The effect of Trump’s tax cuts

I don’t vouch for the numbers here but this is fun:

In 2016, the IRS reports, New York had 48,570 agillionaires (that’s someone with a million in annual income). Their average deduction for state and local taxes was $472,000. They were making mighty contributions to New York’s lavish government, that is, but not fully feeling the pain because they could deduct those contributions on their federal returns. Agillionaires in Texas, in contrast, averaged only $52,000 in state and local taxes.

With a $10,000 cap on the deduction, Trump made the difference between New York and Texas a lot more perceptible.

Still not entirely sure how deductions work but that’s still going to cause some pain, isn’t it?

18 comments on “The effect of Trump’s tax cuts

  1. @Tim

    Translated to UK

    Labour town: council tax £5,000pa
    Income tax bill £15,000
    Income tax due £10,000

    Conservative town: council tax £1,000pa
    Income tax bill £15,000
    Income tax due £14,000

    Boris introduces £1,000 cap

    Labour town: council tax £5,000pa
    Income tax bill £15,000
    Income tax due £14,000
    Total tax: £19,000

    Conservative town: council tax £1,000pa
    Income tax bill £15,000
    Income tax due £14,000
    Total tax: £15,000

  2. Deductions reduce the taxable amount. For example, if you have a deduction of $1,000 and your marginal tax rate is 22%, then that deduction is worth $220.

    Credits are dollar for dollar. For example, child credit is $2,000, so it’s worth $2,000.

    The high state income tax states have been cheating the federal government out of its tax for years.

  3. It has already caused considerable pain in high tax states (NY, MA, IL, CT, NJ, CA). Several states attempted to bypass the change in the law, but to no avail.

    And yes, it is indeed marvelous. There is nothing better than watching a liberal have to fully pay for the government they’ve voted for. Their howls of anguish are music to the ears.

  4. It will definitely bite – almost definitely in the 37% marginal bracket, so ~$175k increase to the feds.

    I doubt the people paying are your run of the mill Democrats though. Wall Streeters would be my guess.

    The real irony is that all these high tax states will eventually receive bailouts from the feds. Illinois will be the first.

  5. The real irony is that Wall Streeters are Democrats.

    Tim, think of a deduction as the equivalent of a cost to a business. You subtract it from your income to reduce your income.

    Adjusted Gross Income is a common phrase in U.S. tax preparation.

  6. A quick look at New York rates suggest that you’d hit the $10,000 limit by earning somewhere around $120,000 to $150,000 in annual income, depending on the city of residence.

    NY’s rate starts at 6.33% and tops out at 8.875%. NYC’s rate tops out at 3.648%. At an annual income of $1.1 million, your combined NY and NY rate would exceed 12.5%. That’s $137,753 in state and local taxes on income of $1.1 million.

    As a reference, OH cities top out at 2.5% and the state itself tops out at 4.797%. And OH is not a low tax state.

  7. “agillionaires (that’s someone with a million in annual income)”

    “agillionaires”? Tim, did you make that up? The only uses of it that Google is finding are you.

  8. There were several states that made an effort to state that future payments to the states will be mandatory charitable contributions that would be fully deductible. Didn’t fly.

    It is making state governments sweat.

  9. And the bigger problem it’s causing is that those people are now fleeing those states and landing in low tax red states and voting for the same silly sh*t they ran away from. Thereby spreading the f*ckwittery like a disease.

  10. Dennis:

    That doesn’t include property taxes (I think the equivalent of council tax in the UK), which make up a fair amount of that $10K cap.

  11. That doesn’t include property taxes (I think the equivalent of council tax in the UK), which make up a fair amount of that $10K cap.

    Correct. Left it out of the equation because renters don’t pay property taxes, and in places like NYC renters constitute a large proportion of the population (around 65% in NYC).

  12. “There were several states that made an effort to state that future payments to the states will be mandatory charitable contributions that would be fully deductible. Didn’t fly.”

    Yeah, it was strange. States thinking that if they just tweaked the name, they could make it deductible. The Feds decide their tax policy . . . what’s deductible, not the states. The Feds couldn’t care less what silly games the states play.

    Individuals file their federal income tax returns. If the Feds don’t like something in there, they disallow it. If serious, they audit the individual. Signifying they are in deep doo doo. The IRS can be quite punitive.

    Notice that the state is simply not a party to the process. The individual claims it; the Feds accept it or reject it. The filer explaining that his state said his state income tax was a charitable donation would probably get lots of laughs around IRS offices.

  13. @Gamecock – “The IRS can be quite punitive.”

    I worked for the UK tax authorities. One of my colleagues was seconded to Russia for a while – their tax authorities being somewhat new to tax collecting in the post-Soviet economy.

    My colleague came back saying that one thing that amazed his Soviet counterparts was that he wasn’t armed when he visited people to collect taxes. They always were.

  14. I think it’s one of the best proofs that Trump isn’t the moron that my Lib friends claim. This is aimed, successfully, at ‘blue’ (Democrat) states.

    Jay is right, though, that Dems are fleeing to red states, and the second order effects will be negative.

  15. “Dems are fleeing to red states”

    I wish my state would make a law that Southern Californians can’t move into SC ’til they’ve been out of California for at least 10 years.

    Cirusly, they are worse than Yankees.

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