That article de-emphasizes the contribution of the tech sector. It is important to understand why.
Consider Apple–the world’s most valuable company. If we look at its sales, much of that is not counted for California, or even the US, because a large portion of its products are manufactured and sold overseas. That is why there is so much discussion about companies like Apple having so much cash outside the US and unwilling to bring it to the US, because it would be taxed. The same is true for most tech companies.
However, the California employees of these tech companies greatly benefit from the company’s global sales and profits which is reflected in the higher stock price. They then sell some shares and spend this wealth locally on homes and cars, driving the local economy. They also contribute a great deal to the state’s coffers directly through state income taxes.
Returning to the tax proposal, the US Treasury shamed itself by releasing a one page “analysis” that purports to believe the tax bill will pay for itself. This is an unbelievably shoddy press release which all involved should be ashamed of.
The right way to conduct an analysis of the effect of a tax plan is to figure out how much GDP growth the plan would produce, and then figure out what effect that growth rate would have. But this “analysis” does nothing of the kind. It assumes a growth rate. Just assumes it, pulls it out of thin air and then figures out what would happen if this growth rate were to occur. And then when they attempt to justify this assumption, they say they assume the tax plan will pass and the Trump budget, with draconian spending cuts, will be also passed, though the Trump budget was rejected by Congress the minute it was released.
It would be like my figuring out how much weight I would lose on my Christmas cookie and hot cocoa diet by first assuming I’d lose a pound a week, and then figuring out how long it would take for me to lose 20 pounds. And then when you asked me, but Fang, how will stuffing yourself with delicious buttery chocolatey cookies make you lose weight, I’d explain that I was also assuming a new perfect diet drug would be invented and I’d take it. It’s nonsense.
Senate bill right now provides for more than 100% marginal rate in some instances. People making $100 more would owe more than $100 in additional taxes.
Dietz, California’s economy is interesting and worth discussing. How about starting another thread to discuss it? I have plenty to say about California and housing, but this thread is not the place to say it.
If Jones wins, this will put a lot of pressure on Republicans to push the tax bill through this month. They were already feeling pressure, but that would ratchet it up a lot. Then Corker and Collins could kill it should they choose.
So just to summarize: if one normally itemizes but most likely won’t exceed the proposed $24,000 married standard deduction even if it includes mortgage interest and up to combined $10,000 property/SALT - watch for the vote and in the waning days of 2017 accelerate any possible payments for property taxes, state income taxes (including 4th quarter estimated), charitable deductions, and mortgage payments?
Or can one assume some kind of bill will pass in early 2018 (if not in the next two weeks) and will be retroactive to Jan. 1, 2018 so might as well do that anyway?
I did a quick and dirty review of 2017 deductions and if they stay the same in 2018, most likely won’t itemize with the increased standard deduction. Problem is I can’t really predict 2018 medical (especially dental) or closely predict AGI (I have a rough idea but no idea if investment income will increase due to corporation tax savings). But it does look like we can save 15% marginal rate in 2017 on anything we accelerate vs 12% in 2018 if we would be able to itemize. And our major charitable is for synagogue membership which won’t be payable until next summer.
If income/deductions stay the same in 2018, I think the tax bill will have a net cost of about $600 more taxes. Very rough estimate.
Also it will be interesting to see what the states do to adjust to changes in federal tax calculations. For example, California allows potential itemized deductions.
I don’t really want to have to be making these decisions in the next two weeks - enough to do! And it also looks like we might consider paying down or off our remaining mortgage next year if tax savings no longer offset interest, low as it is.
You mentioned your mortgage payments - be careful - I think prepayment is usually considered a principal payment and won’t help with mortgage interest deduction.
One way to accelerate charitable would be to open a donor advised fund. You get the deduction when you fund it but can direct the contribution to charity at a later date. You should make sure that your synagogue would qualify and would accept the gift in that way but that might work for you.
@dietz199 Don’t worry. That poverty rate will evaporate very soon as all the trickle down effects happen. Plenty of money in CA for it all to trickle down.
Words cannot express how angry I am about that Treasury “analysis.” Anyone on this board who expects intellectual rigor, which I believe is most of us, should be equally dismayed. How dare the Treasury Department put out such a shoddy work product? It’s an insult to anyone who cares about thought, reason and careful analysis. It assumes Congress and the American people are so stupid that they cannot distinguish a rigorous analysis from, basically, nothing.
They justify the growth rate by assuming it. A college freshman should reject that kind of circular reasoning.
Treasury Secretary Mnuchin repeatedly promised us a Treasury Department analysis of the tax plan. Either there never was an analysis, or one was produced using the Department’s extensive modeling capabilities, but it showed the wrong answer and was surpressed. Either is a scandal.
