House Republicans’ determination to slash tax deductions for taxpayers and homebuyers in blue states has commanded most of the public’s attention since the unveiling of the GOP’s tax bill Thursday.
The Republicans are crowing that their measure will drastically remake the tax code to spur economic growth while giving virtually all American families a tax cut. But the bill bristles with tax increases aimed at low- and moderate-income households — small in their aggregate effect but burdensome on the targeted taxpayers — that have no apparent social rationale.
Not all these petty cruelties are easily discernible in the shadowy corners of the 429-page bill. Some are buried so deep that it will take a platoon of coal miners to bring them to the surface. But others are more thinly disguised. Here’s a sampling, listed by general category.
Education assistance slashed: The tax bill would eliminate tax deductions for interest on student loans. The student loan tax break is one of the few available even to low- and middle-class taxpayers who don’t itemize deductions. More than 12 million Americans took advantage of the break in 2015, the most recent year available, as my colleague James F. Peltz reports. It’s available to single taxpayers earning up to $80,000 a year and couple earning up to $160,000.
The break, which allows families to deduct up to $2,500 a year in interest on qualifying student loans, costs the federal government about $2 billion a year, a sum the Treasury Department can find in its seat cushions. The average tax savings has been about $200 for households claiming the deduction. Student loan balances and the number of students carrying loans have been rising sharply, while proposals to cap interest rates have failed consistently.
The tax measure also eliminates two tax credits that benefit university and graduate students. One is the Lifetime Learning Credit, which allows the deduction of 20% of the first $10,000 of qualified education expenses per year, cutting a family’s tax bill by up to $2,000. The credit can be used for as many years as a taxpayer qualifies, but income must be less than $65,000 a year for singles or $131,000 for married taxpayers.
The bill also would make employer-paid tuition for continuing education taxable to the recipient. It’s currently exempt from tax up to $5,250 per year.
Teachers lose their deduction for classroom supplies: A deduction of up to $250 for classroom supplies purchased by teachers out-of-pocket was made “permanent” by Congress in 2015. Not so permanent, as it turns out: The tax bill would eliminate the deduction, which can be taken even by teachers who don’t itemize. This tax break has been a help to educators and students as financially-strapped school districts cut back. A national survey last year found that teachers spend an average of $530 a year on classroom supplies. In high-poverty districts, the figure is $672. Some teachers report that they spend the money on supplies as mundane as pencils.
No more deduction for medical expenses: The tax plan eliminates a deduction for catastrophic medical expenses that already had been made less generous than in the past. This break is available only to families that itemize deductions, and only to the extent that medical expenses exceed 10% of adjusted gross income. It’s targeted, therefore, at families with truly burdensome expenses. The deduction was first established in 1942, during World War II, when the floor was set at 5% of AGI. That was lowered to 3% in 1954, raised to 5% in 1982, to 7.5% in 1986, and 10% in 2016.
That’s a high bar for most families, applying almost exclusively to truly major medical hits. Yet because many households have been insulated from such expenses by the Affordable Care Act, which Republicans want to repeal, this repeal amounts to a double-barreled shot at families with extraordinary expenses, whether caused by a catastrophic event or the needs of a disabled child. About 6 million households claimed deductions averaging about $6,600 in 2015, the latest year available, with a plurality of those households falling within the middle-class income range of $50,000 to $200,000.
The deduction may be especially important for families with members in assisted living or nursing care; they’re more likely to incur costs in excess of 10% of their income, and the deduction protects at least part of their dwindling assets.
Adoption and parenting: The bill repeals the adoption tax credit, which allows families to offset up to $13,570 in taxes for every child adopted out of foster care. The measure also would eliminate a deduction for financial aid provided to an adoptive parent by an employer, up to $13,570 in assistance. If the bill passes, that assistance would become fully taxable.
These tax breaks help to overcome financial obstacles to adoptions, which can cost up to $50,000 — more in the case of international adoptions. Advocacy groups say these changes would be pound-foolish. In a letter to congressional leaders, a pro-adoption coalition cited a federal study that found that for every child adopted rather than placed in foster care, the government saves between $65,000 and $127,000, chiefly from reductions in the need for direct child welfare services. “While adoption certainly helps individual children, it also benefits society as a whole,” the groups wrote.
Another provision of the bill underscores the tendency of political conservatives to show greater solicitude for unborn children than they do once the child is born. The measure allows even fetuses to be covered by 529 plans, which are tax-deductible savings plans for college expenses. The bill defines an unborn child as “a member of the species homo sapiens, at any stage of development, who is carried in the womb.’’
Congress isn’t paying nearly as much attention to the well-being of children already born: As the tax measure was being rolled out, the fate of the Children’s Health Insurance Program, which covers about 9 million low-income and pregnant mothers, remained in limbo more than a month after its funding expired. The House was expected to vote on renewing the program Friday, but its demand to offset the program’s $15-billion cost by eliminating a public health program created by the Affordable Care Act has generated Democratic opposition. The Senate has no current plans for a vote, even though several states say their funding for the children’s program is on the verge of running out.
Property and casualty losses: Despite a surge of weather-related disasters in Texas, Florida and Puerto Rico, the tax bill would repeal deductions for property and casualty losses. As with medical expenses, these losses are deductible to the extent they exceed 10% of adjusted gross income. Recent disasters, however, have been so costly that many families in the path of destructive storms might meet that threshold. The drafters of the House bill dismissed this deduction and the medical expense deduction as examples of “a myriad of provisions that many will never use and others may use only once in their lifetime.”
Electric cars and renewable energy: The tax measure would continue the Republican attack on renewable energy by ending the $7,500 federal tax credit for electric cars such as Tesla vehicles and the Chevrolet Bolt. It also would sharply pare back a tax credit for wind-generated energy in a way that could reduce the value of the credit by as much as 45% over 10 years, throwing many wind projects into doubt.
A host of petty nuisance cruelties: Beyond these provisions, the tax bill would take away modest deductions and exclusions that help ordinary people live their lives. Moving expenses, which are currently deductible if a worker is moving at least 50 miles to take a new job, would remain part of taxable income. Alimony currently can be deducted by the payer if it’s declared as income by the recipient; the bill would remove that choice, requiring instead that it be declared as income by the payer. Tax preparation costs, including accountants’ fees and the price of tax software, would no longer be deductible by taxpayers using the itemized deduction.
None of these items seems to correspond to a consistent public policy. They appear to be random efforts to pick up a few bucks for the federal budget here or there, or reflect some legislator’s mysterious hobby horse.
But they stand in direct contrast to the benevolence shown in the tax bill toward the concerns of the wealthy. While the average American loses deductions for moving expenses, tuition, hurricane losses and adoption, owners of estates worth up to $22 million would be able to pass them on to their children tax-free. The kids get to keep an additional tax break on any capital assets, such as stocks and bonds, passed down by their parents—that so called stepped-up basis isn’t on the chopping block, unlike so many tax breaks that mean dollars and cents to moderate-income taxpayers. The repeal of the estate tax embodied in the tax bill is defended only by the wealthiest Americans, their most shameless mouthpieces in academia, and their cat’s-paws in Congress. But who speaks for the ordinary taxpayer?
6:25 a.m., Nov. 4: This post has been updated with information about the educator expense deduction.