West Maui Taxpayers Association
  • HOME
  • Olowalu Fire Station
  • WMTAPAC22
  • Affordable Housing
  • West Maui Lifesavers
  • Wall of Honor
  • Support WMTA
    • Membership - One Time Payment
    • Membership - Recurring Payment
    • Donations
    • Wills & Trusts
    • Charity Walk
  • Newsletter
  • Emergency Planning
  • News Blog
  • About Us
    • Goals & Objectives
    • Accomplishments
    • Board of Directors
    • WMTA vs WMIF
  • Contact
  • Subscribe

TrumpTax:  Losing the State Tax Deduction

5/16/2017

 

​WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
​To view the archives of the Tax Foundation of Hawaii's commentary click here.
 

​
Weekly Commentary

For the Week of May 14, 2017


 
TrumpTax:  Losing the State Tax Deduction
By Tom Yamachika, President
 
On April 26, the Trump Administration released a document that contained a roadmap of sorts for an overhaul of the federal tax code.  His proposals included a consolidation of the current individual income tax brackets going up to 39.6% to three brackets, namely 10%, 25%, and 35%.  The standard deduction would be doubled, to $12,700 for single filers and $25,400 for married filing jointly.  Business income would be taxed at a maximum rate of 15%.  The Alternative Minimum Tax (AMT) and the 3.8% Social Security tax on net investment income would be axed.  And most of the deductions we now know would be eliminated, leaving individuals able to write off only mortgage interest, charitable contributions, and some child care expenses.

This all sounds well and good to ease the tax burden but one very popular deduction proposed for elimination is the deduction for state and local taxes.  Under current law, an individual may deduct either state individual income taxes or general sales taxes, but not both, and may also deduct any real or personal property taxes. 

The deduction has two major limits.  First, there is a provision called the Pease Limitation that eats away at itemized deductions for higher income taxpayers.  Second, there is the AMT, which becomes a factor because state and local taxes are “tax preferences” taxable under the AMT, so taxpayers who have large deductions for state and local taxes may have liability under AMT and would need to pay back a good portion of the benefit they thought they were getting from the state tax deduction. 

Nationwide, wealthier taxpayers benefit the most from the deduction. More than 88 percent of its benefits go to Americans who earn more than $100,000 a year, according to the national Tax Foundation.  About 28 percent of tax filers claim the state and local deduction each year.  Of those, 77 percent deduct income taxes and the rest deduct sales taxes.

The state and local tax deduction is more significant in states where taxes and incomes are high.  In New York and California, the Tax Foundation study shows that the state and local tax deduction represents 9.1% and 7.9% of federal adjusted gross income.  Here in Hawaii, the deduction represents 4.5% of AGI, which places us at the median of states.  Although our tax rate is above the national average, only 29% of Hawaii filers itemize deductions, meaning that 71% derive no benefit from specific deductions.  Because the Trump plan significantly boosts the standard deduction, fewer people will need to itemize.  That would increase the percentage of Hawaii taxpayers deriving no benefit from the state and local tax deduction.  These taxpayers, which represents most of the population, would not be hurt if the deduction is eliminated.  The other, wealthier taxpayers would have exposure if the deduction is eliminated, but may ultimately pay less tax because of the lower tax rates contained in the Trump plan.

Hawaii income tax follows federal law for the most part, but there are two major differences:  Hawaii doesn’t have an AMT, and Hawaii does not allow a deduction for state taxes for individuals making more than $100,000 (single), $150,000 (head of household), or $200,000 (joint) in federal adjusted gross income.  The more affluent taxpayers for whom the deduction is disallowed anyway would not be affected by Hawaii adopting this part of the Trump plan, nor would the taxpayers on the other end of the spectrum who take the standard deduction (although Hawaii’s standard deduction is much lower than the federal one).  Any impact from adopting this part of the Trump plan would fall most heavily on those in the middle.  Ouch!

Look forward to more as the Trump tax plan starts to take shape.


Comments are closed.
    Picture

    RSS Feed


    If you wish to further discuss blog posts, please contat our office directly or contact us via Contact page.

    Categories

    All
    Affordable Housing & Homelessness
    Board
    Capital Improvements
    Charity Walk
    Commentaries
    Community Events
    Community Resources
    CON
    COVID 19
    Educational
    Emergency Planning
    Health & Safety
    HHARP
    Housing
    Infrastructure In West Maui
    In The News
    Kapalua Airport Runway Lights
    Kapalua Coastal Trail
    Lahaina Bypass
    Legislature Newsletters
    LLC
    Long Range Transportation Plan 2040
    Long-Range Transportation Plan 2040
    Makila
    MAUI CANCER CENTER
    Maui Cancer Center Llc
    Maui County
    Maui County Budget
    Maui County Dept Of Environmental Management
    Maui County - Dept Of Water
    Maui Destination Management Plan
    Press
    Public Safety In West Maui
    Real Property Tax
    Recycling Info
    TAT
    Tax
    Tourism
    Traffic & Roadways
    Transportation
    Video
    Vote
    Voting
    West Maui Community Plan
    West Maui Hospital
    West Maui Skate Park
    WMTA Annual Meeting
    WMTA Breakfast Events
    WMTA Candidates Night
    WMTA Disaster Preparedness
    WMTA Fundraisers
    WMTA Hot Topics
    Wmta Hot Topics Replay
    WMTA Membership
    WMTA PAC
    WMTA Sunset Sail
    WMTA Whale Watch

Quick Links: 

Home

News

About Us

Wall of Honor

Newsletter

Support WMTA
Emergency Planning

Contact

Copyright © 2021
Photo used under Creative Commons from wolfsavard
  • HOME
  • Olowalu Fire Station
  • WMTAPAC22
  • Affordable Housing
  • West Maui Lifesavers
  • Wall of Honor
  • Support WMTA
    • Membership - One Time Payment
    • Membership - Recurring Payment
    • Donations
    • Wills & Trusts
    • Charity Walk
  • Newsletter
  • Emergency Planning
  • News Blog
  • About Us
    • Goals & Objectives
    • Accomplishments
    • Board of Directors
    • WMTA vs WMIF
  • Contact
  • Subscribe