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EDITORIAL: Tax provision benefits Hoosiers

October 7, 2017

Depending on whom you believe, President Donald Trump’s tax plan might be a great boon for business growth and the economy or a bust that will make the richest Americans even richer, all the while making our federal budget even more out of whack.

Most likely, the truth is a little bit—or a lot—of all those things. (Of course, it’s tough to tell for sure, given that Trump’s plan lacks quite a few key details. But there are some general takeaways.

The plan’s doubling of the standard deduction for all individual payers has the potential to cut bills for many in the middle class, even if their actual tax rates inch up. The plan would expand the child tax credit, an effort aimed specifically at helping families with children.

For the highest-income earners, the top tax rate would drop considerably. The plan’s change in the way the owners of pass-through businesses pay taxes is a benefit for entrepreneurs. And the elimination of the alternate minimum tax (originally meant to make sure taxpayers with lots of deductions paid their fair share) will help higher-income earners, too.

The liberal-leaning Brookings Institution says the plan “provides its largest and most enduring tax breaks for wealthy Americans and for corporations.”

“The poorer you are, the less likely you are to leave poverty,” the institution says.

Meanwhile, Aparna Mathur—a resident scholar at the conservative-leaning American Enterprise Institute—argues the plan’s cut in the corporate tax rate and elimination of incentives for companies to shelve cash overseas “should boost investment and wage growth in the U.S.”

“Research suggests that the real winners might be working class families in America, as American businesses expand and grow their productive investments in the U.S.,” she says.

But analyzing the tax plan needs to go a step further for Hoosiers. Under the current tax system, residents of lower-tax states like Indiana actually can face a higher federal tax burden than residents of higher-tax states like California and New York.

That’s because taxpayers get to deduct what they pay in state and local income and property taxes from their taxable income when calculating what they owe the feds. That reduces tax bills for people in all states. But it reduces the tax burden for people in New York (where residents pay about 12.7 percent of their income in state and local taxes) more than it does for those in Indiana (where the rate is about 9.5 percent).

That alone is not a reason for Hoosiers to support Trump’s tax plan. But it is one reason a serious evaluation of any such proposal is always in order.

During this period of division in our country, it’s easy to spout the party line any time a new proposal is on the table. Let’s resist that temptation. Let’s wait for all the details (and the costs) of Trump’s plan to emerge, evaluate it with an open mind, then find ways to make it better for the nation overall.•

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To comment on this editorial, write to ibjedit@ibj.com.

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