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I agree Chuck. There ought to be some kind of COL adjustment. I wonder what the side affects of doing so across the board (all brackets) would be however. I imagine it might just further inflate high COL markets. Just think of it, you now keep more of your money - but so does everyone else. Think that might cause prices to rise? Does that create a sort of feedback loop? Net incomes rise, prices rise (assuming limited supply of *whatever*), thus cost of living rises, so next year's COL adjustment is bigger - net income continues to rise, public revenues fall..
In some ways, I agree that COL should be a factor and in others, I don't. I consider living in a place like NY or Chicago a perk and the cost of living is the price of that perk. If there were a COL adjustment, it'd just make living there "free". I don't live in one of those high priced markets because I like to have a lower COL - that was a choice I made. Other chose to live there and if they can't really afford it, then they need to make the hard choice and live elsewhere.
snip snip -- --
IMO, the first dollar is the most valuable dollar you'll ever earn. It buys bread. I honestly don't give a rats behind about how anyone is taxed on their 250,001st dollar. And anyone who argues that its a disincentive to hard work can also stuff it. I'm a white collar professional, I've yet to meet an executive who works as hard as my poor-by-any-definition Farmer grandfather. This isnt' about hard work or anything other than the perception (misperception) that Joe Banker has the talent and brilliance to make other people more money. That's what is valued most - making other people more money... 15 million dollar bankers bonuses for a bunch of schemes that come back and bite us all in the arse when reality dawns that Joe Banker really wasn't brilliant after all (as is always the case).
The wealthy over value themselves. They earn more, so they must be doing something "better" right. The older I get and the more people I encounter from all walks of life - the more and more I discover that assertion to be hollow.
Case in point... I'm a well paid IT guy and here I am posting on CD; 10 minutes ago I had a meeting with a VP (earns 250k+) in his office. What was he doing? Reading GQ. It's the end of the day and the janitorial staff is cleaning up (bathrooms, trash cans etc). When I left the office the VP returned to his magazine and the janitor was still moving his bin from place to place - cleaning up.
We're the educated smart guys, the hard workers who did everything right. The janitor must be lazy or dumb right? Vanity is thinking one's success is entirely of his own doing. Wisdom realizes that circumstance has just as big if not a bigger role to play. The market is good for some things, and poor for others. Social justice and equality is not one of its strengths.
I like to think of it this way: The Janitor is paid what he is paid because anyone can do it with no training. I'm paid what I'm paid because it takes a lot of training. Yet, even we were paid the same... I would prefer my work to his. That's one of the many ways I count my blessings and don't complain about paying a higher rate on my next N-thousandth dollar of income. I paid the same amount of tax on my first X dollars of income as the janitor did.
I personally believe you could replace all of the multi-million dollar executives in this country with executives making less than 500k / year and no company would be any worse off. Value is according to human perception... and humans are quite irrational. The market is nothing more than a collection of irrational beings pretending they are fully rational.
POST OF THE YEAR!!!!
Sir, you've successfully captured the essence of the concept of marginal utility theory of money in a world full of humans that overvalue their sense of worth in lieu of recognizing that our income potential is more a function of timing, luck and moral trade-offs, than it has to do with hard work and attitude. You have wisdom beyond your years. And do not fret the indignation from the vain in the audience because as Emerson pointed out, to be Great is to be Misunderstood.....
Mortgage deductions are what they are, a loophole. The majority of people would have to spend a load of money on interest just to catch up with the standard deduction, it's not for the average joe, but joe doesn't know any better so he roots for it becuase he believes he TOO can get to make 250K+ and all will be good. In the process he forgets the concept of marginal utility of his first dollar compared to his last. Once again, congratulations on elaborating on these moral hazards with conviction and poignant eloquence.
To the peanut gallery, get your head out of your behind already, as non-violent as it looks, Vanity is truly the deadliest sin for a reason and our current circumstances make an excellent case study for it.
I agree Chuck. There ought to be some kind of COL adjustment. I wonder what the side affects of doing so across the board (all brackets) would be however. I imagine it might just further inflate high COL markets. Just think of it, you now keep more of your money - but so does everyone else. Think that might cause prices to rise? Does that create a sort of feedback loop? Net incomes rise, prices rise (assuming limited supply of *whatever*), thus cost of living rises, so next year's COL adjustment is bigger - net income continues to rise, public revenues fall..
Maybe cost of living should be left alone.
I think your right that the Fed would have a hard time adjusting for COL in their tax rates for the different States.
From what I understand, the Federal Tax bracket rates are uniform regardless of which State you live. What adjusts for COL are the tax deductions and credits and these are determined off of "market" price.
After all, COL is related to the things that are consumed to live. Housing, child care, education, etc. etc. vary depending on where you live. So, therefore, keeping these deductions makes the arbitrary 250k wealthy line bearable.
By taking any of these deductions out... then essentially the COL adjustment is taken out and the lower cost States would all of a sudden have a Tax advantage.
The Federal tax code should neither favor nor deter people from living in any State. Keeping the deductions keep all the States on a neutral footing... neither punishing expensive States or punishing lower cost States because the market price determines the amount of deduction/credit.
So the guy making 250k in Nebraska has lower housing costs... so they have a lower deduction on housing costs.
The guy making 250k in California has higher housing costs... so they have a higher deduction on housing costs.
Therefore, the housing deduction makes living in either Nebraska or California tax neutral. Taking away the deduction for the wealthy in California or other high cost States is a penalty... and shifts the tax favor to low cost States.
Setting the 250K as a cutoff point between a higher tax cut also penalizes small businesses. Small Businesses typically make that much while paying higher taxes and on top of that have an overhead cost of doing business to pay. There will be lees people wanting to embark on a risky small business venture that is fueled by innovation and a new idea when they are penalized by higher taxes and less tax deductions. Apple started out as a very small business. Living within your way of thinking we may not have had Ipods and other cool little things.
The COL in Durham is so low that it would be really hard for you to understand where most people are coming from with respect to tax deduction. Not everyone can live in an area like yours and do what their career path has lead them to do. People are centered around NYC, DC, San Fran b/c there are huge companies for engineers, lawyers, MBA grads, etc. The more companies in an area the more people will be employed by them. The average middle class house in the DC region is around 600,000. Try buying that on your NC wage.
I think these regions also tend to vote for Democrats b/c these areas are full of people in their 20s, new immigrants, and poorer people. Most serious business minded people that I know in this area are moderate Republicans. I hope that a new party emerges from all of this mess that neither republican nor demoncrat but takes a moderate viewpoint from both.
Setting the 250K as a cutoff point between a higher tax cut also penalizes small businesses. Small Businesses typically make that much while paying higher taxes and on top of that have an overhead cost of doing business to pay.
I wish this lie would go away. 3.8%. 3.8% of business would be affected by the $250k tax thing. And that was in 2007 when everyone was doing much better.
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The COL in Durham is so low that it would be really hard for you to understand where most people are coming from with respect to tax deduction.
Yeah and it's hard for me to cry for someone who has to pay $150k/year in taxes and think they are actually middle class. That's just absurd.
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Not everyone can live in an area like yours and do what their career path has lead them to do. People are centered around NYC, DC, San Fran b/c there are huge companies for engineers, lawyers, MBA grads, etc.
Ok. So they made a life choice to live in a more expensive area. And that means that maybe they can't afford to buy a house!
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The more companies in an area the more people will be employed by them. The average middle class house in the DC region is around 600,000. Try buying that on your NC wage.
I wouldn't because I'm not insane. I have no sympathy for someone who bought a $600k house on a $250k/year salary. Sorry. Not gonna happen.
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I think these regions also tend to vote for Democrats b/c these areas are full of people in their 20s, new immigrants, and poorer people. Most serious business minded people that I know in this area are moderate Republicans. I hope that a new party emerges from all of this mess that neither republican nor demoncrat but takes a moderate viewpoint from both.
What's your point? The democrats WON. In a democracy, the majority gets to make policy. You hope that there's some cooperation between the majority and minority parties but the minority party DOES NOT MAKE THE POLICY. That's as plainly as I can say it.
To recap:
1) The vast majority of small business will not be affected by the $250k tax.
2) People who need a few hundred extra/year in tax breaks else they will be foreclosed on have other issues and overbought for what they could afford.
3) In a democracy, the majority makes policy.
I don't always agree with tax increases but in a situation like this? Absolutely.
Some history lesson. Does anybody know why mortgage interest is tax deductible?
Contrary to popular belief, it was not originally introduced to encourage home buying. It is tax deductible for the same reason business can deduct interest expense from earnings to calculate tax. In fact, in the old days, individuals can also deduct other interest expenses. Then the government decided to remove tax deduction for other interests. Currently, mortgage interest remains one of the few interest expenses that individuals can deduct from their income. I believe student loan interest is also deductible. Correct me, if wrong.
I won't be surprised that the government decides to limit the tax benefit of mortgage. It has happened before with other interest expenses.
Student loan interest cycles out of deductablity at about $120K AGI for a married couple. Three people in college now (wife and 2 kids) one kid out of college, AGI just a little above cut off. I remember the days when all interest was deductable. That went away sometime in the 80's.
Setting the 250K as a cutoff point between a higher tax cut also penalizes small businesses. Small Businesses typically make that much while paying higher taxes and on top of that have an overhead cost of doing business to pay.
I can't say I know much about small businesses and taxes, but I was under the impression that small businesses and the owner are one and the same when it comes to taxes. Thus, expenses are taken out BEFORE taxes... and what's left, income after expenses, is subject to tax.
So what makes a small business owner's 250k in income different from anyone elses 250k in income?
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