by Raphael Pacheco, MBA
Dec. 22, 2017
This morning President Trump has signed into law the tax plan bill that the House and Senate passed earlier this week. This tax policy will add more to the federal deficit but do little to increase growth in the nation’s economy. The “Tax Cuts and Jobs Act” will cost nearly $1.5 trillion between 2018 (the effective starting tax year) and 2027, according to the Joint Committee on Taxation. The legislation is primarily skewed to helping wealthy corporations while simultaneously raising taxes on Americans of moderate means over time.
Effects in the United States
This tax reform legislation slashes the corporate tax rate to 21 percent from the current 35 percent (a rate that few corporations actually pay). To make up for this lost revenue, the law repeals the Affordable Care Act’s individual mandate (i.e., the requirement that people must enroll in health insurance or pay a penalty). Removing the individual mandate will, on average, raise health care costs, causing premiums (the amount you pay for your own health insurance every month) to rise by 10 percent, according to Congressional Budget Office estimates. Increased premiums will make health insurance unaffordable for 13 million Americans and the money that will no longer go to help them cover that cost will be used to help pay for tax cuts for profitable corporations. Additionally, most tax cuts for New Mexicans put forth in this tax package will expire by 2025, as will most of its revenue-raising measures. Tax cuts for corporations are permanent.
Summary of Key Points
I’m going to cut the wonk for a bit, break the fourth wall, and ask you to heed this warning: The rest of this blog will delve into more of the nuanced effects this tax reform legislation will have on New Mexicans. I know that this will be interesting to many readers but I want to be straightforward with you all and cut you some slack.
My high school AP chemistry teacher Mr. Armstrong always said that if we were not going do the required reading for our upcoming lesson, then at least read the fun fact box in the beginning of the chapter (a short text box that serves as a primer for the chapter that contains an interesting fact). It’s how I know that the organic compound penguinone has a name derived from the fact that its molecular structure resembles a penguin and probably why I only got a 2 on the AP chem exam.
So here’s the less-than-fun-fact box for this blog and how people like you and me are affected by what is being called (by some) the GOP tax scam:
- Corporations receive giant tax break (35% to 21%) that is paid for by me and you; wealthiest New Mexicans also receive a personal income tax rate deduction from 39.6% to 37%.
- ACA Individual mandate goes away, some New Mexicans stand to lose health care coverage as a result. Oh yeah, and this is to pay for the corporate tax cut above.
- You might get a tax cut, you might get a tax increase, you might see no change at all:
- More than 600,000 New Mexican taxpayers will get a tax cut but unless you’re making more than $74,000 it will only be about $30. But if you make $500,000 you get a $4,300 cut on average.
- More than 250,000 New Mexican taxpayers will get a tax hike and if you’re making $25,000 to $74,000, you’ll be hit the hardest.
- About 50,000 New Mexican taxpayers won’t see a change in their taxes at all.
- The tax plan nearly doubles the standard deduction for everyone, which means more people will be better off taking this deduction instead of itemizing.
- As a result, fewer people will deduct charitable giving, mortgage interest, retirement savings, and property taxes—meaning they may make fewer charitable contributions, decide not to purchase a home, etc.
- The deduction for medical expenses will be expanded.
- Personal exemptions are eliminated, which hurts families with many children.
- The Child Tax Credit will be expanded but it won’t really help the people who need help.
This legislation creates an additional level of complexity to the already complex tax code. Parts 2 and 3 of this blog series will highlight some important issues outlined above but if you are going to take away something from this blog series, take this: New Mexicans deserve much better. This tax package does not prioritize small business nor the poor nor working families nor education nor children. It prioritizes corporations and hides this priority by guising it with unproven job creation and wage growth claims. What this tax package does is sell the idea that middle class New Mexicans will prosper by paying more in taxes to help corporations and people much wealthier than them. It’s hard to argue otherwise.
The next part of our series will discuss who will be getting most of the GOP tax cuts (spoiler alert: it’s the wealthy!). As well as discuss the role of the expansion of the Child Tax Credit and how it simply isn’t good enough for low-income working parents.
Raphael Pacheco is a Research and Policy Analyst with New Mexico Voices for Children.