Is tax reform coming? Many of us are hoping that something good happens. Keeping more of our hard-earned money and turning less of it over to an inefficient government seems like a great idea. In looking at the House of Representatives tax proposal, there could be some benefits. There would be an increase in the standard deduction. However, as part of this increase, some itemized deductions will disappear. Individual circumstances will determine who might fare better under this plan.
The Grange has advocated for many years for the repeal of estate taxes. We have never liked the possibility that heirs could be forced to sell the property in order to pay inheritance taxes, even though taxes had been paid on the property while the parents were living. Under the House plan the current $5 million exemption would be doubled to $10 million. Then in 2024 there would be a complete repeal.
Section 179 of the IRS code has been good for farmers and other businesses because they could take up to $510,000 in deductions on equipment purchases. The House proposal would increase this amount to $5 million.
These are just a few items in the House tax proposal, which is long and complicated. Before it is all over, all could change. Until the House and Senate come together and actually agree on a new tax plan, everything will be on the table for negotiation. It is clear that we need tax reform, and we need it soon. Individuals and businesses want lower taxes, and we want a simplified system for preparing taxes.
But, there is a harsh reality to all of this. We would like to think that the federal government through a miracle will become an efficient entity that is able to reduce spending without having an impact on us. This is not likely to happen! According to the Tax Policy Center, enactment of the House plan would reduce revenues by $3.1 trillion. Don’t forget, there is a budget deficit exceeding $600 billion, and a national debt exceeding $20 trillion. To me, that seems to be a deep hole!
So, in order to reduce taxes, what are we willing to give up? Perhaps we should reduce funding to Medicare, Medicaid, social security, the farm bill, education, the military, or infrastructure. Such reductions would not be popular, because we do not want to give up anything! We want everything that benefits us to be properly funded.
The likely result will be higher deficits and an increase in the national debt. This seems to have less of a direct impact on us than cuts to our favorite programs. We will be happy, and Representatives will keep getting elected, if they behave themselves! But, it cannot continue. We are good at putting the pain off until later. In our households, we cannot spend more than we make, and if we do we get into trouble. Our federal government cannot keep doing this either.