Congress voted to overhaul the US tax code and cut taxes, permanently for corporations but temporarily for individuals, and President Donald Trump declared victory Wednesday as Republicans made good on one of his major campaign promises within his first year in office, the New York Times reports.
The new law will end up giving middle-income households that earn between $20,000 and $100,000 a year more take-home money between 2018 and 2027, when the cuts are set to expire, unless Congress takes action before that date. I, for example, will get about $50 more in each paycheck, according to Tax Plan Calculator.com, although I want to urge readers to try the calculator out for yourself, since there is no such thing as a “typical” taxpayer.
According to an analysis issued by Congress’s Joint Committee on Taxation, middle-income households like mine are getting about $61 billion in tax savings with the new law, which amounts to about 23 percent of the cuts the law will bring to the federal revenue stream.
“We are giving the people of this country their money back,” House Speaker Paul Ryan, a Wisconsin Republican, declared.
Most of the cuts go to businesses with some going to high-income households as well. The new law could end up helping to lower the US trade deficit as a result, also a goal Mr Trump set for his term during the campaign, because it reduces the incentive for multinational companies to shift their profits artificially to other countries. If the incentive works, it could cause a noticeable upward blip in the gross domestic product and cut the trade deficit.
Other analysts, however, see the projection of 4-percent growth, on which the estimate relies, as being exaggerated. Companies, they point out, don’t make decisions to invest in America, American workers, or manufacturing plants based on the tax rate, which this new law cuts from 35 percent to 21 percent for most companies; rather, they use after-tax savings to increase dividends while basing their investment decisions on what is known as EBITDA, or earnings before interest, taxes, depreciation, and amortization.
The tax bill itself wasn’t that bad for education, although it was never intended to improve any situation for public schools.
But private schools got a boost. Starting in 2018, households may use up to $10,000 each year from their tax-free 529 savings plans, intended originally when Congress established the plans to be used as college savings accounts, to meet the expenses of tuition at private elementary and secondary schools. This change to the tax law was considered a victory for US Education Secretary Betsy DeVos and her hope of bolstering private schools in the US.
Other aspects of the education code remained intact, including tax-free tuition waivers for graduate students, applied by universities without those grad students ever seeing any of that money, and a $250 deduction for classroom teachers who take deductions on their tax returns for classroom materials or certain professional development activities. But there’s a catch: The new law significantly increases the standard deduction, which could make it less likely that teachers will itemize deductions on their tax returns. So although the $250 deduction remains part of the tax code, the number of people claiming the deduction is likely to decrease.
Looking beyond the short-term tax savings
- Next year, a single person making $25,000: $390 tax cut
- Married couple with 3 children, $25,000–$75,000: up to $1,860 tax cut
- Married couple with 3 children, $75,000–$100,000: up to $2,900 tax cut
Although most households in the US will see a tax cut under the new law, that means, unfortunately, that the federal government will take in less money, with most estimates putting the losses at around $1.5 trillion over the next decade.
A reduction in revenue will bring a reduction in expenditures (or a drastically rising debt, to be paid by our children’s generation), and the question must be asked: What programs will be cut in order to reduce those federal expenditures?
“We couldn’t fund this or that,” Congress will rightly say a few years from now. Some already hypothesize that Republicans in Congress and the president are eyeing Social Security or Medicare cuts, as well as cuts to programs that provide assistance to poor people, such as proposed cuts in Title I funding for our poorest schools.
- Columbia, Md., worries that the plan will erode “egalitarian pillars” it has long worked to achieve, the Times noted in a companion story.
So we each can get about $50 a paycheck. Meanwhile, we look to cut education, healthcare, food programs for the poor, and other vital programs that keep America as competitive as it can be, given levels of poverty that exist here and the sheer number of citizens who struggle to make ends meet while working full-time jobs.
I can’t say I’m opposed to people doing what’s best for themselves, which is what happens when wealthy Congressmen pass a law that puts more money in their own pockets, even though none of them actually need that little extra money to live. But there’s something wrong with putting the government in a situation where it has no choice but to take money away from the people who need it the most, in some cases merely to survive from day to day.
It’s clever, I admit, and that’s what being “fleeced” feels like. We’re getting a little more money in our pockets, not enough to make any real difference in our lives, and yet our government is setting us up for cuts to vital programs.
Maybe private investors and foundations will step up, but given that the new law changes the way charitable contributions can be deducted, those foundations may also run out of money and won’t be able to make up the difference between what the government now invests in programs like Title I and what it will spend after making what will be inevitable cuts. This change is also likely to reduce charitable giving to research universities and other nonprofit organizations that depend on charitable contributions to do their important work.
ACA ‘mandate’ is gone
Although the new law didn’t end the Affordable Care Act, so-called “Obamacare,” it did strip out one of its most important penalties: the individual mandate. Individuals who don’t carry health insurance will no longer have to pay a tax penalty.
The change is expected to drive about 13 million people out of the health insurance market, not only making it hard for them to afford most medical care but driving up premiums for others who do purchase insurance.
As with the $50 I’ll get in each paycheck, I don’t consider this a good trade-off. Many corporations already didn’t pay taxes at the 35-percent rate, given loopholes, most of which remain, except for the charitable contributions “loophole,” and wealthy individuals aren’t likely to invest in programs for the poor, who suffer under the cuts that are sure to come with this new tax law.
And while it’s good to update the tax laws we live under from time to time, this change didn’t make them simpler and it took away many things we hold dear—while giving us a few pennies in our pockets from 2018 to 2027, when our children will have to make the payments.