With the first hurdle to overhaul our country’s tax code overcome by the passage of the “Tax Cut and Jobs Act,” it’s time again to hear pundits begin their shouting matches, and inform the public if the sky is falling or if we are about to experience the greatest thing since sliced bread! In our own 25th District, congressionnel candidate Katie Hill wasted no time denigrating Steve Knight for supporting the bill. Ms. Hill raises four specific points to demonstrate how his vote in favor is going to “hurt the vast majority of people here in our district”:
Ms. Hill states removing State and Local Tax (SALT) deductions, which 42% of people in the district utilize, reducing $17,000 a year on average in taxable income. Assuming her numbers are accurate, I have two concerns. First, in order to take these deductions, taxpayers must itemize their deductions. Her numbers imply that 58% of the district takes only standard deductions, and under the house tax plan, those deductions almost double from $12,600 to $24,000. That sounds like, under this tax plan, most people are getting a tax reduction. Also, the plan limits the total amount of property taxes that can be deducted to $10,000. In LA County, a home costing $1.25 million at the average tax rate is still under this limit, so the middle class is not getting hurt here. Perhaps more important though is the philosophical point, in that the Federal Government, when providing these deductions subsidizes state and local governments who impose a higher tax burden on their citizens. You can decry the House for removing this tax deduction, but when do we get to put the blame on our state and local legislatures for creating the high taxes in the first place?
Mortgage Interest Deductions
The mortgage interest deduction is now capped from $1 million to $500,000, making 40% of homes in the 25th district ineligible for this significant deduction. I have written previously that it is not the job or place to have government subsidize economic activities. The notion that it will be nearly impossible for people to achieve the American Dream is not just ludicrous, it creates the illusion that only government can provide the ability to achieve it. Ms. Hill is not wrong though when she discusses the high number of people affected, simply because the average value of homes continues to skyrocket locally. But, my beliefs aside, with the median home price in LA County being near $600,000, anyone purchasing a home with 5% down will be able to take credit for the interest up to $500,000 on the principal, meaning a reduction of 12% in taxable income allowances (but not 100 percent as her statement suggests). No doubt this hurts homeowners, but perhaps a more appropriate solution is letting the market dictate value and what can be afforded, and not what is affordable only when the government makes it so?
Student Loan Deductions
Eliminating student loan interest deduction of up to $2,500. Again, the crushing student loan debt Ms. Hill mentions has very little to do with this deduction, and much more to do with never-ending cost increases to higher education along with the Democrat solution of more access to loans somehow being equivalent to a more affordable college experience. With the average savings reported to be $202, President Obama in 2015 wanted this deduction removed due to its complicated nature in the tax code and how little assistance it really provided. Higher education is a wonderful and laudable achievement, but no matter what you believe, access to it is not a right, but a personal choice. When you take on the burden of student loans, you also take on the burden of paying it back.
Eliminating medical expense deduction which over 20,000 in our district qualify. Not only is this less than 3% of the district’s total population, but didn’t the Democrats pass a healthcare law that was meant to save people money on medical expenses? Yet Ms. Hill says this deduction helps people cover the “enormous cost of healthcare”. You would think that if the ACA was as successful as the Democrats touted, eliminating the medical expense deduction would produce minimal consequences.
Ms. Hill closes by saying, “Let’s start talking about real tax reform that really does help the middle class.” Unfortunately, that is where her video ends, with no recommendations or solutions at all. So let me offer a tangible suggestion to all our elected officials: lower taxes on everyone, and not just by allowing deductions for select life choices. We can pay for this new plan with significant cuts in government bureaucracy and wasteful spending. Stop trying to relate personal success as a justification for taking more of an individual’s money. We have a ways to go until we find out what the Senate and House, if anything, is agreed to in a formal vote, so let’s push for real tax reductions across the board, and not meaningless rhetoric simply intended to score political points.