Unemployment is low, stocks are booming, and business confidence is soaring to record highs.Yet wages for too many Americans are still barely increasing after eight long, flat years of the Obama presidency.The American people deserve a raise, and the Tax Cuts and Jobs Act will deliver one.
Middle class families would see a significant boost in take-home pay if the proposed tax changes take effect in 2018.Under the Senate version, the standard deduction jumps from $13,000 to $24,000 for a married couple and from $6,500 to $12,000 for a single filer.Above the much more generous deduction amount, the rate would be cut to 12 percent all the way up to $77,400 for married couples and $38,700 for singles.The rest of the rates would also be cut, providing tax cuts at every income level â€’ while the share of all federal income taxes paid by millionaires would tick up from 19.2 percent of all revenues to 19.7 percent.
The bill doubles the child credit to $2,000 per child and makes it nearly universal.That has been a top priority of Senators Mike Lee of Utah and Marco Rubio of Florida, who argue that making the tax code less punitive toward investment requires recognizing the enormous capital required to raise children.
Perhaps more significant than these direct tax cuts is the impact of the bill’s business tax cuts on wage growth.The U.S. is presently uncompetitive internationally, with the highest corporate tax rate in the world and a perverse system that penalizes companies for bringing home the profits of their foreign subsidiaries.An analysis by Council of Economic Advisers Chairman Kevin Hassett finds that fixing these problems will raise household incomes $4,000 to $9,000, with around two-thirds of the benefits of business tax reform flowing to labor.While other economists disagree about how much wages will jump if the business tax system is fixed, there is overwhelming empirical and theoretical evidence that wages will rise considerably.
While a lot of attention has focused on the Senate bill fully repealing the deduction for state and local taxes (the House version retained it for property taxes up to $10,000 per year), the vast majority of taxpayers are unaffected by the provision because they either already claim the standard deduction or will at its new much higher levels.For taxpayers who still itemize, the repeal of the alternative minimum tax largely offsets the loss of the state and local deduction, and the other features of the bill likely put them ahead overall.
For most taxpayers, ending the deduction is an implicit tax cut, because it will stop high tax states from exporting their tax burden to the rest of us.A recent example is in New Jersey, where State Senate President Steve Sweeney reacted to the election of a Democratic governor by saying the state’s first order of business would be to enact a millionaires tax â€’ only to backtrack, explaining that if federal tax reform passes he would reconsider because New Jersey millionaires would not be able to write off the new tax on their federal returns.
The Senate also added two new crown jewels to the House version: repeal of the Obamacare individual mandate tax and oil drilling in the ANWR area of Alaska.
The individual mandate is the corrupt, hated, beating heart of Obamacare—the idea that people should be required to buy overpriced insurance products they don’t want or pay a penalty tax.Obama himself campaigned against it in 2008, saying a mandate would mean “people are being fined for not having purchased healthcare but choose to accept the fine because they still can’t afford it even with the subsidies. They are then worse off. They then have no health care and are paying a fine above and beyond that.”
IRS data show that 79 percent of taxpayers who pay the mandate tax make less than $50,000 and 37 percent make less than $25,000.The best argument mandate supporters can muster is that if people are not taxed for opting out of Obamacare, more people will opt out.But it’s hard to see how people who might sign up solely to avoid the mandate tax are hurt by having the option to say no.And removing the mandate will set the stage for more sweeping health care changes to lower premiums and give Americans more health care choices next year.
The ANWR provision would be a big boost to American energy production and would help realize a vision of an America that is energy dominant.It would also represent a victory over a multi-decade spin campaign in which the environmental left turned a nearly desolate tundra into the key symbolic battleground for stopping energy development in the name of environmentalism.
It is not often that a piece of legislation holds the promise of slashing the taxes on families, growing their wages, freeing them from a burdensome health care regime, and expanding American energy dominance.It’s time to stop handwringing about its minor flaws, see the big picture, and put this bill on President Trump’s desk in time to make this a very merry Christmas for American families.