Take a little bitty town elect a mayor of the little bitty town
A square little man to make it go around squares make the world go round
Pick out a state elect a governor of the state
A square little man to make it go around squares make the world go round
(Hey) squares make the world go round sounds profane sounds profound
By government things can’t be made do by hipsters wearin’ rope-soled shoes
Take the whole world what does it take to make a whole world whirl
What does it take to make a whole world whirl round
Squares make the world go round pip pip pip
(Hey) squares make the world go round…Roger Miller
The mechanics of the Trump Tax Bait and Switch of 2017 Implementation are struggling through a depleted and conflicted IRS, so a lot remains unclear. When looking at the middle class — whatever that is in most of the country — it helps to keep some numbers in mind.
First, of all, exemptions. You know what they are, of course you do. They were the number of deductions you were claiming up front that affected your withholding on your W4 form that had a direct impact on your payroll taxes. In general, if you were conservative about your tax liability and didn’t like surprises, you always claimed one or two less than you were entitled to. Thus, I was entitled to claim Married, 2 — my wife and me — but always claimed Single 0. Barring a lottery win, I was assured that I’d primarily have to worry about how to spend my refund rather than how to pay the Tax Man.
Now under the old law you could claim a lot of exemptions. Nobody audited your exemptions; I remember one employee who had claimed 15 exemptions when she was probably entitled to 4 and ended up with a monstrous tax bill since she only had four valid deductions. Somebody who was basically crooked in intent dreamed that strategy up for her, and somehow this ended up on my desk. Nothing that I could do about it, although I believe the owner gave her a “loan” to cover the arrears and then forgave it. Nice thing about privately held, plantation mentality operations like that firm or the Trump Organization. So long as you’re obsequious and blindly obedient enough, you can get away with a lot of ignorance.
Today, that’s somewhat simplified. Exemptions won’t exist; since W4 forms get filed constantly, the odds are good that some new formulation will be decided and with some errors in the math someplace, they’ll convert what’s in place already before demanding an immediate refiling of the new improved W4 at a time when it’s really inconvenient for everybody.
Since they have no clue as to what it’s actually going to look like, the IRS’s best guess it probably useless. Still, it is definitely not a post card, at least in draft form.
That is inevitable in this Trump-led process, by the way. Simple solutions to complex problems usually don’t solve the problem, of course, so much as make a lot more. The Affordable Care Act’s roll out had disastrous problems that were relatively quickly resolved because the people involved knew that there were going to be problems and had the talent and desire to fix them. I have to wonder with the IRS already short of operating funds and staff before the Trump-Ryan-McConnell giveaway how prepared they’ll be to fix problems while trying to deal with the current Tax Season.
OK, so no exemptions. In real world impact, each exemption defined how much you were claiming should be not taxed based on the real headcount in your home. Each exemption was worth $4000. So, the good news is that if you are a family of three, this will all be a wash arithmetically. If you’re a family of four, well…not so much. Five or six, and it gets worse exponentially…
One of the alluded to but not discussed issues in this is the impact on home ownership. The primary tax shelter and investment for a high percentage of Americans lie in their home mortgages. However, with loans at historic lows thanks to the Federal Reserve’s generosity in keeping rates low, the tax shelter aspect is in itself less exciting than it was. But, what it did accomplish was a way to itemize deductions so that you were able to claw back some income from things that were actual costs of living in a complex and modern society.
Anyone who has ever itemized knows that it’s not easy. But, with computer assistance, a reasonable amount of OCD for collection of receipts, a good established relationship with your tax preparer, you could get through the process and maybe claw back a bit more than you might have using the standard deduction. The standard deduction is $12000 for tax year 2017. Given the relatively low rate of interest on my home, I was fairly close last year to not having enough itemized deductions, so I did a little more planning for 2017.
Of course, planning may not help if you’re not rich enough to have a whole special section of the code devoted to you.
For CY 2018, the standard deduction has been reconfigured to include all the money that came off the top end prior to computing taxes. If you are married, you have a standard deduction now of $24000. In order to itemize your taxes, you would need to have deductions exceeding $24K. That’s hard to get two paying 3.5% mortgage unless you have a very large mortgage. To make it more fund, many items like interest on student loans, State and Local Taxes, Medical Expenses and so on are no longer allowed. Unreimbursed business expenses are slashed or no longer allowed. Moving expenses are no longer allowed if you change jobs or get transferred.
So, the good news is that if you are in fact the ideal middle class family under their tax definition, you will no longer be able to itemize if you wanted to. This will probably increase your taxes, although perhaps not. It all depends…
More to come as more is revealed as the rules, clarifications and various fixes occur.
I am slightly encouraged by the response of a lot of Democratic Senators. Yes, this is an awful law, but it’s a starting place. Joe Manchin has said he doesn’t think that the bill needs to be repealed so much as modified. That eliminates a lot of shouting and pyrotechnics, as we saw with the Obama care debacle. My own thoughts are that a re-engineering of the tax tables and actual reform of the corporate side as opposed to grandfathering all the stuff like carried interest for hedge fund managers and such would solve a lot of the problems. Perhaps doubling the exemptions and reducing the standard deduction to the $12000 level would accomplish the sort of leveling of the rich and corporate versus workers and tax payers playing field.
Yeah, not many mourners, but I’m not suprised
Not many mourners, just me and two guys
Where’s all them others that claimed they’s his friend
Not many mourners, it’s a sad way to end
So Pardon this coffin, please step aside
Pardon this coffin, my brother just died
Now don’t you give me no ornary look or I’ll knock you down
I’m taking this coffin, putting it six foot down
I’m telling you, six foot down…Roger Miller
Historically, under that regular order that McCain championed and demanded until he didn’t anymore, that’s the way changing laws worked. You passed something, and then re-visited it as needed. It wasn’t as sexually stimulating as running around screaming “Repeal and Replace!” but it worked really well. And, where there were major changes about to happen, they were phased in over time to minimize the impact of unforeseen events, consequences and human error. Well, this will be more fun to watch, if not more and more tragic.
It really is time though to have an actual debate with rules about truth, exaggeration and logical flaws — the ad hominem attacks that Trump specializes in, begging the question, false equivalencies and so on — as to what sort of country do we want to have, and what are we willing to do to get there. Taxes and budgets are really statements about that if viewed strategically, and looking at where we are, they’ve been used primarily as wall paper for a while.
Should you have thoughts on this, feel free to drop me a note at [email protected]
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Posted by Mike Farrell on January 4, 2018, With 0 Reads, Filed under Corruption, Government, Of Interest. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.