The New Tax Act
The new tax act should be named
“The Tax Act of Smoke and Mirrors”.
Currently both versions, (the house and the senate) are calling for doubling the standard deduction for a married couple from $12,700 to $24,000. This sounds really good, as in everybody is going to NOT have to pay taxes on that extra $11,300 but that is nowhere near the case. What they have kept pretty well hidden till now is that they are also eliminating the personal exemption, which in 2017 is $4,050. End result you get an extra $11,300 write off on one hand but lose $4,050 PER PERSON of deductions on the other hand, So for a married couple with no children they are only getting a break on $3,200 of income not $11,300. A married couple with one child will actually almost break even and those with 2 or more children will come out on the short end of the stick. Now they are also increasing the per child tax credit which will help make up for that but on the other hand the lowest tax bracket is jumping up from 10% to 12%. End result for those who take the standard deduction very few will actually come out ahead by more than a couple of hundred dollars. For those who itemize and live in such places as New York where both income taxes and property taxes are quite high, those poor people will definitely be on the losing end of the stick, for the new law eliminates most of those itemized deductions and/or drastically limits them. For seniors it has not been mentioned yet if they will still get the additional standard deduction (an extra $1,550 per person. If they don’t get the extra that they get now they will only save on $500 of income but that is only if the jump from 10% to 12% on the lowest bracket does not eat up all of those savings, which it most likely will. As stated in the title this law is not much more than smoke and mirrors. Huge tax cut for the corporations and the rich and most likely will cost most middle class Americans more of their hard earned money.
Corporate taxes will drop from 35% to 20%. A 43% decrease in taxes. But it must be realized here that the government isn’t actually losing all these tax dollars they are merely shifting from whom they are going to take these tax dollars from. If all those tax savings dollars were to be spent on payroll, then the government would immediately get 15% of that back in the form of social security and medicare taxes and then it would get back another 25% of that through individual income taxes for a total of 40% of the supposedly tax cuts. Let’s say on the other hand the companies pay their windfall profits out in the form of dividends, then once again the government will get about 25% of that back in individual taxes again. To take that a step further let’s say the corporations decide to pass 10% of the 15% tax savings out in dividends. That means their dividends would increase by 10%, so if you are getting a $2 per year dividend now you will get a $2.20 dividend next year. Of course that is before taxes, so you get to give 25% of that back to the government. But let’s be honest, does anyone believe that the corporations are going to pass much of that along back down into the middle class. Perhaps a little but you can bet they will first give board members and upper management nice bonuses. Does anyone believe that the health insurance companies will pass along any of the windfall profits from the lower tax rates down to their insureds by lowering premiums? Since the Republicans are also trying to slip into the bill a provision that does away with the ACA’s mandatory health insurance rule, just the opposite will occur. Fewer healthy people will buy insurance and therefore premiums will go up for everyone else. They are already predicting that premiums will rise by another 10% if the mandatory clause is eliminated. So the bill will allow them to raise rates, make even bigger profits and then pay less in taxes on those profits with no provision to pass those savings along.
So in conclusion this new tax law is basically the perfect “welfare” storm. The poor people will get even more money handed out to them, “public welfare” and the corporations will end up paying out 42% less in taxes, “corporate welfare”. We will both end up with a larger national debt and most of the middle class will end up paying more in taxes.
All this brings back to mind the old saying, “if con is the opposite of pro, then is congress the opposite of progress”.
We will never fix our problems till congress gets serious and increases the number of people paying in taxes and cuts spending. This could be accomplished, for starters, by revamping the welfare system. We need a graduated welfare system. Right now if a person makes $100 too much they stand to lose thousands of dollars of benefits. If they only lost say $25 of benefits they would have an incentive to go out and make more money and eventually work themselves off of welfare. Now we would be “giving” out less and collecting more in taxes and everyone is better off. A win win for all the people. They could also close loopholes such as exists with the Earned Income Credit of which I have brought to the attention of a couple of congressman to no avail. We have people who are between the ages of 62 and 65, who are receiving social security benefits, have over a quarter million dollars in their IRA’s but are working a part-time job. But because their income is low enough, by choice, the government gives them free money because of their low “earned” income.
We can fix our problems, but not with “bought” politicians who are only interested in passing “Smoke and Mirror” laws. The proposals are not tax reform but merely tax transference.