I have been getting a lot of calls, messages, emails, and notes asking about specifics on the tax reform bill. I thought it might be helpful to answer a few of the frequently asked questions I have been getting:
Q: Is this closing loopholes?
A: Yes. This legislation is closing dozens of complex loopholes for special interests.
Q: What’s happening with the mortgage interest deduction?
A: If you currently hold a mortgage, your deduction will not be changed. Starting next year, under this legislation, your deduction on any new mortgage will be capped to the interest that applies to the first $500,000 of your mortgage debt. In 2016, the average amount of mortgage debt was $156,150 in South Carolina.
Q: What’s happening with the state and local tax deduction?
A: Low-tax areas like ours subsidize high-tax areas like New York, Boston, Washington DC, and San Francisco. Under this legislation, we are cutting rates across the board and eliminating that deduction – which will stop South Carolina from subsidizing Manhattan’s high taxes. Check out this map to see a county-by-county breakdown: https://static.taxfoundation.org/state-local-deductions-2014/index.html
Q: Is this tax reform retroactive? Will it sunset like the Bush tax cuts did, setting up some future cliff?
A: No. This is permanent reform that would take effect with the 2018 Tax Year.
Q: Does this tax reform end football tax subsidies?
A: Yes. This bill stops NFL teams from getting tax free bonds to build stadiums.
Q: What about charitable contributions?
A: There are some technical changes on making sure that cash donations get receipts but the deduction will stand. We believe it’s more important that private and non-profit institutions help people than having the federal government do it. Regular people know how to help other people far more effectively than bureaucrats do.
Q: What about education?
A: This reform keeps and consolidates education tax credits, expanding 529s to cover elementary and secondary education, and allowing 529s to be created for as-yet-unborn children. It also allows credits for tuition which will save college parents thousands every year.
Q: Why do away with exemptions?
A: To simplify the system. To make up for this, the standard deduction is being doubled and indexed to inflation, the lowest bracket (of 12%) is being expanded to the first $90,000 of income, and the child tax credit is increased to $1,600. For most families, that’s going to result in an overall savings of around $1,280/year.
Q: Doesn’t cutting the corporate rate only help the rich?
A: Not at all. Most economists agree that the cut to the corporate rate will result in higher wages for American workers, an average raise of $3,000/year. They also estimate that the corporate reforms will add 1 million American jobs over the next few years. That amounts to an overall increase of around 5% to GDP.
Q: What happens to Social Security?
A: This bill doesn’t impact Social Security, benefit recipients, or payroll taxes.
Q: What about Obamacare taxes?
A: I would love to get rid of those, in this bill or any other. The decision (for now) seems to be to avoid complicating this bill with the Obamacare tax issues, but handling those in a health care specific bill. I’ve asked our Leadership to specifically kill the medical device tax, the health insurance tax, and the net investment tax, but so far that’s not being included in this discussion.
Q: Why can’t you go to just a Flat Tax/Fair Tax approach?
A: I am a cosponsor of H.R. 25, the Fair Tax Act of 2017, and I am a supporter of both Fair Tax and Flat Tax approaches. However, there weren’t enough cosponsors on H.R. 25 for it to be part of the discussion. The more deductions we can eliminate, the better off we will be to ensure a fairer and flatter system for all Americans.