Quantcast
Connect with us

How to fix a big problem with the Trump-radical Republican tax law

Published

on

- Commentary
Thanks for your support!
This article was paid for by reader donations to Raw Story Investigates.

This article was paid for by Raw Story subscribers. Not a subscriber? Try us and go ad-free for $1. Prefer to give a one-time tip? Click here.

David Cay Johnston
David Cay Johnston

The American people got a highly misleading June 24 report from Congressional staff about the effect of repealing Donald Trump’s $10,000 limit on state and local tax deductions, known as SALT.

Millionaires and billionaires get most of the benefits if the limitation is repealed, the Congressional Joint Committee on Taxation reported.

Duh.

Our major news organizations promptly parroted the findings without digging deeper. And none thought to report on whether the tax committee staff had been asked the right or best question in preparing its analysis.

ADVERTISEMENT

Fox Business called SALT limit repeal “a boon for the rich.” The Wall Street Journal focused on Democrats wanting to help the rich, a common Republican meme.

We call it the Trump-Radical Republican tax law because it was enacted without a single public hearing in the waning days when Republicans controlled both chambers of Congress.

Newsday, a Long Island daily, took a different tack, quoting the mayor of a small village saying “I’m a registered Republican. I actually voted for President Trump… This SALT cap limit is totally unfair to villages like mine and others throughout the country.”

The tax committee staff report showed that households reporting incomes of $1 million or more this year would get almost a third of the tax savings if the $10,000 limit is repealed.

That’s not surprising in a nation where some people earn multi-billion-dollar annual incomes and hundreds of people report making more than $100 million per year. Some very wealthy Americans pay millions of dollars in state and local income and property taxes, though many own land through corporations that are not affected by the SALT limit, which only applies to human beings.

People making such huge incomes don’t need any subsidy from taxpayers, even though our tax code is larded with favors for them, including the 5% cut in the top tax rate that the Trump/radical Republican tax law bestowed on them.

ADVERTISEMENT

The tax committee analysis, released last week, was flawed in several ways. That’s no slight on the committee staff, who are serious experts on tax policy. The committee staff responds to questions from lawmakers and in this case, the questions asked were too narrow.

The tax committee staff was simply asked the wrong question. We think members of Congress should ask for a new study, asking the five questions below.

Few Taxpayers Taking Deductions

Any new report should also be based on the law before the Trump-Radical Republican tax law that took effect in 2018. That law reduced the share of taxpayers who itemize deductions from about one in three to one in 20.

ADVERTISEMENT

We call it the Trump-Radical Republican tax law because not one Democrat voted for this law, which showered most of its benefits on the rich and corporations. It was enacted without a single public hearing in the waning days when Republicans controlled both chambers of Congress.

Having only a tiny sliver of taxpayers being eligible to itemize deductions skewed the findings by the Joint Committee on Taxation staff. Here are the five questions Congress should ask:

  1. Who would benefit from the repeal of the SALT limit under the rules in effect prior to 2018, when more than 42 million taxpayers itemized deductions?
  2. What happens if the SALT deduction maximum was set at higher levels? For example, what is the deduction was limited to $20,000 or $30,000 or $50,000?
  3. What about denying SALT deductions to the half million or so taxpayers who report income of $1 million or more? $2 million or more?
  4. How does the SALT limit affect charitable giving?
  5. How does the SALT deduction limit interact with home mortgage interest deductions?

Most people with a first mortgage of less than $350,000 on their primary home probably cannot deduct their interest any longer, a sudden and abrupt change that may be shifting the burden of taxes down the income ladder. That’s because, under the Trump-Radical Republican tax law, a married couple’s first $24,000 of income is untaxed (half that for singles). Those with less than $14,000 of itemized deductions on top of SALT will not file itemized returns.

ADVERTISEMENT

Pocket Change

Having $25,000 of deductions would only save $120 since just a grand would be deductible and the lowest tax rate is now 12%, up from 10% under the old law. Just the cost of having a tax return prepared, or the time needed to do it yourself, would make itemizing with $25,000 of deductions a waste of time. At $30,000 of deductions, the savings would be just $600.

But a couple with $25,000 of SALT and even modest mortgage balance, say $100,000 at 4%, would find itemizing worthwhile.

The charitable gift and mortgage deductions are about all that itemizers have left under the Trump/radical Republican tax law. But the overwhelming majority of taxpayers who itemized in 2017 no longer can. For many such taxpayers, their combined federal, state and local tax burden rose under a law that Trump and his cult-like followers in Congress proclaimed, falsely, was a tax cut for virtually all Americans.

ADVERTISEMENT

Charitable giving declined slightly in 2018 when it’s safe to assume that most people who itemized deductions on earlier years did not understand that their charitable gifts would not be deductible.

As more people become aware that their future charitable gifts probably will not be tax deductible, we can expect a drop in such gifts from middle-class and upper-middle-class taxpayers, who are overwhelmingly workers or self-employed.

Sound estimates of the effect the new tax law has on giving by families making less than $1 million would be crucial to the health and welfare of America’s nonprofit sector.

Similarly, for homeowners who don’t make charitable gifts, mortgage interest on their principal residence is only deductible above the first $14,000 paid to their lender.

ADVERTISEMENT

That’s because the SALT limit plus $14,000 of mortgage interest is $24,000, the threshold for taxing the income of a married couple.

Home Buyers Lose Out

This means married couples with a mortgage of less than $350,000 at 4% or less interest no longer get any tax deduction. That’s a lot of home buyers. The median home price in the United States is just $227,000, and median prices in 86 of the Top-100 metropolitan areas are below $350,000.

Eliminating the mortgage interest deduction may be good policy, especially since the deduction tends to be upside down, meaning higher income people benefit more than lower income homeowners. Switching to a tax credit for home buyers or just first-time home buyers may be smarter. But abruptly ending a tax deduction that has motivated many people to buy homes is troublesome in many ways, not the least that the way it was done is inherently undemocratic, unlike say phasing the change in over a few years.

The net effect of these changes is to benefit higher income people with subsidies for their charitable giving and mortgage interest. The new law takes a system that already favored the prosperous and benefits them even more while disadvantaging many middle-class and upper-middle-class taxpayers.

ADVERTISEMENT

Trump and the Republican lawmakers who slavishly comply with his demands voted in other provisions that disadvantage working people, including police, firefighters and union members.

The new law denies all “miscellaneous” deductions, including union dues. Police and other first responders, deductions for the costs of uniforms, dry cleaning and tools from batons and boots to guns and Sam Browne belts, as DCReport told you in April 2018.

This article was paid for by Raw Story subscribers. Not a subscriber? Try us and go ad-free for $1. Prefer to give a one-time tip? Click here.


Report typos and corrections to: [email protected].
READ COMMENTS - JOIN THE DISCUSSION
Continue Reading

Breaking Banner

Pulitzer Prize-winner reveals why the White House thinks Trump’s Ukraine scandal ‘can be spun as positive’

Published

on

Despite the growing movement for impeachment, advisors to President Donald Trump believe the bombshell reports about soliciting foreign election interference from Ukraine can be "spun as a positive" for the president's 2020 re-election campaign.

Ashley Parker, a White House reporter for The Washington Post, was interviewed about the thinking of Trump's advisors by MSNBC's Steve Kornacki on Monday.

"This is a White House, a Trump White House, that is used to being under siege. There was of course the two-and-a-half-year saga with the Mueller investigation culminating in the Mueller report, Mueller’s testimony recently. There have been a million other controversies, flare-ups, moments when the White House was forced to defend a comment from the president, allegation against the president, these sorts of things," Kornacki noted.

Continue Reading

Breaking Banner

Pelosi may start ‘Select Panel’ for Trump impeachment after latest Ukraine bombshells: report

Published

on

Nancy Pelosi clap

As the movement in Congress to impeach President Donald Trump continues to grow, Speaker Nancy Pelosi (D-CA) is considering starting a select committee to focus the investigations into President Donald Trump.

"As House Democrats find themselves once more navigating the tricky politics of impeachment, a new idea is being floated by several members: creating a select panel of members that would handle those responsibilities," The Daily Beast reported Monday evening. "A senior Democratic aide tells The Daily Beast that the idea of a select panel has 'been raised by some members' as a way to consolidate impeachment proceedings around Donald Trump."

Continue Reading
 

Breaking Banner

Latest Democrat to back impeachment did so live on MSNBC: ‘We have no choice’

Published

on

Yet another Democrat is backing impeachment following the latest revelations that Donald Trump allegedly solicited foreign election interference from Ukraine in return for military aid.

The movement for impeachment grew significantly on Monday.

Continue Reading
 
 
Help Raw Story Investigate and Uncover Injustice. Join Raw Story Investigates for $1 and go ad-free.
close-image