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Wednesday, November 22, 2017

Trump tax cut explained in two paragraphs

As readers know, I see dropping the corporate tax rate from 35% down to 20% as the most important part of the Trump tax plan. This will lead to investment in the USA that will lead to 5% annual growth in the economy.

Trump promised 4% but I think he likes to lowball.

But it turns out, the tax cut also will be a boon to middle-class taxpayers.

We survived Obamanomics.


Walt Hickey of the liberal 538 web site explained this:
Doubling the standard deduction
Right now you can either itemize deductions — laboriously indicating the amount of money you earned that is exempt from taxation due to a number of carve-outs we’ll get to below — or just take the standard deduction, which is a set amount of money that you can choose to deduct, tax-free, from your overall net income rather than do the math. For example, the standard deduction was great for me personally when I was working in restaurants in college, given that I didn’t have many expenses that I could take as deductions. If the standard deduction had been doubled then, it could even have completely eliminated what I owed in taxes.
The standard deduction is currently $6,350 for single filers and $12,700 for married couples filing jointly. In 2015, 69 percent of households took the standard deduction, so right off the bat, those households would benefit by being able to write off twice as much money. For the 30 percent of households that itemized their deductions, whether they benefit depends on how much they’re able to itemize: If their itemized deductions amount to just a bit more than the current standard deduction, this is probably pretty good for them because they would get a bigger deduction without having to do the work of itemizing; if their itemized deductions are far higher than the current standard deduction, they’ll still need to itemize, so nothing would change for them; if their itemized deductions are relatively close to the proposed new standard deduction, they won’t be able to tell offhand whether they’re better off itemizing or using the standard deduction, so they’re probably going to have to pay their accountant to figure it out anyway.
So nearly 7 out of 10 taxpayers will immediately see their taxes drop as they can double their tax deductions.

And doubling tax deductions will reduce the incentive to bother with itemizing, so even more people will just take the standard deduction and be done with it.

This means we will liberate more Americans from wasting a Sunday filling out forms for the IRS.

Now readers may have heard that if Trump cured cancer, CNN would headline it as, "Oncologists Will Lose Jobs Under Trump Plan."

So Hickey added:
By that token, this may be bad for some of the people who either directly derive their income from tax preparation and litigation (the country’s 1.4 million accountants, plus tax lawyers) or people who work in fields where existing deductions serve as incentives to use their goods or services (like the 440,000 real estate agents and everyone who works in charity).
I paid mortgages for nearly 40 years.

Not once did I take that mortgage deduction.

The mortgage deduction is not a middle class deduction.

I also donate to charities. So do most of those who take the standard deductions. It is not about cutting taxes. Charity is about being a decent human being.

There are things I don't like about the proposal. Tax credits are welfare. But I learned to pick my battles.

The doubling of the standard deduction is a good achievement. If they lower the amount of money taken out of each paycheck, this may help Republicans at the polls next year.

As for helping the economy, reducing individual taxes will help goose the economy in the short term. As Michelle Obama said on July 9, 2008:
“You’re getting $600 -- what can you do with that? Not to be ungrateful or anything, but maybe it pays down a bill, but it doesn’t pay down every bill every month. The short-term quick fix kinda stuff sounds good, and it may even feel good that first month when you get that check, and then you go out and you buy a pair of earrings.”
$600 earrings? I may open a jewelry shop.

The big play is in the corporate tax drop.

Cutting individual taxes to sell the corporate tax drop is genius marketing.

***

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6 comments:

  1. It's called velocity. People will have more money to spend. Corporations will make more money from that spending and pay less in taxes (actually, their customers will pay less in corporate taxes). That means it will be profitable for corporations to expand their facilities and work force, thus putting more people to work and generating more income for people to spend. It's a dynamic economy. It also generates more in tax revenue all the way around. And more people working means less pepople receiving government benefits. Win!/Win! - Elric

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  2. Sen. Murkowski has indicated she is NOT opposed to repealing the Obamacare individual mandate. That doesn't mean she will vote for the bill, but it certainly increases its chances.

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  3. I have always felt that way about charitable contributions and the mortgage deduction.

    Thanks for posting Hickey’s article. I never would have seen it.

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  4. Looks like ANOTHER thing to be thankful for!

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  5. Which Trump 2016 campaign promises will the new GOP tax reform bill keep and which Trump campaign promises will the bill kill? See updated chart at Trump Campaign Promises Monitor blog @ trumpcampaignpromises.blogspot.com

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