Trump's Tax Cuts and Jobs Act
Trump announces the 'Tax Cuts and Jobs Act' being passed.
In the military we had an acronym KISS, which meant ‘Keep It Simple Stupid’. That’s what I want to do here, the simpler I keep it, the easier it is to understand how it works, the more technical I get, the easier it is to make good things seem bad, and bad things seem good.
The bill, called the Tax Cuts and Jobs Act, is heading to President Donald Trump's desk and in a matter of days will become law.
It’s the biggest and best deal that has happened for ‘Middle Class’ Americans in living memory, or as President Trump would say ‘its huge!’.
That’s not being hyperbolic or overstating the situation any, this is a massive deal that pulls the rug right out of some of America’s biggest foreign competitors for corporations that create jobs.
America was not competitive on the world stage, this will change
America will finally be competitive on the global stage, something it hasn’t been in over a generation, by cutting taxes on corporations from 35% to 21%.
Lets pretend you owned a multi-million dollar corporation whose profits were 70 million a year.
Lets say you have 1,000 workers in Mexico and the payroll is $250,000.
For 1,000 workers in America to do the same work it would cost $1,000,000 just for arguments sake. All benefits and worker's compensation and insurance included.
Well when America also had a higher tax rate (35%) this was a no brainer, you could save yourself a couple million in taxes and 3/4ths of a million in payroll by being in Mexico. After a few years, that adds up.
But now, with America being at 21%, the tax rate favors America enormously. To the tune of over 6 million dollars difference (based on your profits being 70 million a year).
KISS... being in Mexico made you an extra 3 million vs being in America.
But now being in Mexico will be costing you over 5 million a year in lost profits vs being in America.
Now of course there are all sorts of other considerations, you still wouldn't want to move to a state like California which has the worst taxes in the Nation across the board, but to move to a state like Florida (no state income tax, low property tax, low electricity costs) could be very profitable over remaining in Mexico once the new tax rate takes effect.
So in moving your business to Florida, you create a thousand new jobs for Americans, as well as pay corporate taxes to the nation. From the Fed's point of view, 21% tax is better than nothing, which is exactly what they got when the company was in Mexico.
How this impacts individual working Americans and families
The chart above is pretty self explanatory, families and single filers will pay less in taxes per year. Paying less taxes means you keep more of your money, simple as that.
The exception to this will be those who live in extreme liberal/progressive states, these states have long made a habit of burdening the working class with the hefty taxation for behemoth pension plans, backroom criminal payouts, and overly generous social programs that give freely to citizen and non-citizen alike.
States like California and New York were already oppressive in their taxation, but their citizen's were bailed out by the federal tax rebates (the rest of the nation's taxpayers) for their excess spending. This new tax law changes it so that the rest of the nation will no longer have to bail out their 'progressive' policies and politics by reimbursing state taxes... maybe that will make the voters in those states wake up, and vote in more fiscally responsible politicians.
Some other good news for families, the Child Tax Credit goes from $1,000 to $2,000. And It increases the income level from $110,000 to $400,000 for married tax filers who can benefit.
Those paying alimony will lose their deduction, but those receiving alimony will no longer be taxed on the income. This change begins in 2019 for only effects divorces signed in 2018.
It keeps deductions for property taxes, mortgage interest, state tax on new vehicle purchases and retirement savings. But interest on home equity lines of credit can no longer be deducted.
It doubles the standard deduction. A single filer's deduction increases from $6,350 to $12,000. The deduction for Married and Joint Filers increases from $12,700 to $24,000.
It allows parents to use 529 savings plans for tuition at private and religious K-12 schools. They can also use the funds for expenses for home-schooled students.
It allows a $500 credit for each non-child dependent. The credit helps families caring for elderly parents.
Yes there are some deductions that are going away, but for struggling Middle Class families not living in the excessive tax states (like NY and CA), this new tax deal will likely leave them with thousands of dollars more in their pocket.
You may hear a lot of talking heads on the news channels spouting off about how bad this new tax law will be, but in truth, this will be a major boost in the arm for the Middle Class Americans that have long been waiting for any type of relief from their government. A government that has decimated them over the past few decades with the likes of NAFTA, the repeal of Glass Steagall, and the non-affordable Affordable Care Act (Obamacare).
Hated by the EU, UN, and WTO means it is good for the USA.
Our Nation's progressive tax system that taxed income at a Federal & State marginal rate of over 50% during the Obama years was one of the main causes for our stagnated economy that long hovered around a mere 1% growth (under the most favorable of calculations).
More and more people dropped out of the workforce not for lack of drive or desire to be productive, but rather, it just wasn't worthwhile for them to work long hours every week and go through so much stress for the privilege of paying the government more than they could keep.
The majority of Americans no longer had even one week's salary worth of savings in the bank. Millions were being told they had to pay a penalty not to have insurance, the most vile 'non-tax' ever fostered upon Americans. All the while they were hearing about immigration welfare and visa worker programs that helped increase job competition and lower wages.
This new Tax goes a long way to beginning to turn things around for the long suffering Middle Class Americans. It goes a long way to making America competitive with other nations once more, and will help bring jobs back.
Its important this truth does not get lost. It is important for people to understand how the changes can only improve their opportunity to earn better income or find a better job. Its the best piece of legislation to come out of 'the swamp' in over two decades.