Early in 2017, President Trump announced his intention to introduce a package of significant tax cuts for all Americans. Despite the naysayers in Washington, D.C., along with most of the media, he did exactly that. Further defying “business as usual,” he got the package through Congress in time for a January 1, 2018 implementation.
It is now July, and the Tax Cuts and Jobs Act of 2017 has been law for over a half year. What actually passed, who was affected, and what have been the effects of the changes? Today we review the early highlights.
- Passage and Implementation. The Act was implemented at “Trump Speed,” and has reportedly affected 90% of Americans. New withholding tables took effect in February, so most people began receiving larger paychecks after the first few weeks of 2018. Results are in, and consumer spending is up nicely.
- Corporate Tax Rate Cut. The 2017 statutory federal tax rate was 35%. Originally, Trump’s proposal was for a 15% Corporate tax rate, but the end result was 21%, nonetheless significant. Corporate earnings are now rising, and businesses are thriving. This can be seen in both the job market and the stock market.
- Personal Tax Rate Cuts. The bottom individual tax rate was retained at 10%, and above the 10% bracket came three new brackets; 12%, 22% and 24%. No one has to pay above the old 25% rate until their taxable income rises above $315k (married filing jointly). Trump promised a middle class tax cut, and with these reduced rates, he delivered.
- 25% Tax Rate for Pass-through Businesses. Trump’s original proposal was that all businesses, great and small, would pay at the same tax rate. Since the 25% rate for small businesses exceeded the 21% rate for large businesses, this was not happening, and needed to be corrected. Fortunately, small businesses were saved before the bell by Sen. Ron Johnson (R-WI), who is himself a small business person. He successfully incorporated a new tax deduction for small businesses filing as “pass-through” entities. This leveled the effective tax rates between large and small business.
- One-time Overseas Profits Repatriation. All overseas profits from US-owned companies are eligible for repatriation (bringing the money back to the U.S.), to be taxed at a one-time lower rate. Companies repatriated over $300 Billion in the first quarter of 2018. I project the pace of repatriation to accelerate.
Overall, the Tax Cuts and Jobs Act of 2017 appears to be a success, as evidenced by the 4.1% estimate of 2nd Quarter GDP growth. In our consumer-driven economy, more people have begun working, and spending power is increasing. How much more cash are Americans receiving? The numbers are now in, showing that the average American couple is currently receiving a tax cut of $2,917 annually. Strangely, recent research shows that many Americans remain unaware of their current windfall.
Next week we will look at developing proposals to further reduce our tax burden with a 2018 Tax Cut bill. Maybe that will get the attention of those remaining “in the dark.”
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