Two Reasons the U.S. Tax Cuts Might Not Work for all Americans

December 11, 2017
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The latest U.S. tax cuts have already had an impact on the U.S. Economy, with Wall Street hitting record highs as investors gain more confidence. Buying of US stocks are up and the Dow Jones industrial average has been performing well. Republicans have promised a simpler tax code, as well as significant tax cuts for middle income earners, the wealthy, and for corporations.

While both President Trump and the party have been positive about the changes that are yet to be finalized, there could be some bad news for those who are looking forward to the cuts as a fix-all for the tax complexity problems that have developed over the last three decades.

The Tax Plan May Not Actually Simply the Tax Code

Although the House and Senate promised simplification, a last minute change to the proposed tax cuts could lead to a different result. Alternative Minimum Tax will be reinstated for corporations and individuals. This makes filing more complex, as taxes would need to be calculated twice for standard tax rates as well as the Alternative Minimum Tax.

Changes could also complicate things as business owners may now have to split taxes between the expected lower corporate rate, as well as through their personal compensation.

Although the changes have not yet been finalized, these are possible red flags for anyone that was hoping for a simplified system.

The Middle Class May Not Receive the Tax Cuts That Are Expected

Complexity is a problem in itself, but it’s not the only negative that could come once a new tax bill is passed into law.

Although the tax cuts would provide reduction across the board for income earners, the structure of the proposal means that the reduction won’t last forever. For at least five years following new policy, middle-income households would pay less on average than what they are today. For the second half of the next decade, the average reduction would decrease, with the highest-income households being the greatest benefactors over the next ten years.

According to The Washington Post, the Joint Committee on Taxation calculated that less than 50% of taxpayers would see a reduction exceeding $500 in 2019. The calculations also revealed that almost 40% of taxpayers would pay around the same or possibly more than what they are with the current rates.

Still Unclear What the Final Structure Will Be

There’s enough uncertainty to cast doubt at this time, with many claiming that the cuts are a handout to the wealthy and to large corporations. The fact is, deductions and structure are yet to be finalized, so it’s too early to judge what the final outcome will be. Should the cuts proceed with the same structure that the House and Senate has proposed to the president, then Trump’s promise of giving the “American people a huge tax cut for Christmas”, might turn out to be quite different to what the average citizen is hoping for.

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