The new federal tax plan implements temporary and permanent changes that will affect individuals, businesses, corporations and school districts in the Lake Houston area.
President Donald Trump signed the Tax Cuts and Jobs Act into law Dec. 22, overhauling the nation’s tax code for the first time in decades. Many of the reform’s changes took effect immediately, including new federal income tax brackets, a lower corporate tax rate and tax deductions for small businesses.
Jenna Armstrong, CEO of the Lake Houston Area Chamber of Commerce, said it is too early to tell how the tax reform will affect Lake Houston area businesses, but she believes employees are already seeing the effects through larger paychecks. She said several local companies also provided bonuses at the end of the year for their employees.
“I think that any time employees and people that work get more money in their paycheck, that it benefits the economy because they are more likely to spend that money,” Armstrong said.
The new federal tax plan cuts 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. Also, small businesses could qualify for a 20 percent tax deduction on their income. Business owners who file their taxes as single with income less than $157,500, or file their taxes jointly with income less than $315,000 could be eligible for this deduction.
Patrick Jankowski, senior vice president of research for the Greater Houston Partnership, said a lower corporate tax rate will increase the profits of local corporations, like Insperity, which is headquartered in Kingwood.
Insperity officials declined to comment on federal tax reform changes.
Richard Yarbrough, director of land development for McCord Development, said the tax cuts could be beneficial for mixed-use developments like Generation Park, a Lake Houston area project developed by McCord.
“We believe that the tax cut will allow businesses, both in Houston and around the country, to be more aggressive in their expansion and growth,” Yarbrough said.
Danny Sullivan, owner of Sullivan’s Advanced Paint and Body in Kingwood, said he is not sure what the bill will mean for his business long-term, but he hopes the tax reform will allow him to create more jobs and hire more employees.
“I hope that this allows us to strengthen our staff, bring more jobs to the community and make our community stronger,” Sullivan said.
He said he would recommend businesses visit with certified public accountants or use the chamber as a resource. Armstrong said the chamber is offering a seminar March 20 for businesses to learn more about the federal tax overhaul and its effects on businesses.
“I would just say businesses need to get informed about what this means for them,” she said. “Because when you are talking about very small business or you are talking about a very large business with lots of employees, it can differ.”
Effects on individuals
A major component of the overhaul is a set of lower federal income tax rates for most income levels, said U.S. Rep. Kevin Brady, R-The Woodlands.
An average full-time year-round worker in Humble earned $39,269 in 2016, according to the U.S. Census Bureau, and would have paid 25 percent of that income in federal taxes in 2017. Individuals earning the same amount in 2018 will be taxed at 22 percent.
Brady, who authored the tax bill, said families with children will also see an increase in the child tax credit, which taxpayers can use to reduce their federal income tax bills. However, the tax reform also caps state and local tax deductions at $10,000. Placing a cap on this deduction affects homeowners who pay more than $10,000 a year in property taxes, said Dick Lavine, senior fiscal analyst at the Center for Public Policy Priorities, an Austin-based policy center.
Lavine said this cap could also make it difficult for taxing entities to raise property taxes to fund public services.
“The impact is that people maybe will be more reluctant to fund state and local services through voting, approving higher property taxes or voting for city council or whoever is going to raise their taxes,” Lavine said.
Harris County Precinct 4 Commissioner Jack Cagle said voters are already reluctant to approve property tax rate increases but will vote to do so if it provides funding for major issues like flood control. Property taxes make up 79 percent of the county’s general fund, according to county data.
School bonds, revenues
Humble ISD Chief Financial Officer Mike Seale said he does not believe HISD will be affected by the deduction cap.
However, one aspect of the new tax policy that does affect districts is a change in when they are able to refinance their bonds, which could limit their ability to save on bond interest.
Under the new code, districts can no longer advance refund their bonds, which was often done to take advantage of favorable interest rates, Seale said.
Bonds are sold with 10-year call dates, meaning a district can decide whether to refinance a bond after that time. However, advance refunding allowed districts to refinance bonds earlier to benefit from lower interest rates, he said.
“Though we would prefer to have this tool available to us, we don’t believe losing this option will result in a significant loss to the district,” Seale said.
Matt Stephens contributed to this story.