Judging from the liberal attacks on the Trump tax cuts, liberals seem to be unaware of, or just refuse to acknowledge, the following facts regarding the tax-cut legislation:
* The Democrats opposed all efforts to make the individual tax cuts permanent, yet now they're going around complaining that the corporate rate reductions are permanent but that the personal rate reductions are not.
* The tax-cut bill ended the ability of American companies to park money overseas to avoid paying the U.S. corporate income tax rate. It cut that rate from 35% to 21%, created even lower rates for certain companies overseas, and created a one-time special repatriation rate of 15.5% to encourage the return of money parked overseas.These provisions will bring in hundreds of billions of dollars in new revenue that the government would not otherwise be getting. This effect is already starting to be seen.
* The tax-cut bill ended the graduated scale of the corporate tax rate. Now it's a flat 21% for all companies, big and small, on their income earned in the U.S.
* The tax-cut bill ended the ability of very affluent and rich people to deduct all of their state and local taxes (SALT). It caps SALT deductions at $10K. To pay more than $10K in SALT, you must either own a very expensive home and/or live in a high-tax state, often a combination of both.
Importantly, limiting the SALT deduction to $10K means that the overall effective marginal tax rate for many upper-middle-income and high-income people will increase, especially if they live in a high-tax state. In other words, people who make approximately $220K or more will experience a slight to substantive tax hike after all is said and done. The size of the net tax hike will depend on their state and local tax rates.
* The tax-cut bill ended the mortgage interest deduction for homes valued at over $750K. The old limit was $1 million. Now it's $750K. If you buy a house this year for $750K, your monthly house payment will be at least $3,500. To qualify for a $750K home loan, your annual income would probably need to be at least $140K, unless you made a huge down payment. Reducing the mortgage interest deduction by $250K, from $1M to $750K, will save the government a good chunk of money and won't affect people in the middle and lower part of the middle class.
* Under the Trump tax cuts, people in the highest bracket (the seventh bracket) pay a top marginal rate of 37%, which is 200% higher than the second bracket's rate of 12%, 60% higher than the third bracket's rate of 22%, and 52% higher than the fourth bracket's rate of 24%.
* The biggest rate cuts go to the second, third, and fourth brackets. The smallest rate cuts go to the sixth and seventh brackets. The fifth bracket's rate has not been changed. The second and third brackets' rates have each been cut by 3 percentage points. The fourth bracket's rate has been cut by 4 percentage points. The sixth bracket's rate has been cut by 1 percentage point. And the seventh bracket's rate has been cut by 2.6 percentage points.
Economic Impact of U.S. Tax Reform
What's in the final version of the tax bill?
* The Democrats opposed all efforts to make the individual tax cuts permanent, yet now they're going around complaining that the corporate rate reductions are permanent but that the personal rate reductions are not.
* The tax-cut bill ended the ability of American companies to park money overseas to avoid paying the U.S. corporate income tax rate. It cut that rate from 35% to 21%, created even lower rates for certain companies overseas, and created a one-time special repatriation rate of 15.5% to encourage the return of money parked overseas.These provisions will bring in hundreds of billions of dollars in new revenue that the government would not otherwise be getting. This effect is already starting to be seen.
* The tax-cut bill ended the graduated scale of the corporate tax rate. Now it's a flat 21% for all companies, big and small, on their income earned in the U.S.
* The tax-cut bill ended the ability of very affluent and rich people to deduct all of their state and local taxes (SALT). It caps SALT deductions at $10K. To pay more than $10K in SALT, you must either own a very expensive home and/or live in a high-tax state, often a combination of both.
Importantly, limiting the SALT deduction to $10K means that the overall effective marginal tax rate for many upper-middle-income and high-income people will increase, especially if they live in a high-tax state. In other words, people who make approximately $220K or more will experience a slight to substantive tax hike after all is said and done. The size of the net tax hike will depend on their state and local tax rates.
* The tax-cut bill ended the mortgage interest deduction for homes valued at over $750K. The old limit was $1 million. Now it's $750K. If you buy a house this year for $750K, your monthly house payment will be at least $3,500. To qualify for a $750K home loan, your annual income would probably need to be at least $140K, unless you made a huge down payment. Reducing the mortgage interest deduction by $250K, from $1M to $750K, will save the government a good chunk of money and won't affect people in the middle and lower part of the middle class.
* Under the Trump tax cuts, people in the highest bracket (the seventh bracket) pay a top marginal rate of 37%, which is 200% higher than the second bracket's rate of 12%, 60% higher than the third bracket's rate of 22%, and 52% higher than the fourth bracket's rate of 24%.
* The biggest rate cuts go to the second, third, and fourth brackets. The smallest rate cuts go to the sixth and seventh brackets. The fifth bracket's rate has not been changed. The second and third brackets' rates have each been cut by 3 percentage points. The fourth bracket's rate has been cut by 4 percentage points. The sixth bracket's rate has been cut by 1 percentage point. And the seventh bracket's rate has been cut by 2.6 percentage points.
Economic Impact of U.S. Tax Reform
What's in the final version of the tax bill?
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