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Mitt's move to the center last night leaves me puzzled. (Actually, the Mitt of last night was, I think, to the left of Obama on many issues.) One issue that puzzles me most is this idea of capping deductions.

Here is my confusion:

If deductions are capped at say $17,000 or $50,000 and the cap gets smaller as income increases, why will this not be devastating to small businesses and farmers?

My understanding of the way farming works comes from my own family and in-laws. I have never looked at the actual tax documents, but neither farm is a small business. It is a true family farm. In both cases, the sale of crops is the "income" of the individual farmer. The income is quite large: corn is approximately $7.50/bushel. The farm produced a little over 100 bushels/acre this year (bad year due to drought). About 300 acres are put into corn. The income for the corn crop was around $225,500. That puts them in the top 1% for income and would mean that, according to Romney, no deductions. No deductions for equipment (combines, tractors, etc.). No deductions for inputs (seed, fertilizer, pesticides). No deduction for fuel. No deduction for land mortgages or the interest on the loan to buy the seed before it is planted.

Currently, the $225,000 income would be in the 33% tax bracket. Even if Romney were to get the 20% tax reduction, that would only reduce it to 26.4%. The taxes would be $59,400.

My father-in-law once told me that his best year of farming, he netted $13,000. I think there may well be some items that farmers deduct that may not need to actually be deductions, but the $13,000 number stuck in my mind.

I know Obama was not at his best last night. And, I am not sure he was even really thinking about what Romney was actually saying, but I would hope that he would do better at thinking through implications and ramifications of the lies that Mitt makes up on the spot and is so proud of.

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Comment Preferences

  •  Those are costs and expenses. (2+ / 0-)
    Recommended by:
    Lujane, VClib

    Deductions are special rules on spending behaviors like buying a house [mortgage interest] or charitable giving.

    •  Are you sure??? (1+ / 0-)
      Recommended by:
      ManhattanMan

      I am a professor. Business expenses are considered a deduction. Romney also talked about the oil company stuff as deductions last night. And, many of the things for farmers are comparable to spending behaviors (interest rates, for instance).

      •  Yes. You have to have an income to pay (1+ / 0-)
        Recommended by:
        VClib

        taxes on it. Farming is a high cash business. It takes a lot of money to plant and then you wait and then you harvest and hopefully sell. You subtract your costs from your take on your harvest sales and end up with your income.

        Then there are rules to encourage the behavior of purchasing new capital equipment, like say a new tractor, for which you can deduct certain amounts on a depreciation basis.

        •  But, Romney wants to change all of that. (0+ / 0-)

          I think the question is, how are business expenses labeled according to the IRS? I looked at an IRS document that indicates costs of business may be "deducted" and it explicitly refers to payroll expenses as "deductions." (I suppose the IRS language may be so confusing as to sugest that things which are "deducted"and "deductions" are not "deductibles.") :)

          My point is NOT that this is really what Romney is trying to make happen. I am certain he would run from this notion quickly. However, if he were asked, he would likely say something about how he would not count those deductions in his deduction bundle. Then, he could be pressed on what deductions would be subject to the bundle.

  •  Wait, Even a Farm Should Be a Business. (3+ / 0-)
    Recommended by:
    Husker Nation, Lujane, WheninRome

    I'm a sole proprietor artisan, I make stuff and sell & export.

    I get to deduct my costs from the sales income before I figure my individual taxes.

    Why would a farm not be the same thing? If I were farming wouldn't I deduct my cost of seed, interest from any loans, vehicle expenses, fertilizer and such just as my artisan business deducts raw materials, machine (depreciation), and so forth?

    As an individual sole proprietor, my individual tax rates and loopholes only enter the picture after my business's income is heavily adjusted for business expenses.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Thu Oct 04, 2012 at 07:04:07 PM PDT

    •  Exactly...but... (0+ / 0-)

      Romney wants to change that, as I understood him last night. He said that one way to make the tax reduction budget neutral is to cap deductions. The key word in your sentence is that you get to DEDUCT your costs of doing business from your sales.

      My guess is that not even Romney wants the effect of his plan to be that you would not be able to deduct business costs, but...that is at least part of what he is talking about when he says even corporate tax rates are too high.

  •  Expect a boom in LLC's. (1+ / 0-)
    Recommended by:
    Husker Nation

    I'm sure Mitt & Ryan have all sorts of loopholes ready and waiting for "the right people" to take advantage of.  

    "Wall Street expertise, an industry in which anything not explicitly illegal is fair game, and the illegal things are fair game too if you think you won't get caught." — Hunter

    by Back In Blue on Thu Oct 04, 2012 at 07:08:20 PM PDT

    •  That is what got me to thinking about this. (0+ / 0-)

      As Romney was discussing the deductible bundle, I was trying to figure out what deductions he was including or not including in his bundle. The only ones I have heard anyone discuss are mortgage payments and charitable giving. I know there are other things that are called deductibles, and that is why I think someone should at least think about the ramifications of this. To date, that is his only real "plan" for how to pay for his tax cut.

      •  No one knows what he's going to do, not even him (0+ / 0-)

        I admire your effort to bring this up, but I don't think Romney's plan is anything more than a nice story.  It sounds good, but as wednesday night proved, he's willing to promise anything to everyone contradicting himself on everything he's run up to that night.  And now he and his campaign have been walking it all back.

        But I know one thing for sure. Romney will take care of his own and we are not his own.

        "Wall Street expertise, an industry in which anything not explicitly illegal is fair game, and the illegal things are fair game too if you think you won't get caught." — Hunter

        by Back In Blue on Fri Oct 05, 2012 at 06:42:49 AM PDT

        [ Parent ]

  •  I wonder if part of what we will see when it's all (0+ / 0-)

    done is the number of normally R people who understand how his generalities actually affect them, and go elsewhere as a response. I have to believe that farmers understand what they see when the R House blocks any action on drought relief or the ag bill at all until after the election, so nobody will see what they intend until it's too late. This is another one, which will also have huge effect on family farms and other genuinely small business enterprises such as Subchapter S corporations where the entire result of the business falls on the personal return of the owner, where the deduction limit awaits.

  •  Schedule E (2+ / 0-)
    Recommended by:
    johnny wurster, VClib

    Look at schedule E part II and related forms. That is where this kind of income and expenses are reported for many small businesses.

    Romney was speaking about personal deductions, not business expenses.

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