U.S. Tax Reform Bill: Who Gets Hit Hardest?

Who Pays More Taxes Under the U.S. Tax Reform Bill?

Right now, the House and Senate hold different versions of the tax reform bill, so it's difficult to make any sweeping generalizations. The actual bill that may or may not pass probably won't look exactly like either of these two versions either. It's still interesting to try to figure out who will pay more taxes if mortgage interest limits get raised, deductions for state taxes get eliminated, and so on.

State and Local Tax Deductions (SALT)

The House wanted to allow state and local tax deductions up to $10,000. The Senate wants to eliminate SALT entirely. Most people's largest tax bills probably come from property taxes. In the area where the author of this post lives, people have to live in relatively fine homes to pay that much in property taxes, so the $10K limitation isn't personally aggravating. However, states with higher tax rates AND higher property values will have more impacted homeowners. Of course, it's easy to see that this will have more of an impact in New York, New Jersey, California, and Connecticut.

Home Mortgage Interest Deductions

The House wants to cap this at mortgage loans up to $500K, but the Senate wants to leave it at $1 million. Again, despite what you think about Texas from TV shows like Dallas, the Lone Star State has kept property values more modest. Some cities may have some residents impact, but this really impacts a higher percentage of homeowners in states like California, Hawaii, New York, and even Washington, DC.

The real estate industry, particularly in states with more high-value homes, isn't too happy about any more limitations.

Higher Deductions Vs. No Exemptions

Some folks will benefit from the higher standard deduction. Larger families could get hurt by losing personal exemptions and their reduced or eliminated ability to itemize any deductions. It seems fair for a family with five kids to have more breaks than an individual who earns the same income. Is Congress trying to keep people from reproducing? I'm not sure how this will wash out.

Anyway, the writer of this post probably won't personally be impacted by these changes that much. Property values and taxes are relatively modest in this part of the Lone Star State. There is no state income tax, and deducting sales tax doesn't ever move the needle on federal taxes much.

TAX REFORM SURE ISN'T PAYING FOR ITSELF

Here's another thing. As it stands, tax reform is estimated to increase the deficit. If it doesn't, it will be because Congress has plans to make cuts. This is puzzling, considering most of the supporters of this bill kept crying about the deficit.

So, Who Wins and Loses With Tax Reform?

Since it's impossible to say what the final version of the bill will be, it's too early to know ow this will wash out. Still, it's not too early to try to look into possible impacts, especially with the recent history of Congress of trying to shove stuff through quickly.

What Do You Think? Please let me know if you found this interesting by upvoting. Also, I'm interested in reading your own POVs in the comments.

Estate Taxes

Also, the author generated quite a bit of discussion with this earlier post about the estate tax, so you might want to take a look at that. The author actually changed her mind about a few things after the discussion, so it's worth checking out.