By Rep. Tim Wadsworth
House District 14
Early Saturday morning the United States Senate along party lines passed a “Tax Bill” as promised by President Trump. As with any tax bill there are winners and losers. Only your accountant or tax lawyer can tell you the full impact on your particular tax situation. The tax bill affects, individuals, C – Corporations, estates, small businesses and pass through entities such as S – Corporations and partnerships. The bill is 479 pages long and somewhat complicated. Simple tax bill was not achieved. Since the US. Senate tax bill will go to conference committee with the US House, the differences will be ironed out and resolved.
As soon as the tax bill was passed, immediately some pundits stated that it will raise our debt by $1.5 trillion dollars over 10 years. That means to me that more money will be returned to the taxpayers. The purpose of the bill is to give businesses and individuals tax relief from excessive income taxes. The United States has one of the highest corporate tax rates in the industrialized world. We need tax breaks to help grow our economic and create jobs. We need tax relief for the individuals who pay taxes. We have corporations that deposit their profits in tax haven countries so that they don’t have to pay the high US tax rates. If they never bring their dollars home, then no factories or investments can be made in the US. It is my belief that the tax cut will increase jobs and stimulate economic growth.
Below are several changes to the current law that were in the Senate Tax Bill.
1. The standard deduction for a single individual goes up from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples filing a joint return . This means that you do not itemize unless you have more than $24,000 in itemized deductions.
2. State and local income tax deduction will be eliminated. This provision affects higher income tax rate states such as New York more than Alabama. The elimination of the deduction will have no impact on most Alabamians if you don’t itemize. However, it will affect higher earners who pay more Alabama income tax.
3. Real Estate taxes on your personal home continue to be deductible but only to the extent of $10,000 a year. However, in Alabama in the highest property tax county it would take a house valued at $1,218,818 to be affected and in the lowest property tax county, you would need a $6,000,000 house to be affected. Businesses’ real estate and people that rent property will still be able to deduct 100% of their property taxes as an ordinary business expense.
4. The maximum C- Corporation rate would drop from 35% to 20%. The maximum flow through entity tax would drop to 29%. The House bill is at 25%. Service based businesses that earn less than $500,000 would get the benefit of the tax change but service based businesses greater than $500,000 in net income would not get the benefit. There is a 9% rate for flow through entities that have less than $75,000 in income. Its very complicated but it will take further study to understand the full impact. The purpose of the reduction is to create jobs and stimulate the economy. Individual rates would drop. See end of article for details.
5. Currently money earned overseas is being held in tax haven countries and cannot be used for growth in the US. The bill allows corporations overseas to bring untaxed dollars back to the United States at rate of 14.5% rate instead of 35% rate. The purpose of the change is to bring dollars to the US for growth in our economy which would creates jobs.
6. Medical expenses will be deductible if you itemize to the extent of 7.5% of adjusted growth income. Currently, it is limited to 10% of adjusted gross income. Given the increase in standard deduction, this will help only people that pay extremely high medical bills due to some illness, high income earners and people that itemize.
7. The individual mandate penalty will be eliminated if you don’t have health insurance. If you don’t have health insurance you will not pay a penalty. The full impact of this provision is not known since it affects health insurance. Further study is required.
8. Alternative minimum tax exemption is raised so that less people will be charged these AMT taxes. This provision needed to be have been changed several years ago.
9. Moving expense deduction will be eliminated and this will impact people who pay moving expenses. However, if your company pays for your move, then there would not be impacted.
10. Child tax credit is doubled from $1,000 to $2000 a child and the age of the child to qualify is raised from 17 to 18 years old. Currently the phase out of credit starts at $110,000. The phase out begins with $500,000 under the Senate bill. The additional $1,000 is not a refundable credit which means if you don’t owe Federal income taxes you would not receive the benefit of the $1000 increase per child. Dependents who are not children will qualify for a $500 tax credit.
11. Personal exemptions for you, your spouse and children are eliminated. If you have less than 2 children then this could impact your negatively. However, with the earned income credit that currently exists, there may not be too much of an impact. But it depends on income, and number of children.
12. Mortgage interest deduction allowed only up to $1,000,000 mortgage and note. High mortgage homes only would be impacted. Home equity loan interest deduction is eliminated. This would have a negatively impact if you itemize.
13. Teachers will be able to deduct $500 a year instead of $250 in supplies.
14. Companies will be able to write off most of their expenses for new buildings at a faster rate such as non residential property to 25 years instead of 39 years. The write off of tangible personal business property including vehicles is at a faster rate. Further study is necessary to confirm all changes.
15. A pass through entity such as S-Corporation will be allowed to take a 17.4% of net income deduction off taxable income from the S-Corporation This will benefit all small businesses that have less than $500,000 in income.
16. Estate taxes would only apply for $11,000,000 estates if single and $22,000,000 if married and full martial deduction is utilized. This will help large estates and hurt tax lawyers who do estate planning.
17. 529 College Savings Plans will be usable for K-12 education expenses including private schools and home schooled students.
18. Currently college endowments greater than $500,000 pay no income tax. They will have to pay an excise tax.
19. Gains from the sale of the residence require the taxpayer to hold the home as a primary residence for greater than 2 years to be tax exempt on the sale.
20. Even though the estate tax exemption is going up to $11,000,000, inherited property still receives a step up basis. The step up basis allows people that inherit their property to sell immediately the property at no gain or loss since their new basis is the fair market value at date of death. This maintenance of step up basis is great for all.
21. Capital gain rates are aligned with the New Senate Tax bill. Under the new bill and current law, no capital gains tax is paid on long term capital gains for people in the 10% and 15% tax bracket. That means if the total income including capital gains are $77,400 or less then the long term capital gain rate is 0% for married couples filing jointly. Single individuals are about one half the amount.
Senate Bill Individual Tax Rates
Currently, there are seven bracket in today’s tax code: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The Senate bill calls for seven brackets but the rates change. 10%, 12%,22%, 24%, 32%, 35% and 38.5%. The areas of where tax rates apply, has changed, for example, the top rate of 38.5% applies for individuals over $500,000 while now it hits the top rate of 39.6% at $418,400. For couples, the top rate applies to $1,000,000 or more while the current top rate applies to $470,700 for couples. The new lower rates apply to higher income. You will have to look at your taxable income and compare it to the new rates to see what impact the bill has for your particular tax situation.
The Senate Tax Bill is not perfect. It has many special interest finger prints on it. However, it reduces taxes by $1.5 trillion over 10 years if the projections are correct. Each person can look at the bill and find something wrong or something right that affects them. Overall, if you pay taxes your taxes will probably be reduced. Contact your accountant or tax lawyer to see what impact this bill has on your particular tax situation.
My brief presentation is not intended to be tax advice and I make no representation that I am offering any form of tax advice. Your tax accountant or tax lawyer can serve that purpose. I am providing a brief partial summary of some of the provisions. Hope this information is informative an helpful. Transparency in our government is a must. If there are problems with the bill DON’T BLAME ME FOR THIS ONE, I AM IN THE ALABAMA HOUSE NOT US SENATE OR US HOUSE. However, you are always welcome to contact your Alabama House members including me for information.
Representative Tim Wadsworth
House District 14
(Serving Winston, Walker and Jefferson Counties)
Tuberville calls for term limits, balanced budget and lobbying reform
Tuberville has also made a major media buy across the state to trumpet this message.
Senate candidate Tommy Tuberville’s campaign began emphasizing key structural reforms that the Republican nominee hopes to advance if elected to the U.S. Senate including congressional term limits, withholding lawmakers’ paychecks unless a balanced budget is passed and a ban on former officials becoming lobbyists.
“Only an outsider like me can help President Trump drain the Swamp, and any of the proposals outlined in this ad will begin the process of pulling the plug,” Tuberville said in a statement. “Doug Jones has had his chance, and he failed our state, so now it’s time to elect a senator who will work to fundamentally change the way that Washington operates.”
Tuberville has also made a major media buy across the state to trumpet this message.
“You know Washington politicians could learn a lot from the folks in small town Alabama, but Doug Jones … he’s too liberal to teach them,” Tuberville added.
Polls consistently show that term limits are popular with people across both political parties, but the U.S. Supreme Court has ruled that imposing term limits would be adding a qualification to be a member of Congress and that can only be done by constitutional amendment.
It is an unspoken truth that when Americans send someone to Congress they never come back. They either keep getting re-elected like Alabama’s own Sen. Richard Shelby, who is in his sixth term in the Senate after four terms in the U.S. House of Representatives. On the other hand, they may become lobbyists getting paid to influence their colleagues on behalf of corporations, foreign governments or some well funded non-government organization.
Tuberville said he would ban that practice.
A balanced budget amendment almost passed in the 1980s and again in the 1990s.
Since that failure, Congress has increasingly passed bigger and bigger budget deficits. The U.S. government borrowed more money during the eight years of President George W. Bush’s presidency than the government had borrowed in the first 224 years of the country combined.
President Barack Obama followed and the TARP program propped up the post-Great Recession economy. Rather than cutting the deficit, President Donald Trump invested billions in the military and a tax cut without cutting domestic spending. The 2020 coronavirus crisis has further grown the budget.
The government has borrowed trillions to prop up the economy and provide stimulus while investing billions into medical research and treating the virus victims. Congress is currently debating a fifth stimulus package that would add more to the deficit.
Both a balanced budget amendment and a term limits amendment would have to be ratified by the states if passed by Congress. Tuberville is challenging incumbent Sen. Doug Jones, D-Alabama.
House passes General Fund Budget
By Brandon Moseley
Alabama Political Reporter
The Alabama House of Representatives passed the state General Fund Budget on Tuesday.
The General Fund Budget for the 2019 fiscal year is Senate Bill 178. It is sponsored by Sen. Trip Pittman, R-Montrose. State Rep. Steve Clouse, R-Ozark, carried the budget on the House floor. Clouse chairs the House Ways and Means General Fund Committee.
Clouse said, “Last year we monetized the BP settlement money and held over $97 million to this year.”
Clouse said that the state is still trying to come up with a solution to the federal lawsuit over the state prisons. The Governor’s Office has made some progress after she took over from Gov. Robert Bentley. The supplemental we just passed added $30 million to prisons.
The budget adds $50 million to the Department of Corrections.
Clouse said that the budget increased the money for prisons by $55,680,000 and includes $4.8 million to buy the privately-owned prison facility in Perry County.
Clouse said that the budget raises funding for the judicial system and raises the appropriation for the Forensic Sciences to $11.7 million.
The House passed a committee substitute so the Senate is either going to have to concur with the changes made by the House or a conference committee will have to be appointed. Clouse told reporters that he hoped that it did not have to go to conference.
Clouse said that the budget had added $860,000 to hire more Juvenile Probation Officers. After talking to officials with the court system that was cut in half in the amendment. The amendment also includes some wording the arbiters in the court lawsuit think we need.
The state General Fund Budget, SB178, passed 98-1.
Both budgets have now passed the Alabama House of Representatives.
The 2019 fiscal year begins on Oct. 1, 2018.
In addition to the SGF, the House also passed a supplemental appropriation for the current 2018 budget year. SB175 is also sponsored by Pittman and was carried by Clouse on the floor of the House.
SB175 includes $30 million in additional 2018 money for the Department of Corrections. The Departmental Emergency Fund, the Examiners of Public Accounts, the Insurance Department and Forensic Sciences received additional money.
Clouse said, “We knew dealing with the federal lawsuit was going to be expensive. We are adding $80 million to the Department of Corrections.”
State Representative Johnny Mack Morrow, R-Red Bay, said that state Department of Forensics was cut from $14 million to $9 million. “Why are we adding money for DA and courts if we don’t have money for forensics to provide evidence? if there is any agency in law enforcement or the court system that should be funded it is Forensics.”
The supplemental 2018 appropriation passed 80 to 1.
The House also passed SB203. It was sponsored by Pittman and was carried in the House by State Rep. Ken Johnson, R-Moulton. It raises securities and registration fees for agents and investment advisors. It increases the filing fees for certain management investment companies. Johnson said that those fees had not been adjusted since 2009.
The House also passed SB176, which is an annual appropriation for the Coalition Against Domestic Violence. The bill requires that the agency have an operations plan, audited financial statement, and quarterly and end of year reports. SB176 is sponsored by Pittman and was carried on the House floor by State Rep. Elaine Beech, D-Chatham.
The House passed Senate Bill 185 which gives state employees a cost of living increase in the 2019 budget beginning on October 1. It was sponsored by Sen. Clyde Chambliss, R-Prattville and was being carried on the House floor by state Rep. Dimitri Polizos, R-Montgomery.
Polizos said that this was the first raise for non-education state employees in nine years. It is a 3 percent raise.
SB185 passed 101-0.
Senate Bill 215 gives retired state employees a one time bonus check. SB215 is sponsored by Senator Gerald Dial, R-Lineville, and was carried on the House floor by state Rep. Kerry Rich, R-Guntersville.
Rich said that retired employees will get a bonus $1 for every month that they worked for the state. For employees who retired with 25 years of service that will be a $300 one time bonus. A 20-year retiree would get $240 and a 35-year employee would get $420.
SB215 passed the House 87-0.
The House passed Senate Bill 231, which is the appropriation bill increase amount to the Emergency Forest Fire and Insect and Disease Fund. SB231 is sponsored by Sen. Steve Livingston, R-Scottsboro, and was carried on the House floor by state Rep. Kyle South, R-Fayette.
State Rep. Elaine Beech, D-Chathom, said, “Thank you for bringing this bill my district is full of trees and you never know when a forest fire will hit.
SB231 passed 87-2.
The state of Alabama is unique among the states in that most of the money is earmarked for specific purposes allowing the Legislature little year-to-year flexibility in moving funds around.
The SGF includes appropriations for the Alabama Medicaid Agency, the courts, the Alabama Law Enforcement Agency, the Alabama Department of Corrections, mental health, and most state agencies that are no education related. The Alabama Department of Transportation gets their funding mostly from state fuel taxes.
The Legislature also gives ALEA a portion of the gas taxes. K-12 education, the two year college system, and all the universities get their state support from the education trust fund (ETF) budget. There are also billions of dollars in revenue that are earmarked for a variety of purposes that does not show up in the SGF or ETF budgets.
Examples of that include the Public Service Commission, which collects utility taxes from the industries that it regulates. The PSC is supported entirely by its own revenue streams and contributes $13 million to the SGF. The Secretary of State’s Office is entirely funded by its corporate filing and other fees and gets no SGF appropriation.
Clouse warned reporters that part of the reason this budget had so much money was due to the BP oil spill settlement that provided money for the 2018 budget and $97 million for the 2019 budget. Clouse said they elected to make a $13 million repayment to the Alabama Trust fund that was not due until 2020 but that is all that was held over for 2020.
Clouse predicted that the Legislature will have to make some hard decisions about revenue in next year’s session.
Day Care bill delayed for second time on Senate floor, may be back Thursday
By Samuel Mattison
Alabama Political Reporter
The day care bill, which would license certain day care centers in Alabama, was once again delayed on the state Senate floor after one lawmaker requested more information.
Its brief appearance Tuesday ended with state Sen. Gerald Dial, R-Lineville, saying a compromise had not yet been worked out with the bill’s detractors.
Alabama’s Senate has been hesitant to act on the legislation because of complaints of state Sen. Shay Shelnutt, R-Trussville, who has been an opponent of the bill since its introduction last year. The bill’s delay on Tuesday marks the second time its been taken off the Senate’s agenda.
The bill has had a rocky time in this year’s session, but the bill’s sponsor state Rep. Pebblin Warren, D-Tuskegee, said she is still confident about its passage out of the Legislature.
Warren, D-Tuskegee, filed the bill this session with the support of influential lawmakers including Gov. Kay Ivey, who told reporters last year that she though all day cares should be licensed.
Mainly sparked by the death of 5-year-old boy in the care of a unlicensed day care worker, the bill had great momentum coming into this year’ session.
Despite the growing support from lawmakers, Religious groups had concerns that the bill would increase state-sponsored reach into religious day cares in churches and non-profit groups.
Spearheading the dissenters was Alabama Citizens Action Program, a conservative religious-based PAC.
Warren, proponents, and ALCAP announced a compromise to the bill while it was still in the Alabama House.
Announced by ALCAP originally, the new bill was a weaker version in that it did not require that all day cares in the state be regulated. Instead, religious-based day cares would only need to be registered if they received federal funds. At a Senate committee meeting in February, Warren said a similar requirement was about to come from federal law in Congress.
The bill moved through the House in a overwhelming vote in favor of the proposal and passed unanimously out of a Senate committee a few weeks ago.
Warren, speaking to reporters after its passage from the House, said she was unsure if the bill would encounter resistance in the upper chamber.
It was the Senate that killed the daycare bill last year amid a cramped last day where senators took the bill off the floor. The bill may face similar complications this year, as lawmakers seem to be preparing to adjourn within a few weeks.
Fantasy sports bill fails on Senate floor
By Samuel Mattison
Alabama Political Reporter
Would-be Fantasy Sports players in Alabama will have to wait to legally play in the state following a Senate vote on Tuesday.
The Alabama Senate decisively killed a bill to exempt fantasy sports from the state’s prohibition on gambling.
Not even entertaining a debate on the Senate floor, the proposal was killed during a vote for the Budget Isolation Resolution, which is usually a formality vote preluding a debate.
Fantasy sports are contests where participants select players from real teams to compete on fantasy teams using the real-world players’ stats.
Since 2016, the practice has been illegal in Alabama following a legal decision by the Attorney General’s Office that categorized it as gambling.
The bill’s sponsor, state Sen. Paul Sanford, R-Huntsville, predicted the bill’s failure during a committee meeting two weeks ago, where the bill passed unanimously.
- Sen. Paul Sanford speaks to reporters after a Senate Committee meeting on Feb. 28, 2018. (Samuel Mattison/APR)
Speaking to reporter’s after the committee meeting, Sanford said the decision to file the bill was mainly a philosophical belief that the practice shouldn’t be illegal.
Sanford, a fantasy sports player before its ban, said that fantasy sports are a way to bring people closer together and not a means to win money. The Huntsville senator is not seeking re-election.
The bill’s failure in the Senate follows its trajectory last year too. A similar version of the bill, also sponsored by Sanford, failed in the Senate during the final days of the 2017 Legislative Session.
Since Sanford is retiring, it is unclear if the bill will even come back next session, or if it will even have a Senate sponsor.