Partial state and local tax deduction does nothing for vast majority of Maine families under Republican Tax Plan

November 29, 2017 by

Sarah Austin

The two versions of Republican tax legislation making their way through Congress are similar in that they are huge giveaways to the top 1% and profitable corporations, but differ regarding their treatment of income households use to pay state and local taxes. The Senate version completely repeals the state and local tax deduction, while the House version maintains that only property taxes up to $10,000 can be deducted from a family’s taxable income. On the surface the House version might seem better, but in truth only 6% of Maine families would receive any benefit from the partial deduction according to data from the Institute on Taxation and Economic Policy because the larger architecture of the tax bill makes the deduction worthless for most families.  

Currently, about 28% of Maine families itemize their deductions to avoid paying federal taxes on the portion of income they spend on state and local income, sales, and property taxes. Families who itemize their deductions have combined mortgage interest payments, state and local tax payments, charitable contributions and medical expenses that exceed the standard deduction available to all families.  

However, both versions of the tax bill nearly double the standard deduction for single filers from $6,350 to $12,000 and for joint filers from $12,700 to $24,000, which means that many families will switch from itemizing their deductions to taking the higher standard deduction instead. In fact, only one out of four families that currently itemize their deductions will continue to do so under the Republican tax plan. The $10,000 deduction for property taxes would only benefit 6% families and the total amount of state and local taxes Mainers deduct from their federal taxes would fall from $2.58 billion to just $262 million in 2019. 

The savings for Maine families associated with partial protection of the state and local tax deduction barely scratches the surface when it comes to mitigating the ways the Republican tax plan puts Mainers last. By 2027, Mainers would still pay $89.6 million more in federal taxes. The tax plan is still heavily tilted toward wealthy foreign investors who would receive a tax break in 2027 that is nearly three times larger than the net tax break to all American families combined. The tax bill still advantages profitable corporations that send jobs overseas. And, the tax bill will still devastate health care access in Maine, resulting in 50,000 Mainers losing health insurance and premium increases of up to $3,000 in rural areas. 

The final version of the Republican tax bill will still be a losing deal for Maine families if the only substantive change is preservation of a partial state and local tax deduction and piecemeal fixes intended to soften the blow of repealing parts of the Affordable Care Act. Congress would have to fundamentally alter the core components of the bill to truly focus on benefiting low- and middle-income Mainers. That’s not possible under the current framework. They should reject it and start afresh. 

2 Responses to “Partial state and local tax deduction does nothing for vast majority of Maine families under Republican Tax Plan”
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  2. […] showing how the tax bills would  impact health care, children and families, seniors, property tax deductions, and Maine’s […]

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