Tax Man Cometh With Hidden Tax Increases for 2020
For obvious reasons, Congress does not want people to know about the Creeping Tax Increases for 2020.
Millions of Americans are paying more to Uncle Sam because there’s no indexing for a variety of tax provisions, including homeowner benefits, tax thresholds on Social Security and investment benchmarks among others. The 2017 tax overhaul added more to this list.
The lack of an inflation adjustment is often intentional, says Len Burman, a tax economist who is a professor at Syracuse University and co-founder of the Tax Policy Center.
- Home Ownership: Once, home buyers could deduct the interest on any amount of mortgage debt. In 1987, Congress limited this break to deductions on up to $1 million of debt used to buy up to two homes, unindexed for inflation. If this limit had been adjusted, it would have been more than $2 million by 2017’s tax overhaul.
- In 2017 Instead of adjusting the home ownership limit upward, the overhaul pared it to $750,000, again unindexed for inflation.
- State and Local Tax Writeoffs: Lawmakers capped write-offs for state and local property and income or sales taxes, or SALT, at $10,000 per return, with no inflation adjustment.
- Profit on a Sale of a Home: A popular exemption of up to $500,000 per married couple of profit on the sale of a house ($250,000 for single filers) enacted in 1997 also isn’t adjusted for inflation.
- Social Security: The income thresholds for including Social Security payments in taxable income haven’t changed since they were enacted in the ‘80s and ‘90s. The income thresholds requiring filers to report 85% of payments on their tax return have been $44,000 for married couples and $34,000 for singles since 1994. They would be about $77,000 for couples and $60,000 for singles in 2020.
- Capital Losses: Since 1978, the tax code has allowed investors to deduct only $3,000 of net long-term investment losses against ordinary income like wages. Adjusted for inflation, that deduction would be more than $12,000.
- Marriage Penalty: The $3,000 deduction applies to both single and married filers. To fix that, the threshold should arguably be $12,000 for individuals and $24,000 for married filers.
Who Benefits From Inflation?
In case you were wondering who benefits from inflation, here's the answer once again:
The asset holders, those with first access to money, and governments.
Mike "Mish" Shedlock