On Halloween, it seems fitting to talk about a topic that everyone seems to fear and dread: taxes.
In May, tax reform was the next topic House and Senate Republicans planned to tackle after healthcare. When reforms and repeals failed in September, Republicans shifted their focus to tax reform and cuts — a topic most felt that they could find common ground on. But like healthcare, tax reform is complicated, and there are always winners and losers.
The latest report from The Wall Street Journal says Republicans plan to release a tax plan in the days following Halloween, have it pass the House and Senate and send it to President Donald Trump's desk by New Years. While we wait for that plan, here's a quick recap of the tax policies on the table and how they may affect the home decor industry.
What's new?
Some things have changed since we last tackled this topic in our May issue.
One of the biggest comes from the Border Adjustment Tax, the tax House Speaker Paul Ryan pushed for in his reform plan. Essentially, this plan called for a new tax on imports and an exemption on exports (read more details about it here). Most Republicans seem to have backed away from that tax because of pushback from the business community.
Republicans plan to offer a 20 percent tax cut to corporate businesses. Doing so will add approximately $5 trillion to the deficit over the next decade, but only $1.5 trillion may be added to the deficit. According to the Tax Policy Center, a recent rumor says Republicans may look to gradually lower to that 20 percent rate and reach it by 2022, but the White House has previously asked for an immediate cut.
Lawmakers are also looking to help middle class households with tax cuts. There may be a larger child tax cut. There was also talk of adding a tax credit that would replace deductions for property taxes and mortgage interest, according to The Wall Street Journal, but this is no longer on the table, as we'll soon discuss.
Additionally, a simpler tax code is believed to be in the works, which would make annual files much easier. It is unclear at this time what that code and filing system will look like.
With or against
Most Republicans assumed they could put a tax plan together, but that's proving to be more difficult than originally thought. In the Senate, Republicans hold just 52 seats, which means they cannot afford to lose more than two votes, and there are plenty of risks for lost votes.
The Wall Street Journal has a running list of senators that may vote no. Sen. Bob Corker (R-Tennessee) has already stated he will not support a plan that was temporary or would raise the deficit, which that 20 percent corporate tax rate definitely would. That is especially problematic because Sen. Rand Paul (R-Kentucky) has said that he will not vote for a plan with cuts that are too small. Sen. Susan Collins (R-Maine), one of the "no" votes that sunk the healthcare vote back in September, says she won't vote for a bill that tilts predominately in favor of high earners. In broader terms, the president has not been on good terms with several key senators in his own party, including Senators John McCain (R-Arizona), Jeff Flake (R-Arizona) and Corker, who have all been highly critical of Trump. This could potentially derail the vote.
While most associations are waiting to see the tax bill before announcing their support or disapproval, the National Association of Home Builders has already voiced its disapproval over the new tax credit for homeowners previously mentioned. The association was previously working with Republican lawmakers to craft this new tax credit to replace deductions for property taxes and mortgage interest, but plans fell apart last week, says The Wall Street Journal.
What this means for you
Right now, we can only guess at how this bill could affect lighting and home furnishings retailers and interior designers. A tax cut for the middle class would certainly help free up capital that could be put into home renovations.
According to a separate report in Monday's Wall Street Journal, the U.S. homeowners mobility rate is down to a 30-year low, which means homeowners aren't moving as often as they previously did. This data from the National Association of Realtors shows that the average amount of homeownership is 10 years, and more homeowners are choosing to stay and renovate due to low inventory and high home prices. A tax cut would help more homeowners pay for renovations.
While cutting the corporate tax rate may seem like great business, keep in mind that this doesn't affect S-corporations and LLCs, according to business lawyer and CPA Brian Thompson. Individual tax cuts, like those planned for the middle class, and fewer tax brackets could help small businesses, he said in May, so look for those changes.
But if corporations pay less money in taxes, then they can reinvest and create jobs, right? In theory, yes, but it's important to remember that adding too much to the deficit can cause major problems in the future, including higher taxes for everyone and inflation. As Eric Toder at the Tax Policy Center told us last May, having a deficit is okay when it's balanced by an equally growing economy, but when that balance tips, it can mean serious problems for everyone.
As always, keep up to date on the latest news involving tax reform. Check multiple sources for a rounded view of this complicated matter, and remember, look to the forest and not just the trees.
(Photo: aboblist.com via Flickr)
