Mark W. Boslett
6 Things You Should Understand About The New Tax Law
The new tax law came out in December of 2017, but in light of new facts now available I thought I’d share some information from the Key Value Data National Economic report for May 2018 by Kevin Hopkins. The following key excepts are right out of the report.
1. New tax law actually increases tax intake. In a dire warning released at the start of February, the U.S. Congressional Budget Office (CBO) warned that Federal borrowing would soar during FY 2018, largely because “tax receipts are going to be lower because of the new tax law.” However, as the CBO’s own figures show, not only did the Federal government run a surplus in February, but it posted both record tax collections ($515 billion) and, as noted above, a record surplus ($218 billion) in April. (Official U.S. Treasury data later placed these figures at $510 billion and $214 billion, respectively).
2. Vast majority of Federal income taxes paid by the wealthy. According to data from the U.S. Office of Management & Budget (OMB), Americans with incomes in the top 20% of all incomes now pay nearly 95% of all Federal income taxes; the other 80% of Americans pay barely 5% of total Federal income taxes. The percentages are a significant change from even two years ago, when it was estimated that the top 20% of U.S. income earners paid 84% of all Federal income taxes.
3. The new tax law is designed to reduce taxes for most taxpayers. The tax-reform bill signed into law by President Trump on December 22 will result in reduced tax payments for most taxpayers, at least initially. According to analysts, 93% of taxpayers will receive either a tax cut or no change, while 7% will face a tax increase (although a study by the Tax Policy Center has said that the latter figure would rise to 25% after ten years). Put another way, about 8.5 million Americans will pay higher taxes in the measure’s first year vs. about 143 million who will pay lower taxes. In the $50,000 to $75,000 income range, the average tax reduction will be $870 per year. Overall, half of tax cuts (47%) in 2019 will go to the middle-class, with 14% going to the very wealthy, according to the Joint Committee on Taxation of the U.S. Congress.
4. More small businesses view new tax law positively. In the CNBC/SurveyMonkey Small Business Survey for Q1 2018, released on February 20, 46% of small-business owners interviewed said that the recent tax-policy changes would have a positive effect on their business, up from 38% in the Q4 2017 survey, while only 23% expected the changes would have a negative effect, down sharply from 36% in the fourth quarter.
5. Taxes decline as problem for small businesses. In the National Federation of Independent Business (NFIB) Small Business Economic Trends survey for March, for the first time since 1982, taxes received the fewest number of votes as their number one problem, with the figure falling from 22% in November 2017, the month before the tax bill passed, to 13% in March. “It has been a remarkable 16 months for small business optimism,” said NFIB President and CEO Juanita Duggan. “This is the first time in 35 years where the fewest number of small business owners have told us that taxes are their number one business problem. They’ve been so optimistic that they feel confident enough to raise wages and invest in their business, which grows the economy.”
6. Tax reform seen as boosting economic growth. In the wake of the approval of the Republican tax-reform plan, a growing number of observers are projecting higher economic growth for the year ahead. For instance, Tim Cook, CEO of Apple, the world’s most valuable publicly traded company, said in a January 18 interview that the Trump tax plan would result in a faster-growing economy and greater job creation. J.P. Morgan CEO Jamie Dimon, in a January 24 interview, likewise predicted that the tax overhaul could boost U.S. economic growth to more than 4.0% in 2018. And former U.S. Office of Management & Budget economist Lawrence Kudlow, prior to joining the Trump Administration, said that he foresaw 3% to 4% growth as a result of the tax cuts.
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