What does Senate tax bill mean for state?
Western Connecticut awoke Saturday to a vexing mystery amid chimes of anger from Democrats over a tax reform bill that offers deep cuts for corporations, business owners and the rich.
The mystery: What does the sweeping Republican plan mean for the diverse run of cities and towns in the triangle between Greenwich, Danbury and New Haven, including Stamford and Bridgeport?
“It’s very mixed for Fairfield county,” said Joseph McGee, vice president for policy at The Business Council of Fairfield County, hours after Senate Republicans passed the $1.5 trillion tax bill in the overnight hours. “In general the Northeast, there are positives, but there are very strong negatives.”
The stark contrast between rich and poor, nowhere more than in Fairfield County, comes into stark focus with the tax bills, which count on overall economic growth and higher wages to make sure handouts to the rich reach everybody else — a dicey proposition, many experts say.
“The bottom line here is, when you start putting money back in corporate hands, the question is, is it going to end up in higher wages and greater job growth? I would doubt it,” said economist Donald Klepper-Smith of DataCore Partners in New Haven.
The GOP will work quickly to iron out the differences between the House and Senate tax bills with the goal of delivering final legislation to President Donald Trump by Christmas.
A comparison of the two Republican-written measures:
Personal income tax rates: Senate bill retains the current number of brackets, seven, but changes them to 10, 12, 22, 24, 32, 35 and 38.5 percent. Under current law, the top bracket for wealthiest earners is 39.6 percent. The House measure condenses seven brackets to four: 12, 25, 35 and 39.6 percent. Under the Senate bill, the reductions in personal income tax rates are temporary, ending in 2026. They’re permanent in the House bill.
Individual insurance mandate: Senate bill repeals the requirement in Democrat Barack Obama’s health care law that people pay a tax penalty if they don’t purchase health insurance. House bill does not.
Corporate taxes: Senate, House bills both cut current 35 percent rate to 20 percent, but Senate has one-year delay in dropping the rate.
Standard deduction: Used by about 70 percent of U.S. taxpayers, currently $6,350 for individuals and $12,700 for married couples. Senate, House bills both double those levels to $12,000 for individuals and $24,000 for couples.
State and local taxes: Senate, House bills end federal deductions for state and local income and sales taxes, but they allow the deduction for up to $10,000 in property taxes.
The deepest worry for many taxpayers locally is the loss of deductions for the big-three payments that add up to hefty tax savings for upper-middle-class and wealthy families, heavily in Fairfield County: the state income tax, the property tax and mortgage interest.
Both the House version, which passed last month, and the Senate version that passed at 1.45 a.m. Saturday eliminate deductions for the state income tax. Both cap deductions at $10,000 for the property tax and both limit the mortgage deduction, though the Senate version only cuts into loans of more than $1 million.
That raises fears that the housing market will suffer in places like Fairfield and Westchester counties, where property taxes are often well above $10,000. That’s especially worrisome for houses in the $700,000 to $1.5 million range, whose owners are well off but not necessarily rich enough to see their income tax cuts make up for the loss of their deductions.
Clearly, the highly touted cuts in business taxes — including the corporate rate falling from 35 percent to 20 percent and lower levies on partnerships and business owners — will help the companies and investors located here.
“The thing we’re worried about is the employees,” McGee said, especially homeowners with household incomes between $100,000 and $300,000. “They’re going to see a tax increase.”
Connecticut is already losing about 25,000 residents per year to other states and that could get worse, Klepper-Smith said, at a time when state growth in jobs is near zero.
“We’re basically treading water, let’s just hope we can continue to tread water,” he said.
As for typical residents of cities such as Bridgeport, that’s also a mixed picture with long-term fears. Tax rates for families with children who earn $40,000 to $80,000 are likely to fall if they don’t take itemized deductions, as the standard deduction doubles to $24,000 and the child credit increases from $1,000 to as high as $2,000 in the Senate plan.
But some of those benefits disappear after a few years, as lawmakers added a sunset provision to some personal tax rates because the massive business cuts create a deficit of $1 trillion in 10 years, even with some economic growth.
Another fear for Connecticut cities is whether historic tax credits for renovating old buildings, killed in the House version, survive the joint version that Republican leaders work out. And yet another fear is the effect of federal spending cuts in the coming years.
“Two years from now when we see that the deficit is not shrinking, there’s going to be this massive pressure to cut federal spending,” McGee said.
In Washington, Connecticut’s Democratic Senators, Richard Blumenthal and Chris Murphy, blasted the Senate bill.
“Americans will remember this day — and the Senate Republican majority will rue it — for the catastrophic scam foisted on the American people in the dead of night,” Blumenthal said. “It is a bait-and-switch, promising a simpler and fairer tax code, and actually making it more complex and unfair.”
While GOP leaders are expected to try to get a final bill to President Donald Trump by Christmas, Murphy said they should re-think their proposal.
“This bill, written in haste and passed in the dead of night with absolutely no ability for the American public to look at it, will be a disaster for the economy,” he said. “It’s not too late for Republicans to go back to the drawing board and work with Democrats to come up with a bipartisan bill that helps the people who really need tax relief.”