Monday, December 11, 2017

If GOP tax scam passes, paying bills at the end of 2017 might be smart

As the year winds down and talks on the GOP's Piece of Shit tax bill heat up, it may be worthy to figure out if the tax talk may spur on other economic decisions before any changes would even take effect.

In particular, I want to bring you back to CBS Marketwatch's handy Trump Tax Calculator, which gives a projection of what would happen to your taxes if either of the GOP's tax bills were to become law. When I first messed around with this a month ago, it alarmed me, because it showed that we'd pay less by taking the larger standard deduction than in itemizing what deductions remained.

Now that might sound good on the surface, and maybe it will be compared to what we pay now (although a quick estimate is that it won't change much). But the bigger concern is that under the GOP tax bill, we would now have zero tax advantage to us writing off our mortgage interest and local property taxes, nor do we get any benefit to making charitable contributions. Obviously, this could have awful effects for many sectors of the economy, as it makes less people likely to own homes or donate to charity, which could cause severe disruptions in both of those parts of the economy.

But we may not even have to wait until 2018 to see things get changed. If this Piece of Shit looks like it's going to become law starting with tax year 2018, then we can make some moves for tax year 2017 that can change things. For example, we have until the 15th of the month to pay for our mortgage, but if we pay it by December 30, then we get that mortgage interest payment in 2017, while we can still write it off. Same goes for our home equity loan, and for my student loan.

And while we pay our property taxes in December every year, many people don't pay their taxes until January. But if they might lose the tax benefits of paying property taxes in 2018, it would make sense to pay that bill at the end of 2017, if they can. For example, paying a $5,000 property tax bill for someone in the 25% income tax bracket allows for someone to get $1,250 reduced on their 2017 taxes vs getting NOTHING if you pay in January 2018. Same goes for that donation to your favorite non-profit, whether it's a church, university, or social cause. If you want to get something back for that, better send it in by the end of December.

I know that many don't want to think much about paying bills as the year ends, especially with Holidays and travel going on. But if the GOP"s Piece of Shit does go through before the end of the year, spending a little now may prevent you from losing a lot later on. Now, you can argue that maybe those incentives should be limited and/or go away because it distorts outcomes - a view that I would be sympathetic to if we were starting from scratch.

But just because bad laws get passed, it doesn't mean that you ignore that reality, and it would be smart for people to take a look at the Trump Tax Calculator, and adjust accordingly in case this awful tax bill ever becomes law. Again, click through the Trump Tax Calculator and see if you are better off paying now, or paying later.

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