The tax reform bill (linked below) was released this week and it is really a zinger. An effort to simplify taxes for the average person is truly evident but it comes at a cost for many families and creates a number of incentives for cheating the system.
The bill eliminates nearly every foundational tax principal and expectation that our nation has operated under for decades. Gone are medical deductions (grandma’s nursing home / assisted living costs), state / local income tax deductions (a double tax event), student loan interest (school is bad for you), employment expenses (stick it to the unions and those working two jobs), casualty losses (the hurricanes, floods, earthquakes and tornadoes are your fault existing and your human privilege), adoption credits (leave the kids in other countries in a rotting orphanage while we place every barrier possible to adopt one domestically), personal exemptions (God forbid you have more kids – lets be like China and only have one!). After the carnage there is only one narrow education credit (did I say that school is bad for you?), a much deflated mortgage interest benefit (lets all be renters and not give a hoot when we tear the place up), a limited real estate tax deduction (let’s really tear the place up) and a severely shrunk charitable deduction (giving to the United Way or your church is heresy!).
Yes there is a bigger standard deduction but that is more of a dose of short acting Versed to mask the destruction. When you wake up, you will feel the pain……
My largest concern is the elimination of the employee business expense. Most of my clients live by this as their staffing agencies don’t pay for all their expenses for licenses, education, travel and meals etc.. That 2000 mile drive to work that 13 week assignment at a critically low staffed hospital under the proposed law is NOT deductible and good luck prying the reimbursement out of your agency. Seasonal assignments in the southern states to care for the snowbirds are going to suffer – now you cannot deducted the housing costs. This will also encourage some less than desirable agencies to REALLY drop the taxable rate – once a traveler realizes that their professional memberships, licenses, uniforms and seminars are NOT deductible, they will begin to demand reimbursements. Then we can really have a Social Security funding problem once more people get tax free monies to cover all these employment expenses.
Working as a contractor is now more appealing since its the ONLY way to write off business expenses. Talk about the workers classification issues to follow.
I have one solution- make employee business expenses an above the line deduction with the same 2% of AGI (or some sort of MAGI calculation) threshold that they have always had. Or even a 25% of AGI threshold is fine. That way there is no disparate treatment of employees vs contractors for the same expenses.
I realize that this is just the first salvo and the bill may meet the same fate that the Obamacare repeal did OR look like something completely different when finally passed. For now, I’m a bit bewildered at a Republican Congress that is scraping the system for the sake of scrapping the system. We may wipe the table clean, but the next administration will begin putting plates back on the table because the table is so empty and inviting!