What the Tax Bill Means for Illinois Taxpayers

Story includes calculator to see how you and your family is impacted

WTVO/WQRF-TV - With a House vote on Wednesday, Congress has passed the most sweeping reform of the tax code in more than 30 years, with Republicans nearly universally supporting it while Democrats unanimously opposed to it. 

The result is the first significant legislative achievement during the Trump presidency being hailed as a 'triumph' by Republicans and as a 'scam' by some Democrats.  

In voting for it, Rep. Adam Kinzinger (R, IL-16) said in a statement, “... we delivered on our promise to simplify the tax code and provide financial relief for millions of hard-working, middle-class, and job-creating Americans. The Tax Cuts and Jobs Act is a monumental victory for the American people,"

In response, Rep. Cheri Bustos (D, IL-17) defended her 'no' vote by stating, “This is a defining moment in our nation’s history and we, as Democrats, will stay united and continue fighting to undo the damage Washington Republicans caused today. Together we will stand up and demand a Better Deal for the American people rooted in creating better jobs, ensuring better wages and delivering a better future for all of our families.”

Politics aside, here are some answers to basic questions about the tax reform bill's impact.

Will my taxes go down?  

If you do not itemize, the answer is certainly 'yes'.  This calculator from CNN can estimate how much you'll save based on your circumstances.

An estimated 70% or Illinois residents currently take the standard deduction, which doubles under the Republican's plan.  The child tax credit has also been increased to $2000 per child of which $1400 is refundable, meaning if you owe no federal taxes and have children, it's possible the U.S. government will pay you.

For those Illinois residents who itemize (and it's believed fewer will under the new tax plan), the answer gets a little trickier because of caps on mortgage interest and state and local tax deductions.  Those provisions, however, will likely mostly impact Illinois taxpayers who earn more than $250,000 per year.

Democrats say middle class taxes will go up.  Upon what do they base that claim?

Because of Senate rules, Republicans were forced to expire the individual tax cuts after eight years, so yes, if the law is allowed to expire, middle class taxes go back up.  However, that's unlikely even if Democrats take control of Washington, as doing so would be viewed as a tax increase on the middle class.  What politician, Republican or Democrat, wants to do that?

How soon will I see my taxes decrease?

February, when federal withholding from paychecks is recalculated to reflect the new tax rates according to the IRS.  As a result, it has been estimated an average middle income taxpayer would see an increase of $50-$100 per paycheck because of lower withholding rates.  The tax bill will not impact 2017 tax returns, payments or refunds.

Will this cause the deficit to go up?

Probably.  The bill was scored as adding $1.5 trillion to the deficit over ten years, but that doesn't allow for increased economic growth (something Republicans call 'dynamic scoring').  Proponents argue that if the bill achieves a 0.5% increase in economic growth, the new law pays for itself, but there is no guarantee it will achieve that.  Besides, few are arguing that a tax cut of this magnitude will cause the deficit to go down, so it is safe to say most believe this will grow the deficit over time even if no one really can say with any certainty how much.

Will this make American companies more competitive and add more jobs?

Maybe.  It depends on the company in some cases.

The tax bill lowers the corporate tax rate from 35% to 21%, which is more in line with what taxes other industrialized countries levy on corporations, but most companies didn't pay anywhere near 35% because of the myriad of deductions available to them, some of which are eliminated in this tax bill.

As a result, it's believed some companies like tech giants Microsoft and Apple will actually pay higher taxes.  Both companies saw their stock prices drop as a result of that analysis.  

On the other hand, it's estimated brick-and-mortar retailers will see a big drop in their tax bills.  Manufacturers could benefit as well in a year where American manufacturers have already added tens-of-thousands of jobs.  Farmers will also benefit, and the tax bill has been widely endorsed by many farm groups.

One big winner in this tax bill are so-called 'pass through' companies.  Those are businesses which are so small that the owner must report profits as individual income.  They get a big break in this new bill and that could lead to more hiring by small businesses, but critics have charged it will be more of a tax giveaway to the wealthy.

The tax bill offers incentives to companies in many ways to invest, hire, and raise wages, but there is no guarantee companies will do what the government wants them to do.

This bill eliminates the 'Obamacare' mandate penalty.  What does that mean for me?

If you have insurance through the Obamacare exchanges, it means nothing unless you decide to drop the insurance.  As a result, you will pay no federal penalty anymore, but you also won't have health insurance.  It's been estimated that about 13 million Americans would voluntarily give up their Obamacare policies if the penalty is dropped, but no one really knows for sure.

There is a concern that the elimination of the individual mandate will put the Affordable Care Act on a financial path which is not sustainable, and if you rely on Obamacare, that's certainly a legitimate concern, but the long term impact is unknown.

Will President Trump personally benefit from the tax bill?

Good question.

Changes to the inheritance tax will benefit his heirs once he passes.  

In the meantime, it's hard to tell.  The lowering of the top tax rate to 37% will help him, but the elimination of deductions, especially caps on state, local and property tax deductions will cost him. 

The bottom line for President Trump is that his taxes (as far as we know) are very complicated and the new tax bill would not change that.  The ultimate impact on him will remain a mystery to the public, especially if he continues to refuse to release his returns.  In fact, he may not even know the impact of the new tax law to him for some time.

That said, there is no evidence the President manipulated the process to benefit himself or his companies.  He says he'll get 'hammered' by this tax law, and it is possible he will pay more in taxes because of it.  We'll probably never know.

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