The 2018 midterm elections are over, and major legislative shifts at the federal and state levels could affect your taxes for years to come.
That’s because lawmakers at the federal and state levels decide tax law. When the political makeup of a legislative body changes, tax law can morph accordingly. And there’s still much to be done on the tax legislation front.
The U.S. House of Representatives and Senate will likely be considering additional tax reform in 2019. At the state level, some legislatures ended their 2018 sessions without passing laws to address the impact the federal Tax Cuts and Jobs Act of 2017 will have on state tax codes.
Newly elected members of the U.S. Congress and state governments can pick up where their predecessors left off — and they could come in with some new ideas of their own. So between the time new legislators take office in early January and Tax Day (which is typically April 15 for state and federal returns), state and federal governments could pass laws that will affect 2018 taxes, as well as tax bills for 2019 and beyond.
Want to know more?
What’s the background?
The political makeup of a governing body can play a big role in tax legislation — both on a federal and state level.
Federal-level impact
To understand how the political makeup of government can affect tax law at a national level, let’s take a look at the Tax Cuts and Jobs Act. It took 33 roll call votes to pass tax reform in 2017. The final vote on the version of the proposal that became law split solidly along party lines, with Democrats largely voting against the measure and Republicans supporting it.
This year, with Republicans as the majority party in the House of Representatives, the House Ways and Means Committee introduced additional tax reform legislation — dubbed “Tax Reform 2.0.”
However, Democrats took control of the House in the 2018 midterms. They are now in a position to heavily influence the future of Tax Reform 2.0 — and to prevent it from moving forward.
State-level impact
Political agreement or division can also drive or thwart tax legislation at the state level.
For example, during its 2018 session, the state Legislature of Kansas split over a bill that addressed federal tax conformity and the impact on Kansas taxes. The state’s House of Representatives split evenly 59-59, with 22 “nay” votes from Republicans. In the Senate, the measure narrowly passed with only Republicans casting votes in favor — although 10 GOP senators voted with nine Democrats against the bill.
Governors, too, play a role in tax policy.
For example, in Minnesota this year, Gov. Mark Dayton, a Democrat, vetoed a bill that would have adjusted the state’s tax code in light of federal tax reform. Those who backed the bill argued that failing to make the proposed changes would increase state income taxes for many Minnesotans. Dayton said he vetoed the bill because it didn’t address emergency education funding, among other reasons.
Dayton did not run for reelection in the midterms, but fellow Democrat U.S. Rep. Tim Walz won the state’s gubernatorial race. Democrats also took control of the state’s House of Representatives. If the Minnesota state Legislature takes up the topic of tax reform again in its 2019 session, the process — and end results — could look quite different from this year.
How will this affect you?
The results of the 2018 midterm elections could affect tax policy at both the federal and state levels. This matters because tax policy directly affects how much money you will owe state and federal governments on Tax Day, and how much cash you keep in your pocket throughout the year.
For example, following the passage of the Tax Cuts and Jobs Act, the IRS issued new withholding guidelines for employers, and many people may have seen an increase in their paychecks. However, the U.S. Government Accountability Office says about 30 million American taxpayers may actually be having too little tax withheld from their paychecks. Those people could face a big 2018 tax bill due April 15, 2019.
And, as we learned above, states’ decisions to conform or decouple from portions of the federal tax law can also affect your state income taxes.
What’s next?
If you voted in the 2018 midterm elections — good for you! You did your part to make your voice heard in our participatory government. Now keep up the good work.
Stay on top of the news about any federal or state legislative actions that could affect your taxes in 2019. Let your representatives in government know what you think. And take steps now that could help reduce your taxes at both the state and federal levels:
- Maximize contributions to any tax-advantaged retirement, education or health savings accounts you qualify for.
- Keep records to support tax deductions for charitable contributions, mortgage interest and student loan interest.
- Review your paycheck withholdings to ensure you’re having the right amount of tax taken out of your paycheck. Withhold too little, and you could end up owing state or federal taxes.