As I wrote this column Saturday — the first anniversary of President Trump’s inauguration — the federal government was shut down. By Monday, it appeared poised to get back to work, as a compromise deal to end the legislative stalemate was in the works, so the nation could breathe a collective sigh of relief.
This isn’t about the shutdown, however. I’ve been trying to wrap my head around Trump’s massive tax “reform” plan — the one hurriedly passed with little transparency and virtually no public input at the end of 2017, the one that permanently lowers corporate tax rates from 35 to 21 percent, and the one that pundits say is a most excellent deal for the wealthy (it is) and a truly lousy one for Long Island’s middle class (yes and perhaps no, depending).
In the coming weeks, all of us who work are supposed to receive a modest tax cut. How much that cut will be remains a little nebulous. We know this: The cut will expire in 2025, according to the legislation that Congress passed and Trump signed last month.
Implementing the cut could take longer than expected, however, because of the shutdown, according to Politico. Reformulating nearly every tax procedure that the agency has practiced for decades in weeks is, at best, a trying, if not impossible, task. Add to that the shutdown, and well, things got chaotic. Let’s hope they get back on track quickly.
No matter what, the tax cut will take effect eventually. Then what?
Let’s begin with the premise that the tax plan will increase the national debt by $1.8 trillion over the next decade, according to the nonpartisan Congressional Budget Office. One trillion is the number 1 followed by 12 zeroes. It’s one million times one million. Multiply that figure by 1.8, and that’s how much the plan is projected to increase the debt.
According to the Pew Research Center, a nonpartisan think tank based in Washington, D.C., our national debt is now 103 percent of our gross domestic product. That is, the nation now owes more money than we can produce in goods and services each year. The federal government currently makes $276 billion in interest payments on that debt annually. I shudder to think of the debt-service payments it will have to make annually in 2028.
The funny thing is that all — or most — of the GOP’s debt hawks seemingly disappeared late last year. Instead, they handed their corporate donors the greatest of holiday gifts in the form of disproportionately large tax breaks.
I know what you’re thinking: Thanks, Scott, for reminding us of all the macroeconomic perils that lie ahead for the nation. What about me, the average Long Island homeowner? What does all of this mean for my bottom line?
I’m not an economist or a financial adviser. I’m a journalist, so please take what I write with whatever volume of salt you like. I have, however, covered economic issues, along with state, county, town and school district budgets, for 25 years, so I do have a sense of what the tax plan might mean for Long Islanders. Here are my thoughts:
If you’re a homeowner who stretched financially to purchase a McMansion above your price range, or if you recently revamped and/or expanded your home with a large home-equity loan, you could be in trouble. All homeowners lost much of the longstanding deduction for local (property) and state taxes under the GOP plan. That’s a big hit for anyone, but especially for those who bought or built big. At the same time, interest on a home-equity loan (traditionally used for remodeling) is no longer deductible, whereas it was previously, up to $100,000, so we could see a downturn in home contracting.
It’s unclear how much personal income tax cuts will offset the loss of deductions. We’ll know soon enough. This is certain: The offset won’t last long, because the tax cuts are scheduled to expire in seven years, after which all but the wealthiest of Americans will likely see their income taxes rise.
So brace yourselves. The Long Island housing market could be in for a bumpy ride in the coming years. Many Long Islanders overleveraged themselves over the past two decades, even after the 2008-09 recession. So we could see a downturn in the Island’s housing market as, potentially, more people sell larger homes and replace them with more modest abodes or, sadly, move to more affordable regions of the country. The GOP tax plan could force many Long Islanders to downsize, but the potential upside is the lowering of home prices, which might — might — open the housing market to numerous families who are now priced out of it.
Like any legislation, there will be a yin and yang. For the wealthy, it will mostly be good news. For Long Island’s middle class, caught unaware by the tempest in a teapot that is Donald Trump, not so much.
In my next column: My suggestions for dealing with the GOP tax plan.
Scott Brinton is the Herald Community Newspapers’ executive editor and an adjunct professor at the Hofstra University Herbert School of Communication. Comments about this column? SBrinton@liherald.com.