A friend from Los Angeles County recently told me that his Malibu Home was assessed at $7,000,000. His property taxes per year were north of $87,000.
"Up until the Trump tax cuts, I could deduct it all. Now, I am limited to $10,000. I am screwed!" He professed.
He was speaking of the historic 2017 legislation that cut corporate taxes from 35% to 21% and average American's about $2100 per year. The $10,000 limit was a cumulative tax exemption that could include property and state income taxes.
A low taxed state, such as Florida, Georgia, Tennessee or Texas benefited. High tax states such as California, Connecticut, New York and Massachusetts didn't.
As President Obama reminded, "elections have consequences."
This will be a big piece of the Republican midterm message going into the homestretch.
Kentucky is a good testing ground. The Commonwealth has a property tax that hovers between eight and twelve mills. Translated, if you live in a $450,000 home in Richmond, you pay nine mills, or $4050 per year. If your family makes $119,000 per year, you will pay $7,021 in state income taxes.
This family deducts $1107 less in state and local taxes than under the old plan. However, a married couple, will see their standard deduction jump from $12,000 to $24,000.
In Miami, a $450,000 house will generally run about $8,000 in property taxes. But, there is no state income tax.
The gentleman in Malibu was making $250,000 per year. His state income tax tab was $27,250 or so. More local taxes, excluding gasoline taxes kicked in another 5k. In all, he was paying almost $120,000 per year in state and local taxes. Previously, this could all be deducted before the paid his federal taxes. Now, it is capped at $10,000.
"All roads lead to Nashville!" This was the Malibu gentleman's assessment!
So goes the high taxed states!
Now, we look at a married couple with two children in Fayetteville, Arkansas. They make a comfortable $140,000 between them. They live in a home in the Northeast end of he county assessed at $395,000. Their total property tax tab is $3400 per year. Their total state income tax is south of $2900. Other taxes including personal property taxes add about $700 to the total.
Clearly, the people in the high tax states took a pounding! The people in the low tax states benefited.
Returning to Kentucky 6th District, where Richmond falls. Most people don't live in $450,000 homes. In fact, most families don't live in $225,000 homes. The average household income is less than half of $119,000 per year.
Kentucky's 6th district has a lot of small, "Mom and Pop" type business'. They are mostly Limited Liability Corporations. Now, corporations are taxed at 21%, instead of 35%.
Interestingly enough, Kentucky 6th Congressional Midterm reflects very different views held by Democrat Amy McGrath and Republican, Andy Barr.
Barr supported the President's tax cuts. As he pointed out, the average person in 6th district greatly benefits. A couple making $119,000 per year, living in a $450,000 house comes out ahead. And they represent the top 5%. Families earning less benefit even more.
McGrath opposed the tax cuts and wants to repeal them. This might appear curious, considering that the cuts benefit nearly all of the district she seeks to represent! But, Amy's financial support comes mostly from the East and West Coast. Without question, repeal would greatly benefit San Francisco and Boston!
Many, if not most in America, are unclear of the consequences in repealing versus making permanent the tax cuts. Boston and San Francisco seek to "hoodwink" sufficient numbers of "deplorables in flyover America" into voting for their implanted "moles."
In Kentucky 6th's case, they bank on Amy's impressive military resume to effectively camouflage her liberal agenda. Her positions on the tax cuts are the litmus test.
Kentucky won with Trump's tax cuts. Big!
California, Massachusetts and other high tax states, lost. Big!
As they say in Richmond, "often it comes down to flushing the snake from the wood pile." Replacing Barr with McGrath would be a classic example of 6th District "shooting itself in the foot."
The tax cuts amount to a wealth transfer, from state to state. The low tax states got tired of making allowances for the high tax states to exempt themselves from proportionate federal income tax contributions.
"Why high tax states should simply cut their taxes," is another topic for a different post. Change comes grudgingly, if at all.
The midterm results will come down to "how many moles," like Amy McGrath, will the coastal elites successfully place in low tax districts. It won't take many.