I was going to write about COLLUSION this week but with all of the screaming and accusations I thought instead that I would check out THE NEW TAX LAW. To begin with let me say that I am not affected by this law and therefore I have absolutely no axe to grind. However, I did some surfing on the internet to see if there were any examples which showed the comparisons of before and after. While almost all of the sites gave the published rates of before and after, only one site, Consumers Report, actually worked out the math and showed the differences as follows:
Category Change in Tax Rate
Family earning $122,000 52% Reduction
Single Parent at $37,000 183% Reduction
Retiree earning $38,800 no tax – no change
Family earning $220,000 2.6% Increase
Family earning $2,100,000 21% Reduction
These comparisons should not be taken as the final word since there will most likely be variations based on State and other local taxes as well as the expertise of your CPA or tax preparer.
While the first two categories resulted in much higher percentage reductions than in the case of the last category, the actual dollar amount has to be higher for the last category since we are dealing with a much higher tax to begin with.
Some of the provisions of THE NEW TAX LAW will perhaps decrease some of your deductions but other provisions may actually work out to increase your deductions. In any event, you should consult with your CPA or tax preparer to see what the actual difference is in your case before and after the new law went into effect.
Regarding corporations, the reduction in the tax rate is 14% of profits. Whether or not this savings is then passed along to the employee in the form of salary and employee benefits, used to create new jobs as suggested by Trump or paid out to the stockholders as dividends, only time will tell.
All we know for certain is that whatever these tax savings are and no matter who gets them, they will most likely be spent in their entirety and therefore help fuel the economy. For example, a corporation that saves the 14% on taxes decides against passing the savings along to the employees and does not want to create new jobs but instead will issue to its top executive a three million dollar bonus. After paying the tax on the bonus the executive will have about two million left which is then used to purchase a yacht for two million. So, after the tax saving of three million and the bonus of three million, one million went back to the government and the other two million was used to provide jobs for those that built the yacht and thereby helped to support their families.