According to The Washington Post, the main goal of the "Tax Cut and Jobs Act" is to decrease company taxes. The goal is to increase companies' competitiveness and keep them from moving overseas, so it would seem that the new GOP tax bill is a de facto win for big corporations. This has not prevented many from touting it as a victory for the middle class.
Under the new bill, corporate tax rates will fall from 35% to 20%. Some families will also end up paying less in income tax, but this is not true for all families. Companies will benefit through new tax breaks, and waivers for things like new equipment fees purchased within five years, as well as being taxed less on money brought into the United States from low-tax countries. There will also be changes in how money made by businesses around the world is taxed. Previously, money was taxed at a relatively uniform rate, no matter where it was made. But now, the taxes are mostly applied to money made in the United States.
The wealthiest segment of the American population now pays fewer taxes overall, as the comparatively moderately wealthy (e.g. those with 5.5 million in estate worth) no longer have to pay the estate tax. Only those with 11 million in worth in 2018 will pay it, and even so, they will only do so for six years, until the estate tax completely vanishes in 2024. Other benefits pertaining specifically to the wealthy remain, and researchers have proven that in 2027, "half the benefits of the bill" will have gone to the top 1%.
However, after 2023, a key middle class tax break, the Family Flexibility Credit, will expire. Those who earn higher incomes within the middle class bracket will suffer the removal of many itemized deductions. Income tax brackets will also be reduced from seven to four, and the myriad of smaller deductions will be replaced with a single, larger standard deduction. Deductions remain for charitable donations, property taxes up to $10,000 a year, as well as the mortgage interest deduction (the amount of mortgage debt that people can deduct interest on, which is now capped at $500,000, although it had been $1 million). Many smaller deductions that have been erased include deductions for medical expenses, tax benefits for college, and deductions for thefts or losses of valuables.
The biggest deduction eliminated by the tax plan is for state and local taxes, which previously was an advantage for residents in blue states, where taxes are higher. In such cases, upper-middle class residents in blue states will end up paying more.
Furthermore, there will be a new 25% tax rate for businesses that pay taxes at the individual rate of their owners, also known as pass-through businesses. These constitute the vast majority of all businesses in America. The new bill will prevent wealthy individuals from declaring as pass-through companies in order to get by with lower rates. To shut down this loophole, the bill has ensured that some personal service businesses in the areas of law, accounting, and consulting will not be eligible for the 25% rate.
All in all, the bill costs roughly $1.4 trillion, meaning that the United States will add that total to its national debt, if funds are not obtained to fund it. While the tax bill may generate some economic growth, the towering price tag will render such growth negligible. Roughly 75% of all benefits of the bill will go to businesses, with the rest going to individuals.
- http://time.com/5014427/trump-taxes-capital-gains/
- https://www.washingtonpost.com/news/wonk/wp/2017/11/16/the-house-is-voting-on-its-tax-bill-thursday-heres-what-is-in-it/?utm_term=.2495e889e1e7
- https://www.nytimes.com/interactive/2017/09/27/us/politics/six-charts-to-explain-the-republican-tax-plan.html?_r=0
- https://www.npr.org/2017/10/04/555433641/who-will-benefit-most-from-gop-tax-plan-early-report-suggests-the-wealthy
