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Enjoy Your Eight-year, Temporary Federal Tax Cuts

Millions of Texans will feel the impact of changes to individual tax breaks, health care penalties, and property tax deductions.

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Texas senator John Cornyn, Senate Majority Leader Mitch McConnell, and Utah senator Orrin Hatch leave a Republican Senate Policy luncheon, on December 19, 2017, before the House passed the Republican tax plan.
Photograph by Tom Williams/CQ Roll Call via AP Images

Millions of Texans will feel the impact of the new federal tax law—even if most of the tax breaks for individuals only last through the end of 2025 and then revert to current law. That eventual repeal of individual tax cuts is designed as a kind of bait-and-switch to get Americans to support a permanent reduction of corporate taxes from a top rate of 35 percent to 21 percent.

President Trump and the Republican leadership of Congress say the bill will spur economic investment and job growth. A major tax break for corporations was not popular, though, and one recent poll found only a third of Americans believed they would benefit from the bill. So, Congress included the cuts for individuals as sweeteners. But enjoy your tax breaks while you can over the next eight years, because eventually there will be a piper to pay–i.e., possible cuts to Medicare, Medicaid and Social Security.

After Congress sent the measure to Trump today, he held a pep rally-like event at the White House with the Republican leadership. “It’s always a lot of fun when you win,” Trump said.

Now, the question is, did you win?

Home ownership tax deductions

Home mortgage and property for those who itemize have long been held out as incentives to home ownership in America—part of what once was considered the American Dream. These deductions always have been more meaningful to the middle class, but the new tax bill chips away at them.

In the past, the mortgage interest deduction was capped to interest paid on the first $1 million of a home loan. But the new tax bill reduces the cap to $750,000. That may seem like it’s still reserved for the truly wealthy, but as single family home and condo prices have gone up in Texas, you more and more often are finding people stretching to the limit to buy a home.  The average home price in Austin earlier this year was reported to be $400,000.

So far in 2017, there have been 5,736 single family homes and condos purchased in Texas with mortgages that exceeded $750,000, according to ATTOM Data Solutions.

The average Austin property tax bill is $7,607, an increase of 21 percent over the past five years. For many homeowners, the rise in taxes is due to increased values, not new purchase prices. But rising values also mean that young people buying into the market are paying more. The ATTOM study found that in 2017, more than 320,000 single family homes and condos in Texas have sold for more than $10,000. Up until now, homeowners could deduct the state and local property taxes on their home and a vacation home from their federal taxable income. The new law limits the deduction to $10,000.

Both of these cuts may be offset by the fact that the standard individual deduction is being doubled to $12,000 for individuals and $24,000 for married couples. However, these standard deductions revert to current law in 2026, but the limits on deducting home mortgage interest and property taxes will remain. If property values continue to rise in Texas, many homeowners will find themselves paying more federal taxes in 2026 as the individual cuts vanish.

The more you earn, the more you get

The Tax Foundation, a conservative tax policy nonprofit, supports the legislation, but even its chart on the impact of the tax bill on individuals in 2018 shows some of the income disparity in who gets how much next year. “The significantly higher standard deduction, combined with lower marginal rates and a more generous (and more broadly available) child tax credit, drives the reductions in tax liability for low- and middle-income filers,” the foundation reported. “A reduction in itemized deductions limits reductions in tax liability for upper-income earners, though these filers benefit from the modified alternative minimum tax and lower top marginal rates.”

Click on the chart to expand it:

individual tax cuts

Courtesy Tax Foundation

The Tax Foundation also noted that because the individual cuts are temporary, the numbers do not represent what an individual’s tax bill likely would be over a ten-year period.

Private school savings accounts

So maybe a taxpayer takes a bit of a haircut on their property taxes, but those who plan to send their children to private or religious schools will pick up a bit of a break from an amendment by Texas senator Ted Cruz. It will expand the 529 college savings accounts to include payments to private schools, from kindergarten to secondary schools. Originally, it also included homeschool, but that was taken out because of procedural problems in the Senate. The legislation will allow parents to use up to $10,000 a year from a tax-exempt account to pay for private school tuition and expenses.

Estate tax

Currently, estates valued at less than $5.6 million are exempt from federal estate taxes. Under the new law, that will double. The Tax Foundation estimates this one cut will cost the federal government $72 billion over ten years.

Republicans often portray repealing the “death tax” as a protection for the family farm or small business. A Congressional Budget Office report once found that most either were structured to avoid the tax or fell under the exempt amount. This really is a tax on the extremely wealthy.

Texas in 2016 ranked fourth for the number of estate tax returns filed. In 2016, there were 736 estates that had gross values subject to the tax, but only 301 owed taxes, with a combined payment of $1.1 billion. Nationally, stocks made up more than half of all the estate holdings.

Even this break for the rich will expire in December 2025. One joke making the rounds is that December will turn into Throw Momma from the Train with wealthy families hoping to qualify under the new estate tax bracket before it expires.

Health Care

The new law repeals the individual mandate that requires individuals to pay a penalty if they do not have health insurance. That penalty payment helps subsidize the cost of providing health insurance to those who buy a marketplace policy under the Affordable Care Act, also known as Obamacare.

In tax year 2014, a million Texas households paid a combined $247.5 million in individual mandate penalties, according to Tom Price, the U.S. health and human services secretary. Since “Obamacare was implemented, health insurance premiums on the individual market in Texas have risen 82 percent—more than $2,100 per year,” Price wrote in an op-ed earlier this year. “With prices skyrocketing, it is no wonder that 1 million Texans paid a penalty in exchange for nothing instead of scraping together the resources to buy an Obamacare plan.” The New York Times recently reported that Texas—with the highest percentage of uninsured people in the nation—has the highest percentage of people paying the penalty for not buying insurance.

Cruz was among the Senate leaders pushing for the repeal of the individual mandate. He claims it penalized people who could not afford to buy health insurance.

It’s not that simple, though. No one really knows why people are paying the penalty instead of buying health insurance. One theory is that healthy young people just pay the penalty instead of paying more money for health insurance. Another is a problem with the ACA: if an employer provides health insurance that only covers the employee, the family is not eligible to buy subsidized insurance in the marketplace and therefore may not be able to afford to buy insurance and instead will have to pay the penalty. And in October, the Kaiser Family Foundation surveyed a group of uninsured people in Florida and Texas and found that 68 percent did not know when they could enroll for subsidized health care for 2018.

However, the ACA this year did provide health insurance for 963,171 people in Texas, 86 percent of whom received subsidies. The percentage of uninsured Texans dropped from 23 percent in 2013 to 17 percent in 2016. The new tax law makes the future uncertain for them. The Congressional Budget Office predicted that thirteen million Americans would lose health insurance by 2027 if the individual mandate is removed.

Texas’s senior senator, Republican John Cornyn, told reporters in Washington this week that removing the individual mandate will force Democrats to negotiate changes for the future. “Arguably, doing away with the individual mandate makes the Affordable Care Act unworkable—not that it was particularly great beforehand,” Cornyn said. “So I think ultimately this will precipitate a bipartisan negotiation on what we need to do as an alternative.”

The individual mandate does not go away until January 1, 2019, so if you haven’t signed up for health insurance for 2018, you’ll still owe the penalty when you file your federal income tax return in April.

Income inequality

This tax bill has a little something for just about everyone in it, but it is fairly clear that the lower you are on the socio-economic ladder the littler that something is.

The left-leaning Urban-Brookings Tax Policy Center reported that the bill will give a tax break to just about all Americans, but the richest will receive the most: “In general, higher income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution. On average, in 2027 taxes would change little for lower- and middle-income groups and decrease for higher-income groups. Compared to current law, 5 percent of taxpayers would pay more tax in 2018, 9 percent in 2025, and 53 percent in 2027.”

As expansive as this bill is, I just could not go into every detail. If you have a favorite that I left out, please, include it in the comments, or feel free to contact me at [email protected] or 512-320-6971.

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  • roadgeek

    Mr Ratcliffe, you do have the option of continuing to pay your taxes at the current rate. The government will not decline the additional money. You won’t, of course, but the option is there for you. I’m tickled to keep a a little more of my money, beginning in February, even if it is for only a few years.

    • BCinBCS

      I’m sure that R.G. is familiar with the conservative mantra of, “I’ve got mine, f*ck you”.

      • Devildog_71

        Sounds eerily familiar to Obama’s, “we won you lost so ..” lol

        • SpiritofPearl

          Not equivalent.

          • Devildog_71

            Its basically having the shoe on the other foot. Try that baby on for size, if it fits…..well you now the rest. I would even go as far as, we’ve got to pass the bill to find out what’s in it. You can’t make this stuff up, its hilarious!

          • SpiritofPearl

            This statement is incoherent.

          • BCinBCS

            Devildog wrote: “I would even go as far as, we’ve got to pass the bill to find out what’s in it.

            That statement is not quite analogous when it come to Comrade Trump’s tax redistribution bill and Obamacare. First of all, Nancy Pelosi actually said:

            “We have to pass the bill, so that you can find out what is in it — away from the fog of the controversy.”

            She never said the bill was enacted in secret or under cover of night, unlike the tax bill, because it wasn’t. She said it was enacted in a fog of controversy but conservatives truncated her statement in order to sell it to gullible rubes like you.

            As proof:
            Prior to passing Obamacare, the Senate debated 25 days, filed 506 amendments (228 from GOP) and took 34 roll call votes. As the bill was being drafted, the Senate HELP Committee held 14 bipartisan roundtables and 13 public hearings in 2008 and 2009. The Senate Finance Committee held 17 public events and hearings. Democrats negotiated with Republicans for months. Then there were Congressional Budget Office scores that appeared before Congress voted on the bill.

            The Republican tax bill, on teh other hand, was rushed through in a few weeks and there were no public hearings. There was no transparency in its drafting and there was no “regular order” in its passing. The bill was presented to the Senate at 6:00 pm on a Saturday with hastily added provisions illegibly scrawled in the margins and voted on hours later that night – no one had read it.

            I am so tired of the false equivalency that I constantly hear and read, especially from conservatives. Liberals are completely different from conservatives. We don’t believe the same as conservatives and we don’t act the same as conservatives.

          • p salinas

            That’s right BCBs the Domes refused to participate Because part f Owamy care was being repealed.

          • Don Baker

            If you want to converse with Pearl in a manner she understands, you need to put your cap on backwards, hold your crotch and bob your head as you express yourself in rudimentary English.

  • SpiritofPearl

    But the corporations benefit forever . . .

    • roadgeek

      I don’t begrudge them the extra money. They, after all, create a great many of the jobs in this country.

      • BCinBCS

        Hey geek, I’m with you. Corporations are the job creators and we should respect them. I say that we help them by eliminating the minimum wage and returning to $1.00 a day. It’s a nice round number and it makes the accounting easy.

        • p salinas

          BC bringing Sarcastic Again, heah !

      • SpiritofPearl
        • BCinBCS

          …no reason to wonder why,
          we’re all gonna die.

      • Don Baker

        True. Nobody ever got a job from a welfare recipient or a poor person.

  • James Brown

    You won’t owe anything if you didn’t have insurance for 2017 on your 2018 tax return. The repeal doesn’t take effect until 2019, but the penalty is now “zero.” Because the individual mandate was lowered to “zero” in 2017, and 2018 tax returns follow the law of 2017, you will still technically get a penalty but the penalty is “zero”.

    • BCinBCS

      I’m sorry James but whoever is giving you accounting advise is giving you bad information.

      For tax year 2017, the penalty is 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, up to a maximum of $2,085.

      • BCinBCS

        The decrease in the penalty to $-0-, but not the law, which remains on the books, does not take effect until 2019.

  • donuthin2

    So much for the conservative agenda. They just endorsed borrow and spend. I always thought that when you had to borrow to service your debt you were being dumb. We just upped it another notch.

    • R.G. Ratcliffe

      There’s actually a Pay-as-you-go rule that they call Paygo that will trigger some automatic cuts in the future. Paygo limits cuts to Medicare to 4 percent.

      • SeeItMyWay

        We need to cut Medicare benefits. It is structured so that it can be abused, and is. Hospital emergency rooms are taking full advantage, as are others.

        • R.G. Ratcliffe

          There is a difference between an across the board cut and fixing the parts that are broken and achieving reduced costs as a result. One cuts the good with the bad, and the other just cuts the bad.

          • BCinBCS

            Hear, hear.

          • SeeItMyWay

            4 percent, me thinks, will not keep anyone from receiving proper medical care.

  • donuthin2

    I probably will significantly benefit from the tax cut for the next few years and probably won’t live long enough to see it all fall in on itself, but my kids and grandkids will definitely pay the price.

  • John Bernard Books

    Sounds like sour grapes from the losers RG.

    • Curtis Mamzic

      Yet once again, anonymous troll; ignore.

  • John Bernard Books

    Some democrats are having to pay taxes……and they don’t like it.
    Time to give the producers a break.

    • Curtis Mamzic

      Once again, anonymous troll; ignore.

  • John Bernard Books

    so why are dems so angry?
    “Most Americans will save money under the tax bill that the Senate passed Tuesday night and the House passed Wednesday. The size of that benefit varies, but 80 percent of households will see some benefit in 2018.”
    https://www.theatlantic.com/politics/archive/2017/12/why-dont-63-percent-of-americans-realize-theyre-getting-a-tax-cut-for-christmas/548852/?utm_source=fbb

    as ex-Dem Zell Miller said “you can’t fix stupid.”

    • R.G. Ratcliffe

      Everyone gets something in the short haul, but in 2026 most people will see a sudden and automatic increase in their taxes.

      • Retributer

        That will be guaranteed if the dems are in power!

        • SpiritofPearl

          It will be guaranteed unless “repeal and replace” occurs.

    • Curtis Mamzic

      Anonymous troll; ignore.

  • John Bernard Books

    You knew this was coming as dems bused in voters from out of state….

  • WUSRPH

    It appears the time to face reality will be put off longer than Ryan wants. He wants to start.

    • perks

      Welfare reform (abuse), disability reform, medicare reform would produce millions in additional revenue for public health care. And then rein in the cost (over charging) of hosptials/procedures, doctors etc. Here lies the real problem of all health care, which no one ever talks about. There is no way to keep up with bloated charges, no matter how much insurance you have.

  • PeterTx52

    you may wish to explain why the individual tax cut is temporary and not permanent. It all revolves around a Senate rule that requires 60 yes votes, so we can blame the Democrats for not making the cut permanent since not a single Democrat was willing to vote for the bill. and here I thought the Democratic party was for the little guy. now we know better.
    :

    “Republicans are attempting to pass the bill, the Tax Cuts and Jobs Act (TCJA), through the process known as budget reconciliation.
    The process allows Republicans to avoid a Democratic filibuster and
    pass the bill on a party-line vote, but it comes with strings attached.

    One of the rules included in the reconciliation process is known as
    the Byrd rule. A provision within that rule stipulates that any bill
    going through reconciliation cannot add to the federal deficit outside of 10 years.

    Sen. Orrin Hatch, chair of the Senate Finance Committee and author of the bill, has admitted that the original version
    of the Senate’s TCJA did not meet such a requirement. Making the
    individual cuts temporary could allow the bill to meet those
    requirements.”
    http://www.businessinsider.com/trump-gop-tax-plan-senate-bill-why-individual-tax-cuts-temporary-2017-11

    • WUSRPH

      You did notice that little reference to the reason it required 60 votes is because it increases the deficit I persume.

      • BCinBCS

        And the fact, Peter, that 83% of the tax cuts go to already rich individuals is why the Democrats are not supporting the bill and why the cuts have to be temporary.

        I’m guessing by PeterTx52 that you are around retirement age. Will you be taking social security when you retire? What about Medicare? When you eventually need it, do you have enough money to pay the $4,500 per month ($54,000 per year) average cost for nursing home care without going on Medicaid as do seventy percent of all Texas nursing home residents?

        Peter, do you know that because of PAYGO rules there will almost assuredly be automatic reductions in these safety social net programs? I’m sure that as a self-sufficient, rugged, go-it-alone conservative, none of this will effect you but it will for the rest of us so, no, Democrats did not support the Republican tax redistribution bill that just passed.

  • WUSRPH

    One thing these Republicans who control all three branches of government are good at is POSTPONING HARD DECISIONS…..Now the deadline is January 17th….and when that date hits they will probably postpone it again and again and again……

  • CommentPlease

    I want to point out one thing in this article that I find contradicting —Home Ownership tax Deduction. According to the tax policy center, http://www.taxpolicycenter.org/feature/analysis-tax-cuts-and-jobs-act, the new law will sunset after 2025. That means, homeowners tax deduction limits will revert back to current tax law provision. So how is “If property values continue to rise in Texas, many homeowners will find themselves paying more federal taxes in 2026 as the individual cuts vanish.” this statement true? Or am I interpreting wrong? Thanks for clarification.

    • BCinBCS

      From the post:
      …th[e] standard deductions revert to current law in 2026, but the limits on deducting home mortgage interest and property taxes will remain. If property values continue to rise in Texas, many homeowners will find themselves paying more federal taxes in 2026 as the individual cuts vanish.

      The GOP tax bill limits deduction of interest to the first $750,000 of new home mortgages (and I would assume, of new refinancing of previously purchased homes). When the temporary tax relief aspects of this tax redistribution plan expire, the mortgage interest deduction does not. As the median price of houses climbs (frequently attributed to the influx of Californians), the number of Texans who will not be able to deduct all of their mortgage interest will increase. Thus many Texans will pay more income tax in 2026.

  • BCinBCS

    I, like many others, see a wave election coming in 2018. I also expect the presidency to be won by Democrats in 2020 (it’s certainly theirs to lose). When those things happen, I wonder how long many of the red state favorable (vs blue state) and wealthy favorable (vs middle-class) tax policies in the current Republican tax redistribution bill will be allowed to remain on the books?