
White House Proposes Slashing Tax Rates for Individuals and Businesses - uyoakaoma
https://www.nytimes.com/2017/04/26/us/politics/trump-tax-cut-plan.html
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tptacek
This is a purely political story, though it might look like an important
policy or news story. It isn't.

Every administration proposes a tax plan. But, of course, tax policy is set by
Congress. The President is (usually) the ostensible leader of the party, and
this President's party controls both houses of Congress, but by both rule and
statute they'll need a filibuster-proof majority to pass most of these
policies --- and, because the "popular" parts of this proposal will balloon
the deficit, they probably won't get unanimous support from their own party.

This is all academic anyways. It seems somewhat traditional for the
administration to propose a fairytale tax plan, and traditional for that
proposal not to have much impact on policy.

~~~
TAForObvReasons
> by both rule and statute they'll need a filibuster-proof majority to pass
> most of these policies

Couldn't the republicans use reconciliation (in which only a simple majority
vote is needed) to push tax reform?

~~~
tptacek
No. By statute, you can't use reconciliation to pass a bill that raises the
deficit 10 years out. It's not even a Senate rule they can "go nuclear" on:
it's a law.

~~~
twoodfin
Is there a political cost or statutory block to doing a Bush-tax-cuts-style 10
year expiring plan? Regardless of the merits, most of those cuts are still
law, and the GOP was able to extract concessions for the parts that were
allowed to expire.

Once in place, tax cuts are hard to reverse even through inaction.

~~~
tptacek
The Bush tax cuts expired in 10 years because the deficit projections allowed
it to last that long. Projections for this proposal --- which again I think we
should treat as fictitious, like every administration's first tax plan ---
give it 2 years.

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chollida1
Not an American but this is interesting....

> The estate tax and the alternative minimum tax, which Mr. Trump has railed
> against for years, would be repealed under his plan.

The AMT is one of the largest issues for people calling their stock options on
non liquid companies.

> Mr. Mnuchin offered few specifics about the blueprint, other than confirming
> that its centerpiece will be a 15 percent business tax rate

This is also very interesting, and I think, its the core of Trump's tax plan.
Instead of giving corporations a tax holiday to bring back offshore money,
just lower the tax rate to create a permanent tax holiday.

If the numbers are to be believed ( 250 Billion for Apple alone) then this
could add alot of money to the US economy over the next few years. Look for a
wave of US company to US company acquisitions to spring up if this comes to
fruition.

Event driven hedge funds are going to have a bonanza with this!

It might even be enough to make the economy jump going into the next election
cycle.

~~~
creaghpatr
>The AMT is one of the largest issues for people calling their stock options
on non liquid companies.

This cannot be stated loudly enough.

~~~
pdelbarba
Can you elaborate?

~~~
creaghpatr
If a company (startup or otherwise) is private, then stock options holders
can't liquidate their shares. However, they are still required to pay taxes on
the capital gains when they exercise, which can be huge if the company has
grown exponentially.

Not only do you have to take the risk of the stock/company crashing and
burning but you have to pay in advance the taxes on the "gains" which you
can't actually cash out. It's a trap, only thing you can do is stay at your
company until liquidity occurs for shareholders.

~~~
karmelapple
I don't think I fully comprehend - do stock options holders need to pay tax
even if they have not added actual money to their bank account?

Why would someone have to pay in advance taxes on a gain that has not actually
happened? If I don't have the money in my bank account yet, how can I pay this
huge amount of gains tax even?

~~~
antognini
> Do stock options holders need to pay tax even if they have not added actual
> money to their bank account?

Yes. The options are converted into shares, which is considered a taxable
event by the IRS. Ordinarily this isn't a problem because you can sell some
fraction of the stock that you gained to pay for the taxes. But if the company
is not public, you have no easy way to sell the shares.

> If I don't have the money in my bank account yet, how can I pay this huge
> amount of gains tax even?

That's exactly the problem. Many employees at unicorn startups are stuck in
"golden handcuffs." If they leave, they oftentimes can't exercise their
options due to the taxes, in which case they lose them. This forces them to
stay in the hopes that one day the company will go public and they can
exercise their options.

~~~
derekp7
Just to make this clear (correct me if I'm wrong)... If you buy stock at
market value, and it increases in value over time, you only pay tax when you
sell it. But if you exercise a stock option (in which you purchase stock for a
[typically] lower price than current value), the difference in value is
considered the same as if you received any other non-monetary income (i.e,
that difference in value is treated the same as a stock grant), in which you
would have to pay tax in the current year. Did that about sum it up?

~~~
antognini
That's my understanding of it.

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ep103
Repealing the estate tax? The tax instituted by our founding fathers,
specifically as a safeguard against the creation of an aristocratic class? A
tax that ONLY affects people with more than 5 million at time of death?

For shame.

~~~
fr0sty
[https://en.wikipedia.org/wiki/Estate_tax_in_the_United_State...](https://en.wikipedia.org/wiki/Estate_tax_in_the_United_States#History)

According to the IRS, a temporary stamp tax in 1797 applied a tax of varying
size depending on the size of the bequest, ranging from 25 cents for a bequest
between $50–$100, to 1 dollar for each $500. The tax was repealed in 1802. In
the 19th century, the Revenue Act of 1862 and the War Revenue Act of 1898 also
imposed rates, but were each repealed shortly thereafter. The modern estate
tax was enacted in 1916.

~~~
ep103
The founding fathers enabled the tax. It was re-instated and repealed into and
through the gilded age. It was finally re-enacted at the beginning of the 20th
century, and has remained in place since.

~~~
fr0sty
> The founding fathers enabled the tax.

They repealed the tax 5 years later. Also, it was $1 per $500 (0.2%).

> It was re-instated

as part of the Tax act of 1862 to help fund the Civil War and repealed after
the war was paid for.

That history does not scream "must prevent creation of dynastic wealth!" to
me.

~~~
ep103
straw man, it was the stated reason they originally implemented the tax, and
has been the reason people have defended it since.

~~~
AnimalMuppet
That's not a straw man. You said:

> The tax instituted by our founding fathers, specifically as a safeguard
> against the creation of an aristocratic class?

fr0sty essentially said that your original statement should be amended to
something like: "The tax instituted by our founding fathers, specifically (so
they said) as a safeguard against the creation of an aristocratic class, and
then repealed five years later to show that they weren't very serious about
preventing aristocracy (or no longer believed in the tax as a cure for it).

And a 0.2% tax rate is directly relevant to the actual effectiveness of the
tax at preventing the aristocracy (as in, not very effective at all).

You also said:

> A tax that ONLY affects people with more than 5 million at time of death?

But that's the current state of affairs _now_. When originally implemented, it
applied to estates as small as $50. Placing that in the very next sentence to
the founding fathers has the potential to be misleading.

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mrfusion
They always mention how the inheritance tax hurts family farms...

~~~
maxerickson
The current exemption is more than $5 million. People saying that are full of
shit.

Sure, someone inheriting a $6 million plot of land will owe taxes on $600,000
of income. I wonder if they could secure a loan somehow?

~~~
protomyth
> The current exemption is more than $5 million. People saying that are full
> of shit.

Have you looked at land, livestock, infrastructure, and equipment costs they
tax? People saying that are not "full of shit" and an unexpected death can
ruin not only the farming family but the folks they hire.

~~~
maxerickson
An enterprise valued at more than $5 million, with lots of employees, is not a
"family farm", at least not in the traditional sense.

I totally agree that a tax on inheritances above $5 million will tend to
impact family owned businesses worth $5 million though.

~~~
protomyth
Actually, in North Dakota it is a family farm since we specifically outlaw
corporate farms. $5 million when the combine (or some tractors if renting the
combines) is a $1 million plus some storage bins and the per acre cost of
farmland is not a big farm. So, in the traditional sense, farming is really
easy to tax infrastructure activity. That is why that tax is so hated. Farms
are damn expensive.

~~~
shuntress
Is it something specific to farming?

How is that different from, for example, $5,000,000 to buy a lot, build a gym,
and stock it with equipment?

~~~
protomyth
Don't know, never really talked to a gym owner before, but my suspicion is
that it probably is a huge problem for anyone who builds up assets (that a tax
person values highly) to do the job but not a lot of actual cash to pay the
taxes. I think land or infrastructure intensive activities are probably all in
the same boat.

------
mrfusion
I can't tell if the 15% applies to LLCs. Anyone know? Is it worth becoming an
s corp otherwise?

Would you still have the self employment tax?

~~~
dzlobin
The proposal seems to state that pass-through entities will be subject to the
15% tax rate as well. From what I've read so far that would seem to mean that
all business income from one's LLC would be taxed at 15%, and there wouldn't
be any personal income tax to pay on top of that.

~~~
tptacek
That seems improbable, because LLC owners usually recognize _all_ of their
income as pass-through distributions; this would be akin to a capped 15% tax
on all wealthy people.

The reason you can propose drastically cutting the corporate tax is that it's
a tax on money that is again taxed as income when it reaches households. The
whole point of an LLC is not to do that.

LLCs that retain lots of income in the corporation indefinitely can elect
corporate taxation, to which the proposed reduced rate would presumably apply.
But when the LLC distributes that money back to its members, it is again taxed
as income. In any case, that may be the basis for this proposal applying to
LLCs.

~~~
dzlobin
100% agreed, which is why I was pretty surprised to read that in the article
but we'll see if that's actually the intended understanding of this proposal.

For reference, here is the excerpt: "Beyond cutting the tax rate to 15 percent
for large corporations, which now pay a rate of 35 percent, Mr. Trump also
wants that rate for a broad range of firms known as pass-through entities —
including hedge funds, real estate concerns like Mr. Trump’s and large
partnerships — that currently pay taxes at individual rates, which top off at
39.6 percent."

Their specific mention of pass-through entities might mean that literally but
it might have just been a more succinct way to group LLCs, LPs, and PLLPs.

~~~
joshuaheard
I don't know where the NY Times gets that. It's not mentioned in the actual
text of Trump's plan:

[http://www.marketwatch.com/story/full-text-of-trump-
administ...](http://www.marketwatch.com/story/full-text-of-trump-
administration-tax-reform-principles-2017-04-26)

~~~
tptacek
That's the précis the White House gave to journalists. The WSJ covered this in
more detail. Either way: don't hold your breath for an (absurd!) 15% cap on
people who make money through LLCs.

------
unabridged
Raising the standard deduction is nice.

Ideally I'd like to see it drastically raised, like no tax on each person's
first $30k. I'm surprised the democrats have never tried to push a policy like
this, its the type of policy that would get support from many republican
voters.

~~~
maxerickson
Deductions apply to highest bracket income. The "first" $30,000 sort of
implies lowest bracket income (because if you stopped working after earning
that much, it'd reflect your entire earnings).

~~~
unabridged
The standard deduction is effectively a 0% tax bracket.

~~~
maxerickson
It's income with a 0% tax rate but the impact on effective rates is different
than a 0% bracket; it lowers effective rates more for people that have income
in higher brackets.

A 0% bracket has the same impact regardless of income.

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archeantus
I wouldn't mind paying less in taxes.

BUT WHAT ABOUT THE DEFICIT???

The deficit hasn't mattered to anyone before now, esp not in the last 8 years.
Can't get any worse than it has been already for years now.

~~~
r00fus
It matters to the GOP when they're not holding the Presidency, apparently.

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Overtonwindow
Just because the tax rate is lowered doesn't mean companies will repatriate
their money here. I think we need a law that penalizes companies for
offshoring their money. If you want to be an American company, headquartered
in America, then it should cost companies like Apple to offshore that money.
Carrots and sticks should be used to bring that money back, but a lower
corporate tax rate is a start, but not the solution.

~~~
maxerickson
They don't offshore money, they do profitable business in other countries and
then don't want to pay taxes to move the proceeds to the US.

------
FrankenPC
How are we going to pay for the great wall of Mexico again? No, I don't
believe Mexico will pay for it...with cash I mean.

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amluto
If I'm reading this right, I could make a partnership (LLC or S-corp) and use
it for normal activities, investment, consulting, etc., and I'd pay 15%
_total_. This is nuts. Heck, Uber and Lyft drivers could set up as
passthroughs and save a bunch. This is nuts.

For the record: I think slashing the corporate rate is a good idea, but only
if long-term capital gains are taxed high enough that the overall rate is
reasonable.

~~~
danielvf
No, that's not how taxes work in the US. Business taxes are before, and in
addition to your income tax.

Single member LLCs get special treatment - you only pay personal income taxes
and self employment taxes, but not business income taxes.

But let's talk about business income tax. Let's say you have a company that
you own but do not work for (so I can skip payroll taxes). The company does
$2,000,000 in sales at a cost of $1,700,000. The company has a profit of
$300,000, which it currently pays corporate taxes of $120,000 on. After
corporate taxes, you take home $180,000 in personal income. Then you pay
personal income taxes of about $62,000 if you live in CA. You end up with
$118,000 out of the original $300,000 profit.

This double taxation is a reason many people support ditching seperate
corporate taxes altogether or at least lowering it substantially.

~~~
amluto
> No, that's not how taxes work in the US. Business taxes are before, and in
> addition to your income tax.

Businesses are either taxed as corporations (so they pay their own taxes and
owners treat them as capital assets) or as partnerships (so their taxes are
rolled into their owners' taxes but owners can distribute assets tax free).

Trump is talking about _changing_ the tax code, and partnerships don't
currently have a tax rate, since they don't pay the corporate tax. It sounds
to me like his proposal is to lower the rate paid by their owners.

> Single member LLCs get special treatment - you only pay personal income
> taxes and self employment taxes, but not business income taxes.

Multi-member partnerships, too. AFAIK the only thing that's special about
single-member partnerships is that they don't file separately. This has no
major effect on taxes paid.

~~~
danielvf
What the White House memo actually said was "15% business tax rate". I don't
see anything in what the White House actually said about replacing personal
taxes with business taxes.

