TwitterFacebookPinterestGoogle+

Senate passes tax plan at expense of the middle class

Over the weekend, the Senate Republicans passed their version of the Trump tax plan that will not only impact the amount of taxes you will pay; it will also impact your ability to build wealth, educate your children, preserve your health, plan your estate and grow your business in California.

It provides a $10,000 special tax-free college savings credit to pay tuition for private and religious schools, disproportionately benefiting rich families who can afford private schools, tutors, personal trainers and parental volunteering. This incentivizes a decline in public school enrollment without any effort to equalize education for all children.

The bill would also bar school districts from using cost-effective, tax-free “advance refund bonds” to lower their debt by refinancing school bond debts. The bill also exempts private colleges with large endowments from a 1.4 percent excise tax on investment income, including Michigan’s Hillsdale College, whose benefactors include President Donald Trump’s education secretary, Betsy DeVos.

Here are a few more key provisions of the Senate Republican tax plan. Their plan repeals the mandate requiring Americans to either obtain health insurance or pay a fine, and 13 million Americans are projected to choose not to obtain health care through the Affordable Care Act.

That means the government would no longer have to pay billions of dollars to subsidize their health care plans and, unfortunately, poor and middle-income Californians whose employers do not provide health care coverage would be forced to pay higher Covered California health care premiums or be pushed into local emergency medical care, shifting the burden to the counties and the state.

It continues to allow charitable deductions, but the deduction for casualty losses in the case of theft, floods or even home damages sustained from California wildfires was eliminated.

Property taxes remain deductible up to $10,000. If you live in Los Angeles County you should watch out for the 14 different property tax add-ons because they may push you over your limit.

Mortgage interest is still deductible if your debt is under $1 million and the interest is not the result of a home equity loan. Purchasing a home with the equity from another property may not be wise and instead you may want to refinance depending on other factors.

The Senate plan preserves the alternative minimum tax, which hurts filers making between $200,000 and $1 million. The plan expands deductions for medical expenses by reducing the threshold limitation from 10 percent to 7.5 percent, allowing more people to claim medical expenses that exceed 7.5 percent of their adjusted gross income.

Other interesting features of the Senate plan include increasing teachers’ classroom expense deduction, which would go from $250 to $500 — a $250 benefit for teachers, and retaining the refundable earned income tax credit of up to $6,500.

In addition, the child tax credit would be expanded from $1,000 to $2,000, but the additional $1,000 would be nonrefundable. In the past, if you owed zero taxes you would get a refund for the full credit, but under this plan the refund would apply only to the first $1,000.

Mostly wealthy Californians, who pay the highest state income and sales tax in the nation, will no longer be able to deduct these taxes. However, if they own a business, the tax plan cuts the corporate tax rate to 20 percent from 35 percent, which offsets the loss of the state and local tax deduction — but this rate reduction will not go into effect until 2019.

The Republicans are hoping to encourage businesses to support their re-election in 2018 in order to preserve the 15 percent reduction in their tax rate.

Both tax plans would require companies to pay a one-time low tax rate on their existing overseas profits. Multinationals would no longer be able to defer or avoid U.S taxes by leaving profits overseas in switching to a “territorial” tax system.

The next step is for the Senate and Congress to reconcile their differences and present a final bill to the president, which he will undoubtedly sign.

Stay tuned, because the language is evolving, including proposals to exempt cruise ships from taxes while docking in Alaska, allowing deductions on credits related to expenditures in connection with legal marijuana sales, and exempting kombucha tea from alcoholic beverage excise tax.

I suggest that you consult a tax expert on wealth-building tax strategies such as estate planning; converting your salary income to investment income; avoiding California’s high gas tax by buying an electric or hybrid vehicle, which could provide you up to $7,500 in tax credits; and consider making a donation to your local public school — it is going to need it.

Jerome E. Horton is a member of the California State Board of Equalization. He has 37 years of experience in public and tax policy as a member of the Inglewood City Council and the state Legislature.

 

Contact Us

Los Angeles Wave

Phone Number: (323) 556-5720
Address: 3731 Wilshire Blvd., Suite 840
Los Angeles, CA 90010