OPINION: COVID-19 the Climate Changer

While I was reading a book published in 2014 about climate change, it re-occurred to me that COVID-19 is mother nature's way of combating climate change on her own. This isn't the first time I've thought this.

There's a section that describes the tug of war between capitalism and the economy versus the efforts of climate change experts and environmentalists. My understanding is that the ideals of each side are contrary to each other, making their efforts inversely related. 

With COVID-19, although it's a health issue, the impacts to capitalism and the environment are both positive, actually. How so? 

In terms of capitalism, the stock market (not that it's a great indicator or all encompassing) is booming. There is significant unemployment currently, but I think it's a stepping stone towards future sustainable growth and development. The housing markets affected by low interest rates are great for buyers and sellers can profit from the demand. Construction continues to build and improve in growing areas. And despite small business failures due to health restrictions, I believe they will rebound because those who suffer and survive will learn and grow. 

In terms of the environment, the reduction of daily commutes, daily flights, and the constant movement of floating waste factories has all been minimized. Pollution on a grand scale has been reduced significantly. More people are working in their yards due to travel restrictions and boredom. Less people are driving daily. More people are growing their gardens for the same reasons. There's more time to tend to these basic things now that the economy is on temporary hold. 

In a way, COVID-19 is a climate changer in itself. It's changing the climate of capitalism. And it's helping to change the actual climate of the world. Looking at the positives rather than the negatives, COVID has been helpful. Some will say that it's at the expense of others' well-being and health, and I agree. It's tragic and sad. And I feel terrible for those who are suffering and being challenged physically and mentally. Everyday we hear about these things and it doesn't change the somber mood, but hey, I'm trying to look at it from a different angle. 

"Our suffering may not be as worthless and bad as we think." - Dalai Lama

An excerpt from a book I'm currently reading:

 

This is the reason why people who, from the outside looking in, have suffered great tragedies and obstacles seem to have the most compassion and understanding of our problems and issues. They have become so in tune with their challenges that they are able to develop empathy for ours. We are able to connect on a different level. And that is more helpful than we could ever have imagined. 

In turn, we should change our views on suffering and use it to grow ourselves and support others. 

OPINION: Virtual Legal Bribery On The Horizon

So it's finally happened. Last week the FCC repealed the Obama administration implementation of net neutrality rules.

"Net neutrality is the principle that Internet service providers must treat all data on the Internet the same, and not discriminate or charge differently by user, content, website, platform, application, type of attached equipment, or method of communication. For instance, under these principles, internet service providers are unable to intentionally block, slow down or charge money for specific websites and online content." - Wikipedia

Under the new rules, ISPs:

• May block access content, apps, or services.
• Could impair or degrade (slow down) sites, services or apps
• May favor certain Internet traffic over other

ISPs will also be permitted to throttle up or down services, content, and apps for financial consideration.

Let virtual legal bribery commence! Unreal!

Soon we'll be hearing from various service providers about premiums we're going to have to pay to view particular websites or get higher speed internet or prevent these companies from throttling. We'll be seeing tiered service plans. It will be like the caste system of the internet.

I have no belief in the idea that this repeal will spur competition or expand / upgrade networks and access. I also can't see how major telecom / communication / broadband providers would not make sweeping change in favor of making more money. Capitalism and price gouging are the centerpiece of this major move.

An equally large issue is the idea that this repeal will impede free speech, or at least potentially impact it. If service providers have control using pricing mechanisms on particular websites and ability to access, then isn't this a violation of the 1st Amendment? What would stop a company from blocking an opinion website that is in stark contrast to their viewpoints? What would prevent an internet service provider with a historically political bias from charging more to view sites where politically charged movements begin on the internet?

Similar to tax reform, only the wealthy will benefit. The rich keep getting richer, while the middle and lower classes suffer the most.

ANALYSIS: My Tax Reform Impact

Just for the sake of comparison, to see what the potential impact would be to our personal Federal tax returns, I did a quick analysis of the major points from tax reform against my 2016 filing (married filing jointly).

The issues with direct impact to our tax returns are:

• Repeal of the State & Local (SALT) Deduction
• Property Tax Deduction Limit at $10K
• Mortgage Interest Deduction - capped at property values of $500k
• Repeal of Personal Exemptions
• Doubling of Standard Deduction

With tax reform, when it comes to reducing our Adjusted Gross Income, we have the option of choosing the new Standard Deduction in the range of $24k or Itemizing. If we itemize, we are losing out on nearly $25k in deductions compared to what we could be getting with the current tax law. This is mostly related to the loss of the SALT deduction and the removal of Personal Exemptions. So previously where we most certainly would have itemized, we are now on the cusp of choosing the Standard Deduction over the Itemized Deduction. It's close.

This brings us to our taxable income. The change in the tax brackets put another wrench into the computation. Where we previously would have been in the 28% bracket, we could potentially be in either the 24% or 25% bracket, depending on whose rate passes (between House or Senate) or some agreed upon number. So the reduction in tax rate is helpful. What will really determine the end result is what the tax table will determine as the subtraction factor.

What do I mean? If you make over $100k, there is a multiplier and then a subtraction. So for example, if you make $100k (married filing jointly), your tax is $21,037 [($100,000 x 28%) - $6,963]. The subtraction factor is the $6,963.

If there are no changes to the subtraction factor, then our resulting tax liability could be in the ballpark of what the liability is previous to tax reform. If they make some changes to this subtraction factor, then there could be potential for greater or lesser tax due. So the impact of tax reform to my personal tax return could be minimal FOR NOW, but annoying all the same. There is plenty of potential future impact, especially in the purchase of a new home (mortgage interest, property tax) or even just borrowing against my equity, not to mention the tuition expenses that I'll have later in life for my children (potentially non-deductible now - but my hope is for tax reform again in the future to reverse this if it pushes through now).

For many others, it could be a bigger headache and a much bigger impact.

Take heed! This is only for the Federal income tax portion of the tax puzzle. We have yet to see how the states react to any Federal tax reform. If they conform to the Internal Revenue Code (IRC) or not will determine impact to our SALT liabilities. Remember, the Federal government could potentially take away from each State's own revenue. This could potentially be another detriment or benefit depending on which way each local government responds to the changes.

If you haven't already read up on it, I suggest you do. And I also advise speaking to your Tax Accountant and/or Financial Adviser to discuss your impact. Here's a few articles to read in the meantime:

- OPINION: Tax Cuts And Jobs Act - Detrimental to the Middle Class
- How your tax bracket could change under Trump's tax plan, in two charts

- 9 Sticking Points The House And Senate Have To Work Out In Their Tax Bills

- Seven Things States Should Monitor in the Federal Tax Bill

- Important Differences Between the House and Senate Tax Reform Bills Heading into Conference

- Macro-Market Research: Federal Tax Reform Has Significant Implications for State and Local Government Finances

OPINION: Tax Cuts And Jobs Act - Detrimental to the Middle Class

I recently read a summary produced by Ernst & Young of the latest tax reform bill called the Tax Cuts and Jobs Act. The bill is the work of some Republicans looking to overhaul the tax system, something that hasn't been done in 30 years. The proposal addresses a number of things including but not limited to corporate tax, partnership tax, international issues, the insurance industry, pensions / retirement, accounting methods, and most importantly individual taxes. 

My first thought is that the offerings and eliminations are too numerous to enact in a single sitting. I'm not surprised, since the GOP has been looking for ways and means to get a tax bill passed for the longest time. In my opinion, if the government wants to make change, it should do so in steps. This all-in-one pitch is likely to have missteps and eventually gaps that will be detrimental instead of helpful. 

If you haven't been paying attention, this is the time to do so. My reading of the highlights quickly angered me in more ways than one. And I'm sure you will feel the same. I seriously hope that this bill is rejected and better propositions are given. I think the nature of this proposed act is more beneficial to the wealthy and corporate, rather than the middle class. Let me try to identify why. While I have some gripes with corporate tax and know it will be a large headache in the short term (for me as a corporate tax accountant), I'll concentrate on individual taxes for now for the sake of this post. 

Here are a few of the things that I found particularly annoying that primarily affect the middle class:

• The standard deduction is proposed to be increased to $12,200 for singles and $24,400 for couples. BUT they are doing away with the personal and dependent exemptions. So a single filer as it currently stands can take $6,350 as a standard deduction with a personal exemption of $4,050. That equates to $10,400 in deductions. The changes would only net you $1,800 more in deductions. AND if you have a dependent, that would have been $4,050 more in deductions which would be in excess of the new $12,000 standard. So for families, each child you have would NOT be produce a deduction in the proposed tax plan. That's a major detriment in my eyes.
  
• The act is looking to repeal the state and local tax deduction. If you live in a state that applies income tax, then you are paying taxes on your hard-earned income to that state. That payment currently can be deducted if you itemize. Depending on which state your reside, state tax rates can be as high as 12%. For some people, the state and local taxes that they pay are in excess of the proposed standard deduction. Yet another detriment for the middle class people.
  
• Republicans are also looking to limit the deduction allowed for real estate taxes paid. Where currently, you can deduct all the tax you pay for your property, the suggestion is that only $10,000 of real estate tax will be deductible. If you live in the Northeast or any high property tax area, this is going to be an issue. You'd be forced to leave a deduction that was historically allowed on the table yet again if tax reform is passed.
  
• The proposal also calls for reducing the cap on the mortgage interest deduction. This means new buyers can deduct interest on loans only up to $500,000, down from $1 million. Anything in excess of $500K that you would be paying interest on would not be allowed as a deduction.  Additionally, homeowners will only be able to deduct interest on the mortgage for their principal residence, meaning you won't benefit from this tax break if you have a vacation home like in current law. Sounds like a penalty for the upper-middle class.
• You'll also want to think twice about taking out a home equity loan or line of credit, as the bill won't permit you to deduct the interest either. Looks like you're not going to want to build out that extension of your home, or add a deck, or borrow against your house to take that vacation or pay for college tuition. Talk about limiting!
  
• The deduction for casualty loss would be repealed. So for those of you who are affected by hurricanes, fire and other disasters that are not compensated by insurance you're at an even greater disadvantage thanks to your Republican tax lawmakers if the bill is passed.
  
• Tax preparation expenses, alimony payments, and moving expenses (although limited now) are looking to be cut out of the tax code completely, and therefore non-deductible in any way.
  
• Repeal of education provisions:
• Deduction for interest payments on qualified education loans for qualified higher education expenses of a taxpayer, the taxpayer’s spouse, or dependents
• Deduction for qualified tuition and related expenses
• Exclusion from income of interest from US savings bonds used for qualified tuition and related expenses
• Exclusion from income of qualified tuition reductions provided by educational institutions to their employees, spouses, or dependents
• Exclusion from income of employer-provided education assistance
• This all spells disaster for students who are already reeling from the sky high cost of secondary education in America. And this will have a snowball effect. Instead of encouraging learning, potentially bright students will shy away from racking up debt. That will diminish the potential of the education system and at some point reduce the educated workforce. Not good.

Then there are the proposed changes that seemingly benefit the wealthy. What for?

• Alternative Minimum Tax (AMT) would be repealed. Why? They take advantage of every single tax break and often times end up not paying tax. Shouldn't they have a minimum to help do their part?
  
• The tax brackets are changing. Currently, there are seven tax brackets: 10 percent, 15, percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. The proposal is consolidating brackets, so the remaining will be: 12 percent, 25 percent, 35 percent and 39.6 percent.
•  What does this mean? It means that the wealthy are actually getting a break! For example, a couple who is making $500,000 is subject to 39.6% currently. The new plan would afford them a discount to 35% as the highest income bracket would not begin until you hit the $1M mark. Unreal!
  
• The estate, gift, and generation-skipping taxes initially would be retained with a doubled $10 million basic exclusion, but after 2023 the estate and generation-skipping taxes would be repealed (with a stepped-up basis in property) and the top rate on the gift tax would be reduced to 35%. That's a big deal from an estate planning perspective. 

Sounds like the winners are the super wealthy and the heirs to their estates.

What I'm trying to point out is that, in my opinion, if you are in the middle class, you have more to lose than to gain. This proposed tax bill and reform are lopsided. A majority of Americans are in the low to middle class and this act doesn't benefit the people who make American great. Instead, Republican tax lawmakers are penalizing the vast majority for their hard work and dedication. Find a different way because this proposal will not work. 

And for us, the middle class, this is an opportunity to push back. We cannot just accept change and work around it. We'll be hurting ourselves and our families in the long run if this bill is enacted. (1262)