Fort Report: Tax Facts
Last week in Lincoln, I held a first-in-the-nation forum on the impact of the new tax bill on individuals, families, and small businesses. Please keep reading!
Taxes may not be the most uplifting of topics, but many Nebraskans, along with other Americans, continue to have questions about this legislation. The purpose of the tax forum was both to provide information and to engage in dialogue. So, let’s unpack some of the highlights of the new tax law and discussion:
- Increases the standard deduction from $6,500 and $13,000 under current law to $12,000 and $24,000 for individuals and married couples, respectively.
- Expands the Child Tax Credit from $1,000 to $2,000 for single filers and married couples.
- Preserves the Child and Dependent Care Tax Credit.
- Maintains the Adoption Tax Credit.
- Preserves the deduction for medical expenses above 10 percent of adjusted gross income (AGI), and lowers it to 7.5 percent of AGI for 2017 and 2018.
- Maintains the tax-free status of tuition waivers for graduate students and allows individuals to deduct student loan interest payments.
- Keeps in place the $250 tax deduction for teachers who spend their own money on school supplies.
- Provides a 20% reduction in pass-through taxes for small business and a sizable reduction in the corporate tax rate.
Throughout the legislative process, I worked with my colleagues to ensure that certain important provisions in prior tax policy were preserved or expanded in the new law, such as the child tax credit and the adoption credit. Going forward, certain modifications may be made, such as to section 199A, a technical issue affecting farm country and its unintended consequences for co-ops and elevators.
A number of interesting statistics came out of our discussion. The bill translates into an approximate savings of $2,200 for the average Nebraska family of four making about $78,000 a year. According to one source using a dynamic economic predictor, wages would rise over time by approximately another $1,800 for that same family. The top 0.1% of Americans are those most likely to receive a tax increase.
There were probing questions about the bill’s impact on the deficit, which, by the government’s static analysis, is real to the tune of $1.5 trillion over ten years. However, a calculated expectation is that the improvement in overall economic well-being plus the boost to small business will enhance job opportunities, yielding substantive revenue back to the Treasury. As opportunity appears, hopefully more persons will find meaningful work.
We have seen a surge in good economic news since the tax reform bill was passed. I supported this measure because I believe it achieves several important objectives. First, it puts more money back in the pockets of hard-working Americans. Second, it supports the rebuilding of Main Street. Third, it revives the Made in America label. The legislation also makes reasoned progress towards a fairer, simpler tax system, resolving a complex, convoluted code that has for too long overburdened persons, families, and small businesses across our nation, stifling creativity and innovation. This is the most important tax policy reform in 30 years.
Tax policy is complex. And sometimes the policy process and economic analysis process, when combined with the political process, creates outcomes that must be tested. Adjustments may be needed.
Thanks to all who came to the forum and provided their feedback. For those still reading, it’s much depreciated.