First, let me state that this post is not political in nature but rather my take on what Congress is trying to do with tax reform. As someone who prepares taxes for people in my community and has advanced degrees in business and finance, I will give you a take on how I see this situation. These are not going to be political ideas but rather facts and business principles as I see them.
Now back in the 1980’s President Reagan passed the tax code that we now use and although it has been amended over the years, the basis is unchanged. And President Reagan had a theory that if the wealthy were given tax cuts that they would then spend more on their businesses and create jobs and thus stimulate the economy and increase the nation’s tax revenue. The main idea was the wealthy own small business and would thereby have more money to invest in these businesses creating all sorts of benefits for the nation. It was the creation of trickledown economics. And it did not work as planned then and chances are it will fail again this time if it is passed.
Granted if the economy improves and business does create jobs tax revenue will indeed increase. But the problem now is that the country is at almost full employment meaning even if the jobs were created there are not enough people looking for employment to fill these newly created jobs that these proposed tax cuts would create. So if the bill did pass it would have little impact on the creation of new jobs and thereby new tax revenue for the country. And history has shown us that the owners of small business have also been hesitant to invest heavily in their businesses when the economy is growing, and unemployment is extremely low. Meaning that any new jobs that were created would be expensive for the small business as when employment is this low, wages increase due to a lack of the supply of employees.
Then one must consider that the tax cuts that are proposed as of now are permanent for the upper-level wage earners and temporary for the middle and lower level wage earners. And the tax cuts will actually lead to a tax increase for the majority of middle and lower level wage earners by 2027 as these tax cuts are limited to ten years due to the simple majority passage of such a bill under current congressional protocols. But the cuts for the ultra-wealthy such as the end of the estate tax will be permanent in nature.
Now the end of the estate tax is touted as a means to save small businesses and family farms, but the independent Government Accounting Office has stated this estate tax affects between a dozen and two dozen small family-owned businesses and farms. The real benefactors of the repeal of an estate tax are families with assets over $5 million as that is basically the threshold of where the tax will begin for most estates. Meaning the ultra-wealthy are the only ones who will benefit from such a repeal, and it will have absolutely no effect on the majority of American families.
And finally, the tax cuts proposed for corporations are the worst that could happen in reality. Now America’s corporate tax rate is indeed 35%. But that is not what the average corporation pays in income taxes as the current tax code is full of loop holds allowing many large corporations to pay no income tax at all. And then one must consider that the average corporation pays about 12.5% in corporate income taxes. So if Congress wanted to lower the corporate tax rate, they must also close the multitude of loop holds that enable most corporations to pay well below the 35% tax rate. If Congress really wanted to cut corporate taxes, then it must enforce the new 20% tax rate and eliminate all loop holds so that corporations do indeed pay the 20% tax rate. And oh, for the majority of Americans the tax cuts are temporary, and like the ultra-wealthy, the corporate tax cuts are permanent in nature.
Please do not let politics cloud your judgment and also do not take my word for why you should be concerned with these tax bills. Do your homework and judge the facts for yourself. Politics has damaged this country to the point where it barely functions and people blindly follows their party of choice to the detriment of the welfare of the nation.
If you have any questions, feel free to leave a message or contact me directly. And in this case feel free to contact your elected officials to speak your mind and question leadership and their intentions.
