Happy Thanksgiving, taxpayers

Posted 11/21/17

As most Americans are aware, the House of Representatives on November 16 passed its version of what many Republicans are calling a historic achievement that will help the middle class, free up money …

This item is available in full to subscribers.

Please log in to continue

Log in

Happy Thanksgiving, taxpayers

Posted

As most Americans are aware, the House of Representatives on November 16 passed its version of what many Republicans are calling a historic achievement that will help the middle class, free up money for investment and lead to unparalleled job and economic growth.

Not all Republican members of Congress agree. Rep. John Faso was one of 13 Republicans who joined all 192 Democrats in voting against the tax plan.

Faso issued a statement saying, “There is no question that the federal tax code—with more than 70,000 pages of regulation—is broken. It is unfair to hardworking taxpayers, contains too many loopholes for special interests and is hampering the growth of our economy and ability of American workers to compete in the global economy.”

Still, he did not believe the bill would be good for New York families. He said, “The complete removal of the deduction for state income taxes and the limitation on deductions for local property taxes will impact New York families more severely than taxpayers in other states. While the full state and local (SALT) income tax deduction for individuals is repealed, full deductibility will remain in effect for corporations and other business entities.”

He goes on to talk about how the plan’s benefits are unequal—and that, we believe, is really the heart of the problem. Many taxpayers will make out pretty well, at least in the initial years of the plan, but ultimately wealthy corporations and rich families will fare much better than the rest of us. And even initially, gains will be nominal at the lowest income levels compared to higher levels, even on a percentage basis. According to Business Insider, a single, childless filer earning $25,000 would see taxes decrease only $202 (.8%), compared to $2,078 for such a filer earning $75,000 (2.8%).

And according to an analysis of the plan from the Joint Committee on Taxation, because of the way the tax is structured, by 2027 a majority of taxpayers who earn less than $75,000 will actually see a tax increase compared to the current tax structure, while most people earning more than $100,000 would still see a tax cut.

As for the wealthiest families, the House plan gradually repeals the estate tax, which currently is levied only when an estate of $5.5 million—or $11 million for couples—is inherited or passed on to the second generation. This tax is paid by about 1 in 500 people in the United States, and its repeal would hand a $240 billion benefit to the wealthiest families in the United States. An analysis by the Center for American Progress Action Fund shows that the benefit to the family of President Donald Trump, for example, could be in excess of $1 billion.

The repeal of the estate tax does nothing but increase the difference between the advantages that children of wealthy households already have, while simultaneously undermining children from households that don’t have the funds to pay for their higher education. The bill would end the deduction for college loan interest. It also has some provisions affecting graduate students, many of whom take positions as teaching or research assistance in exchange for reduced or free tuition. In the current tax scheme, the value of the reduction in tuition charges is not considered taxable income. In the House bill, that would change, and would significantly increase the tax bills of many graduate students.

Ted Mitchell, president of the American Council on Education, wrote in an editorial, “The bill would, in one fell swoop, set back by decades the effort to make the cost of college more affordable for individuals from all walks of life.”

Then there is an end to the deduction of medical expenses, which in the current tax scheme sets a pretty high bar for inclusion. In order to qualify, taxpayers must spend at least 10% of their income on medical expenses, and health insurance payments do not count as a deductible medical expense.

According to the IRS, in 2015, the medical expense deduction was claimed by about 8.8 million taxpayers, and 70% of those filers earned less than $75,000 per year. This deduction is often used by seniors who have serious medical injuries, or are in nursing homes. It’s also frequently used by families with children who face serious medical challenges such as autism. If this element of the tax plan becomes law, many of the people who claim this deduction will experience real pain.

The Senate has not yet passed its version of this tax reform, but it is expected to include the repeal of the Affordable Care Act requirement that everyone have health insurance. The Congressional Budget Office estimates that if that passes, 13 million Americans will lose their health insurance, and insurance payments for consumers who buy their health insurance on the federally managed healthcare exchanges are expected to increase by 10% per year. Here, again, the people being negatively impacted by the tax plan are low- and middle-income workers.

It’s not surprising that most Americans don’t share the Republican claim that their tax plan will be good for the middle class. According to a Quinnipiac University Poll released on November 15, 61% of voters think the plans will mostly help the wealthy, while only 24% say they will benefit the middle class. It’s something worth remembering the next time you go to the polls.

Comments

No comments on this item Please log in to comment by clicking here