Whenever a Democratic administration attempts to raise the tax rate on the ultra-wealthy among us in an attempt to get them to pay their fair share of the tax burden you will inevitably hear the cries of “redistribution of wealth,” followed by the ultimate buzz word, “socialism.”
Well, the recently-enacted Republican federal tax plan does exactly that, it redistributes wealth. HOWEVER, it does so in a new and innovative way by shifting financial resources from the highly-taxed, so-called “blue” states such as Maryland, New York, Connecticut, California, and New Jersey to the so-called “red” states such as Mississippi, Louisiana, and Alabama to name just a few.
An individual in Mississippi who ordinarily takes the standard deduction on his federal return will see that deduction rise from the first $12,000 to the first $24,000. Big windfall.
In Maryland, an individual who ordinarily itemizes (because in such a highly-taxed state, state and local taxes are a major item to deduct), those middle class deductions, according to the federal tax plan, are either no longer allowed or significantly capped. Disaster!
As a Marylander, if you think the federal tax plan will not significantly impact you, guess again. If you are patiently awaiting the very slight increase in your paycheck come February, make sure not to hold your breath as you await your refund check on next year's tax return. It won't be there; payroll withholding amounts will be drastically reduced to give the false impression that YOU are receiving a big tax break.
Add to this the dilemma that you can't itemize on your Maryland return unless you itemize on your federal return and we have a major problem. The simplest solution is to get the governor and the state legislature to INCREASE the state's standard deduction from the measly current $4000 to something in the vicinity of $10000 or $12000. Allowing itemization at the state level even if you’re taking the standard deduction at the federal level is another option, but that turns out to be a bit more complicated.
Now, of course not all of the news is bad. For those of you who plan to leave several million dollars to your heirs, they won't have to worry about paying taxes on their inheritance until it exceeds $22 million. Congratulations to you and them. Not a consideration for me nor, I assume, most of the readers of this column, sadly.
I recently had the privilege of listening to Congressman Jamie Raskin (D) discuss the federal tax plan and specifically, its effect on Maryland, and there are some important points for Marylanders to be aware of, to better understand its full impact.
According to Congressman Raskin, the Republican tax plan limits mortgage interest deduction and caps state and local taxes deductions at $10,000. The average SALT deduction in Congressional District 8, as an example, is significantly higher at $15,291. This issue is compounded by the fact that these mortgage and SALT provisions could and likely will negatively impact home values. According to Moody’s Analytics, home prices could fall by some 2.5 percent in Montgomery County as a result of this tax plan. Still believe the Republican rhetoric that this is a middle class tax plan and everyone will benefit? Guess again.
Make no mistake about it, the Republican tax plan is a plan to cut taxes for the wealthy, specifically the Republican campaign donors AND there is a price that will be paid by everyone else. According to Congressman Raskin, this tactic is nothing new; we have seen it before and should not expect different results.
The process is simple: cut taxes for the rich, explode the deficit, then demand cuts to earned benefits such as Social Security, Medicare and Medicaid. Congressman Raskin noted that today, the “richest one percent of Americans own more wealth than the bottom 90 percent of Americans combined.”
Further, “the three wealthiest people in the United States now own more wealth than the bottom half of the country combined.” Did the wealthiest among us really need more tax relief? Well, certainly not if you also factor into the equation corporate profits which “have been climbing steadily for years even as American wages have stagnated.
Pre-tax corporate profits grew from $1.38 trillion in 2008 to $2.16 trillion in 2016” according to the Congressman. The Republican tax plan will make the wealth gap even bigger since 83 percent of the tax cuts go to the top one percent of wealthy Americans while increasing the overall tax cost on some 86 million middle class households.
Talking about tried and failed, the congressman also pointed out the absolute failure of “trickle-down economics” which has been tried and failed over the last 35 years. It has failed because the only trickle is into shareholders' pockets, not the workers' pockets. The congressman favored “trickle-up economics” which puts money in the hands of those of us who actually spend it without the need for a middle man. It is spending that stimulates an economy.
If this is not disconcerting enough, the congressman also noted the effect of this tax plan on the deficit which is to “explode it!” According to Congressman Raskin, these “massive tax cuts for corporations and the wealthiest among us will increase the national debt by an estimated $2.2 trillion over the next 10 years” creating a situation in which “our national debt could exceed the size of our entire economy by 2027.”
Interesting how Republicans are only concerned about burdening our children and grandchildren with a national debt when Democrats are in office. When Republicans are in office, adding an additional $2.2 trillion to the deficit apparently is no big deal since the answer is simply more “trickle-down economics”.
Don't hold your breath!