What this tax bill means for us in Massachusetts

Victory is now within reach for Republicans, who not only negotiated a final tax bill Friday but have secured enough votes to pass it.

Many of the pivotal provisions in the bill are set to take effect Jan. 1, which means Massachusetts residents should expect to feel the impact almost immediately. And it will come in many forms.

Roughly 80 percent of residents will see their tax bills shrink next year, enough to raise their post-tax income by an average of about 1.5 percent, according to an analysis from the left-leaning Institute on Taxation and Economic Policy.

So if your biweekly earnings match the Massachusetts median of around $2,500, your take home pay is likely to increase by around $40 per paycheck. Part of this has to do with new, lower rates, but there is also an expanded child tax credit for families.

The process of filing your taxes will also get slightly simpler for most middle- and upper-middle class residents. That’s because the new law greatly expands the standard deduction, which is the default amount that everyone gets to shield from federal taxes. A bigger standard deduction means fewer taxpayers will have to keep itemized receipts for things like deductions for mortgage interest and charitable donations.

For businesses, the benefits are likely to be even larger. Corporations housed in Massachusetts will see their statutory tax rates drop from 35 percent to 21 percent. And there are separate advantages for the 95 percent of businesses that don’t pay the corporate tax but instead pass all profits on to owners. Those owners will get special reduced tax rates.

Compared to these benefits, the real costs of this Republican bill are more diffuse, and take more time to accumulate.

Take those tax cuts for individuals: They are set up to expire after 2025, after which most residents would see their taxes go up. Republicans argue that is unlikely, insisting that some future Congress will keep the cuts in place. But doing so would be quite costly.

Income inequality is likely to grow as well, in a state that is already among the most unequal. While a lot of attention has been paid to the fact that high-earning taxpayers in places like Massachusetts will see new limits on valuable tax breaks like the deduction for state and local taxes, a broader look suggests they are likely to gain the most from this bill.

In 2019, the average tax cut for families earning between $50,000 and $80,00 is around $1,000. Those earning above $800,000 get a cut 60 times as large. And that disparity only increases with time.

Even simplification has its costs. Charitable organizations rightly fear that people may donate less if they’re less likely to get a usable tax break for that donation, which could hurt everyone from homeless assistance groups to grant-giving foundations. Likewise, the new limits on housing-related tax breaks — like the mortgage interest deduction and the deduction for local property taxes — could reduce the value of people’s houses.

Lastly, there’s the issue of rising deficits and debt. Congress’s official scorekeepers have estimated that the nation’s deficits will increase by an additional $1 trillion over the coming decade as a result of this bill. That’s not only bad for economic growth, but will also raise pressure on future Congresses to cut spending. Which could mean flimsier Social Security checks for Massachusetts seniors or fewer grants our research institutions.

Absent some dramatic reversal, these changes — which have long seemed theoretical — are about to become very real, affecting our tax bills and our communities.

But a final bill is not a permanent bill. In the years ahead, there will be further battles over how much corporations should pay in taxes, how to ensure adequate health care for all Americans, and how to solve our long-term debt challenge.