I've done the math on this so-called tax cut and, as it stands, it doesn't look pretty.
Like a lot of folks, I have been watching closely the developing tax plan that passed the U.S. House on Thursday and its counterpart in the Senate, which has yet to be voted on. The final version of any plan will have to work out the differences between the two – if the Senate does in fact pass something – but as of now I’d say it is a tossup as to whether my taxes will go up or go down.
If you just take the standard deduction and don’t itemize, your chances of seeing a tax decrease are probably better. Of course, since some versions of the plan are only temporary, whatever joy you feel may be short-lived.
For me, I’m looking at the increase in the standard deduction and coupling that with the deductions that Republicans want to do away with and it looks like I will probably make out better just taking the standard deduction.
You can’t do both. You either take the standard deduction or you itemize. Since state and local taxes are currently on the chopping block, I likely won’t be able to claim them. Likewise, if they put limits – or completely do away with – the deduction for home mortgages, that is going to hurt as well. The deduction for charitable contributions is also on the chopping block, and other proposals under consideration in the Senate or already passed in the House version are going to hit the elderly and the education community pretty hard.
Teachers won’t be able to deduct expenses that they pay out of their own pocket for their classroom. Oddly, there hasn’t been much of a ruckus raised about the elimination of that deduction. Life-long learners will also suffer because if your employer offers to pay for your college expenses, you will have to declare the cost of that as income.
Likewise, a provision in the law that allows you to deduct medical expenses that are above 10 percent of your annual income is going away. Parents of disabled children that require a constant higher degree of care, or even my own situation where I have two children taking daily medication for asthma, mean that many of us will be paying more of those costs.
The elderly on fixed incomes who also have higher annual medical costs likely will suffer more, and the problem will be compounded if the Senate version of the bill passes, because that bill seeks to do away with the Affordable Care Act’s insurance mandate. Without more people paying in to the insurance pool, the costs for all of us are going to rise and millions more will be without any health coverage.
Another change that will likely hit a lot of people – because more than half of marriages end in divorce -- is repealing the deduction allowed for alimony.
Changes to what you can contribute to your retirement fund, a deduction for interest on student loans, a repeal of the deduction for work-related moving expenses and repeal of credits for electric cars and for rehabilitating historic buildings are other targeted deductions that will impact some people.
On top of that, they are compressing seven tax brackets into four. Hopefully I will be lucky and my family income will fall in an area that puts me in a lower tax bracket. If not, I’m going to end up paying a higher percentage of my income there as well.
I think it is a bit misleading for Republicans in the U.S. House to talk constantly about the one or two things that are increasing without also giving as much attention to all the deductions that they plan to take away.
Ultimately, it is going to depend on what gets passed by the Senate, and then what, when the two bills are merged, actually makes it into the tax plan. But for now, it looks like the folks who just take the standard deduction each year are likely to have a better chance of seeing their taxes go down, while people who itemize deductions will have a more difficult time breaking even. Quite a few will likely end up paying more.
Republicans want to get their finished tax plan passed and on the president’s desk by the end of the year. As it stands now, the party is looking to play Scrooge to a lot of families who may have been duped into thinking they were getting a tax break when, in reality, they are actually going to be paying more.
Jim Lee is Editor for Gatehouse Media Delaware. Email him at email@example.com.