Last week, the House of Representatives released HR 1, the Tax Cuts and Jobs Act, aimed primarily at overhauling the federal tax system. It lowers the corporate tax rate and reduces the number of tax brackets, among its many provisions. House Speaker Paul Ryan said the bill would save the average family of four $1,182 in taxes a year.
Not everyone welcomes the bill. Jess Phoenix, a Democratic candidate for the 25th Congressional district, believes it is a way to penalize states that didn’t vote for Donald Trump, as well as a massive tax cut for the corporations and the wealthy (including Trump).
“It’s so hard to have anything nice to say about this,” Democratic activist Stacy Fortner said. “We thought Bush and Halliburton was a cash grab, but we never saw Trump coming. He’s a bull in a china shop, and the china shop happens to be our country.”
The two points of the bill that most people contacted for this story objected to are the changes in the mortgage interest deductions and no longer being able to deduct state and local taxes (SALT) from federal returns. (In an email, Bryan Caforio, a Democratic candidate for the 25th Congressional district, listed 25 problems, including those two.)
According to the bill’s text, mortgage-interest deductions for purchases and refinances after Nov. 2 are capped at $500,000 (down from $1 million). Deductions for state and local income and sales taxes would disappear, and property-tax deductions would be capped at $10,000.
“That’s putting the burden of the tax cuts for huge corporations and the wealthy on the backs of the middle class,” said Katie Hill, a Democratic candidate for the 25th Congressional district.
“The problem is corporations aren’t people,” Phoenix said, adding she doesn’t believe the notion that helping corporations helps workers.
Logan Smith, a City Council candidate, said his priority is “making sure people who live in Santa Clarita can live in Santa Clarita. Homelessness in Santa Clarita is predominantly caused by housing prices.” He said he’s concerned the bill will disproportionately affect seniors, the poor, disabled persons and veterans, groups he said already can’t afford housing in the area.
“It will contribute to the homeless problem,” Smith said, “and I don’t like that.”
However, Valencia Realtor Phil Levy of Berkshire Hathaway Home Services California Properties said he isn’t sure how much new home owners or refinancers will be affected. He interpreted the bill to mean the $500,000 is based not on a home’s purchase price but on the loan amount, so people who pay enough of a down payment could still receive the full deduction.
Levy said that 85 percent of area homes that sold year-to-date Oct. 31 closed at $700,000 or less, so anyone who puts down, at most, 28.6 percent to get the loan amount to $500,000 qualifies under the bill.
But he also wonders whether a person who puts down 20 percent on a $700,000 home would still get interest deductions for $500,000 but lose only deductions on the remaining $60,000.
“The devil’s in the details and how it will be implemented,” he said.
Besides, Levy said, most people don’t buy houses for the mortgage-interest deductions. They buy for so many other reasons, including needing more space, better schools, no rent, develop wealth – in short, a higher quality of life.
Many people believe their life is better because they can deduct their state and local taxes from their federal taxes, something this bill would disallow. This troubles Christy Smith, a Democratic candidate for the 38th Assembly District.
Smith said she finds this aspect unfair because California already is a so-called “donor state,” meaning it pays more in taxes to the federal government than it receives in services, so “we don’t need to help bail out the government more than we already do.”
According to the Internal Revenue Service, California paid the feds almost $406 billion in taxes in 2015, $292.5 billion in 2012 and $281.2 billion in 2011, more than any other state in each of those years.
But how many pennies on the dollar does California receive is subject to debate. Smith said the last number she saw was 83 cents. According to the state’s Legislative Analyst’s Office, it was 99 cents in 2013. That same year the New York State Comptroller’s office put it at 99 cents. The New York Times quoted the conservative Tax Foundation’s estimate of 78 cents in 2005; and the National Priorities Project, a nonpartisan research group, put it as $1.06.
“When the federal government falls short, I don’t think it’s fair for California to get hit again,” Smith said.
But for all the fears people have expressed, CPAs remind that nothing is set in stone.
“Whatever ends up at the end is probably different than what is there now,” Valencia CPA Matt Denny said. “There’s no certainty.”
Andy Duchan, a CPA and financial adviser with offices in Glendale and Tarzana, said he has seen attempts to overhaul the tax code six other times since 1981. “My opinion is not to get bent out of shape until there’s a law,” he said. “I’m cautioning people to take their time until we see what it really will be.”
Even Congressman Steve Knight (R-Palmdale), who represents the 25th district, said that he doesn’t expect this bill to be the final version.
“I continue to work with my colleagues on the Ways and Means Committee and House Leadership to find a solution to the SALT issue,” Knight said in a statement emailed to the Gazette. “Representing a district with especially high state and local taxes, I understand many of my constituents benefit from SALT deductions and addressing their concerns is a priority of mine. … I look forward to working with my colleagues to continue working towards improvements to this bill that will make our economy stronger and allow working families in California to keep more of their hard-earned income.”