There’s a startling new poll out from the folks at Quinnipiac University regarding the Republican tax bill passed by the U.S. Senate last week. Only 29 percent of Americans approve of the tax plan, according to the survey, even as we hurtle toward the House and Senate getting together in committee to see if they can come together to marry the bills they passed in their respective chambers.
I count myself among the many Americans opposed to the bill. My reasons, however, go beyond the main concerns about a plan that ultimately gives a tax break to the rich while hurting some of those who can least afford an additional tax burden. There are conflicting opinions about how middle-class and working-class people will be affected by the plan, especially when comparing what the House passed to what the Senate passed, but it does seem to me that some very rich people will make out very well in either version.
I’m concerned about the bill for its impact on families facing divorce. Much of the work we do as family lawyers is to determine the financial implications that divorce will have on those divorcing. We look at a couple’s assets and debts carefully in determining what kind of decree our clients should pursue, and figuring out the effects on our clients’ taxes is a big component of that. If Congress is able to come to agreement and passes a unified bill, we’ll have to study that very carefully to see just how the new tax bill changes the rules.
Here are four issues we’re watching as the work continues (including some info from this excellent Vox article examining the differences between the two plans):
Individual tax rates: As the Vox article notes, the Senate version keeps the existing seven tax brackets (while lowering the top rate to 38.5 percent, to help the rich), while the House reduces the brackets to four–at 12, 25, 35, and 39.6 percent. It seems, on its face, like the House’s reduction of tax brackets simplifies the code. But where are those cutoffs? If a client needs spousal support to make a transition from being a stay-at-home parent to reentering the workforce, for instance, we want to know if the support amount would move that client into a higher tax bracket
Mortgage interest deduction: In the House version of the bill, the deduction is capped at $500,000 for new home purchases. If that version passes, it could impact how new homebuyers approach markets like Austin, where many home prices are approaching that mark, and San Antonio, which may not be that far behind. The shared home is often the most valuable asset in a couple’s marital estate, and if there’s a new law that in any way affects the incentive for a person to buy a new home, it can have effects on the “Who gets the house?” debate.
Standard deductions and personal exemptions: According to a Motley Fool article making good sense of this sticky issue, “Both provisions would increase the standard deduction. Under the current proposals, the House would create new standard deductions of $12,200 for singles and $24,400 for joint filers. The Senate version has slightly lower amounts of $12,000 and $24,000, respectively. Both would be substantial increases compared to the $6,500 and $13,000 standard deductions that would have been in place without tax reform. However, both provisions eliminate personal exemptions, which makes the net impact on taxable income less dramatic for taxpayers who have dependents.”
Once we know the final numbers from whatever bill the committee comes up with, it’ll be easier to answer the questions this raises about which parent can claim which child at the end of the year. (While that’s not negotiated in every divorce settlement, it could become a more contentious point if a new tax law is ultimately passed.)
The individual mandate: Many see the individual mandate as a necessary part of keeping the Affordable Care Act working for Americans who weren’t able to afford or even get health insurance before its passage. While the House version doesn’t address it, the Senate version repeals it, and should the Senate’s version prevail, it could have a major impact on divorcing couples who have to determine a new path toward getting health coverage for everyone named in the decree.
My hope is that the Republicans see the clamor against the bill, roll up their sleeves, and maybe even reach across the aisle to Democrats to come up with a bill that a true majority of Americans can get behind. But know that me and the rest of the team at the Law Office of Lisa Vance will be keeping a close eye on it–because our clients absolutely need us to do so.