The new Tax Cuts and Jobs Act affecting federal taxes was signed into law yesterday, December 22, 2017, by President Donal Trump and depending upon your political affiliation, it is either the end of the world or the best thing since sliced bread. So, let’s try to distill the shrill and get back to reality as it is neither of those things.
First and foremost, we must understand, that according to the Internal Revenue Service (IRS) over 45 percent of Americans do not pay federal income taxes as they are not required to do so. So, for over 45 percent of Americans, this will have zero impact because they are not paying into the system already. They may be paying other taxes such as federal Social Security and state sales taxes; however, none of those have any bearing on this issue.
If you wish to look up your personal financial situation to see if it reduces or increases your tax bill, use this link: https://www.nytimes.com/interactive/2017/12/17/upshot/tax-calculator.html . So, for example, the average Palm Beach County resident earns $55,000 per year, and for those who are married with two kids, paying $3,000 per year in property taxes and pay $6,000 per year in mortgage interest will save approximately $1,400 on their federal income tax bill.
If one is paying student loan interest payments, those remain deductible as well as those with high medical bills. The bill does not get rid of Obamacare, as the medical insurance subsidies, regulations, and Medicaid expansion remain.
Now, we’ve heard a lot of stories about how this is so great for the rich and this is true in some cases, but the really rich are capped with their property taxes of deducting only $10,000 (most of which have much higher mortgages, thereby paying far more than $10,000 each year in interest). So, for example, someone earning $1,000,000 in 2018 who is married with two kids, making $10,000 per year in tax-deductible tax deductions, paying $30,000 in property taxes and pays $25,000 in mortgage interest will have to still have to pay approximately $300,000 in federal income taxes. And it is worse for those high earners in states with high state income taxes like New York and California who are limited to a total of $10,000 of their state, local and property taxes.
But these numbers vary widely and are easily manipulated which is why it is best for everyone to use the tax calculator to see where they personally stand. While one politician will give you one scenario, another will give you a completely different picture based on slightly different factors. It is neither Armageddon nor is it something that is going to propel us to a 5 percent growth in the GDP. Many politicians tend to be drama queens and are on stage every day with their political theater. Suddenly some on Capitol Hill are talking about how concerned they are with the growing federal debt when they have been voting to increase the debt through dramatic spending programs for years. Apparently, they are betting on Americans either being stupid or having short memories.
The new tax bill, which cannot sincerely be referred to true tax reform, will give many Americans a small bump in pay starting in February. True tax reform would be things like the implementation of the FairTax which would eliminate basing one’s financial contribution to the nation to their income. Even better, slashing the government spending would eventually reduce everyone’s taxes as well as the federal deficit and debt. But, like most tax cut programs, the federal government is betting that the Tax Cuts & Jobs Act will grow the economy and thereby increase the coffers of the treasury. Time will tell if that prophecy comes to fruition.
Nicholas Sarwark, Chair of the Libertarian Party, said yesterday, “Tax cuts are great, but balancing our checkbook is also crucial. This reform package is a mix of the good, the bad, and the ugly.
“We can pay immediately and directly through taxation,” Sarwark said. “Or we can pay more later through inflation. That’s what happens when the federal government spends more than it takes in and the deficit is primarily funded by newly created money that is loaned to the government by the Federal Reserve — and it amounts to theft in either case. Interest on that debt means we’ll keep paying even more. The vicious cycle continues in today’s budget debates. Republicans want to increase the deficit for defense spending, and Democrats want to increase the deficit for everything else. As a ‘compromise,’ all spending will rise — and so will the debt.”