Another Trump campaign promise just got checked off in time for Christmas but, is the tax cut a present only for the wealthy and a lump of coal for the rest of us as claimed by the Democrats? Judging from quotes from the news media, Democrats and talking heads, Trump’s tax cuts will doom us all!
First, remember that nothing is perfect and we can’t have everything we think we want as soon as we want it! Also keep in mind that the tax bill primarily focuses on increasing tax revenue by promoting business growth. Ok, fine, but, will the majority of us see a tax reduction? The answer is Yes! How much you receive will vary primarily by your tax bracket, filing status, deductions and the number of your dependents. So, before looking at the benefits, we need to address some key criticisms.
A. The Tax Cuts Expire in 2025! But that’s only 8 years! So what! Why should that be a problem? Nothing we do is forever. Times and conditions change so what is good for today may not work well in a few years. We’ll have to address those conditions when they occur.
B. The Tax Cuts Aren’t High Enough! Really! How many New tax cuts have you seen over the last 8 years? Besides raising taxes and creating new ones (ACA penalties), Obama’s primary tax benefit was in Extending the G. W. Bush tax cuts from 2001 and 2003. BTW, the tax penalties on Obamacare are eliminated under this bill.
C. The Middle Class Will Bear the Burden! OMG! Please! Always take what Pelosi says with a shaker full of salt! She focused solely on the year 2027 when the tax cuts will have Expired! The truth is that 80.4% of all taxpayers will receive an average annual reduction of $2,140 and 4.6% of the highest earners will see an increase in taxes.
D. Businesses get Tax Benefits! Absolutely! Profits from doing business in the USA will see a tax drop from a maximum of 35% to 21% whereas American companies who have shipped jobs overseas will see tax increases on offshore profit. It encourages investment and job growth inside this country. Remember Trump’s campaign slogan, “Make America Great Again”!
E. It’s a Republican Bill! Completely True! Not a single Democrat voted for the tax reduction package in either the House or Senate.
Trump’s original intention for the bill was tax reform leading to a simplification of the tax code. He also wanted a reduction in taxes for the majority of Americans and the encouragement for business growth leading to higher employment and higher wages resulting in greater tax revenues. Although the tax code still remains overly complex, it is believed that some of the other priorities will be met. Trump didn’t get everything he wanted. This bill reflects the primary difference between the Democrat and Republican views toward the role of government as outlined below:
The Democrats focus is on increasing tax revenue by Raising taxes particularly on businesses and the highest earners. They also believe it is government’s role to regulate business even to the point of micromanagement via burdensome regulations! This approach makes it more difficult to start, run or expand a business and adds to the overhead thereby reducing profit for the owner(s). The government, in their wisdom, can then dole out the tax revenue as they see fit because they know how to manage our money better than we do. However, many of us disagree with that approach.
The Republican philosophy is to increase tax revenue by lowering taxes particularly on businesses. They also want to minimize regulations and red tape other than what is necessary for a safe environment as an incentive in order to encourage entrepreneurs to start businesses, hire people and become profitable. Businesses typically plow profits back into growth which generates even more tax revenue. This helps to reduce unemployment and dependency on government handouts. It all becomes a part of the ‘trickle down’ theory of fiscal management. Lower unemployment means a shrinking pool of job applicants which then requires businesses to raise wages and benefits in order to attract qualified people – a Win/Win situation. It’s a valid premise, particularly in college sports – look at the ridiculous salaries coaches are getting!
The initial reaction to the Trump/Republican tax bill by industry has been highly positive. A number of major businesses have already declared they will issue bonuses to their employees in anticipation of increased profitability thanks to the bill’s passage. The list of heavy hitters include ATT, Boeing, Wells Fargo, CVS, Sinclair, and Comcast among a growing number of corporations that see the value in the GOP bill for both themselves and their employees. Their announcements included raises for employees over and above the bonus windfall! Foreign economists, particularly in Europe and Asia, have warned that investors will flee from their markets and invest in the USA. Sounds good to me!
If you’re the type of person who demands that you get everything you want immediately, you won’t be happy with this or any tax bill. You can expect to hear a lot of criticism over the next year. Keep an open mind and let your tax preparer guide you through it so you can determine for yourself if the tax cut was a Fact or Fiction!
End of rant. Have a blessed day.