|Messieurs Oiseaux, Veuillez Arreter. Puis Partez a l'Etranger|
Last week, the US House and Senate completed passage of a tax 'reform' bill at the behest of President Donald Trump. At the time, I wrote up some of my thoughts on the Bill here, settling on a final grade of "D" for the whole thing. Mainly because it:
- Alleges to solve a problem that does not exist - the economy is not in need of a "stimulus" right now by the president's own admission.
- Would not even really achieve (1) anyways - it's primarily a reduction in marginal tax rates for corporations, and companies do not hire workers simply because they have more money. Companies hire because they need more manpower to produce products. It's basic economics.
- Wastes a lot of political capital on something that, in reality, is not going to affect the overwhelming majority of Americans' tax bills.
- By CBO calculations, adds $1.5 trillion (with a T) to the debt over 10 years. We're already $20 trillion in debt, so this is at best ill-conceived.
In the intervening week, there has been a lot of noise about who is going to 'win' and who is going to 'lose.' Many friends are debating on Facebook and other social media, and I am sad (though unsurprised) to see that most of the debate is little more than the repetition of reductive talking points. (e.g., it is going to be a big benefit for "the middle class," or "I make less than $100,000 so my taxes are going to jump.")
One friend whom I asked admitted forthrightly that he had in fact not done any sort of calculation, but just presumed that what he was hearing about his tax bill was true.
Let me repeat what I said last week - if you are not an S-corp, or a C-Suite executive in a big company, or an advocate for some special interest group (e.g., Realtors (R) - and yes, that is actually a trademarked term), this tax reform bill is not about you.
They never really are.
For a start, here are some common talking points.
- I won't be able to claim my state income tax.
No; you won't. But odds are, if you take the standard deduction (70% of filers do this), you do not claim this anyways. And if you do, chances are that unless you live in a state like California or New York, the increase in your tax due to this deduction will be offset by the decrease in the marginal rates you will pay.
- My mortgage interest deduction will be capped.
In fact, this only comes in to play on mortgages going forward. It only applies if you buy a new house - your existing mortgage is grandfathered in. And even if you do buy a new home, the cap is being reduced from $1 million to $500,000. And that is on the interest portion you pay, not the payment itself or the house price, which if you put down 20%, would be $625,000. Unless you buy a house that costs more than $625,000, this does not affect you in any way.
- They are going to reduce my ability to deduct my medical expenses.
Yes; the proposal does remove this deduction. But guess what? This only applies if your medical expenses are more than 10% of your income. And then, only if they are out of pocket and not covered.
The most important thing to remember is this: 70% of filers take the standard deduction. Chances are very good, you are one of them. If you do, then all the discussions about mortgage, or state income tax, or medical deductions literally have nothing at all to do with your tax liability.
Nada. Zip. Nothing.
Nada. Zip. Nothing.
The sad truth is this: in terms of your tax liability, in all likelihood these changes are not going to have any real impact on you.
Let me repeat myself.
The tax reform is not about you. It never was. It never is.
It's like the whole phony proxy war going on right now about net "neutrality." It sure sounds scary - what I see on the internet is suddenly going to be controlled by rapacious capitalists at AT&T.
The truth there is that net "neutrality" is not about your ability to watch "The Crown" on Netflix or silly cat videos on YouTube. It's all about the money - whether it is going to go to the software guys in Silicon Valley, or the telcom guys in New York.
If you get worked up about net neutrality, either you work for Google, or you're a glove puppet for Google.
It's not about you.
Now, I am a sceptic, so I understand if you don't. There is an old saying: Trust but verify.
Here is a pretty simple tool you can use. It's an on-line tax calculator. Plug in your income, your mortgate, the number of kiddies at home, and your state income tax. It will spit out your tax liability under both the House and Senate plans (they are not identical, and need to be "reconciled.") There is a link that allows you to run the same calculations under the current laws.
Check for yourself.