Thoughts on Tax Day
The Trump Administration’s signature legislative achievement to date has been its tax cuts for the wealthy, large corporations and individuals like himself and his family.
“The tax bill cut federal revenues by $1.5 trillion over the next decade. CBO estimates that at best, this would stimulate economic growth by $500 billion, leaving an increase in the federal debt of $1 trillion. The contents of the bill will worsen income inequality as the reform has been steadily tilted to reward the highest income American taxpayers.
“The top corporate tax rates would be cut from 35% to 21% a cost of about $1 trillion. The top individual tax rates would be cut from 39.6% to 37%. In addition, the threshold for paying the top marginal tax rates would be increased to $500,000 for individuals and $600,000 for married couples filing jointly. Corporate tax reductions are permanent, and individual tax reductions expire in 2025.
“The deduction for state and local property and income taxes would be capped at $10,000. In California, a state with high property values and a very progressive personal income tax, this hurts upper middle-income homeowners in the Bay Area, Orange, Los Angeles, San Diego, Ventura and Santa Barbara counties quite badly. Residents of other states with high property values and high state and local taxes, like New Jersey, New York and Connecticut, will be hurt as well.
“The deduction for home mortgage interest is capped at $750,000; this is a reduction from $1 million and a compromise between the House at $500,000 and the Senate at $1 million. This is going to hurt middle and upper middle-income homebuyers in the Bay Area, Orange, Los Angeles, San Diego, Ventura and Santa Barbara.
“The child tax credit is increased from $1,000 to $2,000 and families with incomes up to $400,000 will be able to claim the credit. For low-income families, it will now be refundable up to $1400 thanks to the efforts of Senator Rubio.
“The tax on individuals who fail to purchase or enroll in some form of health insurance is reduced to zero effective in 2019. The CBO projects this will add 10% to the cost of individual health insurance premiums as the market may have fewer healthy enrollees.
“Pass through companies (read the Trump Organization) will be able to deduct 20% of their income tax free. This may lead to an avalanche of high-income earners to create their own pass though entities to shelter their incomes.
“The threshold for application of the alternative minimum tax (AMT) will be increased.
“The exemption from the estate tax will be increased from $5.5 million to $11 million for an individual and $11 million to $22 million for a couple.
“The medical expense deduction, the student loan deduction, and the graduate student tuition exemptions remain intact.”
“So who get’s what in 2018 as a result of these tax cuts?
· The bottom 20% of taxpayers (incomes less than $25,000) get a 0.4% increase in annual income or $60 a year.
· Taxpayers in the middle ($49,000 to $86,000 get a 1.6% increase in annual income or $930 a year.
· Taxpayers in the top 5% ($308,000 to $733,000) get a 4.1% increase or $13,500 a year; they get 22% of the total individual tax cuts.
· Taxpayers in the top 1% (more than $733,000 in annual income) get a 3.4% increase in annual income or $51,000 a year; they receive 20.5% of the total tax cuts.
“In 2027, most but not all the personal income tax cuts will have expired. The bottom quintile pays $30 more a year. The middle quintile pays $20 more a year. The top quintile pays $1260 less a year. The top 1% pays $20,660 less per year and receives 83% of all the benefits of the tax cuts.
“By 2027, over 50% of Americans will be paying more in taxes and less than 25% will be paying less in taxes. By comparison among the top 1%, 3/4th will pay less in taxes and 1/4th will be paying more.”
What are the actual impacts so far? It looks as if we got a short sugar high from the tax cuts, not the long term boost in productivity and the nation’s economic growth, which is what we needed.
· Worsening income inequality as the wealthy and corporations receive the bulk of the benefits,
· much higher budget deficits as the economy fails to grow at the rates needed to offset the loss in tax revenues and
· corporate stock buybacks which bolstered the stock market, but not much of an impact on corporate investments in growing the economy.
https://www.cnn.com/2019/04/15/economy/trump-tax-cuts-impact-economy/index.html
Only about a third of the public approves of the tax cuts because they perceive them (quite accurately) as tilted to the wealthy and corporate interests. https://www.politico.com/story/2019/04/15/donald-trump-tax-cuts-unpopular-1273469
For details on the Trump tax cuts and how they impacted average taxpayers, see the following. https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968