In recent weeks, President Donald Trump has been talking about plans for, as he put it, a “very substantial tax cut for middle income folks who work so hard.” But before Congress embarks on a new tax measure, people should consider one of the largely unexamined effects of the last tax bill, which Trump promised would help the middle class: Would you believe it has inflicted a trillion dollars of damage on homeowners — many of them middle class — throughout the country?
That massive number is the reduction in home values caused by the 2017 tax law that capped federal deductions for state and local real estate and income taxes at $10,000 a year and also eliminated some mortgage interest deductions. The impact varies widely across different areas. Counties with high home prices and high real estate taxes and where homeowners have big mortgages are suffering the biggest hit, as you’d expect, given the larger value of the lost tax deductions. But as we’ll see, homeowners all over the country are feeling the effects.
I’m basing my analysis on numbers from two well-respected people: Mark Zandi, the chief economist of Moody’s Analytics; and Hugh Lamle, the retired president of M.D. Sass, a Wall Street investment management company.
Zandi’s numbers are broad — macro-math, as it were. Lamle (pronounced LAM-lee) is a master of micro-math. It was Lamle who first got me thinking about home value losses by sending me an economic model that he created to show the damage inflicted on high-end, high-bracket taxpayers in high-tax areas who paid seven digits or more for their homes.
Lamle starts with the premise that homebuyers have typically figured out how much house they can afford by calculating how much they can spend on a down payment and monthly mortgage payment, adjusting the latter by the amount they’d save via the tax deduction for mortgage interest and real estate taxes. His model figures out how much prices would have to drop for the same monthly payment to cover a given house now that this notional buyer can’t take advantage of the real estate tax deduction and might not be able to take full advantage of the mortgage interest deduction.
After I showed Lamle’s model to my ProPublica research partner, Doris Burke, she steered me to Zandi’s research, which I realized could be used to calculate national value-loss numbers.
Ready? Here we go. The broad picture first, then the specific. This gets a little complicated, so please bear with me.
Zandi says that because of the 2017 tax law, U.S. house prices overall are about 4% lower than they’d otherwise be. The next question is how many dollars of lost home value that 4% translates into. That isn’t so hard to figure out if you get your hands on the right numbers.
Let me show you.
The Federal Reserve Board says that as of March 31, U.S. home values totaled about $26.1 trillion. Apply Zandi’s 4% number to that, and you end up with a $1.04 trillion setback for the nation’s home owners. That’s right — a trillion, with a T.
Please note that Zandi isn’t saying that house prices have fallen by an average of 4%. That hasn’t happened. What he’s saying is that on average, house prices are about 4% lower than they’d otherwise be.
Given that the Fed statistics show that homeowners’ equity was $15.76 trillion as of March 31, Zandi’s numbers imply that homeowners’ equity is down about 6.6% from where it would otherwise be. (That’s the $1.04 trillion value loss divided by the $15.76 trillion of equity.)
This is a very big deal to families whose biggest financial asset is the equity they have in their homes. And there are untold millions of families in that situation.
While Zandi and I were having the first of several phone conversations, he sent me a county-by-county list of the estimated home-price damage done to about 3,000 counties throughout the country. I was fascinated — and appalled — to see that the biggest estimated value loss in percentage terms, 11.3%, was in Essex County, New Jersey, the New York City suburb where I live.
In case you’re interested — or just snoopy — the four other counties that make up the five biggest-losers list are: Westchester County, New York, suburban New York City, 11.1%; Union County, New Jersey, which is adjacent to Essex County, 11.0%; New York County, the New York City borough of Manhattan, 10.4%; and Lake County, Illinois, suburban Chicago, 9.9%.
Flagler County? 2.30%.
You can find Zandi’s county-by-county list in our Data Store. Eyeball the list, and you’ll see that counties throughout the country have home values lower than they would otherwise be.
Here’s how it works. Zandi took what financial techies call the “present value” of the property tax and mortgage interest deductions that homeowners will lose over seven years (the average duration of a mortgage) because of changes in the tax law and subtracted it from the value of the typical house. That results in a 3% decline in national home values below what they would otherwise be.
The remaining one percentage point of value shrinkage, Zandi says, comes from the higher interest rates that he says will result from the higher federal budget deficits caused by the tax bill. He estimates that rates on 10-year Treasury notes, a key benchmark for mortgage rates, will be 0.2% higher than they would otherwise be, which in turn will make mortgage rates 0.2% higher.
Even though interest rates on 10-year Treasury notes are at or near record lows as I write this, they would be even lower if the Treasury were borrowing less than it’s currently borrowing to cover the higher federal budget deficits caused by Trump’s tax bill.
If Zandi’s interest-rate take is correct — it’s true by definition, if you believe in the law of supply and demand — even homeowners who aren’t affected by the inability to deduct all their real estate taxes and mortgage interest costs are affected by the tax bill.
How so? Because higher interest rates for buyers translate into lower prices for sellers and therefore produce lower values for owners.
You can argue, as some people do, that real estate taxes should never have been deductible because allowing that deduction is bad economic policy that inflated home prices and favored higher-income people over lower-income people.
But even if you believe that, there’s no question that eliminating the deduction for millions of homeowners inflicted serious financial damage on homeowners who had no warning that a major tax deduction that they were used to getting would be wiped out.
As a result, homebuyers who had taken the value of the real estate tax deduction into account when buying their homes had their home values and finances whacked without warning. Interest deductions on mortgage borrowings exceeding $750,000 were cut back, compared with interest deductions on up to $1 million under the old law — but that doesn’t affect anywhere near as many people as the cap on real estate tax deductions does.
(A brief aside: Among the modest winners here are first-time buyers who purchased their homes after the tax law took effect and benefited by paying less than they would have paid under the old tax rules.)
Now, to the micro-math.
Lamle’s model isn’t applicable to most people because it works only for taxpayers with a household income of at least $200,000 a year who paid at least $1 million for their homes. But the principle underlying Lamle’s model applies to everyone who owns a home or is interested in owning one. To wit: You calculate the tax-law-caused loss of value by figuring out how much a house’s price needs to fall for buyers’ or owners’ after-tax costs to be the same now as they were before the tax law changed.
“People buying large-ticket items typically focus on after-tax costs of ownership,” Lamle told me. “The amount that many buyers can afford is affected by limits on their financial resources. Therefore, as their tax costs increase substantially because of the loss of tax deductions, they have less money available to pay for homes and to take on mortgage debt.”
At the suggestion of one of my editors, I asked Lamle to use a modified version of his economic model to estimate the tax law’s impact on the value of a theoretical house in the New York City suburb of West Orange, New Jersey, purchased for $800,000 in 2017 by a theoretical family with a $250,000 annual income. Those home value and income numbers are very high by national standards — but middle class by the standards of large parts of suburban Essex County.
Real estate tax on that theoretical house would run about $28,900 a year, according to statistics from the New Jersey state treasurer’s office. That tax used to be fully deductible for federal tax purposes. Now, it’s not deductible at all if you assume that the house’s owners are taking the standard deduction on their federal returns. Or that even if they’re itemizing deductions, they’re paying at least $10,000 of state income taxes, which means they don’t get any benefit from deducting property taxes.
According to Lamle’s calculations, this inability to deduct real estate tax has reduced the home’s value by $138,720, assuming a 5% mortgage rate. At a 4% rate, the value loss is $173,400. (For the math and assumptions underlying these numbers, see his methodology below.) So if the family put up $200,000 — 25% of the purchase price — to buy the house, more than half of that investment has been wiped out.
Obviously, it’s impossible to prove that Zandi and Lamle are right about the impact they say the tax law is having (and will continue to have) on home prices, because there’s no way to gauge the accuracy of their numbers. But the logic is compelling.
The loss in home values is crucial because it turns out that lots more people have bigger financial stakes in their houses than in their stock portfolios, which have thrived as the Trump tax law turbocharged corporate earnings and stock prices.
In fact, 73.5% of households that own homes, stocks or both had bigger stakes in the home market than in the stock market, according to David Rosnick, an economist at the Center for Economic and Policy Research, who parsed Federal Reserve data at my request.
Now, let’s put things in perspective, set aside home value losses for a minute and talk about the cash that people are getting from Trump’s 2017 tax law. It isn’t all that much for most families. Households’ average federal income tax has fallen by $1,260 a year, according to the Tax Policy Center. That average is skewed by big savings realized by people with big incomes; the median family’s tax cut is only about half as much as the average cut, by the Tax Policy Center’s math.
This means that — for taxpayers of higher income and more modest income — the income tax savings are likely small beer compared with the hidden loss inflicted on many of them by lower house values.
Back to the main event. And some final — but important — numbers.
According to the Tax Policy Center, the Treasury will get $620 billion of additional revenue over a 10-year period because people can’t deduct their full state and local taxes.
That, in turn, covers most of the 10-year, $680 billion cost of the income tax break that corporations are getting. So you can make a case that my friends and neighbors and co-workers in New York and New Jersey — and many of you all over the country — are paying more federal income tax in order to help corporations pay less federal income tax.
That, my friends, is the bottom line.
–Alen Sloan, ProPublica
This story was co-published with Fortune.
Jim says
The tax cut was for the middle class not the well to do . If you have property taxes of 10,000 or a mortgage of 750,000 . You are not middle class.
Dennis says
I could care less, that a million dollar house is now valued at $950000 due to the $10000 cap put in place by Trump. The rich bitch about anything that may cost them a buck or two. Let’s look at the billions that large companies gained while the middle class got peanuts.
Richard says
Anyone who purchases a house with a mortgage and basis how much house they can afford on the amount of mortgage interest that they will be deducting on their income taxes should learn to live within their means AND go back to school and learn basic economics. Plus they should cut up all of those credit cards they have been over using and paying double digit interest on every month. Use your heads people. There are only TWO things guaranteed in life, Taxes and Death. The rest is only bullshit!
A Concerned Observer says
This is just one more example of left-leaning Yellow Journalism (https://www.britannica.com/topic/yellow-journalism). Most of the earlier commentators seem to be well able to read between the lines of this crap but I am sure that as sure as god made little green apples, there will be several other myopic commenters that will jump on the “Let’s Trash Trump” bandwagon. BTW folks, that’s “President Trump”, not “Trump”. Notice the talking heads on the many of the network news reports and their similarly affected affiliates and you will clearly see their real agenda. It’s “All the news that’s fit to print – as I see it”!
B says
I’ll still vote for Trump. No class required!!!
Beachbum says
No BRAINS required apparently, #45 is a criminal con man…..when the smoke clears you will see the damage done. We already have right wing acceptance of cruelty and bad behavior, lying and cheating is NOT supposed to be what America is known for. But it is now because of his low, no…LACK of standards of civility.
Outsider says
Another Trump bashing article attempting to dim his chances of re-election. Why was there no analysis done on the effects of the Obamacare law a few years ago? Fortunately, it didn’t affect me as I have good employer provided insurance, but it didn’t work out so well for some friends of ours. They had to spend about 20 grand a year on premiums and then would have had to spend half that to meet the deductible, with huge co-pays. That had much more significant effects than any theoretical loss of tax property tax deduction; in their case, there was none. I barely meet the income threshold often cited as “rich,” but only spent 200K on a house; I can’t see going broke just to impress the neighbors. You would think the left would be delighted the rich are paying more in taxes because of Trump, but because it’s Trump doing their bidding, he is the boogeyman once again. What was really happening in the past was everyone was subsidizing the rich people’s mortgage interest via massive deductions for property tax. Again, this article makes no mention of how much that was “costing” the treasury. This is yet another example proving that if Trump cured cancer tomorrow, you would be lamenting he just eliminated thousands of jobs for oncologists.
Jon C frazier says
That’s great… Maybe more of us middle class might be able to afford to buy a house soon.. :)
Randy Jones says
According to the Flagler County Property Appraiser my property’s “just value” has INCREASED 12% since 2017. The first words out of my college statistics professor’s mouth were, “Statistics lie.” LOTS of statistics in Mr. Sloan’s essay.
KC says
What a stupid article. I’m kind of surprised you are promoting it, because you usually have pretty sane ideas about taxes.
First, that they are fawning over an economist who works for Moody’s Investors Service, a company that in a just universe would not even exist after they were giving top credit ratings to garbage investments during the financial crisis based on real estate analysis like Zandi’s. (Housing prices can only go up! Buy all the structured credit!) If someone like Zandi is your source of authority on the economy, you are in big trouble. He’s also out there running damage control for the California government after the blackout, saying the economic impact of leaving millions without power (and Silicon Valley without power) is no big deal. Liberals running to Zandi over tax reform is as embarrassing as their newfound love of warmonger John Bolton for literally no other reason than he is dissing Trump. Zandi is just a waterboy for special interests.
Most of the people who were impacted by the SALT reforms are the upper crust who live in high-tax states and high-tax municipalities. (Though they are leaving now. Guess how Zandi’s friends feel about that… You know what else Moody’s rates a lot of? State and local debt. Much like structured credit, do you know how many dysfunctional municipalities have been left as investment-grade credits?) Pick up the Wall Street Journal’s Mansion section on weekends (yes, that’s what they call their real estate section) and you will see people in California and New England whining about how they can’t sell their giant house after tax reform. Because all of their potential buyers are moving to tax havens like Florida. It’s a sad song playing on the world’s tiniest violin.
Those governments were only racking up those tax rates because the people who live there could pass their tax liabilities on to federal taxpayers – TO YOU. I’m okay with not paying my pro rata share of Stephen Spielberg’s taxes, sorry. I wish they would have eliminated the provision altogether. It had no purpose whats0ever beyond propping up real estate prices on the high end, which is why its biggest advocate in Washington was the American Association of Realtors, and it was the largest tax expenditure in the federal budget. (Realtors also put out a lot of garbage “economic” commentary you could cite. It’s on par with Zandi in terms of intellectual honesty.) Congress finally tells the Realtors to go pound sand, taxpayers aren’t paying to inflate their commissions any longer, and they get criticized for it? You have to love how broken folks’ brains are in the Trump era.
From an economic perspective, the deduction is something of a wash to homeowners. You may pay slightly less in taxes, but when you are buying a house, you are financing a larger amount and accruing more in interest on more principal. You rack up interest on a higher price for 15 or 30 years, and it’s probably not even close in terms of a cost-benefit analysis.
It’s also kind of hard to argue that the SALT reforms are hurting Florida housing prices. You know where all those people from high-tax states are moving? What do you think happens to prices when demand increases? Geez. Florida was so badly wronged by Moody’s, etc. during the financial crisis though, folks probably wouldn’t even know when the market is getting overheated from everybody and the world moving here.
PS says
Two thumbs up KC.
I bet you have a lot more you could add.
Stanley P Gruchawka says
Unreal! Just wait and see what Bernie or Warren will do to your home values if they are elected. No one will have enough money left over to buy a house!
PS says
ROTFLOL
First, I love the comments. It seems there are still many who can see through the smoke signals the LSM and those afflicted with TDS and liberalism (at any cost) seem addicted to.
Second, has the author paid any attention to the local RE markets here in FL and elsewhere. And no, I don’t mean the luxury housing market. I am asking about the average home that average and low income buyers can afford. Where is this writer from? Park Ave, NYC and complaining his penthouse cost him more after taxes and has not gone up 12% in market price the last year or two?
Also, did anyone notice that it took less time to do their taxes last year. And the result was not what the TDS afflicted said it would be?
Last, I am back to the comments I have read. It amazes me that this writer can get published when his readers are obviously smarter than him and can see through the smoke he is blowing their way.
KC says
I’m kind of curious about another aspect of the argument being made here. By what mechanism does eliminating a tax provision that most Americans cannot claim (because the overwhelming majority of federal taxpayers don’t itemize, and even fewer will now) affect housing prices *broadly*?
Zandi’s argument hinges on the assumption that tax reform matters to your “typical” home buyer as much as it did to Hollywood. The typical home buyer who doesn’t itemize. Why are they paying for the net present value of a benefit they never receive? They aren’t. That’s just objectively bad economic analysis there.
I can see where it would be priced into the cost of a McMansion, but not how it would be priced into, say, a $150,000 house surrounded by other $150,000 houses. The people living in such neighborhoods are not buying real estate as a tax-advantaged investment (beyond homesteading laws, which will help them where the federal tax code will not, that’s precisely why people love them) and have relatively low tax liabilities overall. They are claiming the standard deduction, which the tax reform legislation literally doubled.
This was always one of the arguments for eliminating tax expenditures altogether – they cost taxpayers trillions but benefit only a small portion of the US population (all while the country as a whole is borrowing trillions from China and Japan to fund our government’s day-to-day operations). The Congressional Budget Office cranked out endless studies on this prior to tax reform, suggesting that eliminating tax expenditures (also called loopholes) was one of the biggest steps toward fiscal responsibility (the other being entitlement reform).
If housing prices in Flagler are not much higher during a period where something like a thousand people are moving to Florida every day, a more appropriate response might be to ask what it is about Flagler as a community that puts the area at a competitive disadvantage as a destination. That’s not solely a tax narrative. I seriously doubt you are going to see booming property prices in an area that goes all-in trying to recruit residents who live on a fixed income and thereby try to minimize their housing costs and the costs of all goods and services. If anything, the fact that this town has almost no professional class is contributing to Flagler not reaching its potential here. You can’t blame tax reform for that. That’s also why the city might think twice about approving thousands of apartments to compete with existing single-family housing. You better make sure you have a pipeline of new people on the other side before you approve that much new housing supply.
There are a lot more factors that go into real estate prices than taxes, though many wealthy people are certainly relocating to Florida over taxes. In fact, jobs and competitive schools are probably much higher considerations for the not-on-a-fixed income crowd.
Pogo says
@Flagler Live
(sarcasm) Shame on you for republishing yellow journalism by the likes of lefty rags like Fortune magazine. (/sarcasm):
“…That, in turn, covers most of the 10-year, $680 billion cost of the income tax break that corporations are getting. So you can make a case that my friends and neighbors and co-workers in New York and New Jersey — and many of you all over the country — are paying more federal income tax in order to help corporations pay less federal income tax.
That, my friends, is the bottom line.
–Alen Sloan, ProPublica
This story was co-published with Fortune.”
One comment, in part, deserves repeating; Florida is, and has always been, a tax haven. Twenty plus years of Florida Republican party corruption, e.g., pandering to corporations who shake down the rest of us for tax breaks, pandering to well off retirees who selfishly screw the young and working poor, etc., has brought us to where we are now.
The rest of the inane comments by trumpholes who still think resident rump financed his election, don’t realize his “donation” of his salary to the treasury is a speck compared to what he has looted from that same treasury are pathetically familiar.
Murphy says
Well said, Pogo!
Especially: ” Twenty plus years of Florida Republican party corruption, e.g., pandering to corporations who shake down the rest of us for tax breaks, pandering to well off retirees who selfishly screw the young and working poor, etc., has brought us to where we are now.”
KC says
First of all, Fortune magazine is not the magazine it used to be. It was sold by Time to a Thai businessman, who changed the tone of the magazine considerably. That’s why it is co-publishing articles with an entity with a hard-left bias like Pro Publica. Pro Publica is also not the publication it used to be. They did a lot of fantastic journalism during the financial crisis exposing rent-seeking behavior among corporations, but now they just parrot liberal talking points like any of their peers. Neither one is taken seriously by people in finance, for good reasons. Watching Pro Publica go from holding the rating agencies accountable to holding them up as authorities is beyond disappointing, but such are the times we live in.
Second, there is actual Treasury data now regarding who has been impacted by tax reform and by how much. This is not some hypothetical that people get to argue anymore in the service of their nutso political beliefs. As a percent of adjusted gross income, tax liability decreased *across all income groups.* That’s not an opinion; that is a fact. Most of that savings comes from doubling the standard deduction (which now affects 90% of federal taxpayers versus 70% before tax reform), but wealthy people (i.e. the people whining about real estate prices) also benefited from changes to AMT, among other things. What they don’t like is actually having to pay the taxes they owe in their own backyard, not their federal tax liability.
For an overview of Treasury data, this is an excellent resource:
https://www.wsj.com/articles/you-filed-returns-the-irs-compiled-the-data-heres-how-the-new-tax-law-is-working-11562059803
One of the problems that people who live in the echo chamber don’t get is that changes to the tax code are considered in the aggregate. To calculate impact, government economists generally do not score only one provision but the whole picture. You lose one provision that benefited you, but you gain another. The fiscal benefit of SALT reform comes from people in high tax states actually having to pay what they owe to their state and local government. It does not come from other people paying more. If you look at the actual data, they are paying less.
Likewise, the benefits to corporations are not applied evenly among large and small corporations and consumers share in the benefits. Before tax reform, major corporations had an economic incentive to hoard cash overseas, and that has been virtually eliminated. Only Rachel Maddow truthers seriously believe that there has not been significant new domestic investment in the past few years at this point.
If you all want to pick a fight with Trump in an election year, the economy and tax reform are really bad places to start because the data are straightforwardly against you. Mnuchin is one of the best Treasury secretaries in American history in terms of crafting smart policy that is good for the economy. And if Trump inks a serious deal with China, that will be an even bigger problem for you, as it will blow the top off of the financial markets.
Pining over places like Los Angeles, San Francisco, and Manhattan having slightly more affordable housing is also a bad look when a not insignificant number of the people living in those cities are in tent cities or under freeway overpasses. You lob that talking point at Trump in a debate and he’s going to brutalize you. That plays directly into his positions that Washington cares more about the rent-seeking upper crust than ordinary people. Because when you defend tax expenditures, you genuinely are defending rent-seeking behavior. Progressives used to grok that.
Pogo says
@So you say. Grok this:
IMF says trade war will cut global growth to lowest since financial crisis a decade ago
Published Tue, Oct 15 20199:07 AM EDTUpdated Tue, Oct 15 20199:21 AM EDT
“…The U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, the International Monetary Fund warned on Tuesday, adding that the outlook could darken considerably if trade tensions remain unresolved…”
https://www.cnbc.com/2019/10/15/imf-says-trade-war-will-cut-global-growth-to-lowest-since-financial-crisis-a-decade-ago.html
Your windy exposition and preposterous praise for a sleazeball like mnuchin speaks volumes. Let’s remind liars, inform the ignorant, and add some light:
Five things you need to know about Steve Mnuchin
By Michelle Fleury
North America Business correspondent, New York
“…3. He bought a bank, whose behaviour was later described as ‘repugnant’
Mr Mnuchin returned to banking during the financial crisis, gathering a group of investors including hedge fund bigwigs George Soros and John Paulson, private equity investor Christopher Flowers and computer mogul Michael Dell to buy failed mortgage lender IndyMac. The bank, renamed OneWest Bank, returned to financial health but it became known for quickly seizing the homes of borrowers who fell behind on their mortgage payments.
In 2009, a New York judge called OneWest’s behaviour “harsh, repugnant, shocking and repulsive” in trying to foreclose on a New York family. OneWest said it “respectfully disagreed” with the court. Two years later, protesters marched on Mr Mnuchin’s Los Angeles mansion accusing OneWest Bank of aggressive foreclosure practices. It was sold to CIT Group in 2015 in a lucrative deal.
4. He was sued over Madoff fraud profit
Like his new boss, Steven Mnuchin grew up in a wealthy family. His father, Robert Mnuchin, was a banker-turned-upscale art dealer and his mother was a vice president of the International Directors’ Council of the Solomon Guggenheim Museum. When she died in 2005, she made Steven and his brother Alan the beneficiaries and executors of her estate. Within a few months, they withdrew $3.2m from her account with Bernard Madoff Securities. Three years later Madoff was arrested and the two were sued by the trustee trying to recover money for victims of Madoff’s Ponzi scheme. The suit was dropped because of time restrictions…”
Five things you need to know about Steve Mnuchin
https://www.bbc.com/news/business-38012410
Finally, your tune is all too familiar – grok this:
The crackpots who ate the Republican party
http://critiques.us/index.php?title=Critiques_Of_Libertarianism
Richard says
Another TWO thumbs up for KC who has blown the doors right off of the few President Trump bashers who regulaly always show up with their worthless 2 cents of left wing propaganda. If one day they can actually prove to me with FACTS and DATA instead of propaganda that my life and financial well being will be affected for the worse I will start to listen BUT until that time comes they are only blowing smoke or have been puffing on dope WAY too long.
Florida Voter says
Whatever else you say, please DO NOT claim that the standard deduction doubling was a benefit to families.
Let’s look at a traditional family of 4:
2017: Standard deduction $12,700 plus 4x personal exemption of $4,050 is $28,900 reduction of gross income
2018: Standard deduction $24,000 but NO PERSONAL EXEMPTIONS
The “doubling of the standard deduction” HURTS this hypothetical family by $4,900.
If you are married with even one child, the old tax plan let you deduct more (by $850). Larger families and single parents were hit even harder. The only redeeming factors in the new plan were an increase in the Child Tax Credit (thanks to Rubio) and slightly lower rates in the tax brackets.
Saying the increase in the standard deduction helps is a blatant lie, because that was tied wit the elimination of the personal exemption. Without Rubio fighting for families, the new tax plan would have severely hurt “middle class” families.
Greg says
Ok let’s take your hypothetical family of four — you know, the one you claim is “hurt by $4,900.”
No, they’re not hurt by $4,900. They’re hurt by $4,900 multiplied by their marginal income tax bracket. Let’s say their marginal bracket is 22% (which used to be 25%). Thus, the actual additional tax liability resulting from that $4,900 of lost deduction / exemption is only $1,078.
Meanwhile, the child tax credit has doubled, from $1,000 to $2,000 per child. Unlike a deduction, a credit is a dollar-for-dollar reduction of income tax liability. Thus, that extra $1,000 per child of credit amounts to a total of $2,000 of tax relief, which far more than offsets the extra $1,078 of tax resulting from the loss of personal exemptions.
And then of course there is also the additional tax saving resulting from the reduction in this hypothetical family’s tax brackets — now 22% instead of 25%, and 12% instead of 15%. In other words, all but their first $19,400 of taxable income is taxed at 3% less.
KJ says
If only Trumpians could do math! You get hosed by this Liar-in-Chief every day and yet you continue to support him. By limiting state & local tax deduction (SALT) to $10,000, you are being double taxed on anything you paid is SALT over that amount. Simple. You never see the income because it is paid to state and local government yet the Feds still consider it taxable income. It does not take much to put someone in the over $10K in SALT. Perhaps if you’re retired now you’re fine but anyone still working and with a decent home will be adversely impacted. And the author is correct, the corporations benefited at the expense of this abuse of the working stiff. Period