Who benefits from the new federal tax law? Mainly—especially in the long run—wealthy people and corporations. It’s short term gains for many, but offset by safety net and tax deduction losses, plus eventual tax increases.
The New Tax Law & You
GRANTED: MASSIVE TAX CUTS FOR THE WEALTHIEST
The GOP tax law gives new tax cuts to wealthy individuals and corporations. These tax cuts will remain or grow over the next decade, financed by cutting over $1 trillion of vital federal programs for millions of citizens.
ELIMINATED: TAX DEDUCTIONS FOR MIDDLE CLASS AND WORKING POOR
Eliminated tax deductions include:
• State and local income and sales taxes
• Student loan interest
• Alimony payments
• Interest on mortgage payments
ELIMINATED: PERSONAL AND DEPENDENT TAX EXEMPTIONS
The new tax law raises the standard married couple deduction by taking it from $13,000 to $24,000. However, because this deduction is paired with the elimination of personal tax exemptions (currently valued at $4,150 for the taxpayer and for each dependent), this feature will end up as a tax increase for many families —especially those with children.
ELIMINATED: MILLIONS OF POOR CHILDREN FROM CHILD TAX-CREDIT INCREASE
The new tax law allows a $600 Child Tax-Credit increase for children of all families—including those with six-figure incomes—but excludes millions of children from low income families.
INCREASING: TAX BENEFITS TO TOP 1% OVER NEXT DECADE
Not only will the wealthiest people and corporations get large, permanent tax cuts, they will also get the biggest tax cut as a percent of income. These tax cuts could remain standard or increase within the next decade.
DECREASING: LONG-TERM BENEFITS FOR WORKING FAMILIES
Some benefits, like a new tax credit of $300 for each adult dependent, will expire after 5 years. Most are likely to get some tax cut, but millions will get higher taxes immediately, and that number will increase over time.
INCREASING: THE FEDERAL DEFICIT BY $1.5 TRILLION
Turns out the Republican Party, previously a staunch supporter of a balanced national budget, has no problem creating a huge deficit this coming year. Perhaps that’s because this deficit will not be paid for by themselves or by their financial supporters. It will be paid by the millions of poor and middle class people who will have to do without the $1.8 trillion worth of services no longer provided by Medicaid, Medicare, public education, housing, food assistance, job training, and more.
YOUR BOTTOM LINE
Income: Add the total tax relief you expect to get from the new tax law to the take-home pay you expect to earn this year.
Outgo: Add up the money the new tax deduction losses will cost you. Next, add up the higher costs that you think could affect you and your family in the coming year, in such items as: general health care, education, basic medical and living expenses for seniors, food assistance, job training, etc.
Subtract the final outgo amount from this year’s expected income. The result, plus or minus, will be what you can expect to gain or lose by the new tax law. At the end of 2018, go through the same process, this time using actual money gained vs actual money lost or spent. You may not only find less benefit from the new tax law than you expected, you may actually find a loss.
IMPACT ON THE ECONOMY
“It is said that the 2017 law will reduce unemployment, goose the stock markets, and stimulate the economy. But when the law was passed, unemployment was already near historic lows, the stock markets were surging past historic highs, and economic history suggests that tax cuts have little impact on GDP growth. According to the nonpartisan Congressional Research Service, changes in the top tax rate ‘do not appear to be correlated with economic growth.’ The elder Bush raised taxes in 1990; Clinton raised them again in 1993. Many pundits predicted disaster. But both tax increases were followed by sharp gains in GDP growth. Conversely, after the younger Bush cut taxes in 2003, the GDP growth rate sank to around 1% and remained at low levels until the 2008 recession (source: Bureau of Economic Analysis and Haver Analytics). If the 2017 law does nudge the GDP upward, the gain may be offset by higher inflation.”
Excerpt from The Smartest Way to Invest, the latest book by Richard E. Evans, 2018
FOR MORE INFORMATION
• nwlc.org - National Women’s Law Center: New tax plan impact on women and families
• itep.org - Institute on Taxation & Economic Policy analysis of new GOP tax act
• cbpp.org - Center on Budget & Policy Priority: Analysis of new law
• wsj.com - Wall Street Journal: Uneven impact on Households