143 Million Americans Expected To Receive Tax Cut

Nicholas Chang 12/27/17

Tax Reform Bill

143 Million to be of America’s citizens (most of which are middle class) are expected to see a considerable reduction in their taxes in the near future due to the newly passed "Tax Cut And Jobs Act."

Before Christmas, the US Congress passed a massive tax overhaul, expected to come into effect in 2018. Though the main focus in terms of economic stimulus was from the lowering of corporate taxes, income taxes were also lowered. Because of reduction in income taxes, Americans will be able to receive greater deductions from the taxes they are expected to pay, even in spite of the revised State And Local income Tax (SALT).

In order to allow federal tax cuts while mitigating the increase to the deficit (assuming tax revenue does not substantially increase as a result), the new Republican tax bill will impose a $10,000 limit on how much money a household can deduct from their state and local taxes. Fiscal conservatives argue that unlimited SALT deductions are being abused in wealthy states to sustain and even subsidize burdensomely high taxation.

According to media organizations such as the Chicago Tribune and CNBC, the SALT limit is a bad thing because middle-class citizens, who now cannot deduct as much from their taxes, will have to pay more (assuming that the doubling of the standard deduction does not make up for the difference). But they will not pay more forever; they will then be further incentivized to vote for lower taxes at the state and local level, as it is their local governments that are truly responsible for such excessively high taxation. Voting for lower taxes will likely result in cutbacks to government spending on entitlement programs, which is the truly bad consequence according to them. This will mostly affect upper-income individuals from high-tax states, as they benefit substantially from having the ability to write off their state and local taxes, thereby leaving individuals from other (mostly low tax) states to fill the gap. Limiting the SALT deduction will essentially limit how much the high-tax states can exploit the low tax states by forcing them to subsidize their economic agenda indirectly.

This is once again indicative of an ideological divide at the most basic and fundamental level between liberal and conservative governmental policy. Liberal sources believe voting for lower taxes is bad because the government cannot afford to "help people", especially the poor. Conservatives see the SALT deduction limitation as an incentive for voters to lower taxes for everyone, making it easier for people to help themselves upwards rather than stagnating on government assistance. This is a gross oversimplification, but it is essentially the main divide, Big government versus small government. With current unlimited SALT deductions, the taxes will always remain high because not enough people will vote to lower them.

Even though the majority of Americans will see lowered federal (and possibly state and local) taxes, there are some who still argue that it is unfair because the biggest tax cuts are for the rich. By some estimates, President Donald Trump, a billionaire, stands to save millions on taxes. However, because the US government taxes the rich disproportionately higher than the poor, a blanket tax cut to everyone will result in the rich saving disproportionately more money because they were paying more in the first place. Many also fail to understand that even proportionately, the wealthy pay a far greater amount in taxes, and therefore, must receive a greater numerical value in tax cuts.


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