The TCJA shifted the benefits of tax expenditures to the highest-income households. TPC’s Howard Gleckman discusses results of a new TPC analysis. The Tax Cuts and Jobs Act shifted the benefits of many itemized deductions from middle-income households to those with higher incomes, largely because of the increase in the standard deduction and the $10,000 cap on the state and local tax deduction. Combined with other changes, they resulted in a big decline in the number of itemizers. Gleckman wonders, “will deductions for mortgage interest and charitable giving survive once voters—and lawmakers—realize they increasingly have become cash cows primarily for the wealthy?”
Treasury lays out new rules for opportunity zones. The program aims to encourage investors to direct funds toward distressed economic areas that governors designate as “opportunity zones.” An investor can reduce or even eliminate capital gains taxes on profits held in an opportunity fund. New Treasury guidelines clarify the type of investment projects that qualify, including deals in areas that lose opportunity zone status in future years.
Senator Kamala Harris has a plan to repeal and replace the TCJA. The California Democrat and possible presidential aspirant announced a plan last week to create a new refundable earned income tax credit called “LIFT,” or Livable Incomes for Families Today. The credit would match up to $3,000 of earnings for single people and $6,000 for married couples and would be available to those without children at home. It also could be delivered monthly, giving households a stable source of extra income. The LIFT credit would be in addition to the Earned Income Tax Credit. Harris would pay for it by eliminating most of the tax cuts enacted under the Tax Cuts and Jobs Act and with a new fee on financial institutions. TPC’s Elaine Maag expects that Harris’ plan would lift many more people out of poverty than the current EITC.
President Trump plans to announce new tax cuts this month? Congress is in recess until after Election Day, but President Trump said at a campaign rally late last week that his administration is “looking at putting in a very major tax cut for middle-income people… sometime just prior, I would say, to November.” The President insisted that House Ways & Means Chairman Kevin Brady and Speaker of the House Paul Ryan are “all working on it.” Separately, Trump says he’s asked all federal agencies, except the Pentagon, to cut their budgets by 5 percent.
Do deficits matter? What happens when the nation cuts taxes and increases spending? TPC’s Howard Gleckman considers the latest Treasury news: Even though the economy is strong and the nation is at peace, the federal budget deficit for fiscal year 2018 increased by $113 billion, or 17 percent from 2017. Adding insult to injury: Interest rates are climbing. With deficits now at 3.9 percent of Gross Domestic Product, what will the nation do when the economy inevitably slumps or if it must increase military spending in response to an international threat? Concludes Gleckman: “It has become popular on both the political left and the political right to argue that deficits don’t matter. We may soon find out.”
Tune in tomorrow: Taxing the Gig Economy. How big is the gig workforce, what is its effect on the overall economy, and what does it mean for tax compliance? The TPC conference will address what we know about the gig economy, and panelists will consider ways the tax system should adapt. You can watch the live webcast here, starting at 9:30 am.
While Congress prepares for the mid-term elections, the Daily Deduction will post Mondays until November 5, when it will return to its normal schedule.
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