ITEP: House and Senate tax bills would ‘dramatically’ reduce deductions in R.I.

THE INSTITUTE ON TAXATION AND ECONOMIC POLICY estimates both the House and Senate tax bills would dramatically reduce the number of Americans eligible for property tax, charitable giving and mortgage interest deductions. / COURTESY ITEP
THE INSTITUTE ON TAXATION AND ECONOMIC POLICY estimates both the House and Senate tax bills would dramatically reduce the number of Americans eligible for property tax, charitable giving and mortgage interest deductions. / COURTESY ITEP

PROVIDENCE – The Institute of Taxation and Economic Policy, a nonprofit research organization, released its calculations for the effect of both the Senate and House tax bills on the mortgage interest deduction, the property tax deduction and the charitable giving deduction in Rhode Island this week.

In its release, the nonprofit noted, “There are good reasons to consider reforming itemized deductions to improve their effectiveness or fairness. But the House and Senate’s approach to that task leaves much to be desired.”

The following are ITEP’s estimations on the effects the two bills would have on the eligibility of Rhode Islanders to qualify for tax deductions.

The ITEP found that many Rhode Islanders, particularly in the middle class, would lose tax deductions. This was indicative of a national trend as well.

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Mortgage Interest Deduction

The ITEP predicts a significant drop in those able to claim the mortgage interest deduction under both the House and Senate tax bill.

Senate Bill:

The percent of tax returns that would receive the MID in Rhode Island was estimated to decline from 26 percent under the current law to 7 percent. The ITEP estimated this would be a decline of 103,000 deductions. This would account for a 72 percent reduction of current MID claimants in Rhode Island.

The percentage of the middle 60 percent of incomes receiving the MID would decline 70 percent. The percentage of current MID claimants in the top 1 percent of income earners in the state would decline 15 percent.

House Bill:

The percent of tax returns that would receive the MID in Rhode Island in the House bill was estimated to decline from 26 percent under the current law to 7 percent – the same as the Senate bill. However, the ITEP estimated this would be a decline of 106,000 deductions, slightly more than the Senate bill estimate. This would account for a 74 percent reduction of current MID claimants in Rhode Island.

The percentage of the middle 60 percent of incomes receiving the MID would decline 80 percent. The percentage of current MID claimants in the top 1 percent of income earners in the state would decline 12 percent.

Property Tax Deduction

For both bills, ITEP estimated an 88 percent decline in state and local tax property deductions in Rhode Island.

Senate Bill:

The total percent of tax returns receiving property tax deductions would decline from 29 percent under current law to 8 percent under the proposed changes to the tax policy by the Senate. The number of tax returns no longer receiving property tax deductions in the proposed Senate bill would decline by 115,000.

It is estimated that 73 percent of current claimants would no longer be eligible for the cut.

Only 20 percent of current claimants in the top 1 percent of the income bracket in Rhode Island would lose the property tax deduction under the proposed bill, leaving 77 percent eligible for it. Just 6 percent of middle 60 percent earners would qualify under the new bill.

House Bill:

The total percent of tax returns receiving property tax deductions would decline from 29 percent under current law to 8 percent – the same as the Senate bill. The number of tax returns no longer receiving property tax deductions in the proposed House bill would also decline by 115,000.

It is estimated that 73 percent of current claimants would no longer be eligible for the cut.

Only 17 percent of current claimants in the top 1 percent of the income bracket in Rhode Island would lose the property tax deduction under the proposed bill, leaving 80 percent eligible under the plan. Only 5 percent of middle 60 percent earners would qualify under the new bill.

Charitable Giving Deduction

Senate Bill:

In Rhode Island, current law results in 29 percent of tax returns receiving a charitable giving deduction. ITEP predicts that in the current proposed Senate tax cut bill, this percentage would decline to 8 percent of total tax returns.

It was estimated that 6 percent of middle 60 percent earners would qualify for a charitable giving tax deduction under the bill, a 71 percent decline from current law. Under the new law, 78 percent of top 1 percent earners would qualify, a 20 percent decline under the proposed bill.

Approximately 111,000 tax returns would no longer receive the charitable giving tax deduction under the new bill.

House Bill:

In the House bill, the total percentage of tax returns receiving the charitable giving deduction would decline from 29 percent to 7 percent. The ITEP estimates this would be a decline of 118,000 tax returns no longer receiving the charitable giving deduction in Rhode Island.

Middle-income households eligible for the charitable giving deduction would be 4 percent in the House bill, an 80 percent decline from current law. Approximately 80 percent of the top 1 percent of earners in Rhode Island would receive the deduction, a decline of 17 percent from the current law.

Chris Bergenheim is the PBN web editor.

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