The start of every new year generally brings a sense of opportunity and eagerness to begin anew. But for state and local governments, ringing in 2018 marks the beginning of an era of potential uncertainty, the result of a revised tax code rushed through Congress at the end of 2017.
Governments will need to take a hard look at their budgets and finance strategies through the lens of the new federal tax regimen. This article will recap some of the more notable changes signed into law in the final days of 2017.
NEW TAX BRACKETS
While differences existed between the House and Senate drafts of the bill released in November 2017, the disagreements were resolved largely within the final weeks of December, delivering a significant legislative win for the president. As expected, the law generally reduces tax rates, but it does not reduce the overall number of tax brackets, as House leaders initially hoped. The seven brackets are:
* 10 percent on taxable income up to $9,525 (individuals)/$ 19,050 (households)
* 12 percent between $9,525/$ 19,050 to $38,700/$77,400
* 22 percent between $38,700/$77,400 to $82,000/$ 165,000
* 24 percent between $82,500/ $165,000 to $157,500/$315,000
* 32 percent between $157,500/ $315,000 to $200,000/$400,000
* 35 percent between $200,000/ $400,000 to $500,000/$600,000
* A top bracket of 37 percent on taxable income of more than $500,000/$600,000
The standard deduction was doubled to $12,000 for individuals and $24,000 for households. Personal exemptions were repealed, but the child tax credit was increased to $2,000 per child, $1,400 of which is refundable. All of the rates expire after December 31, 2025.
THE SALT DEDUCTION
GFOA has been actively opposing attempts to repeal the state and local tax (SALT) deduction. Over the course of 2017, GFOA issued a number of reports and engaged in extensive efforts to educate members of Congress about the importance of the deduction and how eliminating it would affect state and local government budgets. While SALT initially faced complete elimination under the Senate proposal, the deduction was partially preserved in the final version. For individuals, the SALT deduction is capped at $10,000 for property, plus income or sales taxes. GFOA encourages its members to share information on any modifications in state and local tax laws as a result of the federal change.
Unfortunately, the change in the SALT deduction is not the only new reality that state and local...