This past weekend Senate Republicans were able to pass the highly debated GOP led tax bill. Doubts hovered over the situation as many wondered how fast or if a revised tax agreement could even be reached between both parties. The trajectory of our country was completely changed just before 2 am Saturday morning after Senators voted 51-49 to overhaul the countries tax structure. The 500-page bill will bring broad changes to the tax code while shifting the lives of millions of Americans. Below I highlight five of the biggest things we learned from the new tax bill.
1. New Bill will add $1.5 trillion to the federal deficit
The new tax plan will do zero for our nation's debt pile. The cost of the plan will only aid in keeping America second to Japan in highest debt to GDP ratio among developed countries. In 2013 Speaker of The House Paul Ryan stated that our nations enormous debt load would “weigh the country down like an anchor”. America does not seem to be concerned with our nation's debt because it is clear that cutting debt is not a priority. The belief is that cutting taxes will continue to spur the economy and create jobs.
2. Final Impact of Bill
If you feel you do not understand how your taxes will be affected in the end, it is OK. Numerous members of congress including democrats and republicans alike have no idea how the new plan will affect the wallets of our citizens. To be blunt no one really knows. Being a tax preparer myself it will likely take multiple tax seasons to gain a firm grasp of the new changes.
3. The Higher Your Net Worth The Higher the Tax Cut
Tax changes have traditionally aided the rich and hurt or failed to help normal everyday people. By the year 2025 all tax breaks for individuals and families are set to expire. The sad thing is that the majority of our country are normal everyday people who work daily to make ends meet. These citizens greatly outnumber the upper crust of the United States. More priority needs to be placed on growing America’s middle class as they are the core economic drivers of America.
4. Some Changes “MAY” still be Made.
Although this may be lip service, in the early days of the new plan, Donald Trump has made mention that the corporate tax rate may be increased from the newly proposed 20% to 22%. The current corporate tax rate sits at 35% until 2019. A 15% cut is very significant, adding 2% will help but that is a net cut of 13%. Where and how can we make up this windfall as a country? None of this was included in the 500 page bill, so it will be interesting to see how this will play out. My guess is that 20% will be the resting place for the corporate tax rate.
5. Big Money Still Wins The Biggest
Breaking News: America’s highest income earners will likely see the biggest perks here. Why is this so? Most high net worth individuals are business owners and investors. The US tax code has always benefited these people. That is why I always urge people to run your life like a business. If you don’t have one currently, start one! Corporate tax rates are being lowered, estate taxes will now trigger on estates larger than $10 million up from the previous $5.5 million, while the alternative minimum tax (AMT) is being eliminated. To put this in perspective with the AMT Donald Trump would have paid taxes on 4% of his $150 million in total income in 2005 compared to the 25% he actually paid in the end. Currently a family making $3.6 million will see tax savings of $85,000 annually compared to $363 in tax savings for a family living on $40,000 per year. If the numbers seem disproportionate, they are. By the year 2025 all tax breaks for individuals and families are set to expire. You catch my drift, the super wealthy have plenty to be excited about.