Last Thursday, the House Republican Conference released the Tax Cuts and Jobs Act, a comprehensive plan to reform our nation’s tax system. I think we can all agree the American taxpayer would be better off if Congress were to reform our current tax code which has remained untouched since 1986. Now that we have a starting point to work with, the introduction of this bill will hopefully put us one step closer toward achieving real tax relief for hardworking Americans.
Timeline
As far as a timeline is concerned, the House Ways and Means Committee began its markup of this legislation Monday. Today, we expect the Committee to vote on this bill, which if passed, will come to the House Floor for a vote late next week.
Since the bill’s introduction last Thursday, my Washington office has been working diligently to analyze all 429 pages of this legislation. If you would like to read the bill, please click here to view its full text. We are specifically analyzing the individual applications and the business applications. Additionally, we are seeking input from local stakeholders in Nevada and across the country.
Individual & Joint Filers
After reviewing the bill through the weekend and all of this week, my staff and I would like to share our initial thoughts with you. As you read through this, please keep in mind some general facts – 75% of Nevadans, filing individually or jointly, take the standard deduction and do not itemize their taxes. So if you’re one of these individuals, if this bill becomes law, your standard deductions have just doubled and your tax rates – in most cases – have gone down.
At the start of this process, the question we set out to answer was: would the majority of Nevadans receive enough tax relief through the new tax brackets and the doubling of the standard deduction to make up for the loss of most itemized deductions? Our initial data indicates that the number of individuals who would take the new, higher standard deduction will increase from 75% of Nevadans to somewhere around 90% of Nevadans.
This increase depends on individuals and joint filers running the numbers of the new proposal against their current itemizations. It appears that the doubling of the standard deduction, coupled with the elimination of three tax brackets to lower most middle-income earner’s tax rates, results in a lower tax bill for individuals and joint filers under the proposed new brackets.
To add more perspective, this means the average family of four in Northern Nevada which earns $64,000 a year, and is also part of the 75% of Nevadans not itemizing their current tax returns, would move from a 15% tax rate to a 12% tax rate. That’s a 20% reduction in tax rates under the new brackets. This lower tax rate, coupled with the doubled standard deduction, means the average family of four in Nevada would take home approximately $1,376 more each year as a result of lowering the federal income tax liability under the proposed plan.
For more information on how the Tax Cuts and Jobs act would specifically affect you or your family, please click here.
Itemized Deductions
While we are still in the process of reviewing the potential changes to itemized deductions for the 25% of Nevadans who currently itemize their taxes, here is our first analysis based on some of the most common deductions and how those deductions would be affected under the new proposal. In the next update, we will analyze additional deductions that are also common, but here is the first batch.
The goal in doubling the standard deduction is to simplify the entire federal income tax process, making it less complicated for joint filing tax payers with an annual income of $0 - $260,000 to use the standard deduction instead of itemizing their taxes. We invite you to do the calculations yourself based on your unique circumstance, but here is what we think the initial impressions are generally with respect to the status of some of the deductions under this new proposal.
If you itemize any of the deductions below, this list will hopefully give you a better idea of how those specific deductions would be affected under this bill:
Home Mortgage Interest – Modified
- For all existing mortgages, if you decide to keep itemizing under this proposal there would be no change for you. If this bill becomes law, the mortgage interest deduction would be capped on new mortgage loans under $500,000.
Charitable Donations – Unchanged
- Under the new proposal, charitable donations will be deducted the same way they are now for those still choosing to itemize.
State Taxes Paid – Deduction Eliminated
- There is not a big impact on federal taxpayers in a state like Nevada with no state income tax.
Property Taxes (local taxes) – Modified
- Under the new proposal, local property taxes will be able to be deducted up to $10,000 for those still choosing to itemize.
Student Loan Deduction – Deduction Eliminated
- Current student debtors can deduct up to $2,500 a year in student loan interest based on their adjusted gross income. Even though the current $2,500 deduction is eliminated under this proposal, the nearly $6,000 increase in the standard deduction entirely offsets this elimination. Although most student debtors don’t even reach the $2,500 cap, those who do will still see this elimination more than offset by the new standard deduction.
If you are one of the 25% of Nevadans that currently itemize your taxes, please click here for a further breakdown and examples of how this will affect you or your family.
Setting the Record Straight:
Finally, you might be hearing certain claims about some of the specific measures included in this bill. I would like to address a few of those below:
The Deficit
Most sides appear to agree this bill would add $1.5 trillion to the deficit over the next 10 years as a result of lowering tax rates and increasing standard deductions. First and foremost, the common sense conclusion from this argument is that taxes are going down.
So for those asking how the country’s fiscal stability fairs with $1.5 trillion less in revenue over 10 years – the answer revolves around the concept of Gross Domestic Product (GDP). It’s important to note that the deficit argument neglects to consider the long-term benefits tax reform would have on GDP, such as increased wages and new jobs, thereby increasing the eligible tax base and revenues collected for deficit reduction. Even a 1% growth in GDP generates about $3 trillion in revenue over 10 years – more than covering the anticipated $1.5 trillion deficit. This estimate is based on the Congressional Budget Office’s (CBO) analysis of how economic changes might affect baseline budget projections.
The accuracy of this projection can be further evidenced by going back to the Clinton Administration where GDP was at 3.9% – the highest it’s ever been under the last five administrations – and the government was operating under a surplus.
If you believe that growth in GDP increases revenue – that’s what this is about. If you reject that idea – we welcome you to provide an example similar to the one we’ve provided above from the Clinton-era.
Student Loans
You’ve also probably heard this legislation would make college less affordable by eliminating the itemized deduction for student loan interest. Actually, this legislation would put more money back into the pockets of individuals with student loan debt. Here’s why:
Since student loan interest deductions are capped at $2,500 a year, not all debtors reach the cap annually – or even come close. By doubling the standard deduction, student debtors taking the standard deduction would not likely incur any burden by swapping one for the other. In fact – they would most likely see more money in their pockets at the end of the year. Click here to read more about the specifics surrounding this deduction.
I hope this special edition update on the Tax Cut and Jobs Act helps you follow what the House is attempting to do on tax reform. Let me know what you think through my website. Thank you for subscribing to my newsletter and stay tuned for my tax update which will examine the most current version of the tax bill that passes out of the Ways and Means Committee. Since we expect the bill in its current form to change, at that point, we will update the individual filing portion, discuss the impact on businesses, and continue looking at the treatment of deductions with respect to the Committee-passed legislation.
For additional information, please visit my website at amodei.house.gov or call my Washington office: (202) 225-6155, Reno office: (775) 686-5760 or Elko office: (775) 777-7705. To receive updates on what I am doing in Washington and in Nevada’s 2nd District follow me on Facebook, Twitter, Instagram and Youtube.
