The tax reform bill passed before Christmas has produced more than a big tax cut for Middle America. It has produced a mass of spin by the opposition seemingly unparalleled in our history. To cut through the dust cloud produced by this twister, I will offer the facts of this issue.
According to Greg Walden’s website, the Joint Committee on Taxation reports that the biggest percentage of tax reductions will go to those earning between $20,000 and $50,000 a year. In our area, a family of four with a median income of $70,000 will save almost $2,000 in federal taxes in 2018.
Most of these reductions come from the near doubling of the standard deduction, the reduction in the tax rates in the lowest brackets and the doubling of the child tax credit. Those in highest tax states, like
Oregon, will be able to deduct state income and property taxes up to $10,000 a year.
Cato at Liberty supports this evaluation of the impacts and takes the Tax Policy Center (TPC) to task for claiming that the highest income individuals receive the biggest cuts. Cato shows that the largest percentage change in taxes is for the middle class at 20 percent compared to 12.7 percent for the highest earners. TPC is not fair in their analysis because they use the gross amount for comparison rather than rates.
Higher earners get a higher total reduction because they pay the most. Fair-minded people understand this if the information is delivered in an even-handed way.
Another impact on us all is what the tax reform does for our economy. Small businesses will benefit from the 20 percent reduction on the first $315,000 of income. The reduction in the corporate tax rate to 21 percent will cause increased investment in the economy. This improves the value of our 401(k)s and retirement investments. Progressive socialists have long encouraged taxing the big corporations to redistribute wealth. However, taxing corporations is always a bad idea because that increase is always passed through to consumers of their products or stockholders — our 401(k)s. We all pay the bill when corporations are taxed. The result is that our corporations become less competitive worldwide and investments/jobs leave the USA.
McKenna Senior Fellow Daniel Michell documented a distinct pattern throughout American history: When tax rates are reduced, the economy’s growth rate improves and living standards increase. Tax revenues grow and “rich” taxpayers pay more tax when marginal rates are slashed. This reduces the share of the tax burden lower- income citizens pay. This pattern happened in the 1920s and was repeated in the Kennedy and Reagan administrations.
Anticipating tax reform, unemployment has dropped to historic lows for minorities and women.
The market has had 90+ historic highs, increasing our retirement. Companies are repatriating money in the U.S. economy through manufacturing and commerce. Consumer confidence and spending is rising. Thousands have received bonuses and raises. So, February will find this Middle Class American increasing his retirement contributions with the increase in his paycheck.