The Tax Cuts and Jobs Act, the bill recently passed by Congress and signed into law by the President, has been much debated, and much commented on, in recent months. Proponents of the plan, including the President and Republican leadership in Congress, say the bill is a "Christmas gift" for the middle class. Critics, including progressive groups and congressional Democrats, says it's a windfall for corporations and the wealthy.
Americans Remain Divided
Several recent polls show that the GOP tax bill is relatively unpopular, as compared with other recent pieces of major legislation. A slim plurality of Americans, just 42%, for example, supported the bill in a mid-December Politico/Morning Consult poll, while 39% were opposed. Among those who opposed the legislation, 26% were "strongly opposed;" among supporters, 20% "strongly supported" it.
What Does the Tax Bill Actually Do?
Admittedly, many who have weighed in on the merits—or problems—of the new legislation tend to retreat to partisan corners rather than discuss the specifics of what the bill actually does. Arguably, however, it's those details which will impact the lives of average Americans. Here are 5 ways in which the GOP tax bill will affect taxpayers:
- Reduction in corporate tax rate: the new legislation will reduce the (statutory) amount corporations pay from 35% to 21%. This represents the single biggest reduction in corporate tax rates in history. Originally, the bill was slated to reduce those rates even more, to 20%, but Republicans late in the process needed to find new revenues to reduce deficit projections. In total, the corporate tax cut represents an approximately $1 trillion reduction, the lion's share of a projected $1.46 trillion increase in the federal deficit (not accounting for the impact of projected growth).
- A substantial reduction in taxes for the wealthiest Americans: before the enactment of the new legislation, Americans who made more than $470,000 paid 39.6% in federal taxes. Under the new law, individuals who make $500,000 or more—or couples who make $600,000 or more—will see a reduced rate of 37%, a drop of 2.6%, which represents a major win for top wage earners.
- A reduction in deductions for state and local taxes: this is among the more controversial aspects of the legislation, in part because it impacts primarily taxpayers in "blue" states won by Hillary Clinton in the 2016 presidential election. Before the new legislation, people in those states could deduct 100% of state and local taxes (SALT). Now, those deductions will be capped at a maximum of $10,000.
- A tax reduction for most of Americans: most taxpayers will receive a tax cut as a result of the new legislation, in part because the tax bill doubles the standard deduction (while simultaneously eliminating the personal exemption). The President has said that the "typical family" will see a cut of about $2,000—but the amount will vary a good deal depending on where those families live, and their individual circumstances. The bill will, however, increase the percentage of Americans who pay no taxes from 44% to 47.5%. Among the more controversial aspects of the tax bill, while corporate tax cuts are permanent, those for individuals are set to expire in 2025.
- The elimination of the Obamacare individual health insurance mandate: starting in 2019, Americans will no longer be required to purchase health insurance, or be penalized with a tax penalty if they do not. Although this doesn't "repeal and replace Obamacare," as both the President and leading Republicans had promised but been unable to accomplish, it does eliminate a key source of revenue central to that legislation's funding. As a result, the Congressional Budget Office has projected that approximately 13 million Americans will lose their health insurance within 10 years as a direct result of the new tax bill. Other observers have predicted that the legislation will also increase health insurance premiums for others.
This represents just a sampling of the ways the GOP tax bill which shifts the economic landscape of the nation over the next decade. Other changes include the elimination of the estate tax (another win for the super-affluent), an end to the alternative minimum tax, and a reduction in the mortgage interest deduction (from $1 million to $750,000).
It's important for all Americans to understand what's in the new legislation, and how it will affect their families' finances, but it's only one way to protect the money you have and ensure a sound financial future. To learn more about we can help you sell your home quickly, and get the cash you deserve, contact us today.