It does not matter who you are.
It does not matter how much money you make.
Experts say the new tax bill passed by Congress could have a major impact on you.
“It is extremely important that taxpayers and voters understand that this bill carries a significant cost,” said Crystal Allen, an Indianapolis accountant and co-owner of A Total Solution CPA & Consulting Services Inc.
“Nearly no one is left unaffected,” Allen added.
At Recorder press time, the U.S. House and Senate had voted along party lines to pass the controversial $1.5 trillion tax bill known originally as the Tax Cuts And Jobs Act.
Supporters of the bill say it is designed to cut taxes for both corporations and average families, while offering new tax breaks to private businesses and reorganizing the tax code for individuals. House Speaker Paul Ryan said a typical family would get a $2,059 tax cut next year.
South Carolina Sen. Tim Scott, one of three African-American Republicans in Congress, stood proudly at a Washington press conference with other GOP senators after they quickly passed the Senate version of the tax bill early Wednesday. President Donald Trump was expected to sign it into law after a final House vote to adjust technical details.
“Our tax plan accomplishes two major goals — keeping more money in your paychecks, and ensuring the jobs of the future are created here in the United States,” said Scott.
However, not everyone was in the mood to celebrate. Democrats and other leaders are concerned about the bill’s impact nationally, particularly on middle- to lower-income families.
“It is evident that this bill will hurt working families, seniors and all those who need a leg up in this economy,” said U.S. Rep. Andre Carson, an Indianapolis Democrat and a vice chair of the Congressional Black Caucus who voted against the tax bill.
That concern is shared by Allen, whose minority-owned business provides various accounting, auditing and tax-related services.
“While the magnitude of the implications of these changes on taxpayers are largely influenced by a taxpayer’s economic position, the substantial savings are certainly skewed toward the higher-income tax brackets, which are not largely minority,” Allen said.
For example, the doubling of the estate tax exemption and a significant reduction in the corporate tax rate (from 35 to 21 percent) would directly impact and encourage growth for those who have substantial estates and/or hold ownership interests in corporations.
Carson agrees that a modern tax code has been needed, but believes that it should support “those who work hard every day and still struggle to get by” along with “small business owners who are creating jobs in our communities.”
Carson also disliked the rushed presentation of the bill. He said Republicans, who hold the majority in Congress, crafted the bill and added last-minute loopholes during “secret, partisan negotiations” without a Congressional hearing to examine its potential impacts.
On the other hand, Scott, the Senate Republican, calls the plan “a Christmas present for hardworking families.” He claims that it will double the standard deduction and the Child Tax Credit, helping the average family receive a 60 percent cut in their taxes as soon as February. In addition, he says the tax bill includes his Investing In Opportunity Act to direct more investment in distressed communities, and will reform the business tax system to help companies hire more people, increase wages and improve benefits.
“These are all wins for average families,” Scott said, “families that have for too long felt like Washington could not see them and did not listen.”
Carson, the House Democrat, disagrees, saying that the tax bill will actually hurt average families and only serves as a “massive tax break” for millionaires and billionaires.
“Under this bill, 83 percent of the tax breaks go to the top one percent of Americans while 86 million middle-class households will see a tax hike,” Carson said. “That’s more than half of America’s middle-class.”
Carson warned that the bill will increase the deficit by more than $1.5 trillion, and that the tax cuts for corporations and the wealthy will be paid for by 13 million Americans being removed from health insurance with cuts to Medicare and Medicaid.
Independent reports by the Congressional Budget Office indicate that the tax bill would increase the federal deficit.
Allen noted that legislation enacted in 2010 requires additions to the federal deficit to be paid for by spending cuts.
“As a result, these very changes will inevitably impact our ability to fund some of the issues we desperately need to address in this country like education, criminal justice reform, our declining environment, and health care,” Allen stated.
Individual impact
During her company’s research of the tax bill, Allen discovered that the personal exemption, which under current tax law allows for the deduction of $4,050 for each person claimed on a tax return, has been removed.
“Depending on specific circumstances, the impact of this change could be partially covered by the new standard deduction, which increased from $12,600 under current law to $24,000 for a married couple who is filing jointly,” Allen said.
Some of the good news found in the plan is an average reduction in tax liabilities for all income levels. However, certain changes may not be helpful to some taxpayers.
For instance, there will be a $1,000 increase in the Child Tax Credit (up to $2,000) in the new tax bill. However, low-income taxpayers who are paying employment taxes may not have enough taxable income to benefit from the credit.
Allen said another group of taxpayers that are impacted are individual tax identification number (ITIN) filers, who are largely undocumented. The new bill requires a valid Social Security number to claim some credits that were previously available to ITIN filers.
“Some project this will end the Child Tax Credit for almost a million children,” she said.
Also, homeowners in Indiana and across the nation may be unable to deduct state and local taxes or mortgage interest they were able to deduct previously.
“On individual returns, the current bill limits deductions of state and local taxes to $10,000, and the interest deduction for a mortgage up to $750,000, down from $1 million,” Allen said. “Another significant change is the inability to deduct interest on a home equity loan, something that many of our clients take advantage of.”
Other changes that will be ushered in by the bill include elimination of the penalty for not carrying health insurance put in place by the Affordable Care Act (Obamacare). The new bill opens up 529 Plans, investments initially limited to secondary education, to be used to cover up to $10,000 of the cost of private/religious primary school education.
Many of the bill’s changes could benefit small and startup business owners. In addition to the reduction in corporate tax rates, there are potential tax savings for a taxpayer who has interest in a pass-through entity such as an LLC or partnership.
“These taxpayers may be able to deduct up to 20 percent of business net income, subject to some exclusions/limitations,” said Latrice Clark, vice president of tax and accounting at A Total Solution CPA and Consulting Inc. “With these reductions in related taxes cuts in the expenses businesses have, historically, been able to deduct such as business interest, deductible meals and entertainment expense, and the amount of net operating losses that can be deducted.”
Rep. Tim Scott, R-S.C., second from right, accompanied by Rep. Fred Upton, R-Mich., left, speaks with an aide during a House and Senate conference after GOP leaders announced they have forged an agreement on a sweeping overhaul of the nation’s tax laws, on Capitol Hill in Washington, Wednesday, Dec. 13, 2017. Democrats objected to the bill and asked that a final vote be delayed until Senator-elect Doug Jones of Alabama is seated. (AP Photo/Andrew Harnik)
Andrew Harnik
