Donald Trump’s long-awaited federal tax overhaul was finally signed on December 22, 2017. Officially known as the Tax Cuts and Jobs Act, this piece of legislation was promised to contain huge tax cuts for the people of this country. So did the GOP deliver on their promises? The answer is complicated.
Let’s first examine some of the most impactful changes this bill will enact. The corporate tax rate was cut from 35 to 21 percent. The seven tax brackets all saw a decrease in income tax rate, except for the 10% bracket which saw no change. Standard deductions have been doubled for both single and joint filers, and personal exemptions have been eliminated. Overall, while corporate tax cuts are permanent, individual cuts are set to expire by 2025.
While the Trump has dubbed this bill his “holiday gift” to the middle class, critics have suggested that the tax bill heavily favors cuts to businesses and the wealthy. And it’s not just all talk, either. Long before the bill was even signed–last November–the nonpartisan Brookings Institution’s Tax Policy Center found that while in the short term Americans would pay less taxes, by 2027 50.3% of Americans, the majority from the lower and middle classes, would actually see their taxes rise.
These numbers and the bevy of expert critics have enraged writers and politicians from all corners of the country, leading one Huffington Post writer to call this tax overhaul “the Grinchiest Christmas gift yet.”
In our home state, governor Larry Hogan, responding to pressure from Democrats, promised even before the bill was signed that he would take measures to protect Maryland citizens from the tax overhaul. Perhaps taking a note from Trump, Hogan called this his “holiday gift to the people of Maryland.”
The governor made this announcement at a meeting of the Board of Public Works on December 20, 2017. In his brief speech, Hogan noted that “due to the loss of several longstanding federal tax deductions and exemptions, Maryland state revenue will likely increase by hundreds of millions of dollars”, and that his proposal would aim to return this windfall back to taxpayers.
As of now though, the state legislature is still waiting on comptroller Peter Franchot’s report of the federal tax bill’s specific impacts on Maryland, which is set to be completed by the third week of January. The Democrats in the House have reportedly expressed caution at going forward with Hogan’s proposal without being sure of just how much revenue will materialize. House speaker Michael E. Busch expressed this sentiment, saying: ““We don’t know if it’s a one-time windfall or any windfall at all.”
Despite this uncertainty, the governor’s aides have attributed this higher revenue to the federal bill’s 10,000 dollar cap on deductions for paying state and local income and property taxes. This would essentially mean that taxpayers who would pay high income and property taxes at both the state and federal level–such as high-income citizens in Montgomery and Howard County–could actually see an increase in taxes paid due to loss of state-level deductions.
Importantly, the federal bill, besides impacting the richer residents of Maryland, could also result in an overall increase for all taxpayers in this state. According to the Baltimore Sun, “Taxpayers can only claim Maryland tax exemptions if they’ve first claimed the corresponding exemption at the federal level.” Since the GOP bill eliminated personal exemptions, among others, many of these deductions simply cannot be claimed anymore.
The director of Maryland’s Bureau of Revenue, Andrew M. Schaufele, found that with the loss of these exemptions taxpayers would be paying a combined 750 million dollars more in state and local taxes. This is thus another reason for Maryland legislators to pass a bill to return revenue to its citizens.
As of now, it’s still unclear what the logistics of the bill Hogan proposed will be and whether it will be able to garner enough support to pass in an election year. We can only hope, I suppose, that the governor’s “holiday gift” will be bountiful.
Article by MoCo Student staff writer Angela Sun of Richard Montgomery High School