The Truth about The Trump Tax Reform

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Tax reform is finally on the table and major details of the plan have been revealed. The media has already begun to demonize the plan as one which exclusively benefits the rich and raises the liability of the poor. As usual Republicans and the Trump team refuse to defend the plan in public so most of the burden again falls on independent bloggers like me. I will go through most of the items included in the package and show why they are necessary. Once the actual tax brackets are revealed I will come up with an actual computation like I did in a previous article.
Standardized Deductions and Personal Income Tax
Raising the standard deduction and collapsing the tax bracket is one of the two core ideas in the proposal. The standardized deduction will be doubled for both married and single filers and the tax brackets will be collapsed to 12 25 and 35 percent respectively. The media has seized on this to show how Trump is raising taxes on the poor as the lowest tax rate will be rising from 10 to 12 %.
This is a lie. There is really no other way to say it. If you are currently in the brackets which pay 10% (up to 9325$) and the standardized deduction doubles then the most likely result is that you will pay no taxes. Even if you do end up paying 12% on some of your income the taxable amount will be much smaller due to the increased standardized deduction.
Since the standardized deduction has been increased other tax deductions are being removed. Fake news then uses this fact as a jumping off point to prove that the Trump tax reform plan is harmful to those with lower income. What no one in the news is saying is that the vast majority of people do not use these deductions. According to official IRS data in 2013 63% of filers opted to use standardized deductions. Data available from non-IRS sources say that in 2016 70% of filers opted for standardized deductions. If you are one of the 63-70% of the population who uses standardized deductions then removing these deductions will not affect you as you were never using them in the first place. In addition to this when you double the standard deduction you also push people into it so the deductions that are getting removed will not affect them.
One deduction I would like to focus on is the state and local tax deduction. The media has said that this unfairly targets Democrats. In a sense this is true. 1/3 of all the deductions from SALT come from New York, California, and New Jersey. Make no mistake, these are not the poor people in these states. They would already be taking the standardized deductions so would not be using the SALT. The people who claim these deductions are among the wealthiest in the area. If you will recall these are the very same people who say they want to pay more in taxes so others can get a tax break. They are now being given the opportunity to do this. If they actually do not want to pay higher taxes than they should petition their congressmen.
Corporate Taxes
The Trump proposal for tax reform lowers the corporate tax to 20% from its current 35% and removes some of the deductions that the companies can claim. This is of course being hailed by the media as a major tax cut for the rich at the expense of everyone else. Before we go further into this let me just point out that the Democrat recipe for tax reform is to keep it at its current 35% and remove the deductions. This is lunacy. In our current system we are already experiencing inversions as some of our companies are moving their headquarters to Ireland and other tax havens. For those who are wondering these are not companies like Walmart or Koch Inc which the left love to hate. The companies doing these inversions are those that the left loves like Apple, Google, or Microsoft. The very same companies that make California so rich.
America currently has a two tier tax system. There are companies who can afford to hire lawyers to take advantage of all the loopholes and deductions the law offers and they pay a real rate of 15-17%. Then there are smaller companies who cannot afford to do this which pay close to the statutory rate of 35%. In other words our current tax code helps companies like Walmart drive smaller ones out of the market. They already have enough other advantages they do not need the tax code too.
The Trump tax reform proposal levels the playing field between the two tiers. Since most deductions are going away both tiers will be paying near the 20% mark. This means that those companies who paid 16% before would have their rate increase while those who pay 35% would see a decrease. Of course the increase for those who pay a lower rate is offset by the lower need for tax lawyers and accountants.
Deficit
After praising Obama who doubled the deficit of all past presidents combined Democrats and their allies in the media find that they suddenly care a lot about the deficit. The accusation is that the Trump tax reform will blow this up.
This is again not true. Take personal income tax reform first. When you get a tax refund you do not hide it in your mattress. This is particularly true of those who have low incomes to begin with it. You would spend the money in your local economy for food or whatever else you want to buy. At that point the government already gets a cut of this in the form of sales taxes. The business owner who makes more money may end up hiring more people or the professional who provided the service would have more disposable income. They spend and the government gets a cut of that too. The very people arguing that a minimum wage increase would be good for the economy should be the first one arguing this point.
On the corporate side the companies that are taking so many deductions that they pay less than 20% would actually end up paying more (although again they would offset this by paying the lawyers less).
This tax reform is great for almost everyone involved. Not only does it lower the tax burden for most people it also simplifies the process. Since everyone is pushed into taking standardized deductions the time required to determine your taxes drops tremendously.
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3 thoughts on “The Truth about The Trump Tax Reform

  1. You want a tax cut, here is one, keeping in mind, all of that debt we already have. A 20% tax rate for everyone. A personnel deduction indexed to inflation for personnel taxes. That is it. For company’s and corporate, you can deduct wages and materials, that is it. plants and tooling has value, how you do or do not take care of it says how much, if any it is worth. Wages over $500,000. being subject for an additional 50% tax.
    So a personal deduction of say 6 grand per person. You made 20 grand and their are two of you. 12 grand for the deduction, and you will pay tax on the 8 grand left over.Your tax would be $1,600. You are done figuring your tax. Corporate, with a 500 million gross. Subtract the $250 million for materials, the $150 million for wages, and your tax is on what is left over, in this case $100 million . Unless you paid your CEO a million dollars. The first $500,000 he’d get his 6 grand deduction, and pay his 20% on that. The other $500,000 he’d pay a tax of 50% on that. So that would be a tax of $250,000 on his wages. He is done figuring his wages, along with corporate figuring their tax bill also.Simple, easy to figure. No complex expensive games trying to figure out, as well as enforce a complex tax code.
    We save in expensive court cost cases. We save in the numbers of people needed for the IRS.Simple, and as fair as we are going to get. We’d save in multiple other ways. No need to be printing up, and mailing out expensive tax code laws.

    • Hmmm
      Steve Forbes was a big proponent of a “flat” tax. Like everything else, the devil would be in the details. Even if some form of a flat tax managed to get out of committee, keeping a lid on deductions and exemptions given the power the 1/10 of 1% and the fortune 5000 means that the end results will be essentially the same as the current GOP. “plan” . In other words they will cut taxes on the rich and large corporations and pay for shortfall by incorporating stealth taxes on everybody else. The 1/10 of 1% and the fortune 5000 already make most of the money every year. Simple math tells us that if you cut their taxes by 1/3 you must raise taxes on the rest of us by a corresponding amount. The GOP will spin for the umtenth time that cutting taxes at the top will magically stimulate the economy and raise wages for everyone else. The problem of course is that wages would have to raise by more than a third before the rest of us would even break even given the increased taxes imposed by the tax cuts on the rich. And make no mistake people, this tax “plan” intends to drastically cut taxes on the very wealthiest Americans and corporations and hand the bill to the other 99%. Tax cuts for the rich has been tried numerous times and each time in the end the rich get a lot richer and the rest of us got screwed.

  2. What this article doesn’t point out is the loss of personal exemptions. The larger the family, the more tax you will be paying under this plan unless the child tax credit, which hasn’t been revealed, will more than offset this, which I doubt. There was also the campaign promise of stay at home parents being eligible for the credit but we don’t know if that is still on the table or not.
    We are a single income family of 5 (Dad, SAHM and three kids). Our income is 65000. With the current standard deduction of 12,000 plus a little over $4000 each for personal exemptions for the 5 of us, our deduction is 32,000. This is $8000 more income under the Trump plan that will be taxed. Not only that, we are currently paying 10% and instead will get a rate increase of 2%. This is an increase of $1620. $135 more a month in taxes.
    If this passes as presented at this time, we will be paying more unless the child tax credit can offset the increase. I have two teens so only one of my children is eligible for the tax credit. IF, they let SAHP have the tax credit.
    I voted for Trump. I’m in favor of many of the changes he’s making but this tax plan isn’t one of them. I pity larger families who are going to be hit hard by losing their personal exemptions, especially if they are making less than $100,000/yr.
    This plan MIGHT help families with only one or two children and a double income but larger families with a SAHP might have less in their pocket to spend or save. It all hangs in the balance for us until the child tax credit details are revealed.

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