Trump's Idiotic Tax Plan

[Cheerful Charlie]

http://www.cnbc.com/2017/04/27/how-...proposal-may-affect-every-income-bracket.html

[h=4]"Tax brackets[/h] Trump's revised proposal would reduce the current seven tax brackets to three with rates of 10 percent, 25 percent and 35 percent."

Well, what happens when you get a raise at work that bumps you from that 10% tax bracket to the 25% bracket and cause a major loss of net income?

To the rubes, "tax simplifaction" gets them kneejerking and supporting any bad idea that is said to simplify taxes.

Now imagine you are a company that needs to offer raises to keep good people, but doesn't want to have to offer massive raises to avoid disasterous bracket creep. This is a supremely bad idea.

We went through this under Carter, where Carter inherited a broken system from Nixon/Ford. This gave up wild wage spirals, inflation and caused chaos. It was fixed with careful adjusting of tax rates and "indexing" to avoid such issues. But the right has no memory, no sense, and doesn't listen to experts who do.

And Trump's "plan" if we can dignify that with the term "plan" doesn't say where the line between 10% and 25% will be drawn.

The rest of the "plan" is also bad. Including vast multi-trillion dollar deficits to come.

 

[zorq]

Tax brackets have never been what makes taxes complicated. If he really wants to simplify taxes he needs to reduce or eliminate credits and deductions. That's how the rich manage to skimp out and pay less in taxes than the middle class.

 

[jonatha]

http://www.cnbc.com/2017/04/27/how-...proposal-may-affect-every-income-bracket.html
Well, what happens when you get a raise at work that bumps you from that 10% tax bracket to the 25% bracket and cause a major loss of net income?

Nothing, because math says that doesn't happen.

Prior gross income = x, prior tax x*10%, prior net income x*90%.

Let's assume the entire raise is taxed at 25% (which yields the largest possible tax bill). Note that this a marginal rate, so the income not attributable to the raise is still taxed at 10%.

New gross income = (x+y), new tax = (x*10% + y*25%), new net income x*90% + y*75%. New net income > prior net income...

 

[Cheerful Charlie]

This "simplification" of tax brackets is a hidden march to a flat tax system. Plus VAT and consumption taxes.

 

[untermensche]

Who benefits most?

 

[fast]

Well, what happens when you get a raise at work that bumps you from that 10% tax bracket to the 25% bracket and cause a major loss of net income?

To add to what Jonatha said, only the dollars in the bracket is taxed at the other rate.

For example, let's say $1 to $20,000 is taxed at 10% and 20,001 to $50,000 is taxed at 25%.

If you make $19,000 and get a $2,000 raise, you now have $20,000 taxed at 10% and 1,000 taxed at 25%.--not $21,000 taxed at 25%

 

[Cobalt]

Well, what happens when you get a raise at work that bumps you from that 10% tax bracket to the 25% bracket and cause a major loss of net income?

To add to what Jonatha said, only the dollars in the bracket is taxed at the other rate.

For example, let's say $1 to $20,000 is taxed at 10% and 20,001 to $50,000 is taxed at 25%.

If you make $19,000 and get a $2,000 raise, you now have $20,000 taxed at 10% and 1,000 taxed at 25%.--not $21,000 taxed at 25%

Right, it always amazes me that some people don't understand how tax brackets work.

 

[Cobalt]

This "simplification" of tax brackets is a hidden march to a flat tax system. Plus VAT and consumption taxes.

I agree, and things that make the tax system less progressive are bad for those with low income. Decreasing the number of tax brackets is a step in that direction. But i don't see why anyone would expect better from Trump.

 

[Loren Pechtel]

Tax brackets have never been what makes taxes complicated. If he really wants to simplify taxes he needs to reduce or eliminate credits and deductions. That's how the rich manage to skimp out and pay less in taxes than the middle class.

Yup. The tax brackets are very simple for a paper filer, a non-issue (other than for tax planning) for someone using a tax program.

For us, complexity comes from Schedule C (and there's not really anything they can do about that, they don't ask us for anything stupid) and foreign reporting (which could easily be cleaned up. 1) You report virtually identical data to the IRS and FinCen. 2) A box which said "same institution as the previous account would cut out more than half the data entry for us. 3) IRS, have a look at how FinCen did it. Fillable PDF that contains a button that goes to their website, upload the PDF. No need for a million e-file hoops!)

 

[Nice Squirrel]

Who benefits most?

the people*

*the people is a trademark of the 1% everyone else are lazy leeches.

 

[barbos]

Well, what happens when you get a raise at work that bumps you from that 10% tax bracket to the 25% bracket and cause a major loss of net income?

I understand tax rate brackets applies not to total income but to income over previous bracket. So what you suggest does not happen.

 

[barbos]

Tax brackets have never been what makes taxes complicated. If he really wants to simplify taxes he needs to reduce or eliminate credits and deductions. That's how the rich manage to skimp out and pay less in taxes than the middle class.

Agreed, stupid tax code created the whole industry of preparing it.
I am for flat income tax plus heavy luxury tax, and no fucking deduction.

 

[Cheerful Charlie]

It's kind of hard to put a back-of-the-envelope look at this tax situation since Trump offers no real numbers, but let us try anyway.

Suppose for a single person, the standard deductable is $15,000 for a single person, and the bracket for 10% is below $75,000.

Now consider John who works in IT and earns $86,000.

His pay $86.000
- deductible - $15,000
Taxable $71,000
Tax - $7,100
Take home $79,900

Now John gets a 5% raise
He now earns $90,300 a year
Minus $15,000 deductible = $75,300
John is now in the 25% bracket, thanks to his raise
His tax now is $18,825

Before raise, take home was $79,900
After his raise, his take home is now $90,300 - $18,825, or $74,175.

That is a costly 5% raise in John's case. It cost John $5,725.

You are invited to fire up your spread sheets and check out your own reasonable scenarios.

 

[Cheerful Charlie]

Part 2 exercise. John's employer wants to keep John and needs to give him a raise. How big a raise will he have to give John to give John a real 5% raise, after taxes, taking bracket creep into account? Or will it be just cheaper to outsource to an Indian firm?

 

[barbos]

It's kind of hard to put a back-of-the-envelope look at this tax situation since Trump offers no real numbers, but let us try anyway.

Suppose for a single person, the standard deductable is $15,000 for a single person, and the bracket for 10% is below $75,000.

Now consider John who works in IT and earns $86,000.

His pay $86.000
- deductible - $15,000
Taxable $71,000
Tax - $7,100
Take home $79,900

Now John gets a 5% raise
He now earns $90,300 a year
Minus $15,000 deductible = $75,300
John is now in the 25% bracket, thanks to his raise
His tax now is $18,825

Before raise, take home was $79,900
After his raise, his take home is now $90,300 - $18,825, or $74,175.

That is a costly 5% raise in John's case. It cost John $5,725.

You are invited to fire up your spread sheets and check out your own reasonable scenarios.

Multiple people explained to you how that works. I am actually amazed you don't know how it works.

 

[Cheerful Charlie]

It's kind of hard to put a back-of-the-envelope look at this tax situation since Trump offers no real numbers, but let us try anyway.

Suppose for a single person, the standard deductable is $15,000 for a single person, and the bracket for 10% is below $75,000.

Now consider John who works in IT and earns $86,000.

His pay $86.000
- deductible - $15,000
Taxable $71,000
Tax - $7,100
Take home $79,900

Now John gets a 5% raise
He now earns $90,300 a year
Minus $15,000 deductible = $75,300
John is now in the 25% bracket, thanks to his raise
His tax now is $18,825

Before raise, take home was $79,900
After his raise, his take home is now $90,300 - $18,825, or $74,175.

That is a costly 5% raise in John's case. It cost John $5,725.

You are invited to fire up your spread sheets and check out your own reasonable scenarios.

Multiple people explained to you how that works. I am actually amazed you don't know how it works.

It doesn't really work is the point. If you do a bit of math starting with reasonable assumptions, with collapsed tax brackets, somebody gets hurt. Again, we had this problem years ago during the Carter era, when tax brackets got out of whack and needed to be fixed.

As above, I did some math and showed in this case how somebody could get a raise and end up the worse for it.

Nobody has proven that wrong. Of course there are other things to consider, under the GOP plans, what deductions go away, and will one get to deduct state and local taxes et al.

Of course all of this may not apply to burger flippers and retail workers who are far away from the tax bracket creep problems. But the Johns of the world get screwed. And this is the nature of collapsing tax brackets. The math is going to guarantee problems.

Again, I showed with simple math how this works. For some it will be a big screw job and I don't see any way around that despite assurances from some it isn't a problem. Do the math and then show me how it really works.

In my example, John gets a 5% raise and loses $5,725 in real take home pay. because it bumps him from a 10% to 25% tax bracket. Show me why that sort of situation cannot happen, with the tax brackets as proposed by Trump et al.

 

[hardeep]

Multiple people explained to you how that works. I am actually amazed you don't know how it works.

It doesn't really work is the point. If you do a bit of math starting with reasonable assumptions, with collapsed tax brackets, somebody gets hurt. Again, we had this problem years ago during the Carter era, when tax brackets got out of whack and needed to be fixed.

As above, I did some math and showed in this case how somebody could get a raise and end up the worse for it.

Nobody has proven that wrong. Of course there are other things to consider, under the GOP plans, what deductions go away, and will one get to deduct state and local taxes et al.

Of course all of this may not apply to burger flippers and retail workers who are far away from the tax bracket creep problems. But the Johns of the world get screwed. And this is the nature of collapsing tax brackets. The math is going to guarantee problems.

Again, I showed with simple math how this works. For some it will be a big screw job and I don't see any way around that despite assurances from some it isn't a problem. Do the math and then show me how it really works.

In my example, John gets a 5% raise and loses $5,725 in real take home pay. because it bumps him from a 10% to 25% tax bracket. Show me why that sort of situation cannot happen, with the tax brackets as proposed by Trump et al.

The clue is in the word "bracket" Only taxable income in that bracket is taxed at the rate. Only money in excess of that bracket is taxed at a higher rate - not all of it.

In your example the first 75k of John's taxable income after deductions is taxed at 10%. So in your case he is initially taxed at 10% of 71k resulting a tax bill of 7100 and take home of 79900

After his 5% raise the first 75k after deductions (leaving 75300 as taxable) is still taxed at 10% This leaves him 300 above the 75k bracket which is the amount taxed at 25% resulting in a total tax bill of 7582.5 and take home of 82717.5 - nearly 3k better off.

Hope that explains things.

 

[barbos]

One more time.
suppose it's 10% for less than $100K and 90% for over $100k/year

One year you have $100k and pay 10% which is $10k.
Next year you get a $1 raise - $100,001
you pay the same $10k from the first $100k and then 90% from the $1 above that.
In the end you get $90K plus 10 cents which is more than simply $90K year ago.

I can't believe there are people who did not know that. You don't work at H&R Block?

 

[jonatha]

I can't believe there are people who did not know that. You don't work at H&R Block?

Dunno about him but many years ago I did and if he in fact does I'm not the least bit surprised.

 

[funinspace]

It doesn't really work is the point. If you do a bit of math starting with reasonable assumptions, with collapsed tax brackets, somebody gets hurt. Again, we had this problem years ago during the Carter era, when tax brackets got out of whack and needed to be fixed.

As above, I did some math and showed in this case how somebody could get a raise and end up the worse for it.

Nobody has proven that wrong. Of course there are other things to consider, under the GOP plans, what deductions go away, and will one get to deduct state and local taxes et al.

Of course all of this may not apply to burger flippers and retail workers who are far away from the tax bracket creep problems. But the Johns of the world get screwed. And this is the nature of collapsing tax brackets. The math is going to guarantee problems.

Again, I showed with simple math how this works. For some it will be a big screw job and I don't see any way around that despite assurances from some it isn't a problem. Do the math and then show me how it really works.

In my example, John gets a 5% raise and loses $5,725 in real take home pay. because it bumps him from a 10% to 25% tax bracket. Show me why that sort of situation cannot happen, with the tax brackets as proposed by Trump et al.

The clue is in the word "bracket" Only taxable income in that bracket is taxed at the rate. Only money in excess of that bracket is taxed at a higher rate - not all of it.

In your example the first 75k of John's taxable income after deductions is taxed at 10%. So in your case he is initially taxed at 10% of 71k resulting a tax bill of 7100 and take home of 79900

After his 5% raise the first 75k after deductions (leaving 75300 as taxable) is still taxed at 10% This leaves him 300 above the 75k bracket which is the amount taxed at 25% resulting in a total tax bill of 7582.5 and take home of 82717.5 - nearly 3k better off.

Hope that explains things.

C Charlie, these people are correct IRT how US federal income tax brackets currently work. The raise is, and would be, still a raise in your scenerio.

This doesn't mean Don the Con couldn't turn things inside out. But assuming only bracket levels and rate changes, this is how it would work.