The “tax cut” bill that emerged yesterday appears to be a disappointment. I say “appears to be” because I am basing my analysis on imperfect summary descriptions that I see online; the true effect on me will be hard to assess until I do my next tax return. The details of the plan are listed here. But we do know this: there is nothing bold about the tax bracket reductions. It is simply a fiddling with marginal rates, as always happens when we are promised “reform.” And that makes the bad parts even worse.
What are the bad parts? Among them is the elimination of a deduction for state and local taxes:
Retains the mortgage interest and charitable deductions, as well as the property tax deduction (capped at $10,000), but repeals the remainder of the state and local tax deduction and other itemized deductions.
The reaction of people who live in states with a small income tax is elation. Ha ha, we’re sticking it to California and New York! Look: if we had genuine tax simplification and across the board tax cuts, I’d cheer. If we combined the elimination of state and local tax deductions with sweeping cuts in all brackets (necessarily accompanied by spending cuts) such that every American still received a tax cut, then I would be in favor of that.
That’s not what’s happening. Instead it’s just a chance to pick new winners and losers. And as one of the losers, I object. A “tax cut” plan that raises my taxes is crap. And that’s not all. Then we have this:
Caps the mortgage interest deduction at $500,000 of principal for new home purchases.
Again: I am actually for the elimination of the mortgage interest deduction, in theory. It serves to increase home prices and distort the market for housing. But as a big beneficiary of this deduction, there is no way I am going to support its elimination unless there are large cuts that offset the hit I will take.
Now, this particular provision appears to apply only to prospective sales, so it won’t cost me money right out of the gate. And the doubling of the standard deduction will cushion the blow for many. But for many people, possibly including us, what it will do is ensure that we will never sell our home. First, my home’s resale value will take a hit, because purchasers won’t be able to deduct all their interest. Second, if I am understanding the plan correctly, by selling our home we will be limiting the amount of interest we can deduct, because our next home would be a “new home” subject to the caps, while our current home isn’t. If you want to put the brakes on home sales and create an artificial housing shortage, this looks like a great way to do it.
Finally, and really most important, there is zero here about reducing spending. And we just hit $20 trillion in national debt. So now I’m giving more money to a government that won’t reduce spending.
A tax cut plan should cut taxes. Because I am not confident this one would, and because there is nothing here about reducing spending, I am opposed.