By Samuel Taube
Transcript:
Samuel Taube: Joining us again today is Matthew Benjamin, The Oxford Club’s Editorial Director and a former consultant for the World Bank. Matt, thanks for joining us again.
Matthew Benjamin: Great to be back, Sam.
ST: So today we’re talking about the vast tax overhaul that was signed into law just before the end of 2017 by President Trump.
With a law this complex, it seems like many of our listeners could see their taxes go down due to across-the-board cuts in income tax rates and things like that. But on the other hand, some listeners could see their taxes go up due to modifications to some popular deductions, like state and local tax deductions.
So it seems like there’s some good news and bad news for different taxpayers in this bill. Can you list some of those good news and bad news items for us?
MB: Sure, Sam. This is a huge overhaul to the tax bill, the largest since 1986. There’s a ton of stuff in this bill. And for many taxpayers – and, I suspect, many of our listeners – there are some provisions that will increase their tax burden and some provisions that will lessen it, just as you mentioned.
So I looked at a lot of the provisions with regard to my own taxes and found that while I’ll pay more due to a lower state tax deduction, I’ll get a bigger cut on rates. So it’s not quite straightforward.
The new law, most importantly, maintains the existing seven individual tax brackets. And yet it reduces them and shifts around those brackets themselves. Not only is the highest marginal rate reduced from 39.6% to 37%, but rates on most of the other brackets are reduced a few percentage points as well.
For example, the second bracket used to be a 15% rate on income from about $19,000 to $76,000 – and I’m speaking about married couples here. Now that bracket only has a 12% rate, and more income is subject to it: $19,000 to $77,000. So you see that more income will be subject to lower rates. And this is the case with every bracket.
But as you know, Sam, the mantra with tax reform is to broaden the base and lower the rates. So they lowered the rates, but broadening the base meant cutting out some loopholes: some deductions, reductions, exemptions, exclusions, etc.
So one of the biggest deductions that was cut in this bill, as you said in the beginning, is the state and local tax deduction. In the past, if you itemized your deductions, you would depend every year on a large deduction for state income taxes, property taxes or sales taxes.
ST: Particularly if you lived in a high-tax state, right? New York or California…
MB: That’s exactly right. Going forward, that deduction will be limited to $10,000, which could be significantly less than what you deducted before. For many taxpayers, as you said, in high-tax states like those – even like the state that we’re in, Maryland – it will hurt …read more
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