STUMP » Articles » Taxing Tuesday: Democratic Tax Ideas for an Election Year » 11 September 2018, 17:35

Where Stu & MP spout off about everything.

Taxing Tuesday: Democratic Tax Ideas for an Election Year  


11 September 2018, 17:35

I don’t think any of these will provide impetus for voters, but hey, what do I know.

Think Advisor:Here’s What May Happen to Your Taxes if Democrats Win the House:

Republicans thought the historic overhaul that slashed taxes would be one of their main campaign selling points ahead of November elections. Instead, Democrats are talking more about the law — and how they want to undo it.

In their bid to retake control of Congress, many Democratic candidates are pointing to the $1.5 trillion tax cut — and what they say are its exclusive benefits for corporations and wealthy individuals — as a roadblock to expanding benefits like Social Security and Medicare. Chipping away at some of the law’s costly provisions will help to fund those programs, they say.

Hike Capital Gains Rates
The tax law didn’t change the treatment of capital gains, but the Treasury Department is looking at whether it has the power to cut tax bills for investors who have investment income. Democrats are already blasting the proposal, and a group of Senate Democrats wrote a letter to Treasury Secretary Steven Mnuchin, urging him not to index the gains to inflation.

Repeal Carried Interest Break

Eliminating special tax treatment for the profits hedge fund and private equity managers earn, known as carried interest, is also at the top many Democrats’ tax to-do lists.

Trump had previously vowed to end the provision that allows fund managers to pay capital gains rates, instead of higher ordinary tax rates, on much of their earnings. Instead, the tax law just extends the period — to three years from one year — that managers have to hold the assets for before they can qualify for the break.
Undo SALT Limit
The tax law capped the amount of state and local taxes an individual can write off at $10,000. The amount was previously unlimited, and the cap hit residents of high-tax states in New York, New Jersey and California particularly hard.

Repealing or increasing the cap on that deduction is a high priority for Democrats who represent districts in high-tax states, such as Representative Bill Pascrell of New Jersey and John Larson of Connecticut.

But outside the high-tax states, there isn’t much political pressure to change the deduction, which could cost about $100 billion a year to restore in full, according to estimates from the Joint Committee on Taxation.

Why do they want to give a tax cut for the high income folks? Weird.


Okay, one “clever trick” has been overruled by the IRS. But, via Governing, 3 Ways Blue States Could Still Get Around Tax Reform

The IRS has moved to block high-tax states from circumventing GOP limits on tax deductions — but not in every way possible.

The Internal Revenue Service issued new regulations late last month in an effort to end workarounds by blue states hoping to bypass the state and local tax deduction cap introduced under December’s federal tax overhaul. But observers say that even with the new regulations, states still have several ways to get around the cap.

Rework Their Charitable Loophole
While the IRS is within its right to change regulations, there’s one big problem with these: They change the rules for the more than 100 quasi-government charities in 30 states that have long allowed taxpayers to lower their tax burdens by making contributions in exchange for things like school vouchers, tuition scholarships and conservation easements.

Previous IRS guidance, most recently in 2010, has supported this practice. Associations that represent nonprofits and charities, such as the Philanthropy Roundtable, are pushing back on the IRS to create a carve out for “legitimate charitable programs.”

Okay, the first idea is to try to have the IRS undo what they just said. Good luck with that.

Await a Ruling on a Pending Lawsuit

If the rules stand, they could still be useful to states that are suing the federal government over the state and local tax deduction cap.

In the suit, filed in July, Connecticut, Maryland, New Jersey and New York argue that the cap violates the U.S. Constitution’s Equal Protection Clause and the 10th Amendment, which protects states’ rights. The suit accuses the federal government of meddling in state taxation and fiscal policies by making it more politically difficult for states to raise revenue if needed.

…the second choice is to win a lawsuit they can’t win.

Jeez. These aren’t ideas.

Institute a Payroll Tax
Beyond the charitable deduction tactic, states have other options. But politically, they’re more difficult.

For starters, the cap is temporary. Some argue that states could simply wait until 2025, when the cap is scheduled to sunset, and hope that by then the politics will have shifted and support for keeping the cap will have subsided.

More immediately, though, states could increase business taxes, which are still deductible under federal law. So, according to a paper published by more than a dozen tax scholars and analysts, instead of workers paying state income taxes, employers could take the equivalent amount of money out of a worker’s wages. Businesses would then pay a payroll tax on those lower wages and deduct it from their federal taxes. The employee would have a lower income to declare to the IRS and would effectively receive the same take-home pay while saving the same amount on taxes as they did under the old system.

That’s what New York state has come up with. Connecticut has also implemented a similar tax-shifting system for LLCs, which are business that file taxes as individuals.

Okay, something even more complicated that screws around with people with implications people really haven’t thought through (such as: what happens to their Social Security earnings history).

The first one is abject bargaining/pleading, the second is pie-in-the-sky, and the third is “let’s fuck over the low income folks”.

I’ve got something you can consider: just do nothing. Let the high income people get hit with higher federal income taxes.

I mean, you didn’t do much when some of us got hit with the AMT. How is this worse?


(Yes, I know Republicans unveiled a new tax proposal today… I’ll get to that next Tuesday…it takes me time to amass commentary)