August 28, 2017
Prepare yourselves. The latest front in the longstanding tax war on women is upon us. First we had the “marriage tax” (the “second earner” in a married couple filing jointly, historically the woman in a hetero partnership, is taxed heavily; the tax on their income starts at the highest marginal tax rate of the primary income). Then we had the tax on tampons, because of course we can all agree those things are “luxuries.” Now we’re staring down the barrel of tax reform that is likely to hit single female homeowners hardest.
After healthcare, tax reform is next up on the GOP legislative agenda, with Republicans hoping to pass a bill in the fall. The GOP plan put forward by the House Ways and Means Committee aims to enact “the largest corporate tax rate cut in U.S. history” by reducing the corporate rate from 35% to 20%. It also seeks to eliminate the Alternative Minimum Tax paid by wealthy millionaires like Trump. Of the House plan’s tax cuts, over 76% of savings would go to the richest 1%, with the average tax cut for those making $700,000 and above coming to over $212,000. Yet this is small potatoes compared to the tax cut the plan gives to those in the top 0.1%, who would get an average federal handout of over $1.2 million. Is it any surprise, then, that digital ads for the effort are being bankrolled by the Koch brothers?
Meanwhile, Republicans hope to fund these tax cuts partly through the elimination of individual personal exemptions and the itemized deductions for state income tax (or state sales tax) and local property taxes.
In theory, the mortgage interest deduction will remain, but this will be little consolation to middle-class homeowners, whose mid-range homes will likely not net them a mortgage deduction high enough to make itemizing possible under the plan, which raises the standard deduction for single filers from $6,300 to $12,000. To amass $12,000 a year in mortgage interest and itemize under the GOP plan, a single homeowner would have to have a mortgage of about $300,000 (assuming an interest rate of 4.05%, Bankrate’s 3-month trend for 30-year fixed mortgages). As the House plan states, the goal is “to reduce the number of taxpayers who itemize their deductions from about one-third under current law to approximately 5 percent.”
The loss of these deductions means that “Homeowners with adjusted gross incomes between $50,000 and $200,000 would see their taxes rise by an average of $815,” according to the National Association of Realtors. Other analysts have estimated that itemizers who live in high tax states like New York, California and New Jersey will pay an additional $1,600 to $3,500 per year.
Single homeowners will have less wiggle room than married ones, simply because the new GOP standard deduction of $12,000 for singles will only be half that afforded to married filers. For example, take a single homeowner who made $50,000 in income and paid $8000 in mortgage interest last year. If she deducted $2,000 in state income tax and $1,500 in property tax on her home, she would have been able to deduct at least $11,500 in 2016. With the personal exemption of $4,050, that homeowner was able to reduce her taxable income by $15,550 overall, to $34,450, meaning she would have owed $4,708 in federal taxes last year.
Now look at what happens under the GOP plan. Without the deductions for state and local taxes (SALT), this homeowner would not have enough mortgage interest to itemize and would have to take the standard deduction of $12,000. That $4050 personal exemption is eliminated, so altogether, the GOP plan raises her taxable income by $3,550. The result is that if the GOP plan passes this fall, come April this homeowner would be on the hook for an extra $570 in federal taxes compared to what she owed in 2016.
What’s the untold part of this story? Most recent single homebuyers have been women. Since the 1990s, single women have surpassed single men in home purchasing. Last year, for example, single women made up 17% of all homebuyers, more than double the number for single men, who comprised only 7% of buyers.
Rebecca Waring, a single, 59-year-old computer programmer and homeowner who lives in Baltimore, Maryland, realized that without her state and local deductions, she would end up paying over $600 more in federal taxes. “Fifty dollars in a month, for me by myself, that’s almost a week’s worth of food,” she explains. At a salary of $60,000, she is well within the 25% tax bracket, which covers single filer incomes from $37,651 to $91,150. While Republicans want to reduce the highest 39.6% and 35% tax rates to 33%, and move those in the 28% bracket down to the 25% one, those currently in the 25% range are projected to stay where they are, so Waring will get no relief there. “It’s the middle class as usual,” she states. “It’s always like if you’re poor, there’s some help and if you’re very wealthy, you don’t need help, but the middle class just keeps taking it over and over again.”
Waring’s home state of Maryland is the No. 1 state in the nation with regard to the percentage of its taxpayers who take the state and local deductions. Analysts have noted that the GOP plan would especially hurt blue states, which tend to have higher state taxes, but a significant number of red state residents will be paying more as well. Several of the top states in the nation for percentage of SALT use are red states, with Utah coming in at # 8, the top red state on the list. Kathleen Koprowski, 49, a consultant who lives in Salt Lake City, estimates that the elimination of her SALT deductions would mean she would owe between $800 and $1,100 more per year. “So we get to pay taxes on our taxes?” she asks. “That just seems insane to me.” Koprowski worries that a tax hit would be an added burden for those who are already facing uncertainty about healthcare and insurance costs. “If you take any one of these things on their own, maybe it’s survivable,” she says, “but if you start compounding, the hits just keep on coming.” There is also the question of what the tax increase would mean for her ability to make her IRA contributions. “If I’m paying more taxes and more healthcare and I’m not putting money away for retirement, then what happens when I get to be of retirement age and I don’t have any savings?”
That question is especially relevant for Ann Johnson, a divorced, 68-year-old retiree who lives in a rural area south of Des Moines, Iowa. “Basic living expenses keep going up,” she says. “Utilities are more. All of that keeps going up, where when you’re on a fixed income, that certainly doesn’t.” The loss of Johnson’s SALT deductions would raise her taxable income by $4,850, meaning she would owe $1381 more under the GOP plan. She explains that when you are retired, “There’s really no such thing as finding a new job if the taxes start cutting into you too much. If I was 20 years younger, I might go searching for a new job, but at 68, I’m not going to do that.” Ultimately, she explains, “you can certainly outlive your income pretty quickly.” When we are younger, she says, “we plan based on what we know, and when the goalposts move, you’re going, ‘Wait a minute. That wasn’t how I planned this out.’ It’s so unfair. The goalposts keep moving. People are planning, trying to be responsible planners for the future … You try to be responsible and then somebody pulls it out from under you.”
The moving of those goalposts would be especially punishing for the largest generational demographic of recent homebuyers: Millennials, like 25-year-old Sarah Smith of Monona, Wisconsin, who just bought a home last year. Smith explains that her generation is already “experiencing lower wages, higher debt, and less job security. It’s only going to hit the younger generations even harder to remove that incentive.” Waring agrees: “It’s going to hurt young people … because they’re the ones who are trying to buy a house, and they really need that deduction to be able to afford their mortgage payments.” Yet with GOP tax reform, younger, brand-new homebuyers like Smith stand to lose 30 years of the kind of tax benefits that the generations before them have been able to accrue since the introduction of the mortgage interest and SALT deductions in 1913. “I will have difficulty keeping my house or being able to afford my next without that support,” Smith explains.
So many people will be hurt by the axing of the SALT deduction that, as Koprowski says, “It seems like something that’s going to be incredibly unpopular.” Still, no matter how unpopular the elimination becomes, it will remain high on the GOP agenda because of how it’s tied to Republicans’ ability to get tax reform through the Senate without a filibuster. If they want to pass tax reform with no Democratic votes, they have to do so through budget reconciliation. Under these terms, tax reform will have to be deficit neutral, which means that if Republicans want to cut that corporate tax rate, they’re going to have to find new revenue somewhere else. As Koprowski puts it, “Really, the story that they’re not telling us is, in order to fund the giveaways to corporations, they’re going to sock it to the individuals. So we individuals are going to subsidize corporate America?”
If those individuals are homeowners, especially single ones, it looks like that’s the plan.