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Watch out for sleight of hand on taxes.

November 6, 2017

After spending WAY more time than desired looking over the GOP Tax Cut and Jobs Act (TCJA) proposal Musings is pretty sure it’s unlikely the thing will survive as written, but then that’s normal for almost any legislation.

If it were to pass in its current form, rest assured that you will see more, not fewer tax professionals in its wake.

One of the things to look out for is that it does definitely hit the 1% harder, contrary to the Schumer/Warren/Schiff  mantra. Sometimes by as much as 6% harder, as a matter of fact.

You’d think Dems would love that.

In fact, as you go through this thing you start to wonder if what’s really bothering the left is that they may be among the ones paying for the tax cut.

Quite a few members of Congress are multi-millionaires, based on 2015 figures. (No wonder they don’t understand why Americans are hurting.)

Here’s an example of something in the TCJA that will target millionaires.

There is a cleverly hidden surcharge for those earning from 1 million to 1.2 million dollars that removes the benefit from taxing the first $45,000 earned at 12%. Not many of us have that problem, but it’s still sneaky.

Maybe that’s necessary to keep enough revenue in the bill to be able to meet the government’s obligations. After all, what you give to the middle class has to be recouped somewhere, and this bill effectively removes a pretty large number of people from the tax rolls completely.

As far as all the left’s bawling about big businesses getting tax breaks, that’s not news, it’s a recording.

The whole idea was to allow big businesses to free up capital which they would then hopefully use to create more jobs, plus bringing back trillions in overseas profits that would then be available to tax in the future.

If the projected 2.5 to 4 trillion dollars in overseas profits comes back, even if it’s only taxed at 5%, that’s a one-year haul that will substantially offset many of the initial revenue losses.

There are some other things bothering people. The loss of the deduction for medical expenses will affect every income class, but particularly those people of lesser means who have or who are caring for those who have expensive long-term medical conditions.

Most of all, the actual effect on most of the taxpayers isn’t made very clear.

Again, if the swamp would just level with us, maybe on balance this really is what it purports to be, a tax cut for the middle class. The trouble is, unless you are a finance major or have one on speed dial, you’ll likely never know until it’s too late.

One of the best things Republicans could do to gain public support would be to compare several income tax scenarios that we could all search online.

Currently Speaker Ryan offers just one scenario, for taxpayers earning just under $60,000.

Create a wide range of possible tax returns that depict real-life scenarios, such as a return for a two-earner family of four whose combined gross (as reported on their W-2) income equals say, $125,000. Then  contrast the old and new tax returns as they would look when filed, with and without itemized deductions.

Or maybe a family owned  sub-chapter S business, whose pass-through income (on paper) equals the same $125K, now often subject to the AMT (Alternative Minimum Tax) rates of 26 or 28%.

(Don’t know how the AMT works?  Find out here.)

Spend enough time researching this, and you begin to long for Herman Cain’s 9-9-9 plan.

Surprisingly, most people aren’t as concerned about the home mortgage interest deduction as the MSM would have you believe. That’s because not many  middle class people have a mortgage of over $500,000, outside of the typical high-cost-of-living liberal strongholds.

The SALT issue does bother them, not so much because it saves them a lot of money (remember, over 70% of us don’t itemize, and that could go to more than 80%) but because they see it as double taxation.

What are other taxpayer concerns?  Here are some questions Musings has seen or heard.

  1. What about the added deduction for elderly, blind and disabled people? Sorry, that’s gone, and that may ultimately affect retirees who went back to work part-time to make ends meet.
  2. The electric vehicle credit? Also gone.
  3. Is alimony still deductible? Nope. It’s now tax-free to the receiving ex-partner or spouse though.
  4. Can I still avoid tax on my home sale if I replace it with another one? Sort of, but there are restrictions for single high income sellers, and length of occupancy requirements are longer.

As mentioned on Friday, this is not a law yet, and it almost certainly will not retain all of its current wording if it ever becomes one.

Given the Senate’s track record and the number of House members already finding fault with the Tax Cut and Jobs Act, getting this thing through both the House and Senate by December 25 looks well nigh impossible, making Congress more likely to be the Grinch than Santa Claus.

If it slips into the first quarter of 2018 and is made retroactive to January 1, that’s not a complete catastrophe. Republicans could still claim a victory in this session of Congress ahead of the mid-term elections, and the added time might produce a better product.

Still, the longer people have to study it, the more questions will pop up. It would behoove Congress to make a new commitment to transparency, because hard experience has made the rest of us a suspicious bunch.

From → op-ed

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