Economic Perspective: A Battle Of Deductions

NC State College of Agriculture and Life Sciences professor Dr. Mike Walden working in a recording studio.

MARY WALDEN:

“Today’s program looks at a battle of deductions. Mike, one of the proposals on the table for tax changes is to double the standard deduction available to taxpayers. The standard deduction is the amount of earnings a household makes that is not subject to federal income taxation. I understand this proposal has raised some concerns by groups who benefit from other deductions. Why?”

MIKE WALDEN:

“Well the way taxes and deductions work is when you’re sitting down to do your taxes you can take the standard deduction, which is simply a way of reducing amount of income you’ve earned subject to taxation, or you can look and say, ‘Have I made some expenditures for which there are individual deductions?’”

“Some examples of these are: expenditures for state and local taxes, expenditures for mortgage interest and some healthcare and daycare expenditures. If the sum of those is greater than the standard deduction then you want to take those, those others.”

“If in the new tax bill, if it finally is passed and signed, if the standard deduction is doubled it’s going to make it less lucrative to itemize and take all those individual deductions. So all those groups I mentioned: businesses who make their living selling homes and financing homes, state and local governments and those people involved in healthcare and daycare. They’re all worrying that the special deductions that taxpayers get from using their services aren’t going to be as lucrative anymore because the standard deduction is that much higher.”

“So this is turning out to be a real battle right now in Congress over those two sides. Now one way around this would be to say that we’re going to double the standard deduction, but we’re also going to continue to give special deductions that you can use for those other things. Obviously if that’s done that would make the mathematics of tax reform much more difficult because it would mean losing more revenue to the federal government so we’re to have to wait and see who wins on this.”

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