Let’s be honest, if the tax plan currently being debated in Washington becomes law, there will be winners and losers. The question is, how will it affect you?
The GOP plan to reform America’s tax code is, as someone might say, huge. And it could have huge implications on individuals, businesses, and the economy.
What could it mean for you?
The tax reform proposal is still being put into its final form but based on what we know today, here is a general breakdown of potential winners and losers.
Winner No. 1:
Anyone and everyone who likes the idea of a simpler way of doing their taxes.
The majority of filers today hire an accountant, tax professional, or buy software to calculate their taxes. As a country, we spend nearly 9 billion hours every year complying with a 74,000-page tax code, costing the economy $400 billion in lost economic growth.
The tax reform bill would reduce the number of tax brackets from seven to three and it would eliminate many loopholes and deductions. In other words, it would go a long way in simplifying our tax code and most Americans would be able to file their taxes on one sheet of paper.
Winner No. 2:
Middle-class workers with children or elderly parents living at home. And families leaving their farm or business to the next generation.
That’s because the legislation is likely to increase the per-child tax credit and create a tax credit for those taking care of other dependent family members. It would also get rid of the “death tax” that forces some heirs of family businesses to sell the business just to pay the tax. Additionally, a Heritage Foundation study estimates that the American economy would generate 18,000 more jobs each year if the death tax was eliminated.
Winner No. 3:
The almost 55 million Americans across the country who work for corporations, and millions of consumers, people like you and me, who buy what they make.
That’s because the tax reform legislation calls for reducing the federal corporate tax rate from 35 to 20 percent. Multiple studies show that at least 75 percent of corporate taxes are passed on to workers in the form of lower wages. If this tax on corporations is cut, every American would see an increase in their income, but it would benefit low-income workers the most.
Additionally, tax reform paired with regulatory and financial sector reforms would encourage business to start investing in their workers again. If we returned to the historic trend, that could mean a raise of $6,500 to $10,000 for an American family making $50,000 a year.
And for all those Americans who invest in the stock market (over half of us) and those saving for retirement (because 40 percent of corporate stock is owned by retirements plans), a cut in the corporate tax rate means a better return on investment for all involved.
Let’s also not forget that the U.S. currently has the highest corporate tax rate in the developed world. Cutting it would encourage more businesses to stay in America as opposed to moving their companies to countries with lower taxes.
Now … let’s talk about potential losers.
Loser No. 1:
Government bureaucrats in high-tax states and cities like New York, California, Illinois, and Washington, D.C. That’s because the tax reform proposal would end the option of people living in those places being able to deduct their high state and local taxes from their federal taxes. Why should someone in New York get the benefit of deducting more from their federal taxes than the same level of income earner in Texas simply because New York taxes its residents more than Texas does? Even if some of the people living in high-tax states pay more in the short term, in the long run they will be winners because their state and local governments will be constrained by economic reality.
Loser No. 2:
Subsidized industries like wind farms and solar panel facilities should know the gig is up. Lobbyists for many politically favored industries that have long enjoyed tax subsidies will fight hard to keep them in, but any real tax reform measure must ensure that when the dust settles, such special interest subsidies are a thing of the past.
Loser No. 3:
All those who make a living off a complicated tax code may need to find a new line of work. Driving down the corporate tax rate from 35 to 20 percent means there will be fewer tax breaks for lobbyists to go after and less loopholes to jump through. Reducing the number of tax brackets and simplifying the tax code in general will mean a lot fewer people will need to hire accountants and tax professionals to do their taxes.
For over 30 years, Washington has been on the wrong side of picking winners and losers when it comes to tax policy. This is a real chance to change that.