By No Labels
The tax bills in the House and Senate have some massive differences, but here’s one thing they have in common: As written, both would substantially increase the standard deduction.
The standard deduction is the amount that all individual taxpayers can use to reduce their taxable income, and it is claimed by roughly two thirds of those who file. For single filers, the standard deduction is currently $6,350 and for married couples filing jointly it is $12,700. Both the House and the Senate bills would almost double those numbers, moving the deduction for singles to $12,000 and for married couples to $24,000.
As anyone who files taxes knows, that’s a big change. For many Americans, taxable income will drop. The number of taxpayers who itemize deductions may also decrease.
Taxpayers choose to itemize deductions like mortgage interest and charitable giving when those deductions reduce their taxable income by more than the standard deduction. For example, if you are single and could list deductions that totaled more than $6,350, you might choose to itemize. But if the standard deduction was $12,000, you may not choose to do so.
So it stands to reason that if the standard deductions are larger, the number of people who itemize (now about a third) is likely to decrease. The implications of that could be far reaching. For example, it could simplify filing for some taxpayers who no longer choose to itemize. It could also make deductions like mortgage interest and charitable giving less valuable to some taxpayers, who no longer need them at tax time. Some argue that could reduce charitable giving.
The point here is not tax advice. It is this: The tax bills now working through Congress contain major changes that will impact most Americans, and thus far no bipartisan consensus is in evidence. The House and Senate both passed bills without any Democratic votes.
When tracking the tax bills — or any public policy, for that matter — bipartisan support is usually a good indicator. It means there was compromise and consensus among leaders with different viewpoints. Sound policy and sound process are never too far apart.