Newswise — The newest version of tax reform, passed by Congress Wednesday (Dec. 20), will offer some immediate, if modest, relief to working families. But one West Virginia University tax law expert fears that the long-term effects—such as the availability of affordable health insurance after the Affordable Care Act’s individual mandate is repealed through the law—will obliterate any benefit those families receive through the Tax Cut and Jobs Act.
In the short term, the combination of lower rates, the partially-refundable child care credit, and a higher standard deduction will provide modest tax relief to many working West Virginian families. The doubling of the standard deduction should also simply tax time for many low income and middle class West Virginians, who will no longer need to itemize to obtain the highest allowable tax refund. While this relief may be modest, we shouldn’t underestimate the impact of that a few hundred dollars can have on a working family – it may be the difference between keeping the utilities on or bringing a child to the doctor.
I worry, however, that the prospect of immediate cash in hand will blind many to the long-term costs of this legislation. These individual tax cuts expire in a few years, at which time many families will see their tax burden return to (or even exceed) this year’s levels. It remains to be seen what the impact of the repeal of the penalty associated with the individual mandate under the Affordable Care Act will be, but many anticipate that it will increase the cost and decrease the availability of health insurance which may effectively negate any the benefit of a family’s tax relief. Meanwhile, the corporate and international tax cuts are permanent – and expensive. Despite protestations to the contrary, most economists believe that this bill will not pay for itself and that any GDP growth may be offset by the interest costs on federal borrowing to finance the cuts. The costs of this bill and the deficit spending it will produce may have a fundamentally detrimental economic impact over the long term; it remains to be seen the impact these anticipated deficits will have on interest rates, inflation, and the availability of capital.
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