Tag Archives: Trump tax cut

Taxes & Generational Equity in 2020: An Updated Turbo Tax Analysis of Three Prototypical Brooklyn Couples

It’s tax time, and it has been six years since I last compared the federal, state and local tax burden on two prototypical Brooklyn couples using Turbo Tax and other information:  the Senior Voters, home-owning former NYC public employees who got to retire at age 56, and the Young Hopefuls, a couple trying to get by while renting and working.  Now that the Senior Voters are age 69 and receiving Social Security, and the Young Hopefuls are age 41 (with Baby Hopeful reaching age 15), it’s time to find out what has changed.  

In the past I showed that the Young Hopefuls, despite much being poorer, would pay a much higher percent of their income in taxes.  A large share of those taxes would go to pay for the pensions and senior benefits of senior voters.  When the cost of health care, child care and housing were included, the Senior Voters would have enough money left for a very affluent, high consumption lifestyle.  The Young Hopefuls would have barely enough money to get by, despite matching the median income of NYC households.  Worse, given soaring public and private debts, the Young Hopefuls will not be getting the same benefits when they are old themselves. Poorer than the Senior Voters had been in young adulthood, and also now in middle age, they will be even worse off at the end of their lives, due to deals a generation of senior voters cut with themselves to put in less and take more out.

As a new twist I have added a third couple:  Chad the Private Equity Guy and his new wife Trixie, originally from metro Chicago and the Chicago Merc, but now working in private equity in NYC while living in a luxury condo in Dumbo.  While the difference in the tax burden on the Young Hopefuls and Senior Voters shows how harshly work income is taxed compared with retirement income, especially public employee retirement income in New York, Chad and Trixie’s tax bill shows how much investment income is favored at the federal level.   And the deals for seniors and the rich have just kept getting richer, even as later born generations of ordinary Americans, on average, keep getting poorer and deeper in debt.   Both political parties have contributed to the trend, a reality that belies their alleged increasing partisan warfare.

So what percent of income would these three couples pay in taxes?

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Medicaid and the State and Local Government Tax Deduction: The Federal Government Re-Declares War on New York City, Joining the Rest of New York State and New York City’s Political/Union Class

The Republican tax plan includes a repeal of the federal income tax deduction for state and local income taxes, and a partial repeal of the deduction for local property taxes. The Economist magazine likes the idea.

Republicans have since come to view the state and local deduction as something that encourages big government, rather than deterring it. It subsidizes Democratic-leaning states that set their taxes high…States are surely capable of balancing their budgets without receiving a federal subsidy for doing so. There is no real justification for distorting their fiscal decisions one way or the other.”

There is one justification, though no politicians on either side have an incentive to point it out. Thus making the policies that really shift money, and the identify of the beneficiaries, once again the “unsaid.” One reason that high tax states are in fact high tax states is that the federal government drains money out of them. This deduction of state and local taxes from federal personal income taxes is sort of a partial make-good.

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