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Last Friday, the U.S. Senate passed a tax bill that, along with the House version, will be tweaked and passed along to President Trump, who is expected to sign it. Kojo gets an overview of what is in the Senate bill and answers audience questions about how Republican tax cuts and reform will affect the region.
1. The Senate bill gets rid of personal exemptions, which currently allow a reduction in taxable income for a taxpayer, their spouse, and each of their dependent children.
“If you have a large family right now, you get a bunch of personal exemptions. You get to deduct a bunch from your personal income for each person in your family. So if you have five kids you’re going to lose all of that, if this bill passes, that is. And so you might end up a little bit worse off by that light under this bill than if you are a double income couple with no kids.”
2. The Senate version of the bill ends the Affordable Care Act’s individual mandate to buy health insurance.
“Right now, if you do not get insurance under Obamacare you pay a penalty through your taxes and that is the way that Obamacare tries to make sure that everyone has insurance. The Senate bill would get rid of that and that would blow a big hole in Obamacare. It would pull a lot of people out of the exchanges, for example, because they would suddenly decide, ‘you know, I don’t really need this insurance.’ So if you are in the exchanges right now and you really do need insurance and you happen to be quite sick, for example, a bunch of healthy people might jump out, those premiums could go up by quite a bit.”
3. The mortgage interest deduction is cut in half in the House version of the bill.
“The House bill would limit the mortgage interest deduction on new mortgages up to $500,000. Under current law, that’s up to $1,000,000 . . . Tax payers that file taxes in this region, about one third in Virginia, Maryland, and D.C. all claim some measure of the mortgage interest deduction and that’s a really popular incentive that’s on local tax payers’ tax returns.”
4. In both bills, the standard deduction individuals and married couples filing jointly can claim will nearly double.
“Right now a single tax payer can deduct just around a little over $6,000 on their taxes, assuming they don’t itemize. This would nearly double this to nearly $12,000. For a married couple, it would also nearly double to $24,000. Because the standard deduction would double, that could . . . shrink the amount of people who itemize. You suddenly have a bunch of people who say ‘it doesn’t make sense to itemize, I would rather just take the standard deduction.”
5. Both bills benefit businesses and substantially lower the corporate tax rate.
“The central part of both bills is very much the same, which is both bills really help businesses. Both bills stand to cut the top corporate tax rate from 35 to 20 percent and both bills change how pass-through businesses are taxed but could stand to really help a lot of those business owners.”
6. The House bill eliminates tax-free tuition waivers for graduate students and repeals the student loan interest deduction.
“The House bill definitely eliminates the tax code provision that allows colleges to waive tuition for graduate students without tax implications. The Senate bill does not include that same provision . . . You should keep an eye on your ability to deduct student interest. The House bill eliminates that deduction. Twelve percent of D.C. taxpayers claim the student interest deduction, and that’s a higher percentage than the national average of eight percent. So those are definitely two things to keep an eye on but they are not included in the Senate bill.”
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