The 503-page bill signed into law by President Trump today restructures how (and how much) Americans pay the Taxman. Most of the provisions take effect Jan 1, 2018 … 10 days from now. And, since there’s no provisions for making sure all Americans understand the restructuring, the changes are still going into effect regardless of what seems to be mass confusion.
1986 Called … They’re Over the Hyperbole
The media continues calling this tax overhaul “the largest since 1986”. While that’s true in many, many ways, the public is collectively asking “Largest in what way for me?” Well, if you’ve been reading any articles attempting to make sense of it all, you’ve likely seen something similar with the majority of them: they are all citing the same source. The source, known formally as “The Distributional Analysis of the Conference Agreement for the Tax Cuts and Jobs Act” was published by the Tax Policy Center, a non-partisan outfit put together jointly by two institutions: Brookings and Urban. It’s reasonable that the source has been cited like crazy, as the piece remains the most comprehensive look into the overhaul’s many provisions (I guess other than the actual bill itself). In the publication’s summary, its authors write “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” (1). This soundbite I also found helpful: “Compared to current law, 5 percent of taxpayers would pay more tax in 2018, 9 percent in 2025, and 53 percent in 2027” (2). This means that 95% of Americans are expected to pay less in taxes for 2018 and 91% will still be saving in 2025. But, in 2027, only 47% of Americans will still be experiencing savings resulting from President Trump’s Tax Law. Why? Because the bill’s authors set cuts for individuals to expire around the 10-year mark.
2018: Year of the Almost-noticeable Tax Savings
But, how much is “less”? On average, maybe not even enough to notice–about $1,200 per family when they file their 2018 taxes in 2019. As the article I’m citing here points out, that’s about $23 per week.
In response to the assumption that tax breaks will be too small to be noticed by the average American, Lindsay Walters, White House Spokeswoman, argues that 2018 “will see a booming Trump economy that’s creating jobs, raising wages, and adding retirement security.” Sure, but how much of that positivity will we be able to attribute to the fact that average Americans have an extra $23 in their pocket each week?
Business Owners: Share a Toast to the Longterm
Unlike many of the cuts going into effect for individuals, the corporate cuts are expected to survive for the long haul, with no expiration dates set. Some of the tax incentives for corporations, such as the ability to now immediately deduct any costs associated with equipment purchases, could result in immediate impact. The idea is an ancient one: when corporations save money on taxes, they have more money for creating jobs, increasing wages and redistributing capital.
Yea, Yea, Yea, but Have we Struck Oil?
In a previous post on thepowellperspective.com, I focused on the impact the tax bill will have on the energy sector: including a look at oil and gas specifically as well as alternative energies. Furthermore, if you’re looking for a more in-depth breakdown on changes to how the oil and gas industry will be taxed, I found a terrific breakdown here on Forbes.
To sign off, I’ll do as President Trump did in a Tweet praising his own signing of the bill … Merry Christmas.
1 and 2 see here.