
Ask HN: How will the 2018 Tax Cut plan impact Engineers? - bsvalley
Let’s say you’re a lucky Software Engineer who makes between $150-250k per year. How will the new 2018 tax plan help&#x2F;hurt you? Let’s use HN’s brain to find out ;)
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kellysutton
My tech-friendly CPA has a nice newsletter that outlines some of the effects
of the proposed tax bill:

[http://mailchi.mp/2b465b061dd6/december-2017-clients?e=c3de0...](http://mailchi.mp/2b465b061dd6/december-2017-clients?e=c3de06547c)

In short, engineers in CA/NY will see their taxes increase substantially
because you can no longer deduct state income taxes.

The $500k mortgage interest deduction will also affect folks in states with
expensive property, but current versions of the bill only apply this new limit
to mortgages created after Nov 2, 2017.

If you are an engineer making a salary in the band you mentioned, this is most
likely going to be a significant raise in your tax bill.

~~~
ScottBurson
This writeup makes the excellent point that the weight of the new tax
structure falls heavily not only on the high-population coastal states but
also on the younger demographic within those states.

~~~
rayiner
Most young people don't make enough to pay a lot in state income taxes, don't
own a house so they don't pay mortgage interest, don't have a professional job
that has all sorts of tax-free benefits, don't have kids and aren't married so
they can't use many personal exemptions, etc. The tax bill cuts corporate
taxes while raising taxes on middle/upper middle class people. That's
consistent with taxes in Germany, Canada, the U.K., etc.

~~~
jdavis703
The mortgage interest thing does impact young people though. While they can't
buy houses now, once they do have the financial ability to do so it'll cost
them more than it cost their parents to buy a house.

~~~
rayiner
No, it will cost them less, because the value of the mortgage interest
deduction is baked into the price of the house. It'll also be more fair. The
perverse thing about the mortgage interest deduction is that it benefits you
more the more money you make.

~~~
ejstronge
I'm a little confused about this. I can understand this in terms of college
(i.e., no one pays the sticker price so the prices are elevated, etc.).

But for housing, especially in very competitive markets, I feel that things
will prove different. Already, successful house purchases come in above the
offering price (from what I've seen) in the Bay Area. Do you think the loss of
mortgage interest deduction will lead sellers to decrease their asking prices?

~~~
jdavis703
So if prices do go down, that means property taxes also goes down. So now
legacy homeowners get a double tax cut (i.e. they keep the mortgage deduction,
and have a lower property tax bill)?

~~~
nojvek
Old properly owners in CA already have a lower property tax bill since they
pay on purchase price, not current market price like WA.

------
jawns
> How will the new 2018 tax plan help/hurt you?

Just want to point out that this question is not quite the same as, "How will
the new 2018 tax plan affect the amount of tax you are required to pay?"

Even if the tax plan positively or negatively affects the tax you are required
to pay, you will probably be helped or hurt significantly more by its affect
on your community than you will by its affect on your own taxes.

~~~
sarcher
Agreed. Largely I am protected from the worst impacts of the 2018 tax plan,
but I'm not an island - the tax plan does my community no favors.

It not only favors the wealthy over those who really could benefit from tax
relief, but it steals from the future by increasing the national debt to pay
for it (I have no problem increasing the national debt for services and
infrastructure, but giving the wealthy tax relief is neither). What a
catastrophe.

------
gok
Assuming your paycheck is unaffected by the changes? If you live in a low/no
state income tax area, your after tax income will go up. If you live in a
higher state income tax area, your after tax income will go down.

Your paycheck may get a little bigger because positive macroeconomic effects
are expected. The Joint Committee on Taxation expects GDP to go up 0.8%,
capital available for production to raise about 1.1% and employment to go up
0.6%. It's unclear how that will affect a single worker.

If you have money in the stock market, you'll probably get more money. The
lower corporate income tax probably means that dividends and stock buy-backs
will grow, which is also good for many tech workers. So that may help you.

If your employer makes a profit, their profit after taxes will go up. That
would help you if you have a profit sharing or stock compensation deal.

The end of the individual mandate means you'll live in a country where many
fewer people will have health insurance, which will mean you're living around
sicker people. That will almost certainly hurt you, even if those people
aren't your friends and family.

~~~
mnm1
"Your paycheck may get a little bigger because positive macroeconomic effects
are expected."

Really? Tell that to my boss. Please.

But in all reality, this is one thing that will certainly NOT happen for most
people out there.

~~~
gok
I tried to make it clear that this isn’t guaranteed, but there is good
evidence that GDP will go up, and high earners (as OP asked, people making
$250k/year, which is 98th percentile) often see wage growth under those
conditions. Low and middle earners often not so much.

~~~
nojvek
It still baffles me how many poor Republicans support this just coz they hate
Dems.

Boom the economy by adding more debt, cutting social services and screwing the
working class. Great plan guys.

The rich will store offshore as usual. It's gonna be a great shit show when
the bubble bursts. I can't wait for it.

~~~
mancerayder
It's baffling until you consider the effect of culture wars, or 'wedge
issues.'

Economics is complex, I mean look at this thread alone on HN (and we're well
above the average in education and intelligence). Abortion, religion, and
other controversial topics, however, are far simpler to understand. The
Republicans know how to get votes through that mechanism of holding tight to
certain ideological components of their traditional voter base.

Another large part of the base are 'small government' types, less interested
in economic problems and more interested in individual freedom.

I think that's a rough answer to your bafflement.

------
mancerayder
It depends if you're in a state with high state taxes, for one. You can't
deduct those.

In those same states many mortgages are over 500k, as that's the price of a
studio apartment in cities, where many engineers live, and most of us don't
live in studios.

A good question is, will independent contractors flourish?

~~~
bogomipz
>"A good question is, will independent contractors flourish?"

Can you elaborate on this? How would the proposed tax regime be more
attractive to contracting?

~~~
awinder
Pass through and corporate rates are going to drop dramatically. Independent
contractors can set up their income as business profit and pay much smaller
amount of taxes at higher levels of income.

~~~
mancerayder
Will this be retroactive through 2017?

For me it might be a wash. My state and local taxes (state and city tax) are
almost 10% combined, and that's no longer deductible. My > 500k mortgage had a
big interest deduction yearly, which won't exist.

But I'm paid through a pass-through LLC, which will have a big savings. And
it's no longer incentivizing to be an owner-occupier due to the mortgage
interest deduction disappearance plus the cap gains exclusion (first 250,000 /
500,000 if married exclusion on sales profit of a property if you've lived in
it 2 years, moving up to I believe 5).

It's crazy. It's like the financial incentives are geared towards rentier
classes (since I might as well rent my place out and perhaps even put it in
its own LLC), self-employed temps, and away from people with student debt,
medical expenses, mortgage debt, etc. etc.

~~~
awinder
No this will apply to the 2018 tax year so 2017 is going to be under the
existing tax structure. Thank god, because otherwise mass craziness would have
broken out from people setting up withholdings under a false tax structure.

I agree with this being geared towards rentier class but those markets are
also likely to see upset in pricing due to loss of tax savings. So at the end
of the day we might all be at a loss — except for people who make out on the
estate tax and corp tax rate drops. Aka rich people and corporations.

------
ScottBurson
I found this online calculator: [https://www.marketwatch.com/story/the-new-
trump-tax-calculat...](https://www.marketwatch.com/story/the-new-trump-tax-
calculator-what-do-you-owe-2017-10-26)

My income is in the range you're asking about, and it says my taxes will fall
slightly in the short run, on the assumption that I stop itemizing deductions.
I live in Silicon Valley.

Despite that, I am opposed to the bill. I think it's astounding that after all
the discussions the world has been having about inequality over the last few
years, the Republicans enact a tax plan that is designed to enrich the .1%
even more, and balloon the deficit in the process. They are trying to take
this country back to 1890.

~~~
chmaynard
It's pretty clear that the long-range goal of Republicans in Congress is to
reduce or eliminate the New Deal entitlement programs. Greatly increasing the
federal deficit is simply a means to this end. This was exactly Ronald
Reagan's strategy. Nothing has changed in 35 years.

------
vintageseltzer
Perhaps it's not the biggest factor, but it is likely to reduce employee
benefits like education stipends, relocation stipends and dependent care FSAs.

Previously, employers were able to deduct the costs of these benefits from
their tax bill, saving them money. The new tax plan eliminates these benefits
([https://www.shrm.org/resourcesandtools/hr-
topics/benefits/pa...](https://www.shrm.org/resourcesandtools/hr-
topics/benefits/pages/house-gop-tax-reform-bill-keeps-401\(k\)-tax-rule-as-
is.aspx)).

Now that these benefits are much more expensive, you can except these benefits
to reduced or eliminated, and the remaining costs to be take from your future
salary.

~~~
koolba
An alternative view is that those people will no longer receive tax free
benefits that the rest of us aren't getting.

I'm hoping they take things a step further and one day eliminate the health
insurance deduction for corporations and count the cost as income for the
employee. It's nonsense that a corporation can deduct it as an expense but an
individual getting their own insurance can't. Sure you can set up a pass
through entity but why should you have to?

~~~
mancerayder
I understand and agree with the sentiment, but not the conclusion. What
happens when they can no longer deduct it, won't employees' health plans
become even worse?

------
tarr11
I wonder about the loopholes this creates.

Will this transfer residential real estate ownership from individuals to
corporations?

Eg, since buying a home becomes even more expensive in the bay area because of
property tax and mortgage deduction limitations.

But now, corporations (who have more cash from corp tax reduction, and more
leeway with deductions) start purchasing real estate and then offering to rent
it to employees as a perk.

Has the additional benefit for corporations, of keeping employees from leaving
(since leaving the job means losing your housing)

~~~
ddw
Aligns well with the GOP goal of taking us back to fuedalism

------
tabeth
Tax is complicated, however:

1\. Fewer tax brackets. Many software engineers are in the 28% and 33%
brackets. A lot of these people will now be in the 35% bracket, depending on
their exact income.

2\. Standard deduction has been increased. More money in their pocket (though
this is true with many)

3\. Mortgage interest deduction -- this might be removed to only 500k. This
means people in california won't be able to deduct as much for their expensive
houses.

There are many more things, obviously.

~~~
jwatte
Anyone with substantial state taxes and mortgage interest is unlikely to take
the standard deduction currently, and the increase in the standard deduction
seems unlikely to compensate nearly enough. Couple with the significant impact
on education cost (especially graduate education) and this tax plan looks
tailor made too punish the coasts and benefit the aristocracy.

~~~
bogomipz
Indeed people living in NY and CA are going to feel pain without the ability
to deduct states taxes. People are in for a shock.

------
JohnTHaller
For starters, stop calling it a "tax cut" plan.

------
roofer
The main question - What all these cash rich companies and individuals will
spent they new money on?

World is already awash of capital, and we have everything bubble now.

I bet next move by this administration will be drastic rate increases! This
will mean they can starve everybody else from cash, and then swoop in and buy
on the cheap.

~~~
nojvek
Microsoft Google and Apple have so much cash, they don't know what to do.
Simplest is to put it offshore where gains incur the lowest taxes.

------
thesmallestcat
Two things that stand out to me: Now you can quit your job and do whatever
without getting robbed by absurdly expensive plans through ACA or shaken down
when you file taxes. That's a big deal for people who want to take a chance on
some startup idea. And filing taxes is simpler since you don't have to prove
that you had health insurance. I hated that shit.

~~~
nojvek
What if you get sick on your startup venture and don't have a lot of income?

Yeah it's gonna be amazing.

~~~
thesmallestcat
You could still choose to be insured, wouldn't have to pay if your income is
low, and couldn't be denied for a preexisting condition. My point is that
you're not being _coerced_.

