How Would The GOP Tax Plan Change Your Tax Bill?
From Texas Standard.
A new proposal from Republican lawmakers would cut some tax rates and overhaul portions of the U.S. tax code. House Republicans rolled out the Tax Cuts and Jobs Act in Washington on Thursday.
Among the most controversial aspects of the GOP tax plan is that it lowers the mortgage interest deduction for homeowners. Current homeowners wouldn’t be affected, but new borrowers would only be able to deduct the first $500,000 – that’s down from the current limit, which is $1 million.
John Diamond, director of Rice University’s Center for Public Finance says that the mortgage deduction change could lower Texas home values by 1-2 percent.
“The real story is that housing has been given a very large tax preference for a very long time,” Diamond says. “This moves to reduce that tax preference. By no means does it get rid of it – not many middle-income people have $500,000 in mortgage debt.”
The GOP tax plan would also cap the deduction for state and local taxes.
“That’s gonna also be a reduction in the tax preference for housing,” Diamond says. “I think a lot of Texans pay more than $10,000.”
Diamond says the plan’s cuts in deductibility would actually hit harder outside of Texas, in states with a state income tax.
“In a relative sense, Texans are taking probably one of the smallest hits when it comes to the effects of the base-broadening provisions in this bill,” Diamond says. “Homeowners in high-priced, high-tax states are going to take a much larger hit.”
As observers absorb and react to the new tax plan, conflicting estimates of its likely impact are emerging. Realtors groups are pushing back against the changes in mortgage interest deductibility, saying it would harm the economy.
“The Texas Association of Realtors are huge supporters of a deduction that helps their industry,” Diamond says.
In the aggregate, Diamond says, the top half of taxpayers would benefit from the GOP plan.
“I think you will see most houses in the 50[th] percentile and above will receive some form of net tax cut,” he says. “At least more than are net tax losers.”
So how much would these tax cuts cost? Diamond says the federal government would have to cut spending to pay for it.
“If you cannot cut spending, if that’s not politically feasible – debt financing [would be required.] A reduction in taxes is not the smartest move if you’re in a structural budget deficit, forecasted as long as the eye can see.”
Written by Shelly Brisbin.