Potential tax rate increase in 2021

[jollystomper]

There is significant political pressure growing on the incoming administration to raise taxes (or close loopholes) that allow many large companies (like Amazon) to pay very little in net taxes. The problem with doing so is that those taxes will find their way into consumer prices or reduced hiring.

And ship jobs overseas. I doubt that will fly.

I do not think a lot of people see that connection. Whether it flys or not (along with the campaign plan for higher taxes for those making 400K or more) depends more on the outcome of the Georgia Senate elections than anything else. Not trying to be political, just observing the fact that when the Executive and Legislative branches are held by the same party, tax changes are much easier to accomplish.

 

[pb4uski]

... If Congress wants to raise taxes on individuals, it can simply do nothing.

And doing nothing seems to be something that Congress excels at.

 

[SecondCor521]

Many people think this way and I certainly have in the past... thinking of government like a family or business that ultimately will have to pay its debts ($27.4T).

However, while I'm not yet convinced of it, there is a school of thought that realistically government never has to eventually pay off its debts as long as it has the ability to "print" money so the bill never really becomes due. The idea is unconventional but IMO has a certain amount of merit... but as I say, I'm not yet convinced.

On that school of thought, it seems to me that printing more money just decreases the value of all the existing money in circulation (*), which basically means that it is a stealth transfer from the people who have that money to the holders of the national debt. But I am certainly no economist.

(*) which I thought I had heard as one of the reasons that counterfeiting was prosecuted aggressively. I also remember some history I read about how some British POWs tried to counterfeit a bunch of Reichsmarks to destroy that currency during WWII.

P.S. - Sorry if I invite Porky to this thread. I don't mean to. At the moment we're discussing history, economics, and mechanics of monetary theory.

 

[pb4uski]

On that school of thought, it seems to me that printing more money just decreases the value of all the existing money in circulation...

I don't see why that would be true and certainly doesn't seem so in that the value of the USD is the same or stronger today with $27T of national debt than it was when we only had $20T of national debt.

 

[Montecfo]

I do not think a lot of people see that connection. Whether it flys or not (along with the campaign plan for higher taxes for those making 400K or more) depends more on the outcome of the Georgia Senate elections than anything else. Not trying to be political, just observing the fact that when the Executive and Legislative branches are held by the same party, tax changes are much easier to accomplish.

You make a good point, but I doubt the Senate will be the problem. Very thin margin for Dems in the House and some will have trouble passing a tax increase in this economy, regardless, in my view.

 

[pb4uski]

I dunno... I think many of the Biden campaign tax proposals may poliically palatable if the Dems end up controlling the Senate, even in a recession, and particularly in a K-shaped recovery where the wealthy are recovering but lower earners have not. There's unlikely to be a lot of sympathy for the wealthy.

As I understand the proposal, taxes for people with TI below $400k would be unchanged from current law... taxes for those with TI from $275-675k would increase by 0.4% and $675k or more by 8.4% due to the following changes:

• Restore personal income tax rates for taxable income exceeding $400,000
• Restore limit on itemized deductions for those with taxable income exceeding $400,000
• Limit the 20 percent deduction for pass-through businesses for those with taxable income exceeding $400,000
• Eliminate the low personal income tax rate for capital gains and dividends for taxable income exceeding $1 million and limit the exemption for capital gains on assets left to heirs
• Limit itemized deductions to provide no more than 28 cents in tax savings for each dollar of deductions for taxable income exceeding $400,000
• Apply the 12.4 percent Social Security payroll tax to earnings exceeding $400,000

The analysis that I saw said that 97% of the tax increases would be on those with taxable income of $675k and up. Combine that with some of the uber-rich like Buffett, Gates, et al advocating for higher taxes for the rich and the proposal seems quite plausible to me.

To be clear, I'm not advocating one way or the other but just reading the political tea leaves on possibility of it happening.

 

[Montecfo]

It just doesn't raise much money. And passing a tax increase when you are passing a stimulus makes little sense.

It certainly will hurt the economy. And I doubt there will be enough Dems to pass it.

But I do agree Dems will be under pressure, but I see little wiggle room for them

 

[Alan]

The legislation is proposed, not passed, and only about 4% of proposed legislation is ever passed. Our consensus is that the thread will only provoke an emotional response and partisan politics from our membership given the topic and the fact that this is a retirement forum. Therefore we are closing this thread.