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If you listen to Republicans, the new tax law is a “cure-all” for all economic woes and will make everyone richer. The Democrats, on the other hand, paint a picture of Armageddon calling the new law “tax scam” that only benefits rich people. So what is the truth? The answer is that the truth is somewhere in between as you will understand. Regardless of who is more correct, this law will result in a gravitational re-shift of our tax and economic policies. It is massive and will affect many of us for many years. Let‘s start off with the claim that the tax bill will only benefit the very rich.
When I compared the tax rates under this legislation to that of the current tax rates, almost everyone gets a slight cut in rates. Yes, the richest 1-3% will benefit proportionately greater than that of the other 97%. However, when I ran the numbers on people earning $50,000… $100,000… $250,000… and $600,000, most people will reduce their tax burden apart from:
- those who are in the middle class earning less than about $200,000 (give or take), who are employees and
- are in high-income tax states, and
- who pay a lot of property tax
Those who have a LOT of unreimbursed employee business expenses could also be losers in this new tax bill too.
These people are the losers in this legislation and will probably pay more in federal and possibly state taxes since they will lose all deductions for state and local taxes that exceed $10,000. This will probably result in their not itemizing their deductions, which means that they won’t even get the benefit of the allowable $10,000 of state and local tax deductions.
The ones who get the most benefits, however, are those in the 35% bracket and above, which means those whose taxable incomes are over $400,000 married filing jointly or over $200,000 and are single and especially if they have a business. In fact, having a full time or part-time business becomes more important than ever, as I will discuss tomorrow.
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