Every day the country is electrified by the latest resignations of politicians, firing of celebrities and the lurid stories of their accusers over sexual improprieties.
Probably the only other event taking place that might vie for attention is the show going on in Congress: Creating and passing The 2017 Tax Act.
Everyone is analyzing who will be the winners and losers under the proposed tax bill. Will some part of the middle class reap a tax benefit? How much? Will the wealthy reap a bigger benefit? How much will Trump get out of it?
Few have discussed how this legislation may cause some taxpayers to postpone retirement or the effect on those already retired. In reading analyses of the possible new tax law, one comment always seems to arise: It all depends.
It all depends on how much you are making, in what state you live and where you intend to live in retirement. It all depends upon how much you deduct in itemized deductions like state and local taxes (SALT), real estate taxes and interest on home mortgages. A benefit of this debate is that more people now know that SALT is not necessarily what you put on food for flavor.
Most blue state taxpayers will be affected more by the loss in itemized deductions than other states. Blue staters tend to earn higher income but they also tend to pay much more mortgage interest, have higher state tax burdens and real estate tax burdens.
The central theme of the current proposed legislation is the lowering corporate tax burden. One way or another, someone has to pay for loss of revenue. Yes, you guessed it: The middle class but more likely the upper middle class and lower high income class. The 2017 Household Income Survey, Table HINC-01," U.S. Census, states household income of the upper middle and high income class is between $100,000 and $150,000. According to Wolters Kluwer, the average itemized deductions for the upper middle and high income is about $35,000. This is a national average. It is much higher in blue states
Let’s say your tax burden rises $10,000 per year due to the loss of SALT and mortgage interest. A loss of $10,000 of annual income over 30 years, assuming a 7% investment return, would be a loss of wealth of a little more than $1 million. A loss of $5,000 annually due to loss of itemized deductions with the same assumptions would be a loss of a little more than $500,000. This loss of wealth has to be made up somewhere. Some will have less buying power, less of a lifestyle or to make it up, will work longer.
Some recent political, business and entertainment men have resigned or have been forced to take leave from the world stage for the greater good of women’s rights. Maybe the class of taxpayers serving a higher cause, reducing the corporate tax rate, making US companies more competitive in the world, and possibly creating more job, will make them feel better. I doubt it.
Al Zdenek is the president, CEO and founder (1982) of Traust Sollus Wealth Management, a boutique wealth management firm dedicated to empowering people to transform their lives and live the life they wish now and in the future. This is done by consistently making the best financial decisions. His book, "Master Your Cash Flow: The Key To Grow And Retain Wealth," and his upcoming book, "Master Your Cash Flow: The Key To Grow A Valuable Business," shows readers how to achieve the wealth they need and then find additional cash flow and, if saved, build wealth sooner, work less years or have more wealth to live the lifestyle they desire now and forever.
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