Friday, December 1, 2017

How the tax bill might affect you

Medicare, affordable housing, and employment of people with disabilities are all caught in the net cast by the federal tax bill. This is because in addition to ending popular deductions favored by the middle class, the bill would trigger across the board cuts because of something called "Pay-go."

The tax bill before Congress is expected to pass the U.S. Senate 51 to 49 Friday night. The House could take it up as soon as Monday. 

Following is a Q&A on how the bill might affect you, followed by an update on Friday's Senate action.

Q: Why are people saying there will be cuts?
A: There is a rule called “Pay-go”: If Congress passes tax cuts or increases spending on mandatory programs (e.g. entitlement programs such as Medicare and Medicaid), this cannot add to the federal deficit for more than 10 years.

According non-partisan Congressional staff analysis, the tax cut would add $1 trillion to the federal deficit, even with growth to the economy. This triggers mandatory across-the-board cuts to non-defense discretionary spending on such things as Head Start, vocational rehabilitation, the Individuals with Disabilities Education Act, and other programs that benefit people with disabilities.

Q: Is Medicare on the block?
A: Yes. The 2010 bill that established “Pay-go” allows Medicare to be cut by 4 percent, which comes to $25 billion. This amounts to roughly $500 million in cuts in Washington state, according the Governor Jay Inslee.

Q: Does this affect affordable housing for people with disabilities?
A: Yes. According to the governor’s office, the federal bill would immediately stop development of affordable housing, worsening our region’s homelessness crisis. The bill would “immediately halt the development of more than 2,000 affordable housing units in Washington, by eliminating tax-exempt bonds that have already produced almost 55,000 apartments and supported more than 87,000 jobs across the state. The immediate effects would deny affordable housing to an estimated 4,000 families in Snohomish, King, Clark, Pierce, Whitman and Spokane counties, including more than 1,000 elderly households and over 300 people with disabilities.”

Q: Does it affect employment of people with disabilities?
A: Yes. The bill ends incentives to hire veterans and people with disabilities by eliminating the Work Opportunity Tax Credit  (WOTC). This credit helped more than 50,000 disadvantaged workers in Washington find jobs last year.

Q: Are there other effects?
A: Yes. This bill does away with deductions for charitable contributions. According to the Congressional Joint Committee on Taxation (JCT), 32 million fewer Americans would donate to charitable causes under the House bill    — and charitable donations would drop by $95 billion each year

It also eliminates medical expense deductions and student loan interest deductions. It also would impose massive tax and tuition increases on thousands of graduate students at the University of Washington and Washington State University, and would prevent major employers in our region — such as Amazon and Starbucks — from continuing to offer tax-free tuition assistance programs to their workers.

The bill also ends the deduction for local and state taxes. According to Governor Inslee, 1 million Washingtonians would no longer be able to claim this deduction, increasing their federal taxes by hundreds of dollars each year on average. Eighty-five percent of Washingtonians who claim this deduction are middle-income.

Here is an update on bill action:

The Senate negotiated changes Friday that they hope the House will pass on Monday with no need for conference. 

Bill text is still not yet available, but a summary of changes was made available Friday. These changes added tax cuts ($307.7 billion) and reduced other tax cuts ($320 billion). 

The list of amendments includes mentions of:
  • Paid family leave provisions
  • Changes in low-income housing tax credit (preferences for veterans and rural areas
  • Deductions for religious education (can be used for schools which do not have to comply with IDEA) 
  • 2-year increase in medical expense deduction (allowable if costs exceed 7.5 percent of AGI, compared to 10 percent under current law for people under age 65)
  • Allowing for property tax deduction (up to $10,000) of state and local tax deduction (SALT). All other state and local taxes are not deductible from federal taxes.
  • The House has scheduled a vote for Monday evening.