1of8 Texans may see tax hike
Trump’s plan also eliminates local, state deductions
AUSTIN — President Donald Trump’s tax cut plan as currently crafted would benefit some — but not all — Texans, and could lead to higher tax bills for some homeowners and even for some of the poorest of the poor, according to an analysis by several research groups.
While firm details of the tax reform plan have yet to be rolled out, the general framework put out by the administration last month could mean 1 of 8 Texans would get a tax increase unless there are key changes, according to the Institute on Taxation and Economic Policy, a nonprofit tax research group based in Washington, D.C.
Congress now is turning its attention to wrapping up a plan after Thursday’s final approval of a $4 trillion federal budget by the House. The razor-thin 216-212 vote follows earlier approval in the Senate and sends the budget to the president for his signature.
“Big news — Budget just passed,” Trump tweeted shortly after the vote.
Getting a $1.5 trillion tax cut plan like Trump and Republican congressional leaders are seeking will be a bigger challenge.
Texas could be uniquely affected because of the state’s high property taxes, which has the Texas Association of Realtors issuing stern warnings about the tax changes. Under the current tax code, more than 2.3 million homeowners in
Texas — and 380,000 in Harris County alone — claim a tax credit to offset property taxes. But under the Trump framework, that exemption would be eliminated.
Supporters of the tax cuts insist their goal is to make other changes to offset losses from elimination of tax breaks and that the bill itself is a work in progress that has room to change. Trump himself has promised the largest tax cuts in history in an effort to fire up the nation’s economy, which he says under-performed under former President Barack Obama.
“This is our once-in-a-generation opportunity to revitalize our economy,” Trump said at a speech in Washington earlier this week of his tax cut plan, which he said would spur a “middle-class miracle.”
A ‘singular exception’
Texas Republican Kevin Brady pledged this week that every American would be “better off” under the plan he is key in helping build. But he did not promise that every American will pay lower federal taxes under the GOP plan, being billed as the first major tax reform bill since President Ronald Reagan in 1986.
Brady allowed that for some tax filers there could be a “singular exception,” but added most would benefit under the plan.
While the framework does spell out relief for up to 9.2 million Texans who take the current standard deduction on their federal income tax each year by doubling it, the math is not as certain for up to 2.8 million people in Texas who itemize their deductions each year to pay fewer taxes and especially families with more than two children. In Harris County, almost 500,000 filers itemized deductions instead of taking the standard deduction.
“Families who itemize their deductions (rather than claiming the standard deduction) may pay higher taxes because the framework repeals most itemized deductions, including the deduction for state and local taxes,” the report from the Institute on Taxation and Economic Policy concluded.
Congress has committed to saving two key deductions: the mortgage interest deduction and one for charitable contributions. More than 2 million Texas claimed the mortgage interest deduction worth $15 billion, according to the IRS. And 2.2 million Texas itemized charitable donations worth $17 billion.
‘More harm than good’
While most of the pushback against eliminating a deduction for state and local income taxes has come from northeastern states with income taxes, millions of Texans stand to lose out on a state and local tax exemption and one for property taxes that are also slated for elimination. According to the IRS, 2.2 million Texans, and 380,000 people in Harris County, took that local and state sales tax exemption in 2015, saving nearly $4.8 billion in federal taxes. The property tax exemption was worth $14.8 billion for the 2.3 million statewide that took it, which included about 380,000 in Harris County.
The Texas Association of Realtors has warned that eliminating the deductions would be dangerous to the state’s economy. On their website, they warn members that “the current proposal will actually do much more harm than good for Texas homeowners” and urge them to contact members of Congress.
State tax policy leaders are watching closely, too, saying elimination of the state and local tax deduction would send shockwaves through the state and could force the Texas Legislature to respond.
“Clearly if there was a massive change in the tax code, including things like deductibility of local taxes and property tax and mortgage tax, if you had that type of groundbreaking change, those reverberations would be felt in all 50 state houses around the country,” said state Sen. Paul Bettencourt, a Houston Republican who has been a leading voice in the Legislature for property tax reform.
U.S. Sen. Ted Cruz, a Republican from Houston, last week in a nationally televised debate on CNN against former Democratic presidential candidate Bernie Sanders made clear that any elimination of the state and local tax deduction has to be countered with enough savings elsewhere that people would see their tax bills go down.
But it’s not just people who take that exemption that could be hurt. Other groups are warning that the Trump tax plan calls for eliminating personal exemptions which people take on each person in their home to lower their tax burden. There has been talk of increasing the child tax credit to offset that change, but specifics of how much that would be have yet to be unveiled.
It’s a concern Sanders made clear in the debate against Cruz. Sanders said doubling the standard deduction won’t be enough to offset tax increases that would result in eliminating personal exemptions.
Child tax credit
Even other Republicans are making that case, with Sen. Marco Rubio, R-Florida, taking to the Senate floor earlier this week to warn the framework would result in tax increases unless Congress greatly increases tax credits for families with children to offset the loss of personal deductions.
According to Rubio, families with three or four children making between $30,000 and $100,000 a year would see a tax increase if the child tax credit isn’t addressed.
Rubio said without changes to the child tax credit, “this framework would be a tax increase. People will actually pay more,” he said.
Families making between $108,000 to $237,000 would be the most likely to see tax increases under the Trump framework, with 1 of 4 in Texas getting tax increases averaging over $2,000 per family according to the Institute on Taxation and Economic Policy. Overall, as many as 12.4 percent of Texas households would face tax hikes under the present guidelines rolled out by the administration.
“Some people might be worse off,” said Steve Wamhoff, senior fellow at the institute.
Even some households in Texas making less than $40,000 a year could see their taxes increase according to the study. Almost 7 percent of families making between $23,900 and $39,900 would get tax increases averaging more than $450 according to the group’s calculation. And 1 percent of families making less than $23,900 could get a tax cut. And that would happen even as the richest Texans, making over $696,000 a year, get on average $119,000 in tax cuts.
Other groups have made similar warnings. The Tax Foundation, another Washington-based research group that generally has supported Trump’s guidelines, says the plan will benefit most people. But there are exceptions.
“It’s possible that some people who earn between $100,000 and $250,000 a year may be slightly worse off,” Tax Foundation President Scott Hodge said in an interview on CNBC.
Even the White House has acknowledged that they cannot guarantee everyone will benefit from the tax cuts.
Last week, White House economic adviser Gary Cohn said he couldn’t guarantee that every middle-class family would get a tax cut under the plan.
“You could find me someone in the country that their taxes may not go down,” Cohn told reporters at a White House briefing.