Who really benefits from the Tax Cuts and Jobs Act?

I’m still not great with formatting complex posts, so I’m just doing a quick one here to note which obvious groups will benefit from this Act if it makes it past the Senate intact.

Parents of special needs children, parents of children under 18, people with 401ks, people who don’t move frequently for new jobs.

I called it natalism.txt because the thread running through its provisions is to try to implement the Trump tax plan’s exceptionally generous deductions for childcare by doing it through the 529, where you can get interest too.  The structural underpinning is to let parents sock away 10k/yr/child for any child-related stuff starting *during pregnancy*, and to discourage frequent moves and the resultant bidding up of home prices.  This shelters a lot of income from taxation and encourages alternatives to daycare as well because the spending power is better than the current system of childcare tax breaks.

This plan is an attempt, working within our convoluted tax code to “give people their own money back and let them do what they need to for their families with it”.  At the margin, this would encourage more childbearing.


Blogging the Tax Cuts and Jobs Act, Tax Reform for Individuals

I’ll be blogging through the Tax Cuts and Jobs Act using the PDF summary provided by the Ways and Means committee here.

Today we’ll start with the first and biggest piece, and the one most relevant to people discussing this bill.  My comments are in bold.

Title I – Tax Reform for Individuals
Subtitle A – Reform of Rates, Standard Deduction, and Exemptions

Sec. 1001. Reduction and simplification of individual income tax rates.

Reduces seven brackets to four of 12, 25, 35 and 39.6 percent.

The thresholds for married filing jointly would look like this:

  • 12%, for incomes ranging from $24,000 to $90,000
  • 25%, $90,000 to $260,000
  • 35%, $260,000 to $1 million
  • 39.6%, $1 million and up.

For singles (including heads of households) and married filing separately, the thresholds would be half those numbers (except singles get a break at 35% with that threshold being 200k).

Considering that the income ranges for married couples with under-18 children are ones where a substantial minority of couples have incomes in what are currently 28% or 33% brackets, this would be a legitimate tax cut for many married households with children. 260k is roughly the point at which you’ve covered most of the 200k+ households.  There are genuinely not many households, even among married people with kids at home, making more than 250k/yr.  It’s also generous to the lower end of the income band, particularly the single parents who were concerned about the potential loss of head of household status.

Sec. 1002. Enhancement of standard deduction.

The standard deduction would be:

  • 24k, married filing jointly
  • 12k, singles
  • 18k, single parents

Again, this doesn’t penalize heads of households, the vast majority of whom have one dependent.  Interestingly, it would reduce itemizing from about 1/3 of returns to under 10% of returns, according to the analysis of current returns.  This means that most households who itemize are only taking a few thousand over the standard anyway, which means the concern about deducting SALT is perhaps exaggerated.  

Sec. 1003. Repeal of deduction for personal exemptions.

The personal exemption goes away entirely, and the new family credits, increased child credits and standard deductions are expected to offset or benefit households who benefited from the current system, and the math says as much.   It is also very important to note that EITC thresholds are untouched and those benefits for (mostly) heads of household aren’t gone, merely added to the new system of credits and deductions.  

Sec. 1004. Maximum rate on business income of individuals.

This one is complex even in summary, but the takeaway is that service providers (law, accounting, consulting, engineering, financial services, or performing arts) don’t get many of its benefits , but a reasonably successful food truck owner would.  It also incentivizes cooperative and family business arrangements by lowering the tax rate slightly on the first 75k of income (9% instead of the 12%) for each owner/shareholder.  Yep, a little dab of subsidiarity in an unexpected place.

Sec. 1005. Conforming amendments related to simplification of individual income tax

The necessary canon welding.

Subtitle B – Simplification and Reform of Family and Individual Tax Credits

Sec. 1101. Enhancement of child tax credit and new family tax credit.

Child tax credit goes to $1600 from $1000, and $1000 is refundable, with indexing to inflation so that eventually the whole credit is refundable per child.  There are also $300 nonrefundable credits for each adult non-dependent or non-child dependent.  These credits offset much of the income shift for edge cases that have more taxable income at 12% or 25% because the credits are against owed taxes.  Restricting the refundable credits to people with an SSN rather than a TIN is very practical.  The best part, though, is that the thresholds for married filing jointly rise to 230k for these credits.  This is a total gift to the large number of married households with children who were cut out of the credit at 110k.  The HOH and single threshold rises from 75k to 115k, which is also good, rewarding high-earning single parents rather than penalizing them. 

Sec. 1102. Repeal of nonrefundable credits.

This repeals a credit for seniors retiring on disability that is made redundant by increased standard deductions and family credits.  It also repeals an obscure “mortgage credit certificate” provision. Lastly, it repeals a rather pointless (given their overall cost) deduction for electric cars.  Elon Musk fans hardest hit.

Sec. 1103-1105. Refundable credit program integrity; procedures to reduce improper
claims of earned income credit; certain income disallowed for purposes of the earned
income tax credit.

This is entirely about tightening up the rather loosey-goosey verification for EITC and some educational credits.  The IRS would be free to adjust returns that couldn’t provide legitimate SSNs.  

Subtitle C – Simplification and Reform of Education Incentives

There is a note here from the committee that, essentially “all these benefits are too complicated to be helpful, so streamlining will get more money to more people”.

Sec. 1201. American opportunity tax credit.

This combines three credits that have a mix of refundability and nonrefundability into one credit that is 20% refundable and the size of the largest of the three previous credits.  This is a useful streamline. 

Sec. 1202. Consolidation of education savings rules.

This one is the bomb diggity.  It takes rather crummy Coverdells, which have a 2k per child limit, and gets rid of them in favor of expanding 529s to encompass “elementary and secondary school expenses” to the tune of 10k per child per year.  It also expands 529 cash to cover apprenticeship programs.  This provision is a conversion of the 529 from a mediocre and limited college savings program to a full-fledged roll-your-own-pretax-block-grants for parents to use for their children.    This means that homeschoolers could use pretax dollars to pay for any of their homeschooling expenses.  It means that before care and after care or any activities/sports/lessons could be covered with pretax dollars that collect interest like an HSA.  It is not limited to tuition at private schools, as has been very misleadingly reported.  

Sec. 1203. Reforms to discharge of certain student loan indebtedness.

If you die with outstanding student loans or have such a profound disability that you cannot ever repay your student loans, they are excluded from taxable income with this reform.  This is a marginal provision, but it’s a desperately needed first step towards broader student loan reform.

Sec. 1204. Repeal of other provisions relating to education.

Repeals above the line deductions for education loans and tuition.  Also repeals savings bond interest exclusion when the interest is spent on educational expenses, repeals exclusion for tuition reduction, and the exclusion for employer-provided education assistance.

Here’s the thing.  The typical student loan burden is not large enough to kick off 2500/yr in interest for years on end.  This repeal is primarily going to hit, well, it’s not going to hit most married couples with young children.  It’s going to hit permastudents, singles with massively above-average student loan amounts and people who take jobs for the education benefits (including employees at universities).  This is not a very large group of people and they are, mostly, die-hard Hillary voters with a few Bernie voters sprinkled in.

College education was never meant to be a money tree trap and this is a step towards restoring the idea that college attendance is about securing a credential and/or completing a comprehensive liberal arts education. It’s also an attempt to rein in college costs by reducing factors that inflate the price.

Sec. 1205. Rollovers Between Qualified Tuition Programs and Qualified ABLE Programs
This continues the essential expansion of the 529 plan by allowing tax-free transfers between it and ABLE accounts set up for expenses for special needs children.  This is good news for parents of special needs children.  

Subtitle D – Simplification and Reform of Deductions

Sec. 1301. Repeal of overall limitation on itemized deductions.

What it says. No phaseout for itemized deductions.

Sec. 1302. Mortgage interest

The current system is a giveaway to coastal types who can work the angles and carry a high level of indebtedness.  You can currently deduct interest for up to 1 million dollars of mortgages between two homes, plus interest on up to 100k of home equity line of credit/loans.  The change is to limit deductions to 500k on one home and to eliminate the incentive to take out a large HELOC by removing the interest deduction.  Under the AMT, these rules are mostly already in place, so this is aligning things with the AMT’s ruleset.

Sec. 1303. Repeal of deduction for certain taxes not paid or accrued in a trade or business.
Ah, the sweet SALT deduction.  Under this provision, state and local income and sales taxes can’t be deducted anymore except in the course of a trade or business, but property taxes can still be deducted up to 10k.  This doesn’t kill SALT deduction, but it does give it a pretty massive body blow.  Most people were worried about losing property tax deduction, so this will keep them fairly chill.

Sec. 1304. Repeal of deduction for personal casualty losses.

You can’t deduct anymore for losses by fire/shipwreck and the like unless it’s due to natural disasters that warranted special legislation.  This is in fact mostly removing a tax break for very well off people while keeping deduction for those who get the brunt of a major hurricane, wildfire, flood, or the like.  Harvey losses are deductible, your yacht getting caught in a storm is not.

Sec. 1305. Limitation on wagering losses.

A reduction in the amount one can deduct for gambling.

Sec. 1306. Charitable contributions.

Small increase in the total amount deductible, from 50% of AGI to 60%.  Repeal of the “college sports tickets” exception.  Mileage for charity would be adjusted for inflation.  Donations over $250 wouldn’t require both donor and organization to provide information about the donation.  

Sec. 1307. Repeal of deduction for tax preparation expenses.

No more deducting tax prep software or a 200 dollar accountant visit for tax prep.  

Sec. 1308. Repeal of medical expense deduction.

What it says, no more deducting medical expenses above 10% of AGI. Repealing this is interesting, because it has a weird and complicated history as yet another wartime benefit that carried over, and over, and over.  It affects no more than 1 in 20 taxpayers, perhaps 10-15% of those who itemize. Those estimates are from several years ago, I couldn’t find current use numbers offhand. 

Sec. 1309. Repeal of deduction for alimony payments.

“The provision would eliminate what is effectively a “divorce subsidy” under current law, in that a divorced couple can often achieve a better tax result for payments between them than a married couple can.
The provision recognizes that the provision of spousal support as a consequence of a
divorce or separation should have the same tax treatment as the provision of spousal
support within the context of a married couple, as well as the provision of child support.”

Sec. 1310. Repeal of deduction for moving expenses.

Only military members would be able to use this deduction under the new provision.

Sec. 1311. Termination of deduction and exclusions for contributions to medical savings accounts.

Destroys favorable tax treatment for Archer MSAs, which are in practice identical to HSAs, so it lets people roll the Archer money over into HSAs and call it a day.  This is similar to the provision compressing three education credits into one credit.  

Sec. 1312. Denial of deduction for expenses attributable to the trade or business of being an employee.

This was framed as “omg punishing schoolteachers for buying supplies out of pocket!!!!”.  But anyone who gets reimbursement can still itemize this deduction, along with military reservists.  The deduction in question is wiped out even for a schoolteacher paying for supplies out of a 100k salary by the other favorable tax changes.  Most schoolteachers buying supplies out of pocket never took this deduction as it was.  This change, while politicized negatively, is a reasonable and practical streamlining, similar to losing the tax prep deduction. 

Subtitle E – Simplification and Reform of Exclusions and Taxable Compensation

Sec. 1401. Limitation on exclusion for employer-provided housing.

Limits employee housing exclusion to 50k for singles and 25k for marrieds filing jointly with a phaseout starting at the 120k income range. 

Sec. 1402. Exclusion of gain from sale of a principal residence.

Currently you can stay in a home for only two years of the past five to exclude 500k of gains (250k for singles) from selling it and you can invoke this every two years.  This is, of course, a boon for flippers and other profiteers.  The new provision is that you have to live in the home five out of eight years to exclude your 500k/250k in gains and you can only do it once every five years.  This provision is a small step towards keeping home prices from going runaway and towards creating incentives to keep highly compensated types from gypsying around the country, leaving lack of community and sky-high home prices in their wakes.  It’s a return to the nightmare known as 1978.

Sec. 1403. Repeal of exclusion, etc., for employee achievement awards.

Repeal of employee achievement awards being excluded from taxable income, along with repeal of employer restrictions on deduction.  This kind of achievement award isn’t very good at improving productivity and dumping it back into taxable income provides more flexibility for both sides of this equation.  

Sec. 1404. Sunset of exclusion for dependent care assistance programs.

What I like to call the ” at-work daycare incentive” is being sunsetted by 2022 here. Excluding this expense from taxable income will go away by then. 

Sec. 1405. Repeal of exclusion for qualified moving expense reimbursement.

What it says, no more freebies for Amazon and Google shipping people across the country.  Only military would get to exclude moving expenses from taxable income.

Sec. 1406. Repeal of exclusion for adoption assistance programs.

Also what it says, no more exclusion of adoption assistance cash from taxable income.  The amount involved has grown massively out of proportion to the current costs of adopting an American-born child above the age of 1 and particularly of adopting out of the foster system.  And if you think about it a little, the repeal of this exclusion is compensated for by the expansion of what you can spend 529 money on.    
Subtitle F – Simplification and Reform of Savings, Pensions, Retirement

Sec. 1501. Repeal of special rule permitting recharacterization of Roth IRA contributions as
traditional IRA contributions.

“This provision would prevent a taxpayer from gaming the system by, for
example, contributing or converting to a Roth IRA, investing aggressively and benefiting from any gains (which are never subject to tax), and then retroactively reversing the conversion if the taxpayer suffers a loss so as to avoid taxes on some or all of the converted amount.”

Sec. 1502. Reduction in minimum age for allowable in-service distributions.

Just making everyone be 59 1/2 before taking money out of a pension or 401k.  Current system has different ages and this consolidates to one age.

Sec. 1503. Modification of rules governing hardship distributions.

Removes the restriction on contributing to your retirement plan if you take a hardship distribution.  This will be very beneficial at the margin.

Sec. 1504. Modification of rules relating to hardship withdrawals from cash or deferred

Allows people to hardship withdraw earnings or employer contributions and not just employee contributions.  Also very beneficial in combination with not forbidding contributions to resume after the hardship is over.

Sec. 1505. Extended rollover period for the rollover of plan loan offset amounts in certain cases.

Gives people until tax time to transfer outstanding loans to an IRA instead of locking them into the 60 day limit.  Very helpful too.

Sec. 1506. Modification of nondiscrimination rules to protect older, longer service

What it says, modifying the rules on defined benefit plans to not penalize older workers. 

Subtitle G – Estate and Generation-skipping Transfer Taxes

Sec. 1601-1602. Increase in credit against estate, gift, and generation-skipping transfer tax;
Repeal of estate and generation-skipping transfer taxes.

“Under the provision, the basic exclusion amount is doubled from $5 million (as of
2011) to $10 million (as of 2011), which is indexed for inflation. This provision would apply to tax years beginning after 2017. Furthermore, for tax years beginning after 2024, the estate and generation-skipping taxes are repealed while maintaining a beneficiary’s stepped-up basis in estate property. The gift tax is lowered to a top rate of 35 percent and retains a basic exclusion amount of $10 million and an annual exclusion of $14,000 (as of 2017), also indexed for inflation.”

Anyway, that’s my summary of the summary for the individual tax reform.  The AMT is being repealed in the next section, which is why there are some tweaks to bring things into alignment with the AMT.

The next post about this will be examples using statistically likely people, and not weird edge cases, which is the norm with these kinds of tax plan analyses.

The new House-passed tax plan is natalism.txt

It’s full of provisions designed to favor married childbearing and staying in the same place for a decent chunk of time rather than bouncing around.  The specific tax bracket changes benefit nearly all parents, including single ones with head of household status.  The “losers” are pretty much the wage-earning part of the 1%.

This overview isn’t perfect, but it’s a decent starting point.  I hope I can blog through the bill before the Senate gives it either beautiful ice cream sprinkles or chunks of garbage in the final version.



College is the new bride price

The money doesn’t go to the parents, though.  But it’s the main path to the married class.  A fundamental error is the view that college is a net financial loss for middle class women.  But this dismisses the reality that the college “bride price” is how those women display their marriageability and secure marriage to a man who can lead them into firm footing in the married class.  The fringe notion that college is for harlotry is nearly the opposite of the reality that’s led to a supermajority of children being born to college-educated mothers and a majority being born to college-completing mothers (BA and beyond).

Women were taking 40% of the BAs in 1970.  Those women’s daughters have come to completely dominate married motherhood, so of course college for girls Just Makes Sense.  When your daughter is going to marry a guy who’s already graduated a couple years earlier and who’s already making 70k while she’s walking into 40k starting, suddenly the 15k or 25k in student loans doesn’t seem like such a big deal.

Facet display and monkeysphere management with pseudonyms online

Carolina is a veil.

If you have been online more than ten years, and especially more than fifteen, you will probably view most of what I’m going to write as nothing much and no big deal.  And this is because in the older days of the internet, people sort of instinctually stumbled into the realization that just using your “real name” or “legal name” everywhere you went online wasn’t really enough to avoid personality disintegration and blurring of social boundaries due to it being so easy online to exceed the natural limits of the monkeysphere, the 150 or so “slots” for real connection most people max out at.

It may not seem like it, but there has always been a real distinction between “Janet Adkins” and “jadk”.  What I’ve used in the title “facet management” is just one way that simply using initials in one forum and full names in another allow people to juggle the fact that the internet can easily take all your monkeysphere slots if you let it.  But minor shifts in the direction of a pseudonym (like dropping down to just initials) can provide just enough distance to save slots for offline and minimize attaching too easily and intensely to people you can only ever have an epistolary connection to.

So many people who have been using the internet for decades have pseudonyms they shift between, showing facets of themselves, but not the whole jewel.  It is not about hiding anything in these cases, in fact the people themselves will often allude to or link to their numerous pseudonyms if it’s relevant to a discussion (“Oh yeah, I went off-topic on that car forum with this post about the space race, yeah, I’m fiatfan in that thread.”)  It’s about a veil of distance to talk about certain things in certain ways, just enough space to have discussion.

Carolina is a veil.  She is a veil to grant emotional distance from the real struggle in my life, which is raising very gifted, very challenging children in a society that has undergone major demographic changes as to which women have kids and is in utter denial about what it means in terms of the type of children that produces.

My marriage is traditional.  I don’t say much about my wifehood because there is little to say about a healthy, longstanding marriage where husband and wife are in traditional accord regarding hierarchy and authority.  I don’t write much about what’s working great and doesn’t have problems.  And that’s my wifehood.

But mothering is hard.  It’s so far outside what T.W.O. and I know from our own childhoods and even from some of the people we know raising children right now that a veil is needed.  There’s just too much emotion there and immediacy.  Translating some of the things that have happened with the kids into Carolina’s voice has granted me some very precious distance and sense of comfort.  When I can stand back behind that frail veil, I can see that it’s not so bad, that we can all pull through, that my kids will probably be okay.

But if I was fool enough to think that I had to use one of my legal names (marriage pretty much gives all women two) for every single word I wrote that was public-viewable, I wouldn’t be able to escape the feeling that it was too much.  I can pull back and have a rational perspective about child development while still sharing what are complex experiences worth revealing to other mothers whose own children may have a few things in common with mine.

Even offline, people kind of understand this because nicknames exist.  It’s pretty clear that while some people are naughty and use pseudonyms to pretend to be something they aren’t (classic examples are the men pretending to be women), this isn’t the normal and typical use, which is why those tricks still work to this day.  Most pseudonyms are about showing a piece of your personal self online, enough to have a conversation and maybe a little more depending on the goals of the online group (like possibly meeting up and taking things offline as friends/peers/etc.), but not so much that you can’t withdraw and still have plenty of slots left in the old monkeysphere.

That’s all.  If you want to pretend it’s 1997, you are free to discuss further in the comments.  All of this used to be regular meta fodder, lol.

The Australian difference

I can’t get more deeply into this for a couple months unfortunately, because Australia’s natality data is not as granular as America and some of the other nations I have looked at.  But this is an interesting starting point.

American birth rates by age for 2015 (using 12 month-ending numbers from the CDC/NCHS)

Age Birth Rate
15-19 22.3
20-24 76.8
25-29 104.3
30-34 101.5
35-39 51.8
40-44 11
45+ 0.8

In Australia, things look more like this for 2015

Age Birth Rate
15-19 13.1
20-24 49.2
25-29 96.7
30-34 122.4
35-39 69.7
40-44 14.8
45+ 1

Divorced and Separated women have the highest workforce participation

Then never-married women follow and currently married women are lowest.  The actual numbers are pretty close together, but the married number is driven down by the very low workforce participation of widows.

But despite the extreme efforts to get women into the workforce, they haven’t hit male participation levels…from the 1970s and the rate of increased entry is slowing so much that it seems unlikely to ever happen.  Meanwhile male workforce participation is dropping.


That there is pretty recent data about all of this, with some interesting data points like a woman’s income being pretty darned high with a BA (~50k/year median).

I would also note that divorced and separated women out there hustling up money at higher rates than other categories of women is not entirely compatible with the “cash and prizes” narrative around divorce.