The GOP’s $ 10,000 cap on property tax deductions and how it affects a congressional district –

The GOP’s $ 10,000 cap on property tax deductions and how it affects a congressional district


Richer Americans pay the highest proportion of taxes. Consequently, any tax cut, unless it is adjusted very carefully, will benefit them. (Meg Kelly / The Washington Post)

"According to IRS direct data, allow property tax deductions of up to $ 10,000 – for what I fought and won – will cover almost all taxpayers in the Third Congressional District" .
– Representative Tom MacArthur (RN.J.), in an op-ed, November 18, 2017

A key feature of the House and Senate bills is to end the tax deduction local and state, which has been a feature of the United States tax code dating from the Civil War. Republican leaders have argued that low-tax states are subsidizing high-tax states because taxpayers in those states can not deduct as much from their taxes. In fact, six states (California, New York, New Jersey, Illinois, Texas and Pennsylvania) claim more than half the value of all state and local tax deductions across the country, according to IRS data. In the tax trade, the deduction is known as the SALT deduction.

But this had been a problem for the Republican legislators of those states, since it means that at least some of their constituents could face higher taxes. During the deliberations in the House, MacArthur won a compromise that would allow deducting up to $ 10,000 in property taxes. (A similar provision was added to the Senate version in the last-minute bargain wave.) In an opinion article, which also favorably mentioned the Fact Checker, he argued that he achieved a deal that "will cover almost all taxpayers." in your district.

We decided to take a look at ground level on how he justifies this statement.

The facts

The 3rd congressional district is located in the south-central part of New Jersey, covering most of Burlington County and portions of Ocean County. The average family income is $ 68,300.

MacArthur initially opposed the GOP plan when it requested the removal of the deduction from all state and local taxes, arguing in favor of an exemption for property taxes. He argued that while income taxes are based on how much you earn, property increases in value beyond the control of a person. (For example, a retiree may have lived in a house for many years). According to the Tax Foundation, New Jersey has the highest per capita property tax of any state.

Since 1996, New Jersey has limited the property tax deduction to $ 10,000, so the House bill would be in line with that concept. MacArthur was the only Republican lawmaker in New Jersey who supported the tax bill, while others denounced the impact on taxpayers in New Jersey that itemize deductions.

According to MacArthur staff, IRS data shows that there are 360,000 taxpayers in the 3rd district, of which 210,000 take the standard deduction or do not deduct the property tax. That means that approximately 42 percent of taxpayers itemize, which is higher than 30 percent for all US taxpayers.

Two other large deductions will be allowed for mortgages and charitable contributions, although the Chamber would reduce the size of new ones. mortgages that can be covered from $ 1 million to $ 500,000. (The Senate bill does not make any reduction.)

For those who continue to detail, MacArthur's staff argues that their $ 10,000 limit is high enough. This is how they say the numbers work:

  • Taxpayers in a range of 0- $ 100,000: 80,000 taxpayers take the property tax deduction, but the average is $ 5,200- $ 6,100. So the staff says that everything except 2.5 percent, or 2,000, would be covered.
  • $ 100,000 to $ 150,000: 36,000 take the property tax deduction. The average deduction is $ 7,000, suggesting that two thirds are below $ 10,000, leaving 11,000 people without coverage.
  • $ 150,000- $ 200,000: 16,000 take the property tax deduction. The average is $ 8,400, suggesting that approximately half claim less than $ 10,000, or 8,000 without coverage.
  • $ 200,000- $ 500,000: 14,000 take the property tax deduction. Here, the average property tax deduction is $ 11,000. But about 82 percent of people in this range receive the alternative minimum tax, which does not allow state and local tax deductions. The House bill eliminates the AMT, but the Senate bill retains a version of it. Then only 2,500 do not pay the AMT and would be affected by the removal of the SALT deduction in the House bill.
  • $ 500,000- $ 1 million: 1,600 take the property tax deduction, with an average of $ 18,500, but only 300 do not pay the AMT.
  • + $ 1 million: 625 take the property tax deduction, at an average of $ 26,000, but only 100 avoid the AMT.

MacArthur staff says these are conservative estimates, but essentially 93.3 percent of taxpayers in the district would be covered by the $ 10,000 property tax limit. That figure, they say, justifies the use of the phrase "almost all taxpayers" in the opinion article. But it also means that 24,000 taxpayers – or 16 percent of the people who itemize – in your district are not covered by the limit.

Sounds good, but, unfortunately, it's not that simple.

According to the House bill, the standard deduction would double to $ 24,400 for couples and $ 12,200 for people. In many cases, these amounts would be higher than what people currently detail, so it would be more advantageous to take the standard deduction.

In other words, the $ 10,000 limit would not make sense to them, because they would need a substantial mortgage interest or charitable contributions to exceed the thresholds of the standard deduction. (The House bill would eliminate other deductions, such as high medical expenses). According to a calculation by the Institute of Taxation and Economic Policy, which has a model of imposing microsimulation and has criticized tax proposals, about 60 percent of new taxpayers Jersey would no longer claim the deduction of property tax. That's one of the reasons why charities such as United Way Worldwide have opposed the tax plan, although charitable contributions are still deductible because they believe it will cause contributions to collapse while people stop detailing.

In theory, for many taxpayers the loss of deductions would not matter if the standard deduction is larger than people would have claimed with detailed deductions. But the tax accounts would also eliminate personal and dependent exemptions worth $ 4,050 each. In contrast, a child tax credit would be expanded to $ 1,600, and there would be a new family credit of $ 300, but these would be progressively eliminated at income levels of $ 115,000 for single parents and $ 230,000 for married parents. Single tax filers would lose their exemptions but, of course, they would not get a child or family credit.

MacArthur highlights the impact of property tax deduction in isolation without considering the interaction with other aspects of the tax bill. An badysis of the New York Times Senate bill, focusing on the impact on the middle clbad, found that people who pay a lot in state and local taxes (more than $ 4,400) are more likely to experience a tax increase . [19659005] We hoped to use zip code data specific to the MacArthur district, published by the IRS, to examine the impact at a more granular level. At first glance, the numbers indicated a large number of losers, but MacArthur staff credited The Fact Checker that the average numbers in each zip code could not be easily separated for single and married taxpayers, especially when using small data sets. a few hundred taxpayers.

His staff said they had received, from an unidentified third party, tax scenarios for various types of taxpayers in the district that showed more positive results. We requested the scenarios, but the staff said that the third party would not allow them to share them publicly.

Still, it seems pretty clear that within the general tax bill, the $ 10,000 property tax deduction will not be enough to help offset the loss of other deductions.

When the Senate decided to add the $ 10,000 deduction to the bill, it decreased revenues by $ 148 billion until it was phased out by the end of 2025; the loss of income to ten years would be approximately $ 185 billion. The Association of Government Finance Officials estimates that the property tax deduction represents approximately 35 percent of all SALT deductions, so from several estimates of the Joint Tax Committee we calculate that the property tax deduction reduces revenues by $ 440 billion in 10 years.

58 percent ($ 255 billion) of the property tax deduction will be lost nationwide. How can 93 percent of taxpayers cover when almost 60 percent of the property tax is lost across the country? You can not, and the gap between the two numbers indicates why tax changes can be painful for some owners who currently itemize their tax deductions.

The Pinocchio Test

MacArthur said the $ 10,000 limit would cover "almost all taxpayers" in his district. It turns out that that means 93 percent, which leaves out 24,000. Then, from the beginning, 16 percent of the people they detail are not covered, according to MacArthur's mathematical calculations.

But even that accounting ignores the interaction of the provision of property taxes with other parts of the tax bill, so that even people would benefit from the limitation could still find an increase in taxes. MacArthur seems to have worked diligently to tilt the bill to benefit his constituents, but exaggerates his achievement. Win two Pinocchios.

Two Pinocchios

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