Here's why Trump's tax plan will hit Californians especially hard

LA Times ^ | 9/28/17 | Jim Puzzanghera

[NohSpinZone]

Many Californians face a big financial hit under the Republican tax plan, which would eliminate a major tax break that benefits state residents more than those anywhere else in the U.S.

The federal deduction for state and local taxes allowed Californians to reduce their taxable income by $101 billion in 2014, according to an analysis by the nonpartisan Tax Foundation.

The tax outline released Wednesday by President Trump and top congressional Republicans would ax the break, which largely benefits residents in states that are Democratic strongholds.

[SgtHooper]

You should send them a Christmas card every year. :-)

[sparklite2]

It’s been terrible since I moved to Florida.
They don’t write, they don’t call...

[calenel]

You are trying to reverse the argument. There was no claim that anybody was going to reduce rents as a result of this. The opposite effect is what will occur once the mortgage interest deduction is eliminated and/or tax deductions are eliminated. In the end it is indisputable that it is the renters that pay the interest and taxes on the properties they rent. If interest payments are no longer deductible, rents will rise, no? Therefore, landlords deducting mortgage interest keeps rents less than they would otherwise be. This is splitting hairs, though. The original argument was about why some people (landlords and homeowners) should get a benefit that renters do not, but it was correctly pointed out that renters DO benefit. That is what you were disputing and your argument has been refuted. You just aren't willing to admit it.

People that deduct local taxes aren't feeling the full effect of those taxes, either. Maybe they'll try to curb their bloated, greedy state and local governments if they feel the bite, instead of having the rest of us subsidize their excesses.

[DoughtyOne]

No, I’m not trying to reverse the argument.

I’m trying to point out to you that your claims are vaporware.

Your arguments are unsustainable. Owners of apartment buildings are in no way obligated to lower rents based on mortgage interest deductions.

They can use that money for:

Down payments on other buildings
Taking the family on a vacation
Making improvements on another apartment building
Paying a son or daughters college tuition

...and countless other things.

Fail

At the end of the day, the only firm statement that has been made is:

Renters cannot deduct mortgage interest payments

[calenel]

Owners of apartment buildings are in no way obligated to lower rents based on mortgage interest deductions.

You are making a straw man argument. Nobody said anybody was going to lower rents. The claim was that rents are lower because landlords can reduce their costs by deducting mortgage interest. In an otherwise competitive market, you charge what you think you can get, whether you have a mortgage to pay interest on, or not, and those with lower costs can undercut those with higher costs.

I don't know if you are slow or what, but I suspect you are just being deliberately obtuse so you don't have to admit that renters pay all the costs associated with the properties they rent. That's the 'fail', and it is yours. Grocery store shoppers don't get to deduct the mortgage interest payments the store's owner makes, either, but if he didn't get to, they would be the ones paying the difference.

At the end of the day, nobody is arguing against the assertion that 'Renters cannot deduct mortgage interest payments', so why do you keep saying it? Because the rest of your argument is bogus, so you have to erect a straw man argument to save face.

[DoughtyOne]

Thanks for another pointless post.

You really are unable to accept that there is only one statement between to two of us that is rock solid.

RENTERS CANNOT DEDUCT BUILDING MORTGATE INTEREST RATES.

All your suggestions about how renters benefit from them anyway are hollow.

Renters shouldn’t be able to deduct them. Building owners owe them nothing. They can spend their money any way they like. It has nothing to do with profit margins. It has to do with what the market will bear.

If rents in an area are $2000 a unit, and the building owner can make $1500 a month profit off each unit, they should. They are not obligated to give renters are discount based on mortgage interest rate deductions.

I’ve not made the case owners owe them anything, or that owners will definitely lower rents based on mortgage interest rate deductions. That would be silly.

Renters rent property based on what the market will bear, not what their deductions were.

[falcon99]

Exactly. NY Gov Cumo attacked the proposal saying it would cost NYers up to $17 billion dollars. That is the amount the rest of the country is subsidizing the high taxes in NY (and who knows the numbers in CA, NJ et). Why should the rest of the country subsidize the socialist, idiotic policies of these liberal states.

[CurlyDave]

...Renters rent property based on what the market will bear, not what their deductions were....

I think the problem here is that you have never taken a course in economics.

If the mortgage interest deduction is eliminated, there will be more renters chasing the same stock of rental housing. rents will naturally rise.

Now I have not read the tax proposal, but under current law, and under Generally Accepted Accounting Principles, mortgage interest on a rental is is a business expense. There is not even a whisper that the tax proposal will change GAAP.

The business expense is deducted from gross business income as part of a taxable income calculation. You can not eliminate the "home mortgage interest deduction" for a rental property because there never was one to start with.

So eliminating the home mortgage interest deduction will penalize both homeowners and renters, and will be a windfall for landlords. Homeowners in the form of higher taxes, and renters in the form of higher rents. Now I happen to be a landlord, and will profit from any such elimination. I am opposed to it on policy grounds. We want to encourage home ownership to give as many people as possible a stake in the prosperity of the USA.

[faithhopecharity]

repeal the 16th amendment and end all this
complexity and corruption and waste (and the huge irs drag on the economy)

[DoughtyOne]

 ...Renters rent property based on what the market will bear, not what their deductions were....

I think the problem here is that you have never taken a course in economics.

Well, lets see.

If the mortgage interest deduction is eliminated, there will be more renters chasing the same stock of rental housing. rents will naturally rise.

Many people are at the breaking point right now.  They don't have much in savings and are often just six weeks or less from being upside down.  Over the last twenty plus years, wages haven't increased as inflation has kept marching along.

You forsee more renters chasing the same stock.  I think you're missing something, the saturation point.  Who is going to be willing to pay $36 to $48 thousands dollars a year for a rental?  Guess what.  There would be trouble on your horizon.

What I foresee instead of more people looking for rental stock, is more homeowners looking to rent rooms to keep themselves afloat.  I foresee new programs to help folks get into homes.  I foresee people forming two and three family co-ops, to purchase homes.

I believe you alluded to the idea that people who had been paying a mortgage, would drop out and be looking for rentals.  Look, that could happen, but if it did, guess what would happen to the real estate market.  Home values would plumet as vacancy rates grew in regions across our nation.

What would happen to rental properties as people dropped out of their current rental situations?  What you could be looking at here, is a massive vacancy rate, and dropping values there as well.  I can easily see many appartment building owners going under as the rental costs would be so high, that they couldn't service their loans on the buildings, with even a few vacancies.  In that case, rental property prices would plumet as well.

Now I have not read the tax proposal, but under current law, and under Generally Accepted Accounting Principles, mortgage interest on a rental is is a business expense. There is not even a whisper that the tax proposal will change GAAP.

Okay, good to know.  I haven't owned a building and had experience with this type of filing.  What I do know is that in 2016, the home mortgate deductions totalled $71 billion dollars.  From what you are telling me here, that's only part of the story.  Your and other building owners deductions would be in additon to that.  Since these are large buildings, I wouldn't be at all surprised if that $71 billion figure were to double, perhaps triple, or even more.  That's a pretty big amount of loose change.  ":^).

The business expense is deducted from gross business income as part of a taxable income calculation. You can not eliminate the "home mortgage interest deduction" for a rental property because there never was one to start with.

Well, isn't that more or less a case of semantics?  While you are technically right, there is still a deduction quotient that is similar to the home mortgage interest deduction.

So eliminating the home mortgage interest deduction will penalize both homeowners and renters, and will be a windfall for landlords.

I remain unconvinced that this will be a windfall for landlords.  As stated before, the new rental rates would not only hit the saturation factor, but I believe it would also hit a physcological barrier that people would not be able to justify going beyond.  If you're working toward a deed to a home free and clear, these types of housing payments were justified.  When it's simply to stay in a home and help someone else buy that income property, I see folks becoming very creative to avoid participating in that.

Homeowners in the form of higher taxes, and renters in the form of higher rents. Now I happen to be a landlord, and will profit from any such elimination. I am opposed to it on policy grounds. We want to encourage home ownership to give as many people as possible a stake in the prosperity of the USA.

I agree with your conclusion here, but I want to raise some more issues with you.

The most important is the idea that if around $200 billions dollars a year (perhaps more) is being deducted from stated income, someone is having to come up with a hell of a lot of money to beef up the taxes that were avoided.

Look I again point out, I am not against the deductions that homeowners and landlords take today.  I merely raised the issue to compare to another loosely termed subsidy.  Some folks jumped in thinking I was not in favor of the deductions.  I actually am.  I realize they help move people into homes and landlord positions.  That helps the economy.  As you stated, it gets more people into owning a slice of the pie.  That is good.

You have made a decent point that landlords and tenents save, but I do have to say, not quite so fast there.

Granted, there are not dollar for dollar tax reductions based on deductions.  None the less we are talking about tens of billions of dollars that someone has to help offset.  Renters do that.  They pay a significant portion of these taxes.

Who are these renters.  I submit they are the loosely referenced lower to mid middle-income group.  We're talking about folks making around $32 to $70 thousand dollars a year.  Those above this level can save a little and get into a home over time.  Then they become the utilizers of these deductions, and are no longer in the tax group that is left with footing the bill.  Those in the midst of this group generally can't.

This is a very heavy burden on this group, paying tens of billions that were not paid due to homeowners and landlord deductions.

So while this group will save on rent, they simply don't have the deductions to itemize, and are stuck paying taxes.  The $6k deduction went a ways to helping.  I think the $12k deduction will go further in that direction.

At any rate thanks for the response.

[CurlyDave]

...Well, isn't that more or less a case of semantics? While you are technically right, there is still a deduction quotient that is similar to the home mortgage interest deduction...

If you are only talking about the residential rental business, you are right. But GAAP applies to all businesses, and interest is usually considered a business expense. For instance, if a gas station takes out a loan to install new gas pumps the interest on that loan is a business expense. If a large company takes out a loan to build a 500 unit apartment building, the interest on that loan is a business expense. If Ford takes out a loan to build a new production line, the interest on that loan is a business expense. Are you really going to tell me that those guys get to expense interest while I, as a small time landlord with only a few rental units can't?

Now think about this for a few minutes. How can the tax code differentiate between one kind of business or another one? Either interest on a business loan is deductible or it isn't. And the minute you say well, we will just make a list of types of business and not let their loans be deductible, while other ones are, you are on the road to turning the economy upside-down. Ten thousand smart tax lawyers will immediately begin figuring out ways to kick rental real estate into the deductible category. Build a store with apartments above it. Is that retail or residential? What about apartments above a mechanic shop?

And what about new businesses? Will they have deductible interest or not? Do you really want to strangle the innovation that has make the US the most prosperous country in the history of the world?

* * * * * * * *

...This is a very heavy burden on this group, paying tens of billions that were not paid due to homeowners and landlord deductions...

You really ought to look up the percentage of taxes paid by various income groups. The figures for 2012 are: the top 1% of taxpayers paid 38% of all federal taxes, the top 10% of taxpayers paid 70%, and the top 25% paid 86.4% of federal taxes. The people you are talking about are in the bottom 75% of taxpayers (The income break point was ~$73k.). If you really believe that 75% of taxpayers paying 14% of all taxes is a "heavy burden", I think you are perilously close to the road to communism.

[DoughtyOne]

I am well aware of breakdown of the tax payments structure.

You have readily admitted the amount of mortgage and business interest deductions made in this nation. I think we can safely say we’re talking hundreds of billions of dollars there.

I believe you stated 75% of the populace pays just 14% of the taxes. While that percentage seems small, what is the impact of that 14% on their lives?

People in this group struggle to merely put a roof over their family’s head, provide food clothing a good education including college if they are lucky.

It’s not easy making ends meet for a family of four on $60,000 a year.

75% of our populace struggles to provide their own essentials. The 25% do pay the lion’s share of the taxes, but they still have large expendable income that remains.

Do you think the lower to mid middle class tax is increased or decreased by the amount of deductions taken by homeowners and businesses?

Are people in this group allowed to take interest payment deductions?

I do have to thank you though. Your description of the business interest tax deduction being what caused this nation to flourish was the best laugh inducing line I’ve heard in years.

[central_va]

Revenue neutral under static assumptions or at least revenue neutral under dynamic assumptions

False. Look at the statistics. Government revenue increases when there is a huge increase in economic activity. Look at the 1960's and 1980's. What caused those spikes in economic growth? Tax rate cuts

You can throw that revenue neutral crap out the window, historical data disproves that.

Now you know the truth and you can stop with the revenue neutral BS.

[central_va]

To prevent double taxation.

[sparklite2]

That’s the best summation of the issue so far on this thread. Thank you.

[Pelham]

the latino communists who have been running Occupied California may not like this

[Redmen4ever]

Before you call BS, you should read the sentence. Perhaps because I didn’t use the kind of language you use, the second part of the sentence didn’t register. Therefore, I will do my best to put that sentence into something like I understand to be your kind of colorful language.

Revenue neutral under static assumptions or, eff it, at least revenue neutral under dynamic assumptions.

[sparklite2]

To prevent double taxation

---

They don’t seem to any problem with inheritance taxes.

[calenel]

RENTERS CANNOT DEDUCT BUILDING MORTGATE [sic] INTEREST RATES.

Same straw man argument you've been making all along. Nobody claimed that renters were deducting anything. You made that one up just to have an argument to make, but nobody is arguing that with you.

AS A LANDLORD, if I were not able to deduct the interest on the mortgage on the building, the rent I charged would have to be more. This is a fact from personal experience, not just supposition. To use your terminology, that is the only rock solid statement that has been made between us.

You have made exactly zero valid points in this discussion because you are desperately clinging to an argument nobody is disputing or cares about. If that is how you approach every discussion in your life - good luck with that.

[DoughtyOne]

It's the same strawman valid point I've been making all along.

Sorry you're not capable of owning up to it.

If you don't pay taxes, what happens to the rates of those who do?

Get back to me after your extensive study on that topic.

Rents lower, taxes higher dumbkoff.