Jim Dey: Death, taxes and confusion

Jim Dey: Death, taxes and confusion

In the aftermath of U.S. House passage of federal tax legislation last week, the partisan rhetoric escalated into overdrive. Republicans touted the legislation as a tax-cutting tonic for middle-income earners while Democrats argued the legislation will raise taxes for the same people.

The contradictory exchanges between Republicans and Democrats were typified by the sharply different assessments offered by Republican U.S. Rep. Rodney Davis, whose 13th Congressional district includes part of East Central Illinois, and Democratic U.S. Sen. Dick Durbin.

Davis and Durbin looked at the same legislation and issued statements that looked, at least at first blush, as if they could not both be correct.

Davis said the legislation would reduce federal income taxes for a median family of four earning about $78,500 in his district by $1,691. A statement issued by Durbin said the bill would raise taxes on every individual making less than $75,000, but did not specify how much.

They're both correct, but not in the manner that readers might imagine.

Rep. Davis' statement is focused on immediate impact of proposed reductions in tax rates. Sen. Durbin is talking about the 2027 tax year, when the newly approved tax rate reductions are scheduled to expire.

Ben Marter, director of communications for Durbin's office, said the expiration of the tax rates will present a "mixed bag at best for middle-class families" in 2027.

Davis spokeswoman Ashley Phelps confirmed Marter's assessment. But she said the 2027 tax hikes can be avoided if Congress votes "to extend them like Congress has done several times with the Bush tax cuts in recent years."

The House bill, in several respects, is specifically aimed at reducing taxes for middle-income families. It reduces the number of tax rates from seven to four — 12, 25, 35 and 39.6 percent — and increases the standard deduction — as opposed to itemized deductions — that the vast majority of taxpayers, particular middle- and lower-income taxpayers — use.

The House bill establishes a 12 percent tax rate for single-filers earning up to $45,000 and married taxpayers filing jointly who earn up to $90,000. It establishes a 25 percent rate for single filers earning up to $200,000 and married couples earning up to $260,000.

While eliminating personal exemptions worth $4,050, the legislation increases the standard deduction for married couples to $24,400. Taxpayers also would receive tax credit ranging from $1,600 for children.

An estimated 70 percent of tax filers use the standard deduction and that number is expected to rise dramatically if this proposal becomes law.

Rep. Davis said a House Ways & Means Committee report estimated that a household of four earning $78,509 would see a reduction of $1,699 and a single earner of $49,758 would save $1,224 in the 13th District.

The Ways & Means Committee report indicates that middle-income and some upper-income taxpayers in each of the state's 18 districts would pay lower taxes under the House bill in the early years.

But Durbin, too, is correct to point out that the expiration of the lower rates means by, that 2027, lower-income families would pay more.

"Under the Senate GOP proposal, a person in (the $40,000 to $50,000 income category) would see a tax reduction of 4.9 percent by 2021, but by 2027, that same person would see a tax hike of 4.2 percent," according to the House/Senate Joint Committee on Taxation.

The personal income tax cuts are scheduled to expire in eight years because Senate budget rules forbid tax legislation that adds to the budget deficit after the first decade.

That is why the personal income tax reductions are temporary, although they can be extended, while the business tax cuts in the legislation are permanent.

The distinctions prompted Sen. Durbin to rail against "guaranteed tax giveaways to the wealthy" while acknowledging "temporary tax relief to some middle-income families."

He also complained about the proposed elimination or reduction of state and local tax deductions, asserting that "one-third of Illinois families will face double taxation for their property, income and sales taxes."

While it may be correct, Durbin's prediction is not consistent with other claims that increases in the standard deduction will increase the percentage of taxpayers who do not itemize from 70 percent to roughly 90 percent. That number, however, is unknowable until it actually happens.

The House bill lowers the corporate income tax from 35 percent to 20 percent, a reduction backers say is necessary to make sure U.S. tax law is competitive with corporate tax rates in other countries. Proponents also contend it is necessary to eliminate the existing financial incentive for American corporations to reincorporate in other countries.

While the political rhetoric has been heated, sometimes even vitriolic, there's no guarantee the House bill will become law. The Senate has a different version.

With minority Democrats in the Senate unanimously opposed and a handful of Senate Republicans expressing reservations about certain aspects of their version of the bill, there's no guarantee anything will pass.

One thing, however, is for certain. If a tax bill ultimately become law, legislators like Davis and Durbins, relying on different sets of facts, won't agree on what it means.

Jim Dey, a member of The News-Gazette staff, can be reached by email at jdey@news-gazette.com or by phone at 217-3513-5369.

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