Taxes. We all pay them and we seem powerless to do anything about it.
Tax reform is top of mind for Congress and the federal government, and there is growing concern from a number of citizen groups and civic leaders from both parties.
While versions in the House and Senate have significant differences, their proposals are more sweeping than many expected. Some of the things in the proposals sound good, but they will affect all of us. For example, the State And Local Tax deduction, also called SALT, lets homeowners deduct state and local taxes from their federal taxes, but Congress is looking to eliminate it. In Tennessee, more than 400,000 residents would no longer be able to use the state and local deduction to save hard-earned money on their federal tax returns under the House tax bill.
The proposed bill drops a batch of useful itemized deductions for average Americans — student loans, high medical costs and more.
Here’s a further look at the GOP tax plan and its impact:
• The House Republican tax hurts teachers in Tennessee, by repealing a tax credit for teachers who buy their own school supplies.
• College students in Tennessee will also be hurt, because the House tax bill makes student loans more expensive. More than 208,220 graduates in Tennessee take advantage of the student loan interest deduction House Republicans want to eliminate, saving $1,041 on average.
• Tennessee’s seniors will find it harder to save for retirement or cover their medical bills. In fact, the House GOP tax plan would take away all Tennesseans’ ability to deduct their medical expenses. Nearly 144,826 Tennessee residents deducted their medical expenses in 2014, saving $9,284 on average.
• The House Republican tax bill could also force $25 billion in automatic cuts to Medicare next year. More than 1.2 million Tennesseans who rely on Medicare could be at risk.
• Distressed and rural communities could lose an important program that funds hundreds of hospitals, daycare facilities, alternative energy projects, and small businesses. The House GOP plan ends the New Market Tax Credits program, which has spurred over $720 million in community investments in Tennessee and created over 13,700 full-time jobs since 2003.
And there’s cause for rejoicing at what’s not in the bill, including a stubborn proposal to cap tax-deferred savings in employee 401(k) plans.
Also, the proposed bills doubles the standard deduction to $24,000 for families. Most folks use this because they lack enough deductions to itemize or flat don’t have the time to do so. This will enable more people to file their tax returns on a “postcard,” whatever that might look like. They will owe little or no taxes.
At present, almost 50 percent of households pay no income taxes. This feature will likely increase that number, probably to exceed 50 percent. We acknowledge that many of these households are subject to payroll taxes, but those are dedicated to providing a specific income at retirement … namely Social Security.
But as for paying taxes to fund national security, welfare payments and all of the other government programs that benefit the nation, it is troubling when over half of citizens can vote for even more benefits without paying any of the costs. This is exactly what troubled Benjamin Franklin in the late 1700s, as he worried what would happen to the nation when people learned that they could simply vote themselves more money.
We think almost everyone should pay some taxes on income, even if only a token amount. Everyone should feel that they are a part of supporting the financial health of the nation and have a stake in voting for sound economic policies.
Yet, for all of this, two key questions loom. Is this plan fairly equitable in laying down taxes? And what does it do to the national debt? Already, it’s apparent there are winners and losers, some more concerning than others.
More disturbing is that, after eight long years of hearing Republicans rant about free-spending Democrats adding to the now $20 trillion national debt, we have a Republican Congress and a Republican president who propose adding $1.5 trillion or more to the debt over 10 years.
Another concern is that Republicans are attempting to enact this major legislation without any backing from Democrats. This is the same mistake that Democrats made with Obamacare, and we are living with the consequences today.
There should be some effort to create tax laws that are owned by both parties, not one. Whether this is possible in today’s politics is questionable. But ignoring input from the minority party is not a good way to create long-term support for the nation’s tax laws.
As should be expected when major tax changes are proposed, some people will think they are winners and some will think they are losers. Compromises will be difficult, but must be made if tax reforms are to become reality instead of simply wishes.