The new House tax bill is brought to you by Speaker Paul Ryan who said “it’s very clear and obvious that the whole purpose of this is a middle-class tax cut,” and President Trump who said “This is a once-in-a-generation opportunity, and I guess it’s probably something I can say that I’m very good at. We’re going to cut taxes for the middle class.” Well not so fast you guys, the picture is not quite so rosy in New Jersey where we have high state/local taxes, property taxes and mortgage interest costs.
With the below information those of you in the middle class can estimate whether you will win or lose in the House’s proposed tax bill.
- You should first check your most recent tax bracket. An advantage: the new tax bracket that largely covers the the middle class will be 25% on taxable income of $45,000 to $200,000 for a single filer, and for taxable income for joint filers on $90,001 to $260,000. This is a better deal as the current 25% rate applies to only $37,951 to $91,900 for singles and $75,901 to $153,100 for joint filers.
- Next, check whether you filed a Schedule A listing of your deductions or you accepted the standard deduction. The new standard deduction nearly doubles to $12,00 for individuals and $24,000 for joint filers. Unfortunately under the proposal most deductions are gone except for donations to charity. Gone are medical and business expenses, union dues, and work-related cable and cell phone bills. So you can’t use these in the new Schedule A, but you may still be better off with the new higher standard deduction.
- At issue particularly in NJ are three other deductions that have been eliminated or reduced. The mortgage interest deduction for new mortgage loans will be available for up to the first $500,000 instead of the current $1 million limit. The property tax deduction is retained but with a cap of $10,000. 36 percent of New Jersey households deduct property taxes. For New Jerseyans the most despised change is the elimination of the State/local sales or income tax. Rep. Leonard Lance, other Republicans, and all Democrats strongly oppose this elimination. 40 percent of New Jersey households deduct their income or sales taxes. So look at what deductions you made on your Schedule A for all your deductions (including those paragraph 2.) to find out whether your new standard deduction is more or less than what you are currently deducting. Chances are for many in the Middle class here the new standard deduction will be less than what you would have received were you able to include all of the above deductions..
- Next take a look at whether you had to pay the Alternative Minimum tax, as it is repealed in the new bill. Also beneficial is the increase in Child Tax credit which will be raised from $1,00 to $1,600. However, balance the advantages against the fact that you lose your $4,050 personal exemption for yourself, your spouse and each of your dependents in the new proposal.
There may be other factors in your income tax report that are important. However, because the above provides you with the main changes, you can determine approximately how you will fare. For even better info check with a tax preparer or lawyer. There is a chance that the State/local tax deduction may be restored, so put pressure on the Republican legislators, some of whom are leaning toward voting NO on the bill if this benefit is not restored.
There may be other amendments before the House votes on the matter. Between deficit hawk and high-state tax representatives the bill might not even pass. It’s like a house of cards, built on the premise of huge 10-year cuts in Medicare and Medicaid which future governments may abandon. Its tax cuts are highly beneficial to corporations which in the past 10 years or so have doubled their profits while leaving worker salaries stagnant. To call the bill “mean-spirited” is an understatement. Then there is the Senate which as of now does not have a bill close to being finished.
In a nutshell
NY Times postulates “Many middle class families would receive a tax cut, but the benefits would be mixed, and some could pay more.” For some of you New Jerersayns in the middle class it will be an advantage and for some a disadvantage. For the working poor many will benefit, particularly with the much higher standard deduction. And then there is that other group. As Tevye wishes in Fiddler on the Roof, “If I were a rich man…” Indeed, in Trumplandia it’s great to be rich.
Full text (429 pages) of the Tax Reform bill. For those who are particularly anxious and nerdy you can check on amendments here as action begins next week with Republican leadership trying to rush the bill through congress.