CRYSTAL LAKE – President Donald Trump’s proposed tax reform plan is a mixed bag, but one that is likely to benefit at least some McHenry County families and business owners, financial experts and McHenry County business owners said.
The federal reform plan, which some have criticized as disproportionately benefiting corporations and wealthier Americans, includes measures such as doubling the standard deduction, raising the child tax credit amount and slashing the corporate tax rate.
The proposal also includes plans to remove personal exemptions and place caps on certain deductions, such as the mortgage interest deduction.
Other proposed changes include the elimination of many special interest deductions, such as student loan debt interest and medical and moving expense deductions. A family tax credit could be implemented, and the child tax could jump from $1,000 to $1,600 under the current proposal.
“In some cases, you can see it’s not going to be such a good deal,” said financial adviser Mike Piershale, president of Crystal Lake-based Piershale Financial Group. “In other cases, I can see where it really can help people.”
The middle class
The plan has been touted as the ideal way to decrease the tax burden for middle-class Americans, in part because of the doubled standard deduction. Married couples were able to deduct $12,600 from their taxable income last year using the standard deduction. A single person could deduct half of that. Under the new proposal, those allowable deduction amounts would nearly double, allowing married couples to deduct $24,000 and individuals to deduct $12,000.
About 70 percent of American families take that standard deduction in lieu of itemizing things such as state and local taxes, charitable donations and mortgage interest, Piershale said.
“That means their itemized items aren’t greater than the standard deduction,” he said. “Even with the standard deduction at its current level, it is still a better deal for people.”
A piece of the proposal eliminates personal exemptions, which could hurt some families, Piershale said.
For example, a family of four right now is entitled to an automatic $16,200 exemption through personal exemptions. Add in the standard deduction, and that family is looking at sheltering about $29,000 from taxes. If personal exemptions go away, the family will be left with its standard deduction of $24,000 – $5,000 less than it originally was able to deduct, Piershale said.
The proposal also seeks to limit home mortgage interest deductions to $500,000, half the current $1 million limit. McHenry County homeowners in 2017 have taken or refinanced 152 loans for property valued more than $500,000, about 2.8 percent of the total 5,503 single-family home and condominium loans, according to data from Attom Data Solutions.
Provisions would end deductions for state and local sale and income taxes and would cap the property tax deduction at $10,000. About 11 percent of McHenry County tax bills were higher than $10,000 in 2016, which includes a total of 15,122 tax bills ranging from hundreds of thousands to more than $10,000, according to data from McHenry County Treasurer Glenda Miller.
The plan disincentivizes home ownership, which will have a detrimental effect on community stability and wealth creation, said Conor Brown, government affairs director with Heartland Realtor Organization of Greater McHenry County.
“Anything that deters home ownership or ultimately pushes against those incentives is worrisome,” he said. “We aren’t against simplification and tax reform – it just doesn’t have to come at the detriment of homeowners. ... We are really seeing middle-class homeowners taking it on the chin.”
U.S. Rep. Peter Roskam, R-Wheaton, said the plan will support small businesses, bring back money from offshore accounts, boost the economy and provide tax relief for an overburdened middle class.
“Springfield has piled on taxes,” Roskam said. “The idea that the federal government can decrease [residents’] tax liability and their tax burden is incredibly significant.”
The plan proposes to cut the corporate tax rate from 35 percent to 20 percent and allows companies that keep large sums overseas to bring back that money to the U.S. with a lower tax on offshore earnings.
“When a few trillion comes back to the United States, we will see economic growth that is very significant,” Roskam said.
But it’s not only big corporations that stand to benefit from new rates. Smaller, local business, as well, can take advantage of numerous aspects of the plan.
Doug McAllister, who owns Douglas Automotive in Crystal Lake, Fox River Grove and Barrington, said that although he isn’t going to “hang his hat” on the proposal, it looks like it would benefit his business.
“Taxes are by far the biggest expense, other than payroll,” McAllister said. “Between state and local taxes, real estate taxes, income taxes – it’s just a huge number. It is crushing.”
He said that tax relief would allow him to put more money into his business for items such as tools, equipment, hiring, pay raises and overall growth – for example, marketing or buying equipment and machines that would allow the shop to offer more services to customers.
“If the money isn’t there because it’s going somewhere else, it’s obviously not available for that,” he said. “This could be a big help.”
The House Committee on Ways and Means will review the bill Monday. It will undergo a multiday review process before the committee passes it to the House for consideration, Roskam said.
“This could be on the president’s desk by the end of this calendar year,” he said.