United States President Donald Trump signed into law the Tax and Jobs Cut Act last December 22, 2017. The law’s provision reduces the corporate tax rate from 35 down to 21 percent beginning this January. It also decreases individual tax rates to 37%. In essence, the Tax and Jobs Cut Act achieves three goals:
- Cuts down income tax rates
- Multiplies standard deductions by two
- Eliminate personal exemptions
The corporate cuts become permanent. Individual amendments terminate by the end of the year 2025. Millions of American citizens have conflicting opinions and comments about this piece of legislation. However, some people see the most significant revision of the US individual and corporate tax system in the last three decades in this perspective. It provides massive tax reductions to developers, banking institutions, and the oil sector thereby promoting more the interests of business owners.
Tax Classifications and Standard Deductions
This legislation maintains the seven income tax categories but reduces the tax rates. The workforce can view adjustments in withholding taxes on their February wages. The 2017 rates revert to the original tariff in 2026. The deduction of an individual (Single Category) multiplies from only $6, 350 to $12, 000. For married couples and joint filing, the figures increase from $12, 700 to $24, 000.
You can expect more than 90% of taxpayers to opt for the average deduction which goes back to the present level eight years from today. However, reports pointed out that the National Association of Realtors, as well as the National Association of Home Builders, opposed this law. Fewer consumers will adopt the mortgage interest cutback by taking on the standard deduction. It lowers housing costs although the real property market remains in a bubble (run-up of prices) that could lead to a probable meltdown.
The Tax and Jobs Cut Act abolishes personal exemptions. Before the passage of this statute, taxpayers took away $4, 150 from income for every claim. Henceforth, households with many kids pay higher taxes notwithstanding the augmented standard deductions. This latest enactment gets rid of nearly all itemized deductions including relocation expenditures. Only members of the United States armed forces remain exempted. You can no longer subtract payment of child support, but recipients can still deduct the alimony. Divorces granted this year can avail of the deduction beginning 2019.
This decree maintains deductions for interests in student loans, charitable donations, and individual retirement savings. It puts a cap on cuts for mortgage interest to the initial $750, 000 of the investment. You can no longer withhold interest on lines of credit for home equities. Nonetheless, the ruling does not impact Americans with existing mortgages. At the same time, taxpayers can now deduct a maximum of $10, 000 in local and state taxes. As a taxpayer, you must choose between the property, sale, or income taxes.
The law rescinded the Obamacare tax for citizens who do not have health insurance coverage in 2019. According to the Congressional Budget Office, around 13 million Americans will discontinue their plans without the authorization. The government, in return, saves about $338 billion as it will no longer answer for subsidies. However, health care expenses will inevitably increase with fewer people getting the necessary preventative care. Finally, the Tax and Jobs Cut Act boosts two times property tax exemption to $11.2 million for single taxpayers and $22.4 million for spouses.
Perceived Effects of the Act
Popular opinion of many Americans indicates that the redrafting of the United States Tax Policy favors enterprises more than the ordinary citizens. Business tax cutbacks become permanent. Individual reductions last only up to 2025. The decree boosts high-income families more than those belonging to the lower and middle-income groups. It makes the country’s growing income tax more in reverse. Taxpayers with the highest earnings benefit most from reduced tax rates.
The rise in the standard deduction favors roughly six million taxpayers (47.5% of people who file income taxes). It does not cancel out lost deductions. In fact, the Congressional Joint Committee on Taxation stated this law raises the shortfall by $1 trillion during the next ten years. At the same time, it increases growth by 0.7% every year and reduces a portion of the revenue loss from the $1.5 trillion tax decreases. Meanwhile, the Tax Foundation asserted the Act adds nearly $448 billion to the shortage over the next decade (2028).
According to officials of the United States Treasury, the legislation generates approximately $1.8 trillion in additional earnings with an estimated growth of 2.9% annually on the average. The government agency’s report assumes the government will implement all stipulations in President Trump’s program. The bearing on the country’s $20 trillion national debt will go beyond projections.
An upsurge in sovereign debt dulls economic progress in the long-term. Investors consider this development more as a tax increase on future generations. A World Bank study discovered each percentage point of arrears costs the United States around 1.7% in growth. Many conglomerates affirmed not using tax reductions to create employment opportunities for the jobless. Ironically, the corporate tax cuts will not generate opportunities and only increase stock prices.
The truth remains. Hefty tax cuts must benefit the working middle class who will most likely spend every cent earned. Rich people use these deductions for investments or savings which boosts stock markets but fail to spur demand. Tax cuts for the middle class produce more jobs. The most effective remedy for unemployment should be government spending that will develop infrastructure and create work opportunities directly.
This new version of the Tax and Jobs Cut Act restricts the capacity of private corporations to minus interest expense at 30% of income. From 2018 up to 2022, salary depends on the principle of Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA). The move makes it more costly for financial entities to borrow. Corporations will refrain from issuing bonds and reacquire their stocks. Stock prices will likely decline, but the threshold or cutoff point generates earnings to settle other tax breaks.
Now that you have read through the ins and outs of the Republican tax law, you can decide if it favors the majority of the American people or not.