Tax Cuts and Jobs Act
The legislative triumph of the end of 2017 was the passage of a tax reform bill, known as the Tax Cuts and Jobs Act, that will reduce the tax burden on millions of Americans. The legislation was a campaign promise of the president and is part of an economic stimulus agenda that includes repatronizing billions of dollars of the funds of international corporations held overseas, renegotiating trade deals and bringing more jobs back to America.
The thinking is simple; the middle class makes up the largest consumer and taxpayer segment of the American economy. Putting more dollars in the wallets and purses of those American’s can stimulate spending and economic growth. Reducing regulatory burdens on big business, along with lowering tax rates, can lead to more job creation and higher wages. Some of this had begun to happen at the end of 2017 with many companies dolling out year-end bonuses.
The legislation had its detractors, because of components of the original proposed bill, but eventually, enough Republicans got on board to get passage. Two hundred and one House Democrats and 12 Republicans voted against it.
New Tax Law; Several Changes
What will the new law mean for taxpayers? There are many features that will change and simplify filing taxes along with lower withholding for most taxpayers. The Tax Cuts and Jobs Act will have the effect of increasing the after-tax incomes of taxpayers in nearly every taxpayer group this year. Although those increases are marginal, they mean that taxpayers are paying less of their income in taxes.
Prior to passage of the GOP tax plan, there were seven tax brackets; 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. Under the new law, those seven tax brackets change to 10, 12, 22, 24, 32, 35 and 37 percent.
The new law will also increase the standard deduction for single filers to $12,000, for heads of households to $18,000, and joint filers will be able to deduct $24,000. It also expands the child tax credit to $2,000 from $1,000. It eliminates the personal exemption.
Another change is the cap of $10,000 on the deduction for state income and local property taxes. Some high-tax states are considering clever work-arounds to circumvent the new limit.
The IRS is still working to implement new withholding tables with changes in payroll withholding occurring in February.
Most of these changes are temporary though and expire on December 31, 2025, except for the corporate tax cuts, which are permanent. While the new law does add to the deficit, assuming all economic conditions remain the same; the hope is that there is enough economic stimulus to bring about overall improvement.
For the 80+ percent of Americans who will realize some tax relief, it is better than the alternative; gouging more hard-earned money to pay Uncle Sam.
About the Author
K Richard Douglas has worked in the financial services industry for 26 years, with an additional 10 writing about financial and economic topics. He’s a former series 9, 10, and 26 registered principal and series 6, 7, and 63 registered representative. Richard has held many financial service industry designations, especially in the retirement planning and compliance mechanism areas.
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