Congratulations... You Just Got A Raise!
Everyday Americans just got a raise because this week, the House and Senate came to an agreement on the new tax bill which features a $1.4 trillion tax cut over the next 10 years.
The final bill will be voted on in the next few legislative sessions, and the plan is to have the tax package on President Trump’s desk to sign before Christmas.
To be clear, this is NOT a perfect bill. Given the complexity of the U.S. tax code, it’s simply impossible to reach an agreement that will make everyone equally happy.
But you should know that this bill is a good deal for American taxpayers at every level of the economic spectrum… and especially for retirees. Today I want us to take a look at the tax bill so you can know exactly what to expect from this new tax package…
Lower, Simpler Rates for Individuals
The first question most Americans ask about the new tax bill is “how will this affect my tax bill?”
As you’ll see, most Americans will benefit from a lower personal tax bill in the years ahead. And that’s great news! But please keep in mind that the biggest benefit you’ll get from this new tax bill is a little less obvious. It takes a little work to connect the dots, but the ultimate result is more money in the pockets of Americans who really need it.
Across the spectrum, personal tax rates will be lowered just a bit. It’s not a huge deal, but the lower rate will make a difference by leaving extra dollars in the pockets of working Americans.
On the high end of the spectrum, top earners will see their tax rate lowered from 39.6% to 37%. And the alternative minimum tax (or AMT) — a provision that makes sure top earners aren’t able to dodge tax liabilities — will cover incomes of $500,000 for single filers and $1 million for married couples.
The reduction in the highest tax rate will be at least partially offset for wealthy Americans, because they will only be able to deduct $10,000 from state and local taxes.
In the end, the difference between the lower income tax and the loss of state and local tax deductions will be a wash for many wealthy Americans. Of course everyone’s tax situation is a bit different, but it’s important to realize that the wealthy aren’t getting the full benefit of a lower tax rate.
But again, the personal tax changes are just a small part of the new tax package. Let’s look at where the real change comes in…
A Corporate Tax Cut to Benefit All Americans
The biggest benefit of this new bill is a cut in corporate taxes from a 35% rate to only 21%. This new corporate tax rate will benefit Americans in so many different ways.
I get so sick of hearing the biased media coverage on this corporate tax cut. To hear some talk about it, you would think that corporations are living, breathing monsters who suck the life out of our American workers.
The truth is quite the opposite!
Corporations are simply organizations set up to provide goods and services to U.S. (and global) consumers, and to generate profits for the corporate owners. Corporations do this by employing workers (with vastly differing levels of education and with a variety of skill sets), and paying those workers for their time, service and expertise.
Now keep in mind that the owners of these corporations are you and me.
That’s right, Americans own these corporations through stock investments in brokerage accounts and retirement plans, and also through employee stock option plans and other equity sharing agreements. So if corporations are able to keep more of their earnings by paying a lower tax bill, those earnings are shared by Americans who own these companies.
On top of the ownership argument, there are many other ways in which a lower corporate tax rate will help people like you and me.
Lower tax rates lead to higher profit margins for all U.S. corporations. And since America is a competitive nation with a free market structure, these companies will continue to compete for customers. One of the ways these companies compete is by offering goods and services at lower prices.
As you know, inflation in the U.S. has been exceptionally low for the last few years. And I expect lower taxes to help keep inflation low. That’s because companies can charge lower prices since they have lower tax bills.
So whether you are shopping at your local grocery, buying a new appliance for your home, or paying a mechanic to fix your car, the lower corporate tax rate should help you keep more money in your pocket.
Low corporate taxes also lead to growth opportunities and more hiring. That’s because companies are able to keep more of their cash on-hand. And that cash can be used for new projects, to buy more inventory, or to expand into new locations. And all of that growth leads to more job growth.
And we haven’t even talked about the overseas cash that will be coming back into the United States because of a “repatriation” tax holiday. That cash will result in higher dividends, more share buybacks (benefiting investors), and additional capital for growth.
I could go on and on about the benefits of lower corporate taxes and how the low tax rates help Americans of every race, creed and level of education. But hopefully you get the point.
Over the next few days, we’ll continue to see more details on the new tax plan. And I’m sure that we’ll be inundated with biased media reports about how this bill is bad for Americans.
But please keep in mind that this bill does much more to help Americans than hurt them. And over time, the economic growth from our free market should offset the projected cost of this tax bill and do much more good than harm.
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Here’s to growing and protecting your wealth!