It looks as though a sweeping rewrite of the federal tax code has strong potential to become law in short order and impact the lives of almost every adult, corporation and small business in the country. This, of course, will include seniors and retirees, whose tax obligations, on balance, should decline modestly.
The Senate, following in the footsteps of the House of Representatives in November, last week passed the most comprehensive tax rewrite in three decades, setting the stage to enact $1.5 trillion in tax cuts for businesses and individuals and to deliver President Trump’s first major legislative achievement.
The two chambers now must work to settle a large number of differences. There is no guarantee that they will, but the odds are strong because of the powerful political forces that enabled each chamber to pass nearly 500-page-long tax overhaul bills despite no Democratic support and initially sharp intra-chamber disagreements among Republicans, particularly in the Senate.
Businesses are heavily favored by the legislation, with the corporate tax rate cut to 20% from 35% and, unlike individual tax cuts, made permanent. But Republicans say that the tax overhaul is also intended to immediately cut taxes for about 70% of middle-class families.
What does this mean, specifically, for seniors and retirees?
First the bad news. Retirees who still earn money by working part-time or by investing in non-retirement accounts or both and who live in high tax states such as California, New York, New Jersey, Connecticut and Illinois will be hurt. That’s because the Senate bill eliminates the deduction for state and local income taxes.
There is also good news in the legislation, however, for some seniors. Small business owners — still common among the retirement set — are poised to benefit at this point because they get a large tax break as proprietors of so-called pass-through entities. This came about in last-minute negotiations to attract two wavering senators into the fold.
Depending on your perspective, older folks also benefitted because things could have been worse.
Reports have begun circulating that the tax overhaul, which phases out individual tax cuts at the end of 2025, is an initial step by Republications to set the stage to trim Social Security and Medicare benefits to lower the federal budget deficit. This is not in either the Senate or House bill. Possible cuts in entitlement programs are related to the tax overhaul, however, because deficit-minded Republicans contend that the $1.5 trillion in tax cuts will not increase the already-soaring federal deficit. They say tax cuts will pay for themselves by stimulating economic growth and generating more tax income for federal coffers.
Here are some other particularly noteworthy elements of the Senate tax bill:
- The standard deduction is nearly doubled. For single filers, the Senate bill increases it to $12,000 from 6,350 currently. For married couples filing jointly, it increases to $24,000 from $12,700.
- Personal exemptions of $4,050 for yourself, your spouse and each dependent are eliminated. For most, this should be more than offset by the increase in the standard deduction.
- An itemized deduction for property taxes is limited to $10,000 in both the Senate and House versions. For a while, it looked as though this deduction would be eliminated.
- The mortgage interest deduction stays as it is, with limitations only on unusually big mortgages. For a while, it look as though this deduction, too, would be eliminated.
Stay tuned. This is big stuff. Whether you like the pending tax overhaul or not – polls show most Americans dislike it because of its heavy tilt toward corporations – it will impact your life if passed. It’s important to stay abreast of the repercussions.
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