GOP tax code simplification? It’s a bit complicated.
Overhaul makes filing easier for some, but not all
“We’re making things so simple that you can do your taxes on a form the size of a postcard,” House Speaker Paul Ryan, R-Wis., said last month, pulling one from his jacket pocket as he and Republican leaders unveiled their bill.
They gave a couple of the cards to President Donald Trump at a White House meeting a few hours later and flashed them often at news conferences.
But as the tax legislation worked its way through Congress to passage, that postcard has disappeared — it was nowhere to be seen at last week’s White House celebration — as have many of the changes that were designed to simplify the federal tax code.
Deductions that House Republicans planned to eliminate were added back into the bill. A plan to reduce the seven existing tax brackets to four was abandoned. The complicated alternative minimum tax for individuals, which the House bill proposed to cut, was kept.
In the case of so-called pass-through businesses, which pay taxes through the individual code, the overhaul adds new complexities in how they classify their income.
Experts said the new tax code won’t be much different than the existing code.
“For some taxpayers, it will be a little simpler, for some it will be more complex, but overall it will be familiar and folks won’t think of it as some drastic change,” said Joseph Rosenberg, a senior researcher at the nonpartisan Tax Policy Center. “On net, it’s not going to be any simpler.”
The biggest simplification is a nearly doubling of the standard deduction — to $12,000 from $6,350 for individuals, and to $24,000 from $12,700 for couples. That will sharply increase the number who do not need to itemize because the value of their total deductions won’t exceed the new standard deduction.
“Just doubling the standard deduction means 9 out of 10 people can — I wish I had it with me — 9 out of 10 people can file their taxes on a form like a postcard,” Ryan said this month, patting his pocket but no longer carrying one of the postcards.
The Tax Policy Center said those figures are roughly correct. It estimated that the number of people who itemize will drop to about 19 million from about 46 million after the bill’s changes take effect.
Not having to itemize would reduce the time and cost of filing taxes. A study by Youssef Benzarti, an assistant economics professor at UCLA, estimated that filing taxes costs Americans about $200 billion a year.
The figure has been rising since the 1980s in part “because of the increase in the number of forms filed by each taxpayer,” the study said.
But many who won’t have to itemize still will have to calculate their deductions to see if they exceed the new standard deduction, Rosenberg said.
While no longer having to itemize deductions simplifies tax filing, the bill also eliminates some breaks that helped people reduce how much they send to Washington, said Edward Kleinbard, a University of Southern California professor and former chief of staff to Congress’ Joint Committee on Taxation.
“My experience is that taxpayers are willing to accept a good deal of complexity if doing so saves them money,” Kleinbard said.
The alternative minimum tax, which forces some upper-income earners to calculate their taxes twice to see if it applies, will remain in place, although it will apply to far fewer.
The Tax Policy Center estimated that the higher exemption level in the bill for the alternative minimum tax will mean the number of filers who have to pay it will drop to about 200,000 from 5 million. So for many of the people who now pay it, the bill will simplify tax filing.
But again, some who will not have to pay the alternative minimum tax still will have to go through the calculations to determine if it applies to them.