Local leaders look to mitigate effects of federal tax plan
Local leaders are bracing for the impact of the Tax Cuts and Jobs Act, which could hit County residents hard by eliminating a useful deduction for high tax states and cities.
On Wednesday both the House and Senate passed the long-awaited tax bill, which provides for $1.5 trillion in federal tax cuts and temporarily the top income tax rate from 39.6 percent to 37 percent. The bill’s personal income tax cuts were written to expire in some years to meet requirements imposed by Senate rules, while cuts to the nation's corporate tax rate are permanent.
“This is one of the most important pieces of legislation that Congress has passed in decades to help the American worker, to help grow the American economy,” said House Speaker Paul Ryan (R-Wisc), who has been pushing for massive tax cuts for the majority of his political career. “This is profound change, and this is change that is going to put our country on the right path.”
While many Americans’ taxes will be decreased, a provision in the bill that caps property tax deductions at $10,000 has become an issue for residents in places with high property taxes according to elected leaders.
Montgomery County Council member Roger Berliner (D-1) wrote a letter urging Montgomery County Chief Administrative Officer Timothy Firestine to allow residents to prepay property taxes in order take advantage of the current, and more favorable tax deduction before the new tax cut takes effect.
“If our residents can save money by paying property taxes this year, when the $10,000 cap is not in effect, we should move as quickly as possible to explore implementing a prepayment option,” Berliner wrote to Firestine. “We must also explore and publicize all other option available to our taxpayers to ease the burden of the coming changes.”
This provision in tax law benefited high-income earners in high-tax states like Maryland by allowing them to deduct their high state and local taxes from their federal income taxes. But the repeal of those deductions means local high-income earners will likely see an increase in the amount of taxes they have to pay in 2018.
“We don’t know the precise impact, but it does not look promising,” said Montgomery County Executive Ike Leggett.
On Wednesday, Gov. Larry Hogan (R) announced that he is working on a bill that will reverse the negative impact that state residents may have, saying the federal tax bill will increase the state’s revenue which said he plans to give back to state taxpayers.
“So I’m announcing today that our administration will be submitting legislation at the very beginning of the session next month that will protect Maryland taxpayers and mitigate any negative impact on the changes to state taxes,” Hogan said.
While the average American household will see a tax cut of $1,610 in 2018 according to the Tax Policy Center, a nonpartisan think tank, some households in the County stand to take a hit from the bill given the high state and local tax rates. Under current tax law often referred to as state and local tax deductions or SALT, taxpayers can deduct their state and local taxes from their federal taxes.
Also the tax bill will reduce the corporate tax rate from 35 percent to 21 percent. According to the Tax policy center, Americans who earn less than $25,000 a year will see a tax reduction of $60, those earning between $49,000 and $86,000 would see a $900 reduction. A household in the top one percent of income making more than $733,000 would get an average reduction of $50,000, and those in top .1 percent of income earners -- people who make $3.4 million and up, -- will see a reduction of $190,000 a year.
While the bill has received mostly unanimous support among congressional Republicans, with only 12 House Republicans voting no, and one Senate Republican, John McCain (R-Ariz.), abstaining because he was not present to vote, all Congressional Democrats have united against the bill.
“This bill also is an attack on our states,” said Sen. Ben Cardin (D-Md.). “It’s an attack on Marylanders. It’s an attack on the State of Maryland. Marylanders will come out much worse under this bill. There are many reasons for it, but one of the major reasons is that the bill eliminates the deduction for state and local taxes.”