My husband is the tax pro in our family. He’s a small business owner, and as such, has never seen a simple tax return in his life. I can’t even weigh in on this process significantly because mine have always been simple. Input lines from W2 form. In a really tough year, maybe there were two W2 forms. Deduct daycare expenses. If there was tuition, input that. I get a form for everything. He gets a form for nothing. It’s the numerous files of receipts and credit card statements, each thing in its intricately stored place, as he methodically goes through, as he has every year for 33 years, and inputs each part of it where it goes. The last thing to do was my income, which, as I mentioned, is simply a matter of copying figures off a form. It took a matter of minutes.
When the dollar figure at the top of the page reached its final magnitude, we both marveled at how few credits we really got, and wondered at how much this will change next year when the proposed tax plan is set to take effect.
We did everything right, by the standards of the average Republican. He’s run his business for nearly as long as I’ve been alive, helping thousands of people through his work, and always paying his way. He has never received any form of assistance. As an immigrant, he wasn’t eligible for a while, but then he just never qualified for it, nor wanted it, I think. Republicans love to talk about entrepreneurs, and he fits the bill perfectly.
I joined the Army, and then I went to college and didn’t major in any of the things they like to laugh at. Nope, not this girl. I studied civil engineering, published research, and got myself a nice tidy government job where I occupy a cubicle 40 hours a week, doing literally the most stereotypical work a civil engineer can ever do, designing bridges. I love it, and I’ll do it until I’m too old to see my calculations anymore (probably because my pension will go away at some point… but I digress).
We bought a house that we could afford. We drive sensible cars. We cook at home 99% of the time and only go out to eat occasionally. We clip coupons. We live within our means.
We’re actually a fantastic test case for the economy. Everyone knows the average politician doesn’t give a shit about the poor. The Democrats say they do, but only a few of them actually try to make policy to help. The Republicans tried to cut CHIP this year. I don’t need to say anything more about what they think of the poor. The rich have lobbyists who buy the politicians for them. Yet, everyone talks about the middle class. That’s us. We’re the middle class. One small business owner, one engineer, literally 2.5 kids under our roof on average at any given time, a 2500 square foot house in the burbs, and a couple of Mazdas in the driveway. Our income is above the median, but not by a lot. We are the average family, a shocking success story considering my generational cohort, but the type of thing lawmakers love to hold up and say, “See?? If you just major in engineering or start a business, you, too, can live a decent life!”
With the new tax proposal, we’re going to be totally and utterly screwed.
Let me tell you about our tax situation. When you make about what I make, you trigger some algorithm in every government agency that has anything to do with money that says, “Oh hi! This person is successful!” (I’m pretty sure the marker for what constitutes “successful” hasn’t been moved since roughly 1995.) When that happens, your student loan payment adjusts. In my case, it adjusts to the maximum allowed for that loan amount under income based repayment. My student loan amount and payment is nearly identical to my car loan and payment, so let’s just consider it that financially, we’ve got three Mazdas in the driveway, but one of them is invisible, because that’s what we spend like. The other thing that happens when you reach this “Oh hi! This person is successful!” threshold is that the IRS decides you don’t need tax credits anymore. If you made just $10k less than you did, then you’d be raking in serious bank with all the favor of the tax credit gods, but you don’t, because you’re successful, and that stuff is for working class people, not you.
So what does this mean? It means people like us live and die by our deductions. We deduct mortgage interest, and student loan interest, and all the state and local taxes we pay, and every other thing we have that is eligible under the numerous categories that exist.
Where does the new tax plan hit people the hardest? That’s right. Deductions.
“But Anna, you can still deduct $10k of state and local taxes. There’s no way the average person pays that much. Stop bitching as if you represent the average person.”
Let me explain why $10k in state and local taxes really isn’t that much, and why a lot of people you know probably are paying at least that much. The average home price in our metro area is $400k, but you can get a decent house in the burbs in the $250-300k range. Consider a 2.8% tax rate (that’s what we pay). Some neighborhoods have less, some more, but it won’t take you long to figure out that if you’re not paying $10k/yr in property taxes already, you will be once your property value goes up a little, and they’re rising constantly. We live in an area that is quite average in cost of living. People in other places probably have it a lot worse. Let’s also point out that people in a lot of states pay income tax to the state as well as the federal government. We don’t here, but this adds up a lot faster for people who do. It is absolutely inevitable that we will lose deductions when we can only deduct $10k in state and local taxes each year.
Student loan interest will also not be deductible. This is several thousands that I’ve been able to deduct every year since I’ve been in the workforce. I actually have roughly half the student loan balance of the average borrower of my graduation year, although my payments are on a par with people who owe more because I am on income based repayment (remember, my salary triggered the “Oh hi! You’re successful!” algorithm), so the impact for us will be shorter lived than higher borrowers, but the magnitude will be the same for the years that my loans do exist. Consider that student loan debt is the biggest financial problem of this generation, and you can clearly see where this goes wrong. Not allowing us to deduct student loan interest was a huge mistake by the people who wrote this thing.
“But Anna, you guys have kids! You’re going to be fine because they’re increasing the child tax credit!”
OK, let me tell you something really nutty about the child tax credit that didn’t occur to me until I got my current job, and was really shocked by that year’s taxes. Remember that “Oh hi! You’re successful!” income threshold? Yeah, it affects this, too. Once you get past a certain income level, you get less money for having kids. This is one of the tax credits that practically goes away for those of us past the income threshold that would have made us really well off in 1995, and to be fair, probably would allow us to live pretty high on the hog in rural Mississippi even today. (But who pays this much there? See the conundrum? But I digress.) The point is, them raising the value of a credit we barely get anyway doesn’t do much to offset the fact that we lose deductions for state and local taxes, and student loan interest paid. If they touch the mortgage interest deduction for people in our price range, I’m going to scream, because it’s basically the only thing we have left.
So why are some people ok with this?
I’ve been thinking about that a lot lately. I honestly wonder if it’s because they have absolutely no shot at reaching an income threshold where this stuff would even matter, so they’re pretty equally screwed by any tax plan, because they’re already totally screwed by their paycheck.
Defaulted student loan debt is a huge issue these days. After graduation, people often can’t get jobs that will allow them to afford their living expenses and their student loan payment, and after their forbearance period is over, they default.
How feasible do you think it is to buy a house if you have defaulted student loans? It doesn’t take an accountant to tell you what something like that does to your credit rating.
So if you can’t pay your student loans, and you can’t buy a house, you don’t have property taxes and student loan interest to deduct, and you probably don’t even notice those aspects of the tax code, since nobody really pays attention to the parts that don’t apply to them (ask me what happens to mortgage interest on properties valued over $750k. I honestly couldn’t tell you because I will probably never be in that situation.)
Add all this up. Look what they’ve done. They basically subjugated an entire swath of society to only partial participation in the economy through lack of regulation on university tuition prices, student loan practices, wages, and inflation. Because this happened, tax policies that totally screw the last remaining shred of the middle class, are passed without nearly the outrage they would have been met with had they done this to our parents’ generation.
Let’s not forget there’s an election this year. You all know what to do.