TRUMP’S “BIG AND BEAUTIFUL” TAX ACT

This is the continuation of my article in E Malayalee dated May 23 and July 3. On May 23, I wrote while the House of Representatives was still debating on Trump’s Big and Beautiful Bill. The house then passed it with a single majority and forwarded it to Senate. The Senate after making a lot of changes passed it by a tie breaking vote from Vice President. With the changes it was forwarded to the House of Representatives again. After a lot of discussions, marathon speech by the Opposition Leader Hakim Jeffrey for eight and a half hours, with about 14 Republican Congressman speaking against the bill and with a lot of persuasions, the House finally passed the bill with a vote of 218 for and 214 against. All Democrats and two Republican Congressmen voted against the bill. The bill was forwarded to the White House. The President signed the bill on July 4th at 5 PM, thereby transitioning the bill to ACT. Hereafter it is called Trump’s “Big and Beautiful” Tax Act.

Let us analyze the Act from various angles and look at the positive and negative side. Before proceeding with this analysis, I just want to mention that this analysis is only from economic and tax points of view and not from any political point of view.
The Act made permanent the provisions of the 2017 Tax Cut and Jobs Act which otherwise would have expired by the end of the year.

What were the main provisions of the 2017 Tax Cut and Jobs Acts?
Prior to 2017, the tax brackets for American Tax Payers were 10%,15%,25%, 28%,33%, 35% and 39.6%.
The 2017 Tax Cut and Jobs Act brought the rates down to 10%, 12%, 22%, 24%, 32%, 35% and 37%. The taxes of the people on high income were brought down from 39.6% to 37%.

The standard deduction for 2017 was $6,350 for single taxpayers and $12,700 for married taxpayers filing joint returns. This was increased to $ 12,000 for single and $ 24,000 for married filing joint returns. These deductions are adjusted year to year for inflation.
However, many favorite deductions were taken off. These include State and Local tax (SALT) above $ 10,000, mortgage interests for primary home for mortgages exceeding $ 750,000, moving expenses, job related expenses including union dues, uniform expenses, business use of home, business travel in connection with jobs, professional licenses, job related education and mortgage insurance premiums, tax preparation fee etc. Further, 2017 tax act abolished personal exemptions. Since all these deductions were abolished, many people paid more taxes beginning 2018, though the name of the Act was Tax Cut and Job Act. In New York many of my clients paid State and Local Income taxes more than $ 120,000, but they were able to deduct only $ 10,000. In some of these cases, they were not even able to deduct $ 10,000 since they did not have any mortgage interest and this $ 10,000 SALT with charitable contribution often does not exceed the Standard deductions established for the year. It may be noted that in some states where property taxes were not high, these tax cut act benefited them.

The new tax act, however, increased the SALT to $ 40,000 for household income less than $ 500,000. So many of Indian American families are at a greater advantage as they can deduct up to $ 40,000 along with mortgage interest and charitable contribution. Many of these families will be able to itemize their deductions for a greater tax advantage. It may be noted that there is an income limit of $ 500,000 for married filing joint taxpayers to take advantage of the $ 40,000 SALT deduction and this is set to expire in 2028. The negative aspect is that it may trigger Alternate Minimum Income Tax (AMT) .

Moreover, there is a new deduction for car loan interest up to $ 10,000 for American made cars. These deductions will further help a lot of families.
The Trump Tax Act eliminates taxes on overtime pay up to $ 12500.00. This will be beneficial to many of our families. Though IRS has not given instructions as to how to deduct them, most probably it will be deducted as an adjustment to income. However, this 12,500 is subject to Social Security and Medicare taxes.
Also the Act eliminates taxes on Tips up to $ 25,000.00. This will help a lot of families in the service industry. IRS has not given instructions as to how to deduct tips also. Like overtime, it may be deducted as an adjustment to income. However, this 25,000 is also subject to Social Security and Medicare taxes. Both no tax on tip and overtime is set to expire in 2028.
Though Trump promised during the campaign that there will be no tax on Social Security, that promise did not become a part of the Act. Instead, there is a deduction of $ 6000 per person for people over the age of 65. This will take away the tax burden of many seniors. There is an income limit for this deduction and is set to expire in 2028.

Child tax credit for each eligible child is increased from $ 2000 to $ 2200. For an young family with three children this will bring an additional $ 600 in tax relief. However, there is an income limit of $ 400,000 to take advantage of full child tax credit and is also set to expire in 2028.
There is a new MAGA account for each child born between 2025 to 2028 in which the Government will deposit $ 1000.
QBI (Qualified Business Income) deduction is a new tax deduction introduced in 2017. As the provision of this law, eligible small business owners who file 1065, 1120 S and/or Sch C are able to deduct 20% of their net income as QBI deduction. This was a great blessing of many small business owners and many of our families benefited as the result. Though there was an original proposal to increase this to 23% in the new Tax Bill, it looks like it did not appear in the final ACT. 

While these are the benefits of the Trump Tax Act, it is estimated that about 17 million people will be negatively affected with their Medicaid and food stamps. Further there will be a lot of restrictions on Medicare. The deduction in Medicare and Medicaid will negatively affect a lot of hospitals, which may be forced to close as the result. Such closures or deduction in staff will negatively affect a lot of Indian Medical Professionals such as Doctors, Nurses, Physical Therapists, Occupational Therapists and lot of para professionals. Further a lot of private practices and clinics will be very severely affected. It may be noted that Hospitals are mandated to treat emergency patients irrespective of their insurance status. This will bring undue pressure on the hospitals. Further, the cost of health insurance premium, deductibles and the cost of prescription drugs will go up. 

The direct impact of the restriction on food stamps will cause hunger in our community. About 3.6 million people will not have this benefit anymore. The local food pantry and soup kitchens may not able to find enough food for those who no longer will have the food stamps benefit. 
The energy credit for alternate forms of energy will be discontinued which means in all probability, the energy cost will go high. Also $ 7500.00 credit for electric vehicles will discontinue effective September 2025, and that will result in higher vehicle prices. However, the new $ 10,000 deduction on interest for the American made cars will compensate for part of these credits.

There is a lot of legitimate opposition about giving tax advantages to the super rich, while cutting away the bread and butter of the poor and their health coverage. At the same time, it may be remembered that President Regan brought the corporate income tax from 75% to 36% which boasted the economy and Trump brought down the corporate taxes from 36% to 21%. The economic benefit of the low tax rate for the rich is that they will invest this money into various projects which may in turn create a lot of good paying jobs as well as boost the economy. While this may be true, critics are of the opinion that tax benefit for the super rich should not have been done at the expense of the poor in our country. 
I will write a second part of this article regarding the impact on boarder security, defense expenses and National debt etc.

P.T. THOMAS