Imhotep (Wisdom to You) G&G Readers,
Trump inflated the benefits
of the tax overhaul when he claimed it provides “$3.2 trillion … in tax cuts
for American families.” It actually totals about $1.5 trillion in tax cuts for all
taxpayers, including corporations.
Trump shows only one side of
the tax ledger. He counts tax changes that cut taxes and ignores those that
will increase taxes. For example,
doubling the standard deduction results in $720 billion less in tax revenues
over 10 years, but repealing personal
exemptions increases tax revenues by more than $1.2 trillion.
Trump’s one-sided description of the
tax benefits of the bill came in remarks at the White House as
Republican lawmakers celebrated passage of the tax bill, which he signed Dec.
22. That statistic was echoed in a White
House fact sheet on the tax bill released the same day. It read: "The Tax Cuts Act provides $5.5
trillion in tax cuts, $3.2 trillion, or nearly 60 percent, of which go to
families."
It was also parroted in a tweet from
Ivanka Trump, the daughter, when she tweeted, "Today marks a great win for all Americans. The Tax Cuts and Jobs
Act provides $5.5 trillion in tax cuts, $3.2 trillion, or nearly 60 percent, of
which go to families."
It’s true that changes in the new
law that would cut taxes — for individual, business and international taxes —
comes to about $5.5 trillion, according to the Joint Committee on
Taxation. But when all of the provisions are
considered — including those that would raise tax revenue — the government’s
nonpartisan Joint Committee on Taxation estimates the tax law will
result in $1.456 trillion less paid in individual, business and international
taxes to the U.S. government over the next 10 years.
That’s why major media
outlets typically refer to it as a “$1.5 trillion tax bill.”
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Trump cited a subset of that $5.5
trillion, the amount that he said would go to “American families.” To get to the $3.2 trillion figure, the White
House tallied the provisions in the tax plan that would reduce tax revenues
paid by families to the government, but similarly ignored provisions that would
increase them. That includes:
$1.2 trillion in cuts through
changes to the tax brackets. The new law reduces five of the seven tax rates,
including cutting the top rate from 39.6 to 37 percent.
$720 billion by roughly doubling of
the standard deduction (to $12,000 for singles and $24,000 for married people
filing jointly).
$573 billion in increased child tax
credits.
$637 billion in relief from the
alternative minimum tax, which is paid by high-income taxpayers instead of
using the regular tax system to calculate tax liability.
Another roughly $100 billion from
things like expansion of medical expense deductions, and reduced estate tax
revenues.
What it does not include are the many
offsets in the tax plan. The biggest is the elimination of personal exemptions
— which is a deduction taxpayers receive for each
person claimed on tax returns.
Under the old tax code, filers
received a personal exemption of $4,050 per person, which means a married
couple with two dependents receives a personal exemption of $16,200. That
goes away under the new law (though as written, it would return after 2025).
That provision will increase revenue to the government by a little more than
$1.2 trillion over 10 years.
But
there are other measures that work against taxpayers, including new limits
on itemized deductions such as for state and local income taxes and some
mortgage deductions.
According to the Joint Committee on
Taxation, changes to the tax code would, on net, result in a little more
than $1.1 trillion less being paid in individual taxes over the next 10 years. I
can’t say exactly how much of that goes to families, since some business owners
— such as partners in limited liability corporations — pay taxes through
personal income taxes.
More importantly, it is misleading
to refer to the cuts without including the increases. It would be similarly
misleading and absurd for opponents of the tax plan to refer only to the tax
increases.
“Taxpayers care about
the bottom line of how much they owe, not how much the beneficial provisions
alone help them, ignoring those provisions that raise their taxes,” Eric
Toder, co-director of the Tax Policy Center, stated via email.
Overall, the tax plan will reduce
taxes for most people in the first eight years. The Tax Policy Center analyzed
the tax bill and concluded that most taxpayers at all income levels
would get a tax cut in the years 2018 through 2025. As written, some of the individual tax
benefits would expire and as a result, by 2027 more than half of taxpayers
would pay higher taxes.
Tax Policy Center, Dec.
20 stated: “We find the bill would reduce taxes on average for all income
groups in both 2018 and 2025. In general, higher income households receive
larger average tax cuts as a percentage of after-tax income, with the largest
cuts as a share of income going to taxpayers in the 95th to 99th percentiles of
the income distribution. On average, in 2027 taxes would change little for
lower- and middle-income groups and decrease for higher-income groups. Compared
to the current tax law, 5 percent of taxpayers would pay more tax in 2018, 9
percent in 2025, and 53 percent in 2027.
It is fair to say that the tax plan would cut
taxes. But reporting only one half of the ledger — just the benefits and not
the offsets — is misleading, and inflates the overall impact of the tax
changes. The Joint Committee on Taxation says it would cut taxes by nearly $1.5
trillion over 10 years. That’s the
unspun figure.
So, it will be imperative that you have a tax professional and "not a tax preparer" doing your taxes.
Trust me folks, there is a big difference.
One of the benefits of being a client with G&G Associates is that you'll get a free 30 min pre-tax preparation session to make sure you are gathering your documents appropriately before you submit your documents for tax preparation.
So, contact us today to schedule an appointment.
Visit our website for more information and free online webinar classes to help you make sure you are audit proofing your records, or contact us today to set your appointment if you need a “TAX” OR “FINANCIAL” one-on-one consultation.
Until the next time!
Tuau (Thank You Much),
Asar Maa Ra Gray
Tax, Financial & Veteran Consultant Services
G&G Associates
757-271-6068 office
866-361-3872 toll free fax
www.gngassociates.net
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