If you’ve been following the news lately, you know that it’s been nearly impossible to avoid hearing about the tax overhaul that is currently making its way through Congress.  The first major revamp of the tax code since 1986, this revision has already made its way through both houses preliminarily and the final version will be put to a vote in the near future.  But why is there so much talk about this issue? Yes, it’s a major piece of legislation, but how different could it be from the current tax plan?  Well, the short answer is, ‘a lot’.  The long answer is somewhat more complicated.

The bill was only drafted with input from one party, the Republicans, and has given zero concessions to Democratic policies.  This decision was made possible because the Republicans hold majorities in both houses of Congress, and the presidency, of course.  This has made the advancement of the bill a difficult process, as infighting within their party almost derailed the process several times, especially in the Senate, where they hold a slim majority of 51-49.  Nevertheless, the new plan is in its final stages and is expected to pass in the next couple weeks, giving Americans a new tax code for the new year.  This means that the decision has been particularly divisive, as Democrats are furious at being left out of the lawmaking process and feel that the system has been abused to avoid compromise.

One of the most publicized provisions of this bill is the lowering of the effective business tax rate from 39% to 21%, a move which the bill’s Republican sponsors believe will spur the growth of the American economy, which has already been on a very steady growth curve since 2010.  Corporate taxes are an item which have incited the ire of many in Congress, as Republicans see them an oppressive force keeping down private enterprise, while Democrats see these taxes as an essential policy to keep businesses from abusing their power and wealth.  Finally, it creates a one-time repatriation tax that will allow US-based businesses to bring assets stored overseas to this country for a low tax rate.  This is expected to bring the trillions of dollars in assets which are currently held abroad in tax havens such as the Cayman Islands, Liechtenstein, and Ireland, back to the United States.  Studies have found that over two trillion dollars are now stored abroad and are therefore untaxed.  Offering repatriation as an incentive makes sense, but it’s easier said than done.  Congress tried the same thing in 2004 under President George W. Bush, which actually led to more money being stored overseas and cost the federal government billions of dollars.

Of course, businesses are not the only parties affected by this bill.  Income taxes and other factors affecting individuals are also seeing an extreme change come about.  Probably the widest reaching of these is the reworking of the income brackets, decreasing the number from seven to four.  The highest tax rate remains 39.6%, but the threshold for this rate has been raised from an annual income of $480,050 and now only affects earners of over $1 million.  Earners from the two next lower brackets  (previously 33% and 35%) have been consolidated so that all earners between $260,000 to $1 million pay a rate of 35%, an increase for some and a major decrease for other top earners.  Brackets of 28% and 25% have also been consolidated at 25% and earners between $90,000 and $260,000 will pay this rate.  Finally, the lowest brackets which were previously 15% and then 10% for the lowest earners are brought together at 12%, a tax increase for the lowest of the lowest earners.

Income tax is not the only factor that is important in seeing the effects on individuals and households.  Deductions, or specialized reductions in tax based on certain criteria, have also been thoroughly reworked.  Standard deductions ensure that all tax filers have some form of untaxed income.  Single and married deductions are increased, and so is the child deduction which will benefit lower earning tax filers. To offset this, other deductions have been eliminated, such as those for property tax and state income tax.  This aspect of the tax bill will prove devastating for New York, which has the highest property income taxes in the nation. The Republican tax bill will drastically increase tax rates for all New Yorkers, especially those on Long Island.  These provisions specifically and disproportionately affect middle-class Americans who will also see taxes soar in other states.

However, these increases for middle class tax filers do not sufficiently counterbalance the decreases in corporate tax rate and income tax for top earners.  The bill has been shown by the nonpartisan Congressional Budget Office that it will increase the budget deficit by $1.4 billion over the next ten years.  This is defended under the pretense that by subsidizing business the American economy will grow enough to neutralize this, but this is a lofty dream.  Were the economy to grow at the rate needed to offset this deficit, it would cause rampant inflation and a multitude of other problems associated with uninhibited growth.  The Federal Reserve Bank would end up boosting interest rates, which slow growth in an effort to maintain stability.

Overall, people’s thoughts on bill is vary widely depending on who you ask: some will call it one sided, unfair, or rushed; others will call it a necessary step to improve the American economy and a way of righting perceived wrongs on the business community.  One thing is for certain: New Yorkers had better be prepared to pay higher taxes.