The latest GOP house and White House tax proposal will impact lower and middle income taxpayers, small businessess and folks with money overseas, local tax experts said.
”I was looking for something that would reduce the need for my services,” said tax attorney Anthony Parent, owner of IRS Medic in Wallingford.
Parent, a Republican, said he fought for reform of the Foreign Account Compliance Tax for people who have money overseas. But despite promises, it didn’t happen.
”It was pretty disappointing,” Parent said.
The plan reduces the corporate tax rate from 35 percent to 20 percent, reduces the numbers of tax brackets, increases the standard deduction but eliminates a host of deductions, and makes divorce more expensive for certain couples.
Parent said he was glad to see the elimination of the alternative minimum tax that limits certain tax benefits for high-income earners. The elimination is expected to save individuals $40.3 billion and corporations $695.5 billion.
Parent was also glad to see the inheritance tax, also called the death tax, eliminated. When coupled with state taxes, you’re hitting top tax rates of 50 percent. Many people have other vehicles to sidestep the tax.
“It’s an ignorance tax,” Parent said. “People look for alternatives.”
Parent said the plan is “not bold enough to help people working 60 hours a week and earning $50,000.” It’s not enough for small businesses to encourage real job creation.
“They need real tax relief,” he said.
The 25 percent pass-through tax should also be for everyone, not just investors, Parent and others said.
"Nearly 9 in 10 businesses that pass through their income already pay at the 25 percent rate or less," the National Federation of Independent Business said in a statement. "Instead, this proposal would primarily help wealthy individuals rather than small businesses."
What's more, owners of some pass-through businesses would also have to comply with new rules to collect the benefits of the new tax rate. Labor income would be taxed at rates up to 39.6 percent under current law, according to Business Insider.
The tax plan, which eliminates state and local property income tax deductions, has drawn intense criticism from lawmakers in high-tax states, including Connecticut, who have called it revenge on those who didn’t vote Republican in the last election cycle.
The tax plan also eliminates deductions for medical expenses, tax preparation, personal casualty losses, and limits deduction for charitable contributions, leading to an outcry from non-profits.
It increases the child tax credit from $1,000 to $1,600 and extends it to those earning $230,000.
“There are a couple of things that hurt individuals,” said accountant Joseph Miranda, of Wallingford. “There is the elimination of deductions for state and local taxes, the elimination of medical deductions, the student loan reduction. The education expenses will have a negative effect on middle income. It is reducing the benefits to middle and lower taxpayers that are not compensated by other changes.”
The plan raises the standard deduction to $12,000 for individuals, $24,000 for married couples. But it eliminates the personal exemption of $4,050 for taxpayer, spouse and child.
“This doesn’t help people who don’t take the standard deduction,” he said.
Miranda is glad the proposal leaves retirement accounts alone but he had hoped there would have been some simplification of the many 401K programs available.
The elimination of the estate tax is a giveaway to the top earners, Miranda said.
“They try to make it sound like it’s the guy inheriting the family farm,” he said. “There are a small number of people affected by the death tax and they are going to see tremendous savings.”
When someone inherits an estate that has tripled in value, they should either pay the estate tax or income tax on the appreciation, he said.
“There was going to be negotiations, and talks of restoring the state and local income tax deduction,” he said. “Now, it sounds like that’s not the case.”