The federal tax overhaul lowers the income tax at most income levels and provides a corporate tax cut. On the other hand, it modified bond refinancing procedures, which local entities and school districts use to save taxpayer money.
U.S. Rep. Kevin Brady, R-The Woodlands, who authored the tax overhaul, addressed community members during a legislative update in Conroe on Jan. 23. Brady said one of his biggest priorities was to grow the economy by lowering tax rates for businesses and families.
“Every economic expert predict[ed] the next 10 years would look a lot like the last 10 years, [which was] the slowest growth in half a century,” Brady said. “In fixing this tax code, in making America competitive, we’re convinced it’ll change America’s economics.”
Hank Lewis, economics professor at Lone Star College-University Park, said while some tax code effects are likely to be visible in the coming months, fiscal policies of this caliber take roughly six months to a year before the accumulative effect is evident.
“My gut instinct is we’ll start to see [the overhaul’s effect] really come into the fray, if it’s going to have an impact, by October or November at the earliest or maybe next January,” Lewis said.
More money for Wage earners
Lower tax rates for most single and married individuals could allow Americans to keep more money in their paychecks, Brady said.
According to the 2012-2016 American Community Survey report from the U.S. Census Bureau, the mean income for a Conroe resident is $28,672 and the median income for married-couple families in Conroe is $79,191.
When comparing the 2018 income tax to 2017, the average Conroe and Montgomery resident will pay 12 percent instead of 15 percent on their adjusted gross income, per the tax thresholds published by the Committee of Conference. A married couple in Conroe filing a joint return will pay 22 percent instead of 25 percent, based on the U.S. Census median married-couple family income.
“In my modeling, I’ve seen a decrease of the effective tax rate—which means the average taxpayer will pay less in taxes,” said Sheryl Jimerson, accounting professor at LSC-University Park.
Single-filing Conroe residents—taking the standard deduction who have no children—can expect to pay roughly $450 less annually in their respective taxes in 2018. A married couple—taking the standard deduction and two children—will save roughly $370 in taxes, Jimerson said.
Brian Bondy, president of the Conroe/Lake Conroe Chamber of Commerce, said Conroe-area residents are already seeing an increase in their paychecks.
“The middle class is actually getting a tax break that they haven’t had in a very long time,” Bondy said. “The big weightlifting has typically been on the middle class, so quite honestly I am excited to see its impact throughout this year and going forward.”
A portion of the plan focuses on offering incentives to small and large businesses, Brady said. Small-business owners who file their taxes as a single entity with an income below $157,500 or who file their taxes jointly with an income below $315,000 could be eligible for a 20 percent tax deduction.
While local business owners can better gauge the tax code’s effect after they file quarterly taxes, Bondy said he anticipates businesses will see similar increases in their overall revenue that residents are seeing in paychecks.
“Paychecks that are just now being received are showing more take-home pay, so that is indicative of one of the very first things that the bill was designed to do,” Bondy said. “It really is early [to judge the effect on businesses], but if you take the most recent pay as indicative of what is to come, that is probably the best approach at this point.”
The plan also includes a cut to the corporate tax rate, which is the percent of a company’s income that is paid to the federal government, from 35 percent to 21 percent. The provisions could allow companies to spend the monies saved to boost employee wages and benefits, Brady said.
Dave Fougeron, co-founder of Southern Star Brewery, a Conroe-based business, said the corporate tax cut along with the Craft Beverage Modernization and Tax Reform Act—a specific provision included in the tax overhaul—affects all aspects of his business.
The craft beverage provision lowers the federal excise tax on beer from $7 to $3.50 per barrel on the first 60,000 barrels for brewers producing less than 2 million barrels per year through 2019. With this, Southern Star Brewery will pay thousands of dollars less per month in taxes, Fougeron said.
As a direct result of the tax cuts, Fougeron said he hired two more full-time employees and plans to hire an additional employee in the coming months. When the effects of the corporate tax cuts hit, Fougeron said he wants to potentially buy more fermenters and tanks to expand the brewery’s beer production.
“It’ll help us produce more beer, and it’s definitely going to help our growth,” Fougeron said. “I’m really excited about the way that we’re going, and all of the money coming back in is going to be reinvested in the brewery.”
School, city bonds affected
A provision in the tax reform also limits the ability of local school districts, cities and counties to refinance their bonds by eliminating the ability for entities to advance refund tax-exempt municipal bonds.
The provision was created to stop governmental entities from abusing federal tax exemptions, Brady said.
“What we’re seeing throughout the country are entities that refinance [their bonds] and, in effect, double-dip on that tax-exempt financing for the state project,” Brady said.
Bonds are typically sold with 10-year call dates, meaning districts can decide whether to refinance the bond after that time. However, advance refunding allowed entities to refinance bonds earlier to benefit from lower interest rates. The tax overhaul has eliminated the ability to advance refund tax-exempt bonds.
In the city of Conroe, for example, bonds are approved by voters to build city infrastructure, said Steve Williams, assistant city administrator for the city of Conroe.
“Since 2010, we have done several refunding issues, which have saved the citizens of Conroe $5.49 million in interest costs,” Williams said. “There are currently other opportunities to refund additional bonds, but the new tax plan mitigates any savings by removing the possibility of using tax-exempt debt.”
In a fast-growth district like
Conroe ISD, advance refunding bond issues has saved roughly $100 million in interest over the last decade, said Darrin Rice, chief financial officer for CISD. Advance refunding debt allows the district to move forward quicker with projects funded from its bond referendums, Rice said.
Voters approved CISD’s $487 million bond referendum in 2015, which funded land purchases, construction of new campuses, renovations to existing campuses and district-wide upgrades.
“[The tax code] will not hinder our growth, because we planned and we budgeted for the rates that we currently have on our bonds, but it takes away the ability for us to save taxpayers money on the interest on those bonds,” Rice said.
Additional reporting by Zac Ezzone