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Link Interesting read from the Tax Foundation. Here's the executive summary and key findings: Executive Summary: Policymakers should have two priorities in the upcoming economic policy debates: a larger economy and fiscal responsibility. Principled, pro-growth tax policy can help accomplish both. Congress is staring down the expiration of the Tax Cuts and Jobs Act (TCJA), and Tax Foundation is prepared to provide insight and analysis on the policies at stake. Since its enactment in 2017, the Tax Foundation team has studied the TCJA’s underlying construction and resulting strengths and weaknesses. We have also analyzed fundamental reforms that would dramatically improve the U.S. tax system to support economic growth as well as greater efficiency and simplicity. Whether lawmakers target fundamental tax reform or follow the outline of the TCJA, they will confront decisions on what to prioritize in this forthcoming round of tax reform. In that regard, staying within the overall TCJA construct, the Tax Foundation team has analyzed difficult, but revenue-neutral ways to build a pro-growth set of reform options that would not significantly worsen the deficit once changes to the economy are considered or substantially change the distribution of the tax burden across the income scale. The alternative reform options outlined in this paper may not be politically popular, but they would grow the economy and provide sufficient revenue to avoid significantly increasing our nation’s debt. The two alternative options would further broaden the tax base for individual income (more so than the TCJA), maintain much of the individual rate cuts from that law, improve the business tax base to support investment, and maintain the corporate tax rate of 21 percent. Both reform options would provide working families and businesses with more long-term certainty than the current expiring tax code and remove many of the tax code’s special interest provisions. The options prioritize provisions that have the largest “bang for the buck,” or the most economic growth per dollar of revenue loss. These include immediate cost recovery for investments in the types of machinery and equipment upon which millions of small and large businesses depend, as well as immediate write-offs for investments in research and development. These two policy changes support a growing economy like no other tax policies proposed since the corporate tax rate was reduced from 35 percent to 21 percent. The options would also extend better cost recovery to investments that are currently excluded, resulting in more neutral tax treatment across assets. The options in this paper show that pro-growth tax reform that does not add to the deficit requires tough choices. If lawmakers do not like the types of choices represented here, there are still other pro-growth options to achieve similar goals. Tax Foundation has modeled several alternative options over the last year. Our primary concern is not to endorse any of the specific policy options here, but to provide a resource to lawmakers so they can create sound tax policy. With respect to the two options in this paper, the first would support an economy that is 1.4 percent larger in the long run and reduce the long-run debt-to-GDP ratio by 1.7 percentage points compared to what would happen under current law. The second option would have somewhat smaller impacts with an economy that is 0.9 percent larger and a debt-to-GDP ratio that is 0.1 percentage points larger. Working families and businesses deserve a tax code that prioritizes growth and fiscal responsibility. This paper demonstrates multiple ways to reach those goals without substantially changing the distribution of the tax burden. These options can help Congress as lawmakers begin the difficult work of designing legislation to prevent an automatic, detrimental tax hike at the end of 2025. Key Findings: Unless Congress acts, the vast majority of Americans will see higher, more complicated taxes beginning in 2026 as major provisions from the Tax Cuts and Jobs Act of 2017 expire. The TCJA reduced average tax burdens for taxpayers across the income spectrum and temporarily simplified the tax filing process through structural reforms. It also boosted capital investment by reforming the corporate tax system and significantly improved the international tax system. If Congress fully extends the individual, estate, and business provisions, federal tax revenues would fall by more than $4 trillion on a conventional basis and by nearly $3.5 trillion on a dynamic basis over the coming decade; and without spending cuts, debt and deficits would increase. At a time of already high national debt, rising deficits, and higher interest rates, Congress should exercise fiscal responsibility when deciding how to extend the expiring changes. The decision process should be guided by promoting growth and critical principles of sound tax policy: simplicity, neutrality, transparency, and stability. Lawmakers must avoid economically counterproductive approaches to fiscal responsibility, such as paying for individual income tax cuts with higher taxes on business investment or trade. Tax Foundation outlines two approaches that illustrate possibilities and difficult trade-offs for designing a pro-growth and fiscally responsible extension of the TCJA without raising taxes on investment or trade. _________________________________________________________________________ “A man’s treatment of a dog is no indication of the man’s nature, but his treatment of a cat is. It is the crucial test. None but the humane treat a cat well.” -- Mark Twain, 1902 | ||
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goodheart |
If you think the Trump tax cuts will NOT be extended, it makes sense to take money from your traditional IRA to a Roth IRA, since post-2025 tax rates will be substantially higher. Calculate your estimated 2024 tax, see how much money you can convert (meaning: take distribution and pay taxes on it), calculate what tax bracket you will be in if you take out the extra money. A Fidelity adviser was suggesting consider taking a large amount to convert to a Roth, on the assumption the Trump tax cuts would go away. My Chase adviser advised that I take enough out to convert to just brush up against the next tax bracket; that's probably what I will do. _________________________ “ What all the wise men promised has not happened, and what all the damned fools said would happen has come to pass.”— Lord Melbourne | |||
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No More Mr. Nice Guy |
I use that "fill the bucket" strategy. It is pretty safe to assume in general that whichever marginal bracket one is in this year will be the same or higher next year. Our tax bracket is not likely to decrease in the future, so doing ROTH conversions now can save future taxes. RMD tax brackets can be quite a bit higher, especially as we get older. If one is postponing Social Security (or not yet taking it), ROTH conversions now can save money later. It is a complicated situation, with IRMAA, Social Security, and unknown future tax rates. I really like taking monies off the table as far as taxes are concerned, even if it means paying taxes this year to avoid even more taxes in the future. | |||
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goodheart |
Roth conversions (which may be eliminated!) mean lower RMD’s and lower taxes on inherited IRAs. _________________________ “ What all the wise men promised has not happened, and what all the damned fools said would happen has come to pass.”— Lord Melbourne | |||
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The Ice Cream Man |
What are they willing to model, when they do these things? The biggest hurdles to economic growth, is probably housing cost, schooling cost, and a bureaucracy that consumes too much of the workforce. (Both directly and by consuming man-hours of otherwise productively employed people.) | |||
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