Why are people talking about Tax Reform?
Last December, Congress passed a tax reform bill, more formally titled the “Tax Cuts and Jobs Act (P.L. 115-97),” that was signed into law by the President on December 22, 2017.
What did the Tax Cuts and Jobs Act do for you?
Over 90% of Americans have received a tax cut under the new tax code, although you won’t see it show up until you file your taxes next year. It is estimated that Americans will see a $1.17 trillion tax reduction between 2018 – 2025 as a result of the bill. As an example, a family of 4 earning $73,000 will see $2,000+ in tax cuts, a tax reduction of 58%. And a single parent with 1 child, earning $41,000 in a year will see $1,304 in tax cuts, a tax reduction of 73%.
Are there any negative aspects to recent tax reform?
One thing this piece of legislation doesn’t do is fix our national debt. As a nation, we are over $20 trillion in debt. While it may be true that tax cuts will stimulate the economy, unless our government enacts spending cuts in addition to these tax cuts, the country will remain in debt.
Another criticism of the tax reform package was that it made corporate tax cuts permanent, but didn’t do so for income taxes. In response to that concern, scholars at Mercatus argue that 1) corporate tax code was in more need of reform, and 2) given the public pressure lawmakers will face, it’s very likely that they will extend tax cuts for individuals or make them permanent before they expire.
What comes next?
As expected, conservative lawmakers are already drafting legislation that would make the individual tax cuts permanent. You won’t see changes to your taxes (that you’ve hopefully already filed) this year, but you should next April. However, you probably have already seen changes to your paycheck.
This piece originally appeared in WFW’s Newsletter: Weekly Wins, Volume 9. Click here to sign up!