Saturday, December 30, 2017

What tax reform means for Encinitas

One of the most prominent features of the new tax law is the limit on deductibility of state and local taxes (SALT). Because these taxes are primarily state income tax and property tax, areas with high property values in high-tax states will be most affected. Clearly, Encinitas would seem to be ground zero for the effect. Indeed, our Congressman Darrell Issa voted against the bill for this very reason.

The reality, however, is not so black and white. Here's a look at how tax reform might affect the different types of residents in Encinitas.


1) Renters - Winners

From the single surfer / biotech guy renting a studio in Cardiff to the young family renting a home in New Encinitas, pretty much all renters will see significantly lower taxes due to the lower rates and higher child credits and standard deductions. The loss of deductibility of state income tax does not eclipse this except for people with extremely high incomes.


2) Old school Encinitans - Winners

If you bought your house before the early 2000's bubble, your property taxes are protected by Prop 13 and very low, so the deductibility doesn't matter much to you. As for state income tax, most old school Encinitans don't have the mid-six-figure incomes of new arrivals, but even those who do may benefit (see #3 below).


3) Encinitas Ranch working affluent - It depends

Given that the median single-family home sale price is now $1.2 million, many of Encinitas' new homebuyers will fall into this income range.

Decades ago, Congress passed the Alternative Minimum Tax (AMT) to limit deductions for the very rich. Due to the fact that the AMT was not indexed for inflation, it no longer affects just the very rich but millions of upper-middle-income households. The Tax Policy Center reports that 29.1% of the returns in the $200,000 - $500,000 income range pay AMT, but that percentage would be much higher in Encinitas because AMT hits harder in high-tax, high-property-value areas. If you're in AMT, you already can't deduct state and local taxes, so the new tax law's lower brackets are a big win for you. However, if you're a high earner not currently paying AMT, you're likely to pay a few thousand dollars more because of the loss of those deductions.


4) Stretching-to-buy new arrivals - Likely modest losers

If your household income is in the high $100,000's or low $200,000's and you recently bought a house at Encinitas' record-high property values, you're likely to pay several hundred to a couple thousand more in taxes due to the loss of that property tax deduction which is so large relative to your taxable income.


5) Qualcomm / biotech / extreme sports multimillionaires - Losers

If your taxable income is $1 million or above, you're likely beyond the AMT effect and you're paying California's 13.3% millionaries' tax, which is no longer deductible. Even for those somewhat below the $1 million income level, the loss of income tax deductibility will likely vastly outweigh the lower tax brackets, so you're going to be paying a lot more.


The Wall Street Journal has a great tax calculator (subscription may be required) that lets you see what your outcome will be. I'd be interested to hear your experience, whether from the WSJ calculator or your tax adviser.

19 comments:

  1. Looks good to me. MAGA!!!!

    ReplyDelete
    Replies
    1. Count 10:17 among the morons in our community.

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    2. The true moron is 1:38. He has probably lived off the public teat most of his life. If he thinks making California a bastion of liberal politics is great then he is stupid.

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  2. Issa's vote against this won't keep us from replacing him with a Democrat. Na na na na, na na na na, hey hey, goodbye!

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  3. Renters are losers too. Anytime a renter has more money in their pocket, rents go up. Minimum wage increase was a landlord wage increase, this will be to.

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  4. So by EU logic, if I pay $1000 less in taxes, and $3000 more for health insurance, Then I’m a winner.

    Also EU fails to mention that the personal income tax cuts will expire in a few years, but the SALT deduction change is permanent.

    You could be a “winner,” who will quickly become a “loser.”

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  5. Issa's has transitioned into a moderate. I consider most of Encinitas voters moderates. Based on his more moderate approach to policy, I find myself more likely to vote for him (which wasn't the case 6 months ago). Although I like my progressive friends, they're just becoming too liberal for me.

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    Replies
    1. Voting with Trump 93.1% of the time isn’t moderate.

      Good try.

      Issa is top 10 pro-Trump of 435 Representatives.

      Delete
  6. Basically, what's left of the Middle Class gets reamed.

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  7. Sounds like a bunch of crooked Hillary supporters to me. Bah, Bah, Bah, I didn't get elected.

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    Replies
    1. Sounds like you lack facts.

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    2. When you are not smart enough to debate the actual facts, default to Hillary or Obama. Notice every idiots response to facts now is “whataboutisms”

      How do you feel about the tax plan 7:00? Hillary and Obama are not answers.

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    3. Jesus, 7:00 AM, you're really gullible enough to believe that crap from Trump?!

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  8. What does anybody who pays fed taxes do when considering the new scheme? Looks at how it affects him/her. For me, it reduces my fed taxes in the short term and raises them in the long term. That makes me think it was designed to be popular immediately and to depend on short memories to maintain its popularity.

    Meanwhile, it most benefits wealthy people like Trump (no surprise there) and the donors who pay for Republican political campaigns. So it's about maintaining wealth and power.

    It adds $1.5 trillion to the deficit/national debt over 10 years.

    Supply side economics don't produce the predicted results. That's been shown repeatedly over decades, yet Republicans still try to sell the idea. Supply side's most recent failure was in Kansas. It was trotted out, failed miserably and was rescinded to prevent the state from going bankrupt.

    The bottom line is the new tax scheme is another Republican scam.

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  9. Trickle down is just a much as as a failure as it was under the clueless Ronnie.

    Paul Ryan has shown himself to be just as clueless and braindead as Ronnie was.

    Those taking advantage will never pass the profits down. It is not in their nature to be so generous as to consider anyone else but themselves and their bottom line.

    Greed is good. For them only.

    ReplyDelete
    Replies
    1. Not clueless. They know exactly what they're doing. They're fulfilling their intentions.

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  10. Except for wealthy people, the tax plan is bait and switch.

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    Replies
    1. FAKE ANONYMOUS STATEMENT 4:28!
      Get real and read the bill.

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    2. 12:12 You're not really dumb enough to think Trump and Republicans would do anything to benefit anybody but themselves and their wealthy donors, are you?

      4:28's post is not fake anonymous, it is real anonymous.

      Delete