Mrs. Groovy and I have a very simple tax situation. Our income is $30K a year—$20K from my New York State pension and $10K in dividends from our brokerage accounts. We own our house outright, have no kids, and pay very little in state and local taxes ($3,000).
Since our tax deductions are so low relative to the standard deduction for a married couple, it would be foolish for us to itemize on our federal taxes. Here, then, is what our federal income tax liability will be for 2017.
2017 Income Tax Liability
Gross Income: $30,000
Less Standard Deduction for Married Couple: $12,700
Less Personal Exemptions for Married Couple: $8,000
Taxable Income: $9,300
Federal Tax: $930
And here is what our federal income tax liability will be under the new tax law.
2018 Income Tax Liability
Gross Income: $30,000
Less Standard Deduction for Married Couple: $24,000
Less Personal Exemptions for Married Couple: $0
Taxable Income: $6,000
Federal Tax: $600
Is Good for Us Good for the Country?
So the new federal tax law gives us a 35% income tax reduction. Yippie! That’s great for us. But is it great for the country?
I have my doubts.
Part of my concern has to do with capping the state and local tax deduction at $10K. Most of my family members and friends on Long Island pay property taxes in the $12-15K range. I have one friend in Bayville who pays $20K, and I have another friend in Woodbury who pays $36K. These family members and friends also pay state income taxes, sales taxes, and a cornucopia of additional fees, tolls, excises, and surcharges to the state. Since most of them have state and local taxes that exceed the new standard deduction, most of them are going to see an increase in their federal income taxes going forward. Ouch!
Another concern I have is the national debt. We are currently $20 trillion in the hole. Will the new tax law curb our addiction to debt or exacerbate it? In other words, will the new tax law create enough businesses, jobs, and salary hikes to offset the lower marginal tax rates and the inevitable rise in federal spending?
I’d be floored if it did.
The only time in my life the federal government was able to live within its means was for a few years in the 90s after our primary military foe collapsed. Well, that primary military foe, Russia, has a formidable military again. And so does China. And let’s not forget North Korea, Iran, and Al-Qaeda and its various affiliates. They have enough missiles, guns, and soldiers to create a lot of mayhem.
Bottom line: I don’t see another peace dividend on the horizon, federal spending is going to keep on rising 6-7% a year forever (we’re too culturally weak to handle any spending cuts), and the national debt will be around $30 trillion when the Trump presidency ends.
Okay, groovy freedomist, that’s all I got. What say you? How does the new tax law affect you? Are your federal taxes going up or down? And does the new tax law benefit the long-term fiscal health of our country? Do you give it a thumbs up? Or a thumbs down? Let me know what you think when you get a chance. Peace.