Tax Bill Analysis: Spend Your Extra $100 Wisely

In the Senate tax bill, someone making $100K gets an extra $100 to spend in 2027. Those making less than $75K lose money

Tax reform was supposed to be simpler, more fair, not add to the deficit. and lower taxes on the middle class. It did none of those things, but it did lower taxes on corporations to 20%.

Simpler - No

The Senate version kept the complicated and much despised Alternative Minimum Tax (AMT).

Senate Tax Brackets 7 vs House 4

Individual tax cuts expire after 2025

More Fair - No

Lower Taxes on Middle Class - No

By 2027, only those making more than $100,000 a year gain from reform.

Those making $100,000 to $500,000 get a benefit of 0.1% according to nonpartisan tax analysis.

Reduce the Deficit - No

The above chart is from the New York Times article on tax bill deficits.

The above image from the Wall Street Journal article Enough Votes to Pass Senate Tax Bill.

Who Benefits?

Me.

The Journal notes that pass-through firms, which pay their business taxes through individual returns rather than corporate returns, won major concessions. They would get a 23% deduction from individual rates. More than half of U.S. business income goes to pass-throughs, and more than half of that goes to the top 1% of households.

I am a pass-through firm. However, it is uncertain how this all gets reconciled.

Blame Corker

Looking for whom to blame?

I can help. The Bill passed the Senate Finance committee by a 11-10 margin. Senator Bob Corker of Tennessee was the deciding vote after he was given "assurances" that language would be added to reduce the deficit.

He should have known those assurances were not worth a damn. Arguably he did know but simply didn't care.

When the final vote came in the Senate, Corker was the only Republican dissenter.

Too late. The bill needed to be stopped in Committee.

More Assurances Not Worth a Damn

Sen. Susan Collins (R., Maine) scored a $10,000 deduction for property taxes, an expanded but temporary deduction for people with large medical expenses and a "promise of future bipartisan health-care legislation" to mitigate the effects of repealing the individual health insurance mandate.

It is uncertain how some of those promises survive reconciliation. But one thing is certain: The promise of future bipartisan health-care legislation is a complete joke.

Eight Percent Winners

As noted in the "More Fair" chart above, by 2027, only those making more than $100,000 a year receive any benefit. Anyone making under $75,000 is a loser.

The above chart from an interesting interactive Wall Street Journal graphic What Percent Are You?

Thus, the claim that only the top 1% benefits is false. The top 8% benefits according to 2014 income data.

That analysis is for individuals, not households. The percentage of winning households will be higher.

Other Beneficiaries

There are other beneficiaries in the bill. Here is one of my favorites.

As I type, another winner just came in. Surprise, surprise: Senate Tax Revisions Mostly Favorable to Venture-Capital Firms.

Carried interest and stock options get favorable treatment.

Average Household Benefit

If you make less than $100,000 you lose by 2027 at the latest.

Now let's calculate the average win for households making $100,000 in 2027.

Once again, referring to the "More Fair" graphic above, we see the average benefit for someone making $100,000 is 0.1%.

If that's what you make, congratulations! On average, you will have an extra $100 to spend. For that, the deficit will rise by $1,000,000,000,000.

Mike "Mish" Shedlock

@toast They also forgo $8,100 of exemptions as their standard deduction goes from $12,700 (in '17) to $24,000. So it's $3,200 less of taxable income, that's worth a few hundred bucks. If both are 65+ years of age, their standard deduction in 2017 would be $15,200. That, plus the $8,100 lost in exemptions is an almost complete wash. Plus, in the House plan, they would be taxed at 12%, rather than the current 10%, so some seniors with simple returns may pay more.

For students heading to graduate programs with tuition wavers their taxes will be going up substantially. These are common in STEM fields of study. Discourage future engineers and scientists by taxing their education. Discourage families by eliminating exemptions. Shameful my senator is so proud of the short term cuts used to sell this fraud tax cut bill. Very negative effects overall to the country. Totally anti-growth legislation.

@AlexSpencer:
This, and any other bill, will always be designed to confiscate ever more from those who produce value, and hand the loot to utterly useless, expendable leeches in the form of preferential legislation and asset appreciation. That is, and is all, that is America; as well as progressivism in general. Without any exception whatsoever.

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@Stuki : If they follow the Reagan tax cut template the next step will be the politicians expressing deep concern about the Social Security finances. They will not make good on drawing down trust fund securities because that would cut into their spending excesses. The only option will be another doubling of the labor taxes to be immediately funneled into various corporate boondoggle programs delivered to their supporters. Amazing if people fall for this again.

@AlexSpencer:
The sleight of hand that gave the Reagan Tax Cuts scam the initial impression of being meaningfully beneficial, was looking the other way at subsequent increases in debt. Some of the people who championed those cuts, did so under the belief that cutting off revenue, would force cuts in Federal Government spending, hence growth. Which it obviously did not do. Instead, the Government just kept spending ever more, now just borrowing the difference. Which was an effortless way out, because Nixon had sold out the last pretense of limited government, when closing the Gold window a decade earlier. So that, that which the junta could not steal by direct robbery at gunpoint, they cold now steal freely via debasement.

By now, the debt charade has gone so far, there is no other reasonable choice but to just fess up to the fact that the whole experiment failed; it served no valuable purpose, and proved no less of an unmitigated disaster, than the similar experiment in growth of government and curtailment of freedoms the Soviets performed post revolution. So, just wash our hands of it all, repudiate all government debt without even giving it a second thought, let the chips fall where they may, and start over.

Then do the same with the Federal Reserve, the income tax in it’s entirety, direct election of senators, women’s suffrage, drug/alcohol prohibition, gun laws, antirust laws and every other disgusting insult to humanity that has been carried out since the first progressive ever sat foot in a government building. Then we just may be on the way to once again see America become a beacon of light in the world again. Rather than what it is now: Just another amongst all the failed attempts at totalitarian, kleptocratic terror states that litters history and geography.

@Stuki Eliminate women's suffrage? Now that was really amusing.

If lower taxes for US corporations makes them more competitive and attracts foreign capital, how can that be bad for US workers? Also, eliminating the subsidy for irresponsible spending by States, by eliminating the deduction for state income tax and property taxes will force competition between all levels of govt. However, one should never expect true reform until short term limits are in place.

The Trump Tax Cut, the Pass-Through, & Multinationals | Armstrong Economics
Trump’s New Tax Plan May Intensify Global Competition

"Trump’s new reform plan will pose a new challenge for China. The plan will draw international capital to the US. At present, although China is also cutting taxes and fees, it cannot participate in tax competition due to its tax structure, scale, and system. If Trump reduces the corporate tax rate to 20%, enterprises around the world will invest in the US. Therefore, China should implement tax and market reform as early as possible."

Germany Companies Demand German Tax Cuts | Armstrong Economics

It is not about handing more cash to the 8% within which the 0.1%. The problem is that this top group has too much already, cannot spend it productively and will make a bad situation worse. The only time anything trickles down is when the rich piss on the poor.

This site claims to estimate your tax bill under the Senate and House plans.

Tax Plan Calculator by Maxim Lott

Per the site, I save a few grand with the increased standard deduction (normally, I itemize), even though I am in a high tax state. The calc program though doesn't take in account tax deferred and tax free savings plans like IRAs or HSAs.

@Escierto:

3 reasons:
1) Women's suffrage was part of the progressive movement. Every single breath drawn of which has been noting but the greatest disaster ever heaped upon the planet, up and down every conceivable line imaginable, for all of history. Meteor strikes wiping out most life forms included. Resetting absolutely every law, rule, regulation, anything, to what it was immediately post Civil War, pre “progressive movement,” is clean, simple, straight forward and easy to understand.

2) The Founders. They may have had some blinders wrt people of color, but as a rule, they were so far advanced compared to denizens of our current idiotopia, that simply taking them up on their word, is a pretty sure bet.

3)The atomic productive, and reproductive hence sustainable, unit in society, is the household. It’s the household that interacts with the outside society where voting comes into play. Not individual members of a household unit. To society as a whole; at least to legitimate, civilized ones; the household is a black box. The only ones benefiting from breaking this black box boundary, are the ones benefiting from weakening households. By attempting to break their unity apart. IOW, one vote per household, is superior to one vote per mirror fogger; because a society of strong, united households, are superior to one where sleazy charlatans spend night and day attempting to break that unity apart; for their own benefit deriving from a less united population being easier to control and lord over; by inventing and scaring people with an ever increasing number of Mencken’s endless series of, always imaginary, hobgoblins.

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