Now that the Piece of Shit tax bill has gotten through Congress and will undoubtedly be signed by President Trump (after all, he'll make millions from it), the changes to people’s economic choices will begin. And as I predicted a couple of weeks ago, in Wisconsin one of the first things we’ll see is a rush of people to pay their property and state income taxes over the next 10 days.
[Milwaukee CPA/Attorney] Franklin said he's had an influx of calls from his clients, trying to decide if they should finish paying 2017 income tax estimates or property taxes before Jan. 1. That's when changes to the tax code would take effect if the bill is approved.And as I have checked on the Trump Tax calculator, this would definitely happen to me and my wife, and the reason why is that the deduction for State and Local Taxes (SALT) will be limited to a total of $10,000. And since our other itemized deductions don’t exceed $14,000 (mortgage interest and charitable donations), it’s not worth it for us to itemize anything.
"It's an extremely short time frame here if somebody is trying to get tax bills paid before city hall or village halls close for the holiday weekend," Franklin said.
But there are some real benefits to getting taxes paid under the current system.
"There’s really some low-hanging fruit of opportunity," said Nate Byers, a CPA and financial planner in Madison. "Like possibly pay real estate taxes before the end of the year instead of in 2018, because a lot of people are not going to be itemizing and not receiving that benefit going forward."
Byers said the tax overhaul raises the standard deduction so fewer people will benefit from itemizing their taxes under the new law.
This concern of deductions going away is even more pronounced in high-income/high-property tax states as well as with people with costly mortgages, so expect accountants and local governments to be busy in the usually-dead week between Christmas and New Year’s. Let’s also see if a number of charities get surprise year-end donations, in an attempt for people to be able to write that off while they can. It's less likely that we'd see much change in the housing industry (good luck finding and closing on a house in 10 days), but it could be worthwhile to pay your mortgage on December 30 vs January 2, since the interest paid will be credited to 2017, and still be able to be written off.
And if you have a home equity line of credit, you definitely should try to pay something before the 31st, because that interest deduction is going away entirely starting in 2018. So even if you're still itemizing after this year, you won't be able to write off that type of interest (and it might make it worthwhile to pay it off if you can).
The lack of SALT deductions also might spur some end-of-year car buying in other states, as people can choose to deduct the sales taxes they pay instead of income taxes, which is especially useful if you live in a no-income tax state like Texas or Florida. That makes me wonder if there might be a small economic stimulus that comes from pulling all of these transactions forward to December instead of happening in the normal time frame, inflating 4th Quarter growth for 2017, and slightly decreasing growth in early 2018.
It also makes me intrigued to see what effect there might be to the fiscal situations of all levels of government if these pre-payments of taxes and acceleration of economic activity happen before New Year’s 2018. From the Federal side, will this mean that there will be larger refunds (from the last year of itemized write-offs), which would lead to a larger-than-expected budget deficit appearing in the Spring due to revenue shortfalls.
On the state side, there won't be as much of an effect, since Wisconsin (and I imagine most other states) bases the income to be taxed on the amount you have BEFORE you itemize. About the biggest effect would be if you are the rare person that pays state income taxes directly and/or quarterly, then you might want to pay as much of your 2017 taxes as you can (of course, if you pay your income taxes separately, you might not have to worry about your deductions going away).
On the flip side, local governments in places like Wisconsin could see a notable bump in their year-end 2017 balances if more people pay their property taxes in December. Given that local governments operate on a year-round basis, this could give give the appearance of a short-term improvement to a community’s finances, and in early 2018, that may allow for some budget holes to be filled. The problem, of course, is that those taxes won;t be getting paid in January 2018 as much, and locals are going to have to be careful to recognize that the bump in 2017 collections will not continue for 2018, and may well lead to a decline in overall revenues for that year.
The real fiscal question will deal with what happens to wages and employment in 2018 now that the incentives are different. With that in mind, take a note of this piece of corporate PR BS that got leaked out today from AT&T.
AT&T, the No. 2 U.S. wireless carrier, said it will pay $1,000 bonuses to more than 200,000 employees and invest an additional $1 billion in the United States in 2018, once the tax reform bill is signed into law. An AT&T spokesman said the bonuses were unrelated to the $1,000 that 20,000 AT&T Mobility employees will receive as part of an agreement with the Communications Workers of America announced last week.First of all, the Wall Street Journal's John Harwood notes that there's more to AT&T's move beyond just giving a one-time payout to its employees.
Employees eligible for the bonus are all “union-represented, non-management and front-line managers,” AT&T said in a statement. The company has more than 250,000 employees in all. The bonuses will cost the company at least $200 million, but the precise amount is not yet known, the company said.
isn’t AT&T scrambling to overcome Trump administration opposition to Time-Warner deal? this is an announcement Trump will love https://t.co/lvM5DOCkuG— John Harwood (@JohnJHarwood) December 20, 2017
Cynical enough, but the real reason that I doubt year-end "tax reform" had much to do with these one-time bonuses is that AT&T WOULDN'T PAY LOWER TAXES ON 2017 PROFITS ANYWAY! The bill doesn't take effect until next year, so there's no extra post-tax profits to distribute for at least a few months (corporations usually pay taxes quarterly). If AT&T is giving out these one-time bonuses at the end of this year, it means that their profits on the higher corporate rates of 2017 end up being less.
And if these aren't base-building raises, then their salary costs don't go up for 2018, allowing AT&T to take advantage of lower tax rates on added profits. They get to write off the "investment" (likely in automation and other non-worker technologies) as part of a 100% write-off of eligible property and equipment, which is also part of this bill. So it's a win-win for AT&T from a tax standpoint, but I'll be interested in seeing if those AT&T employees that are getting the payouts today are still around in 1-2 years.
Watch for these little tricks in the coming week-and-half, because those with the money and time to rent-seek with their payments and taxes will do so. You may as well do the same and cash in a bit, because unlike the rich, corporate slime that donate to the GOPs that passed this Piece of Shit, most of the rest of us are going to be quite screwed in the coming years.