WASHINGTON (Circa) —
For most Americans, it’s the least wonderful time of the year. Filing taxes can be complicated, full of unpleasant surprises and errors can be costly and result in a run-in with the Internal Revenue Service (IRS).
This year, Republicans are celebrating tax day, welcoming the end of a 32-year-old tax code and the beginning of the new system under the Tax Cuts and Jobs Act, the GOP’s signature legislative achievement in 2017.
“Tax day is the worst day of the year for most Americans,” House Ways and Means Chairman Kevin Brady, R-Texas, told reporters Tuesday. “The good news is today is the last time Americans will have to file their taxes under that old, broken, complicated tax code.”
In a simple Tax Day message, President Donald Trump tweeted, “Employment is up, Taxes are DOWN. Enjoy!”
Democrats, who voted unanimously against the tax bill in the House and Senate, say there is no reason to celebrate. Over the weekend House Minority Leader Nancy Pelosi called the tax cuts “deeply unfair” and denounced the law as “a complete fraud scam.”
On Tuesday, Rep. Anthony Brown of Maryland argued the new tax cuts will increase the deficit while providing only “meager” and “short-lived” benefits to low and middle-income Americans. “Instead of celebrations, it should be more of a mourning because of what the Republicans have done,” Brown said.
Activists and Democratic lawmakers argued many of the same points in a Tax Day rally outside the Capitol, calling for the repeal of President Donald Trump’s signature tax law.
Amid the fiery political back and forth, Americans are adapting to a new system designed to impact their personal finances. Below are some of the changes taxpayers can expect to see when Tax Day 2019 arrives.
WILL I GET MORE MONEY?
The $1.5 trillion question is how much each American household will benefit when they file their taxes next year. The answer depends on many factors. Overall, the tax law cuts the tax rate for every income bracket and doubles the standard deduction to $12,000 for individuals and $24,000 for married couples.
The non-partisan Joint Committee on Taxation (JCT) found that in the first years the tax plan is in effect, through 2019, the vast majority of households will see a tax decrease and every income bracket will see a rate decrease.
Republicans have claimed the average American family of four earning $73,000 can expect to save $2,059 under the new law.
However, the effects of the tax cuts for individuals are not permanent. By 2021 and 2023, households earning between $20,000 and $40,000 per year will see a modest increase in their rates. By 2025, the tax cuts across all individual brackets will phase out. For corporations, the new 21 percent rate (down from 35 percent) will be permanent.
Republicans have been criticized for sunsetting the individual tax cuts, though they have promised to extend the benefits beyond 2025. House Speaker Paul Ryan, R-Wis., told reporters Tuesday, “We fully intend to make these things permanent and that’s something we’ll be acting on later this year.”
Recent polls show Republicans have a difficult task ahead convincing the American public the tax plan is a good idea. An NBC/Wall Street Journal poll released earlier this week shows just 27 percent of Americans believe the plan is a good idea.
There are individual tax cuts that are more popular than the polls suggest. Under the new law, the child tax credit is doubled to $2,000. The threshold for deducting medical expenses has been temporarily lowered, the estate tax was virtually repealed and taxpayers will no longer pay a fine for not having health insurance. Though Republicans were unable to repeal Obamacare, the tax bill nixed the individual mandate which cost uninsured taxpayers up to 2.5 percent of annual income or $695 per uninsured person.
While official estimates show the majority of Americans will see at least modest savings when they file next spring, others can expect to pay more after the GOP capped or eliminated a handful of deductions. Among the most controversial was capping the state and local tax deduction (SALT) at $10,000. Previously there was no cap on the deduction that was used by taxpayers in high-tax states to prevent their income from being taxed twice.
The new tax code also caps the mortgage deduction at $750,000 of mortgage debt. That is down from $1 million under the previous law.
White House Council of Economic Advisers chairman, Kevin Hassett explained that many American workers are seeing the benefits of the tax law.
“Already Americans are seeing that their salaries are going up,” Hassett told Sinclair Broadcast Group. Starting in February, employees should have seen lower federal withholdings translate into higher paychecks, he added. It is important to note that the IRS released a new W-4 form in February, so employees who hope to avoid cutting a big check to the federal government at the end of 2018 should ensure their W-4 is up to date.
The White House Council of Economic Advisers has also been keeping track of the impact the corporate tax reform has had on American workers. “There are north of five million people who have gotten a pay raise this year of more than $1,000 because of the tax cuts,” Hassett said.
WILL FILING BE EASIER?
One of the central promises Republicans made about the tax plan was that it would make filing simpler for the majority of Americans. Speaker Ryan regularly boasted of a tax code so simple that the majority of Americans could be able to file on a form the size of a postcard.
Hassett claimed that by next year, more than 80 percent of Americans will be able to file their taxes on a small, simple form.
“We’ve passed a tax code that’s much better, much easier to comply with,” Hassett said. “And next year when you fill out your taxes…you’ll be a much happier person.”
Happiness aside, the new code aims to slash the number of hours Americans spend preparing and filing their taxes. One White House study from 2017 estimated the average American spends more than 17 hours every year on their taxes, dedicating the majority of that time to maintaining records and receipts.
That is expected to decrease in large part because by doubling the standard deduction, the architects of the plan believe fewer households will itemize. The Tax Policy Center estimated the number of filers taking the standard deduction, rather than itemizing, will increase from 74 percent to 89 percent under the new law.
The virtual elimination of the Alternative Minimum Tax is also expected to contribute to simplicity, as some high-income earners will no longer have to effectively calculate their taxes twice to determine the higher amount.
Republicans had hoped to reduce the number of tax brackets from seven down to four, but the proposal did not get enough support from within the conference.
Critics of the tax overhaul claim the 1,000 page bill will add complexity to an already burdensome tax code. Much of that criticism stems from reforms to the corporate tax code, which creates new incentives for individuals to form pass-throughs to reduce their rates.
WHO BENEFITS MOST?
Among the most hotly contested effects of the Republican tax bill is which income bracket receives the biggest share of the benefits.
“We didn’t try to reward billionaires or people who make a lot of money,” Sen. John Cornyn, R-Texas, told Sinclair. “We made the point of helping people at the lower and middle end of the tax brackets.”
Cornyn explained the plan was intended to provide direct benefits through lower taxes, but also indirect effects that spur economic growth. Citing recent hiring trends, he noted 806,000 people reentering the workforce in February while unemployment continued to decline. “There’s a lot of confidence and optimism about how the economy is growing,” he said.
Democrats, like Rep. Dan Kildee of Michigan argued the tax bill amounts to a wealth transfer to the richest Americans. “They’re being squeezed,” Kildee said of middle-class. “While there may be some benefit that might accrue under the new code…the inequities in that tax bill are just grotesque.”
Numerous independent studies have arrived at the general consensus that the largest portion of the $1.5 trillion tax cut will be enjoyed by wealthier Americans.
The Tax Policy Institute reported that wealthy households in the top 95th to 99th percent benefit the most from the new law, getting 22.1 percent of the total benefits or an average tax cut of $13,500. Those in the upper one percent, earning more than $1 million per year will see 20.5 percent of the benefits, or an average tax cut of $51,000.
The remaining 57.4 percent of the benefits are divided among the 95 percent of American households earning less than $308,000 per year, according to the report.
Even though the Joint Committee on Taxation’s final report affirmed GOP claims that virtually everyone will see a tax decrease, it’s a matter of degrees.
Over the longer-term, the JCT found that households earning between $50,000 and $1 million per year would see the greatest savings as a percentage of their income. Workers making less than $10,000 a year would see a minimal change of no more than $100, while households making between $500,000 and $1 million would see cuts of approximately $500.
SHOULD I BE WORRIED ABOUT THE DEFICIT?
According to the latest report from the Congressional Budget Office, the federal government will see the return of trillion-dollar deficits beginning in 2019, in large part due to the tax bill and the latest $1.3 trillion government spending bill.
The tax bill alone is expected to add $1.9 trillion to the federal debt over the next decade and cost the government $2.3 trillion in revenues.
The top Democrat on the House Budget Committee, John Yarmuth of Kentucky acknowledged that the country faces long-term challenges related to deficit spending and the national debt. “But the one thing that we know if you don’t keep digging the hole by giving unneeded and nonproductive tax cuts, which is what the Republicans have done.”
California Democratic Rep. Brad Sherman compared the deficit spending to “a saloonkeeper announcing a dedication to temperance. It’s nothing more than an excuse to have another round.”
The Trump administration and many in the Republican-controlled Congress have fought back against accusations of fiscal irresponsibility, saying increased economic growth will effectively pay for the unfunded tax cuts.
Hassett claimed the tax cuts will spur GDP growth above the so-called “new normal” of below 2 percent. “What we believe…is that we’ve kicked ourselves back into the old normal, where we can expect to grow at 3 percent per year. And if we do that, then the deficit problem will almost take care of itself in the near-term.”
The top White House economist pointed to the latest CBO report, which also included a revised economic growth forecast, projecting a temporary increase in GDP as a result of the Trump tax cuts.
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