Some Early Facts That Have Emerged Regarding This Tax Bill
We're still waiting for a final tax bill. Details are more or less clear - but, as we all know, the devil's in the details. With that in mind, here are some early facts that have emerged.
First, and foremost, know that this is by no means a form of tax "simplification." We heard from one individual who recalled that, at one point, a Republican or two put forth the old "post card" tax return idea. That's where all we would have to do is fill in short one-page form when we go to file in April. The memory of this sparked the same chuckle and smirk as it did when the idea first appeared. Indeed, it recalled the failed candidacy of Steve Forbes a while back where he famously proposed this sort of simplification. The thing is, he seemed sincere at the time, albeit it bit naive. This time around, though, we suspect the proposal was more a cynical manipulation intended to elicit sympathy from voters, with no real intention of follow through. In any case, there's likely going to be nothing simple about this tax bill. And, if history is any indication, it could generate a fair amount of confusion when finally revealed. Be prepared.
Next, who wins, who loses? We know most big corporations win. But even that case isn't simple: apparently, corporations with high levels of debt will suffer. Of course, most of us are more interested in the effect on individuals and families. And here we find the same degree of "non-simplicity." Having read a number of articles that purportedly analyzed the effects of the changes on middle, upper middle, and high income earners, those that weren't politically charged really couldn't produce anything all that definitive, beyond some broad generalizations. Comparing this to specific situations we've reviewed with various individuals, here's what we've found so far:
Those middle class individuals in states with lower or higher state, local, and property taxes have a hope of netting something positive out of this bill. The logic here: If you're not itemizing deductions now, you likely won't next year when the Standard Deduction is raised. But before you count your money with what appears to be a doubling of your deduction, remember that your personal exemptions will go away, thereby offsetting some percentage of your gains. Add to this math the number of children you have over 18 who still count as dependents - and for whom you will not receive a child tax credit - and you may or may not come out ahead. Simple? Not really.
As for upper middle class individuals, our sense is that those in high state, local, property tax states will take a hit. They won't be able deduct any state and local at all next year; and property (and/or sales) tax deductions will be capped at $10,000. In states like New York, New Jersey, Connecticut, California, Illinois, these taxes account for a large percent of itemized deductions. So of course the loss of any large deduction means you pay more taxes. And in cases where itemized deductions will consist only of property and sales tax in 2018, folks may be taking only the standard deduction, which, as we saw, is increased (win), but effectively then reduced by the loss of personal exemptions (lose). Clear?
That leaves the high income earners, or as we might otherwise call them, the "rich." We've used quotations marks here because "rich" in one location (e.g. Albuquerque, NM) may not be "rich" in another (e.g. the City of New York). But let's set that aside and summarize best we can the impact on the rich this way: They'll likely benefit from a lower tax bracket (win), suffer from loss of itemized deductions (lose) and/or benefit from some creative ideas offered up by their advisers. And the richer they are, the more they'll likely get injections of advice that will ultimately give them some sort of leg up on the rest of us. After all, most of us can't afford the big ticket legal and tax professionals who cater to the "top 1% of the 1%" who earn most of the income in our society and who own most of what passes for assets these days. In other words, we could create spreadsheets and plug in numbers based on the changed tax brackets, but that's not going to capture the real results after freshly-minted finagling (even if legal) that advisers will conceive and for which they will be amply rewarded.
Now, a fact here or there may change when the bill is finalized. But it's doubtful anything all that substantive will emerge in the final product that contradicts what we've seen so far.
So let's move on to the happier subject of Christmas - now only six days away - and take a moment to listen to a rather lovely Christmas song that - in my humble opinion - isn't played enough these days. Oh, and the video that accompanies this beauty isn't half bad either. Have a watch and a listen...
Puts this tax bill and pretty much everything else in perspective, don't you think?
First, and foremost, know that this is by no means a form of tax "simplification." We heard from one individual who recalled that, at one point, a Republican or two put forth the old "post card" tax return idea. That's where all we would have to do is fill in short one-page form when we go to file in April. The memory of this sparked the same chuckle and smirk as it did when the idea first appeared. Indeed, it recalled the failed candidacy of Steve Forbes a while back where he famously proposed this sort of simplification. The thing is, he seemed sincere at the time, albeit it bit naive. This time around, though, we suspect the proposal was more a cynical manipulation intended to elicit sympathy from voters, with no real intention of follow through. In any case, there's likely going to be nothing simple about this tax bill. And, if history is any indication, it could generate a fair amount of confusion when finally revealed. Be prepared.
Next, who wins, who loses? We know most big corporations win. But even that case isn't simple: apparently, corporations with high levels of debt will suffer. Of course, most of us are more interested in the effect on individuals and families. And here we find the same degree of "non-simplicity." Having read a number of articles that purportedly analyzed the effects of the changes on middle, upper middle, and high income earners, those that weren't politically charged really couldn't produce anything all that definitive, beyond some broad generalizations. Comparing this to specific situations we've reviewed with various individuals, here's what we've found so far:
Those middle class individuals in states with lower or higher state, local, and property taxes have a hope of netting something positive out of this bill. The logic here: If you're not itemizing deductions now, you likely won't next year when the Standard Deduction is raised. But before you count your money with what appears to be a doubling of your deduction, remember that your personal exemptions will go away, thereby offsetting some percentage of your gains. Add to this math the number of children you have over 18 who still count as dependents - and for whom you will not receive a child tax credit - and you may or may not come out ahead. Simple? Not really.
As for upper middle class individuals, our sense is that those in high state, local, property tax states will take a hit. They won't be able deduct any state and local at all next year; and property (and/or sales) tax deductions will be capped at $10,000. In states like New York, New Jersey, Connecticut, California, Illinois, these taxes account for a large percent of itemized deductions. So of course the loss of any large deduction means you pay more taxes. And in cases where itemized deductions will consist only of property and sales tax in 2018, folks may be taking only the standard deduction, which, as we saw, is increased (win), but effectively then reduced by the loss of personal exemptions (lose). Clear?
That leaves the high income earners, or as we might otherwise call them, the "rich." We've used quotations marks here because "rich" in one location (e.g. Albuquerque, NM) may not be "rich" in another (e.g. the City of New York). But let's set that aside and summarize best we can the impact on the rich this way: They'll likely benefit from a lower tax bracket (win), suffer from loss of itemized deductions (lose) and/or benefit from some creative ideas offered up by their advisers. And the richer they are, the more they'll likely get injections of advice that will ultimately give them some sort of leg up on the rest of us. After all, most of us can't afford the big ticket legal and tax professionals who cater to the "top 1% of the 1%" who earn most of the income in our society and who own most of what passes for assets these days. In other words, we could create spreadsheets and plug in numbers based on the changed tax brackets, but that's not going to capture the real results after freshly-minted finagling (even if legal) that advisers will conceive and for which they will be amply rewarded.
Now, a fact here or there may change when the bill is finalized. But it's doubtful anything all that substantive will emerge in the final product that contradicts what we've seen so far.
So let's move on to the happier subject of Christmas - now only six days away - and take a moment to listen to a rather lovely Christmas song that - in my humble opinion - isn't played enough these days. Oh, and the video that accompanies this beauty isn't half bad either. Have a watch and a listen...
Puts this tax bill and pretty much everything else in perspective, don't you think?
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