Taxes are complicated too

Posted: November 5, 2017 at 1:03 a.m.

It is what Republicans do. It's why they run. It's what makes enduring the indignities of the Trump association worthwhile.

They cut taxes inordinately for richer people and businesses.

They funnel truckloads of cash back to those already with the most cash, either because they are beholden to the rich or they simply believe cash sent back to the richest will make America a better and happier place for everyone.

Or both. Or gradations of each. Or they represent gerrymandered congressional districts purposely concentrated with tax-cut diehards, and they want to get re-elected.

House Republicans have pretty much settled on what will amount at least to a starting point on the specifics of generational tax policy change. They will tout the measure as a middle-class tax cut, which it might or might not be.

That will depend entirely on what you define as middle class, where this supposed middle-class taxpayer happens to reside, and the specific nuance of a household's situation regarding deductions and child-care costs.

The middle-class tax cut is complicated and variable.

What is not complicated--and what is certainly not a variable--is that businesses will see their tax rate cut from 35 percent to 20 percent; estate taxes on large inheritances will be drawn down toward elimination; the Alternative Minimum Tax applying only to higher incomes will be eliminated; people with annual incomes between $418,000 and a million dollars will bathe in lush piles of new dollars, and those with annual incomes exceeding $1 million will still pay their 39.6 percent tax rate--on the part exceeding $1 million, after enjoying rate reductions in income categories along the way to that million. So, they'll do all right too, particularly if their parents are rich and pass away.

As for the middle class ... well, that's altogether a regional variable.

Someone qualifying as middle class in San Francisco, New York or New Jersey will take a painful hit on changes in itemized deductions that cap mortgage-interest deductions at half-million-dollar mortgages. And he'll take another hit on eliminating the deduction for state and local taxes, which are among the highest in the nation in those places.

That's kind of a blue-state punishment, looking almost deliberate. But it's also kind of a liberal notion--limiting the amount one can deduct based on the size of one's mortgage, thus the worth of one's home.

If tax issues were easy and clear, we'd need CPAs even less than we need politicians.

Someone in the middle class in Arkansas might make out all right under this proposal.

A working family's mortgage in Arkansas is not close to the $500,000 cap on deductibility. And that family's state and local taxes are no doubt too high for its liking, but not so high as to mean that the loss of them as deductions would offset the family's basic tax-rate reduction. Probably.

Currently, a married couple pays a 10 percent tax rate to about $19,000; a 15 percent rate from $19,000 to about $75,000, and a 25 percent rate from $75,000 to $156,000.

But the House GOP's proposed new rate is 12 percent from zero to a little more than $90,000.

So an Arkansas married couple with a net taxable income of $55,000 would pay 12 percent in annual income taxes on all of it, rather than 10 percent on some and 15 percent on most.

Situations would vary on deductions and child-care credits, but, most likely, that Arkansas working-class family would net a few hundred more bucks in its pocket over a year, enough, maybe, for a new set of tires.

If itemized deductions no longer work for that working-class family, the standard deduction would be nearly doubled, though individual exemptions would be lost. It's all about the math.

The federal deficit and debt would grow. But if the Republicans and rich people aren't going to worry about that, then an Arkansas working family ought to be able in good conscience to put safer tread under their kids.

By prevailing Republican thinking, the reduction from 35 percent to 20 percent in the income-tax rate for the employer of that Arkansas working family would mean that the family would get a raise.

But I wouldn't go to the bank or the grocery store on that premise just yet. It is not an empirically established effect. Some businesses will simply behold the earnings.

Meantime, U.S. Sen. Tom Cotton wants to use the tax-cut debate to remove the tax penalty for failure to buy health insurance--thus removing Obamacare's hammer.

In that event, the Arkansas working-class family could save even more by going without health insurance. That'd be swell unless someone got sick, in which case we'd all help by running up our government deficit even more.

Health care, Russia, now taxes--they're all, it turns out, quite to the president's surprise, complicated.

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John Brummett, whose column appears regularly in the Arkansas Democrat-Gazette, was inducted into the Arkansas Writers' Hall of Fame in 2014. Email him at jbrummett@arkansasonline.com. Read his @johnbrummett Twitter feed.

Editorial on 11/05/2017