can tell you that we are swamped all of a sudden for that very reason. It isn't just people in NOVA, but all over the country. But, that of course applies to anyone that actually has any wealth which I still doubt NOVA truly has a lot of. I don't see that most people have much in this area, and that the decrease in income based on higher taxes will affect many more than they could ever imagine. Perhaps a lot of one income families are going to have to turn into two. I am a bit surprised at how many of my neighbors are stay at home Mom's or Dads.

There's a good example of how higher taxes can boost output.

[stpickrell]

Wait, all this from a 3-4% increase in marginal tax rates?

[ACWhite]

Originally Posted by Alley01

That is already happening. I work in a field that involves such things and I can tell you that we are swamped all of a sudden for that very reason. It isn't just people in NOVA, but all over the country. But, that of course applies to anyone that actually has any wealth which I still doubt NOVA truly has a lot of. I don't see that most people have much in this area, and that the decrease in income based on higher taxes will affect many more than they could ever imagine. Perhaps a lot of one income families are going to have to turn into two. I am a bit surprised at how many of my neighbors are stay at home Mom's or Dads.

If you are referring to wealth rather than income, you might be interested in this article by Robert Frank:

Cities That Are Minting Millionaires At the Fastest Rate - U.S. Business News - CNBC

The Wash DC metro area ranks 4th in overall #s of "high net worth individuals", defined as having >$1 mill. in assets that can be invested (e.g., excluding one's home, car, furniture, art, etc.). It might rank slightly higher if HNWI are reported as a % of population.