The GOP has finally unveiled details of the “tax reform” plan coming out of the House Ways and Means Committee. Yay.
I use scare-quotes around “tax reform” because it doesn’t really reform much, but it does monkey with deductions, exemptions, tax credits and brackets. For many Americans on a paycheck it will put more cash into their pockets. But if you live in a high tax state like New Jersey, New York, or California, you might get soaked.
I’ll get to that in a minute…first, some highlights.
The top bracket will remain at 39.6%. They wanted to lower it but Democrats won the day here. As for deductions, the standard deduction nearly doubled from $12,700 (married) to $24,400, along the same lines as the head of household and single deductions. But the personal exemption of $4,050 will disappear. So, the question here is: will the added standard deduction result in a lower tax bill or not?
Democrats are claiming it will increase most Americans’ tax burden. But that’s been debunked. Apparently they only looked at Democrats in high tax states, not, you know, the whole country. The WaPo fact checker gave them the dreaded “four Pinnochios.” For shame.
The Washington Post’s fact-checker said Thursday that Democrats aren’t telling the truth when they say the Republican tax plan would raise taxes on most middle-class families. In an early Thursday morning story, fact-checker Glenn Kessler gave Democrats four Pinocchios for making that claim. Kessler noted that the data Democrats used to make their argument actually showed that taxpayers in each of the five income bands used in the analysis would see a tax cut, not a hike, and that the average cut would be $450 for 80 percent of families.
That all depends on if you itemize. With such a high standard deduction, some of the caps proposed to what used to be itemized deductions may cause more people to file a non-itemized return. That’s the “reform” part, I guess. Less work for Uncle Sam looking at the Schedule A and associated documents.
The big deal is a cap of $10,000 for property tax only, and no deduction at all for other state and local taxes. If you live in a high income-tax state, well, ouch. That part of the bill may not survive.
One way for Californians and other meta-socialist dwellers to get their deductions back would be to give more to charity. I know, Democrats would rather pay taxes and let the government give away their money, but charity is still completely deductible. That’s good news for Christians, who give the most.
For high-value home buyers, the interest deduction, currently capped at loans up to $1 million, will cut in half to $500,000. Meh. And the dreaded Alternative Minimum Tax (AMT), will go away. That’s bad for the super rich and their accountants. Again for the rest of us, meh.
No changes will be made to the $18,000 pretax deferral for 401(k) contributions. At least they didn’t monkey with our retirement (as if Social Security isn’t a 10-ton gorilla monkeying with our retirement, but that’s a different story).
The compromise, as it had been sketched out this week, would preserve the deduction for property taxes, but not for state and local income taxes, and it appeared as if there would be a cap on the deduction. But at first glance, it did not appear as if that was enough to win over all of the New York and New Jersey members.
The highlights include lower rates for many individual households but not the highest earners; fewer individual tax brackets; a larger standard deduction for households who don’t itemize their tax bills; trimmed-back deductions for state and local taxes; eventual repeal of the estate tax; and much lower rates for corporate profits and profits for individuals on unincorporated business income.
WashPost: "Any Democrat who spread this claim should delete their tweets and make clear they were in error." https://t.co/0WwOmH6Qul
— The White House (@WhiteHouse) November 2, 2017
— Washington Examiner (@dcexaminer) November 2, 2017
GOP Tax Plan "Talking Point" Highlights Released https://t.co/ZE6qtKOqUX
— zerohedge (@zerohedge) November 2, 2017
— Aaron Zitner (@aaronzitner) November 2, 2017
The real question here: Is the GOP tax plan better than doing nothing? In government, doing nothing is almost always better than doing something, since legislators tend to screw up everything they do. The less they do, the less to screw up. But in this case, the jury is still out for me. Personally, it would likely be a wash. I don’t make enough money to be affected by the high tax bracket and AMT issues. I don’t live in a relatively high-tax state (Georgia isn’t Florida, Texas or New Hampshire, but it’s not New Jersey either). The rest of the changes might put some cash in my pocket–or not.
I think it’s a good start. But the more these things get kicked around, the more they get turned into rotting fly-infested carcasses that don’t resemble the thing they were supposed to be. This is why the jury is out…we may yet find out that doing nothing was the right move.