A short while ago, the Political Great Whine was admonished on its Facebook page for not saying anything positive about the Trump Administration. So it was promised that the very next post would be positive….so here goes!
Tax Reform is GOOD for the Middle Class
Once again, the House of Representatives has shown its support for Trump’s legislative agenda by passing major tax reform legislation. Now if only the Senate can get on board, middle-class Americans will finally start experiencing some good news for a change. The tax cuts that the bill promises to deliver are definitely needed and who couldn’t use a $1000 tax break? The rest of this post will briefly highlight some positive things about Trump’s tax reform plan.
1. Reduces the number of tax brackets from 7 down to 4
The four new tax brackets would be (12%, 25%, 35%, and 39.6%) and this means that some folks will be able to see more money in their paychecks. For example, if your annual salary is $40,000 a year, your income will fall in the 12% tax bracket instead of the current 25% bracket. However, if you make between $50,000 – $90,000 a year, your income will continue to be taxed at 25%. According to Census, the median household income in the United States was $59,039 in 2016. Although there are no changes for folks in that salary range, those who make $100,000 – $150,000/yr who are currently taxed at 28% would see more money in their paycheck as a result of moving to a lower tax bracket of 25%. It is good to see that those making less than 50K or in the low six figures would benefit from the tax bill as passed by the House.
2. Increases the child tax credit
Simply defined, a tax credit is the amount of money that you can deduct (subtract) from the taxes you owe to Uncle Sam. You can also view it as a savings or a reimbursement for the dollar-for-dollar amount you have already paid. The child tax credit (CTC) currently provides a maximum tax credit of $1000 per child under age 17. Under the tax legislation passed by the House, the amount would increase to up to $1600 per each qualifying child. The average weekly child care cost for one child is $196, so for 52 weeks that is a little over $10,000 a year. For individuals and families who are able to afford child care, a $600 tax credit increase would be helpful.
3. Reduces corporate taxes which will create more jobs
Currently, a business can not be taxed more than 35% and this will fall even lower to a flat rate of just 20% under the tax bill passed by the House. It is expected that companies will turn those savings into job creation and in fact the tax bill is officially being called the “Tax Cuts and Jobs Act“. There is no text in the legislation about how jobs are being created nor is there a mandate for businesses to use savings to create jobs. It just makes sense that if businesses have less taxes then they are more likely to stay in the U.S and increase their payroll by hiring more people. There is currently no evidence to support this, so we will just have to keep our eyes on job growth in rural and poverty-stricken areas like Appalachia.
4. Repeals many individual credits and deductions
The U.S government still has to pay its bills so while the reduction in corporate taxes will decrease the revenue, a lot of money will be saved by repealing many individual credits and deductions. Below are a few of the repeals:
- Repeals medical expense reduction: Out-of-pocket medical expenditures could no longer be used to reduce your taxable income (and tax liability). Under the new tax bill, a family who makes $50,000 but paid $10,000 in medical costs during the year would not be able to drop to the 12% tax bracket but would still be liable for 25% in taxes. While tax liabilities could increase for many families, it allows the government to save a lot of money without harming big businesses.
- Repeals deduction for personal exemptions: You can currently claim a personal exemption for yourself plus an exemption for each person you claim as a dependent which increases the amount of money you take home. That goes away under the new tax legislation so while you would bring home less money per pay check under the new tax bill, this may help put you into a lower tax bracket and you could save money there. Importantly, by getting rid of this deduction the government will be able to recoup the revenue lost from reducing corporate taxes.
- Repeals several education -related deductions and credits: Under the new tax legislation, you will no longer be able to subtract the amount of interest you paid in student loans from your taxable income. For those of you who are paying on your student loans, you probably want even miss the deduction. You can currently claim a maximum of $2000 in tax credit for the amount of money you pay for continuing your education and professional development. There is a Hope Scholarship credit that is rarely used (who knew?) that will also go away. It is projected that these cuts would bring in approximately $17 billion in federal revenue.
So there you have it. The Political Great Whine has provided a positive take on the Trump Administration. Kudos to President Trump for trying to help the middle class with the Tax Cuts and Jobs Act. After reading the legislative summary and skimming the actual text of the tax bill, it is clear how much Trump and Congress care about working and middle-class families. The House has spoken and now it is time to see how much the Senate cares.
Thanks for “listening” to me whine. Hopefully my whining has made you think. If so, tell your friends/family/colleagues that you heard it through the Political Great Whine!