After a great deal of confusion, wishful thinking and uninformed guesswork, the reality sank in on Wednesday: Republicans have hurt an awful lot of taxpayers, and the latter won’t be able to do anything about it.
The immediate issue was the soon-to-be-imposed cap of $10,000 on the deduction for state and local taxes (SALT). Thousands of taxpayers from relatively high-tax states (and/or with homes with high property tax assessments) and their local taxing authorities began to scramble. Maybe before the last grain of sand fell through the 2017 hourglass, homeowners could “prepay” property taxes for next year’s taxes. They would thereby maximize their deduction in 2017, a year with no cap.
A simple call to one’s tax accountant (whose email inboxes and voicemail filled up with alarming speed) or some common sense would have told localities and taxpayers that you cannot claim a deduction for prepayment of taxes that have not yet been incurred. No matter how well-meaning localities might be in “allowing” prepayment of taxes, it’s generally up to states to send out property tax bills. State laws generally specify that property tax obligations are incurred per calendar year.
By day’s end, reality was setting in. The Post reported:
The Internal Revenue Service said late Wednesday that homeowners can only deduct prepaid property taxes from their next income tax filings if those property taxes were assessed and paid during 2017. Most Washington-area jurisdictions say they have not yet sent out property tax bills for the coming year which, according to the IRS, would mean property owners cannot pay in advance and then claim a deduction before a new federal cap on deductions takes effect.
In other words, thousands of homeowners who scrambled to prepay their 2018 property taxes this week may have done so in vain.
Aside from the admonition not to take tax advice given on social media, the lesson here for thousands of taxpayers is simple: Republicans may very well have raised your taxes by denying a deduction that may be far more lucrative than any minor rate reduction. If that weren’t true, so many taxpayers wouldn’t be desperate to prepay property taxes; they would be celebrating their 2018 tax cuts.
Doubling the standard deduction ($12,000 for a single person, $24,000 for a married couple) won’t compensate for the itemized deductions (mortgage, SALT, charities) that many middle- and upper-middle-class households use. Those paying tens of thousands of dollars in state and local taxes (including property taxes) may not consider themselves to be rich at all. Unlike the super-rich (who get to set up pass-through companies, for example), they don’t have a clever workaround. (And if they are empty-nesters or otherwise without children, the child tax credit will be of no use to them.)
All those taxpayers in high-tax states or with high property bills can blame President Trump and their GOP members of Congress for their tax headaches. Republicans figured that it would be clever to stick it to blue-state residents who have had the advantage of itemizing (with ample use of the SALT deduction). Never before has such a pointedly partisan tax bill been cooked up to punish people who generally don’t vote for the party in power. Heritage Foundation economist Stephen Moore, who worked strenuously for the bill, stupidly wisecracked that the bill was “death to Democrats.” (Odd for a scholar from a tax-exempt think tank to extol such base partisanship, isn’t it?). Others noticed as well. (Jonathan Chait remarked, “For eight years, the notion of a gangster government using its power to punish its enemies existed as a lurid persecution fantasy on the right. Now it is being touted as a governing blueprint.”)
But here’s the rub: In addition to congressmen who represent enclaves with an unusually large number of constituents who itemize (like endangered Virginia Republican Rep. Barbara Comstock), there are 14 (three voted against it) Republican House members from California, five (four voted against it) from New Jersey, nine from New York (five voted against it), three from Minnesota, five from Wisconsin and three from Iowa (all are among the highest tax states). Voters might decide to vote each and every one of them out of office. (Even those who voted against it voted for the party leadership that imposed the tax bill. Change the party of the representative, and the majority for the wallet-busting bill disappears.)
It might just be that the partisan design of the tax bill wasn’t clever in the least. To paraphrase Moore, the tax bill might turn out to be “death to the GOP majority.”