Overhaul could raise some taxes
Study: 15% of Ohio taxpayers would see jump from GOP plan.
The White House said Monday that tax cuts pushed by Republicans as part of their tax overhaul plan will boost a typical household’s income by $3,000 to $7,000.
But not everyone would share in that savings. As part of an effort to overhaul the federal tax code, House Republican leaders want to scrap a key section of the current code used by more than 40 million Americans to deduct their property taxes and state taxes from their returns.
Although President Donald Trump and House Speaker Paul Ryan, R-Wisconsin, say their overall tax plan would reduce taxes for middle-income people and simplify their tax returns, Ohio residents with high property taxes who currently itemize their returns could face a tax increase.
The idea has provoked an intense battle on Capitol Hill that pits not only Democrats against Republicans but House Republicans from high-tax states such as California against GOP lawmakers from lower-tax states such as Texas. In the report released Mon-
day, the White House Council of Economic Advisers argues that worker incomes overall will rise as corporate tax rates fall. One of the key provisions of the GOP plan is to reduce the corporate tax rate from 35 percent to 20 percent.
Ryan and other House Republicans want to end the state and local tax deduction because the $1 trillion in savings during the next decade would allow GOP lawmakers to lower income tax rates for individuals and companies without the federal deficit spiraling out of control.
In a speech Thursday at the conservative non-profit Heritage Foundation in Washington, Ryan said the state and local tax deduction is “propping up profligate big government states” while states “that actually got their act together” are paying for states that don’t.
The nonpartisan Committee for a Responsible Federal Budget, which champions lower federal deficits, echoed Ryan by saying “the top six states benefiting from the deduction — California, New York, New Jersey, Illinois, Texas, and Pennsylvania — account for more than half of the cost of the deduction while making up 38 percent of the population.”
But because the tax plan also eliminates the $4,000 personal exemption, the loss of the personal exemption and state deduction could lead to higher taxes for as many as 15 percent of Ohio’s taxpayers, according to a study by the Institute on Taxation and Economic Policy, a non-partisan and non-profit organization in Washington.
“The only reason Trump and Republicans are seeking to repeal state and local tax deductions is to pay for the tax-rate cuts they have promised — the majority of which are for corporations and business owners,” said Seth Hanlon, a senior fellow at the Center for American Progress, a Democratic leaning non-profit organization in Washington.
“Even for rate cuts on the personal side, it’s mostly the top rates,” Hanlon said.
No lines in the sand
Faced with a possible backlash, House Republicans are trying to forge a compromise. Olivia Hnat, a spokeswoman for Columbus area Rep. Pat Tiberi, said the Genoa Twp. Republican “isn’t drawing any lines in the sand to keep tax reform from moving forward.”
Under the framework released last month by the White House, Trump and congressional Republicans want to consolidate the current seven individual income tax brackets into three brackets of 12 percent, 25 percent and 35 percent while reducing the corporate tax rate from 35 percent to 20 percent.
The standard deduction would be doubled to $24,000 a year for married taxpayers and $12,000 for those who are single filers. In return, the $4,000 personal exemption is eliminated.
By accepting the higher standard deduction, taxpayers could not itemize their returns to take deductions for mortgage interest, and state and local taxes.
If a family of four earning roughly about $100,000 loses the state and local tax deduction and the $16,000 a year in four personal exemptions, they probably could face a tax increase by taking the $24,000 standard deduction.
Reform goal
Yet Ryan insisted Republicans have promised to raise the $1,000 per-child tax credit. During his Heritage appearance, Ryan said by “doubling the standard deduction, lowering people’s tax rates, increasing the child tax credit and getting rid of the marriage penalty, people are going to be better off no matter which state you come from.”
Sen. Rob Portman, R-Ohio, said “our goal is to lower tax rates for families and small businesses and a part of that process will include eliminating tax loopholes that only benefit a few to make our tax code simpler and fairer for all Americans.”
Portman’s staff said statistics compiled by the federal government show that nearly 90 percent of those earning $150,000 or more a year in Ohio take advantage of the state and local tax deduction while less than 20 percent earning under $50,000 a year do so.