One side effect of the Republican Party’s penchant for midnight policymaking has been to create a large amount of public uncertainty—first about health care, and now about taxes. The passage of the GOP’s two tax bills (one from the House, which passed on Nov. 16, and one from the Senate, which passed Saturday morning just before 2 a.m.) has created widespread confusion. It doesn’t help that portions of the Senate bill were handwritten on the margins of the page like edits on the manuscript of a novel (if lobbyists wrote novels).
The two plans are different, and the final product might contain elements from one, both, or neither. Some winners, as Slate’s Jordan Weissmann reported on Monday, are clear. But anxiety thrives on ambiguity, and so what we have now—as the GOP attempts to pass, with unprecedented haste, the biggest change to the tax code in more than three decades—is a big old freak-out, as America tries to figure out what’s about to be law and what’s not.
It’s not that people’s concerns are unwarranted or hysterical, since the GOP is running a no-huddle offense to restructure the country’s economy before Christmas. But for the time, it’s really not clear what is actually going to happen—in many of the cases that have most alarmed Americans, the Senate and House bills are in direct contradiction. Until they’re reconciled, it can be hard to tell what’s worth worrying about. And because each bill was written so quickly, and the two will be consolidated on such a tight schedule, it’s likely that weird loopholes will be discovered and exploited after its passage. This may ameliorate your freak-out, or exacerbate it.
But here’s a guide to who’s freaking out so far:
Wealthy blue state residents are freaking out. “It would almost be irresponsible if you weren’t thinking about moving,” Bruce McGuire, the founder of the Connecticut Hedge Fund Association, told Bloomberg. In both versions of the bill, taxpayers stand to lose the ability to deduct most state and local taxes (or SALT) from their federal returns. This change would hit wealthy residents of high-tax states particularly hard: More than one in three Californian taxpayers currently makes SALT deductions from their federal taxes. In Manhattan, the average SALT deduction is $60,000. That money will be newly subject to federal taxes.
Poor blue-state residents are freaking out. While it’s easy to laugh at the plight of Westchester County, where the average property tax bill is $15,000, states like New York will face a choice between an effective tax hike on the wealthy and cutting social services. In New Jersey, for example, the Democratic president of the state senate told Fox News it was time to “hit the pause button” on a millionaire’s tax to fund schools, just as the election of a Democratic governor makes the state one of the few where Democrats control the government from top to bottom. It’s likely that blue-state safety nets, as much as wealthy residents, will bear the cost of redistributing all that money back to Washington.
People who like keeping politics out of church and churches out of politics: freaking out. Largely because of a provision in the House bill that eliminates the Johnson Amendment. That law bars political activism (and spending) by nonprofit religious institutions. Evangelicals (and Scientologists!) are very interested in the potential of influencing local and national politics, but most mainstream denominations say keeping politics out of church makes churches stronger. The Senate bill doesn’t touch it.
Nonprofits and charities? Yeah, they’re freaking out. A key tenet of both tax laws is to cut the top personal income tax rate and increase the standard deduction. The former will eat into the amount of money top earners are incentivized to give to 501(c)(3)s; the latter will eliminate the tax incentive for a vast swath of the upper middle-class to donate their money. “That incentive to give has been part of the American fabric for a hundred years. Will they still give? Yes. Will they give as much? The experts say no,” Tim Delaney, the president and CEO of the National Council of Nonprofits, told me. A May study from Indiana University’s Lilly Family School of Philanthropy predicted charitable giving could decline by as much as $13 billion. And this will occur at a time when anticipated cuts to the federal safety net will put more pressure on NGOs to pick up the slack.
Which brings us to safety net beneficiaries, who are freaking out. Democrats are concerned that the law will trigger automatic cuts to Medicare next year. More broadly, though, Republicans say their next move—to make up for the trillion dollars the Senate bill would add to the national debt—is to begin to restructure Social Security, Medicare, and other federal entitlement programs.
Both homebuyers and homeowners are also freaking out. New limits on the mortgage interest deduction (or MID) should dampen the sales of homes with mortgages between $500,000 and $1,000,000, a bracket disproportionately concentrated in blue states. Homeowners who already have mortgages will be grandfathered into the deduction (which itself becomes less useful as itemized deductions become less useful), but may see home values fall as buyers retreat. That’s all in conjunction with whatever effective property tax hike will come with the elimination of the state and local tax deductions.
Affordable housing advocates are freaking out too. Diane Yentel, the president and CEO of the National Low-Income Housing Coalition, called the Senate bill “unconscionable, unjust, and grossly irresponsible.” By lowering corporate tax rates, both versions of the bill will vastly decrease the pool of money that goes into the Low Income Housing Tax Credit. Novogradac and Company, a CPA firm, estimated the House bill’s changes to housing tax credits would reduce next decade’s creation of LIHTC-financed affordable units by nearly a million. (Hannah Levintova has a great explanation of the nuts and bolts at Mother Jones.) But that’s largely because the House bill scraps tax-exempt private activity bonds, which are used, in conjunction with LITHC, to finance tens of thousands of units of affordable housing a year. The Senate bill doesn’t change that system.
Elite universities? Elitely freaking out. Super-wealthy universities like Harvard and Yale will see their endowment gains taxed, as will smaller private colleges like Amherst. The Senate bill would impose a tax on about 30 higher ed institution endowments, down from about 70 in the House version.
And you better believe Ph.D. students are freaking out. The House bill proposed taxing the tuition waivers of doctoral students like income, which could quadruple Ph.D. students’ taxes—a particularly damaging change for foreign students who are ineligible for various federal grants. (Although, as a leader of a Yale grad student union observes in the Washington Post, the universities could change the exploitative way they treat doctoral students in their books.) The Senate bill leaves the existing waiver treatment intact.
Actually, most students with debt are freaking out. Similarly, the House bill eliminated the deduction for student loan interest. But the Senate bill keeps it. Unlike most tax deductions, this one is usable even if you don’t itemize your deductions, so it won’t lose its potency as the standard deduction rises.
Freelancers are freaking out, though despite rumors to the contrary, they can still deduct their business expenses on a Schedule C form just like usual. It’s employees with business expenses—like schoolteachers, whose school supply deduction was eliminated by the House bill—who should be more worried about expense deductions.
People with high medical costs are freaking out. The House bill scraps the itemized deduction for people with high medical costs; the Senate bill increases that deduction threshold, thanks to a last-minute amendment by Maine Sen. Susan Collins, but repeals the individual Obamacare mandate, which could roil the insurance markets.
Clean energy advocates? They’re freaking too. The Senate bill (though not its House equivalent) proposes oil and gas exploration in the Arctic National Wildlife Refuge, a 19.3-million-acre area that conservationists have fought to protect. Another Senate bill provision would treat investment tax credits for wind and solar energy as taxable income. Electric vehicles would lose their tax credit.
And presumably many more groups are concerned too—an outrage quilt that serves, for Republicans, as a fitting illustration of the extremely messy deduction system they say they are trying to reform. (That assertion loses a little credibility when you start seeing exemptions like the one for private jet management companies.) But once you cut taxes for corporations and the rich, there’s a whole lot of horse-trading that has to happen to get some amalgamation of these two bills to the president’s desk. So go ahead and freak out now—but also make an appointment with an accountant for the day after Christmas.
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