Observations Regarding The New Tax Law

Tax Law Cartoon

The media coverage, both in the weeks leading up to the December 20 passage of the new Tax Reform Law now awaiting the President’s signature and in the hours since its passage, has been the starkest example you could find of three things I’ve written extensively about in posts to this blog and in the overall content in the pages of this web site: 1) the extreme [and still worsening] ideological/philosophical polarization within our elected leadership; 2) the heavy bias to the Left in most “mainstream” media outlets; and 3) the alarming number of people in this country who qualify as what one popular radio talk show host calls low information voters.

Intensifying Ideological Polarization

It certainly doesn’t take much research to make this point — consider these remarks by Democrats and Republicans about the new law:

Democrats: “A monumental, brazen theft of the middle class”, showing “moral obscenity and unrepentant greed. … It is a vote to instill a permanent plutocracy in our nation.” … “Armageddon.”

Republicans: “We are about to achieve some really big things, things that the cynics have scoffed at for years, for decades even. This really is a generational defining moment.”

One legislator [a Democrat, of course] recently said “Millionaires will get an average annual tax break of $35,000 a year,” while “millions of middle class taxpayers will see their taxes go up.” This got aired and re-aired multiple times in the “mainstream” media. So my question to that legislator [and to the media pundits who aired this] is “What’s your point? The percentage savings of the millionaires is less than the percentage savings that many more millions of middle class taxpayers will save under this law.”

More Evidence Of Left-Biased Media

In most “mainstream” media coverage of the bill, the general drift is how it “robs Peter to pay Paul” — Peter in this case being the “Middle Class”, and Paul being the very wealthy [the “top 1%”, as Bernie Sanders says] and huge corporations. In the “mainstream” media’s more conservative minority, the general drift is on the potential for economic growth fueling a more prosperous outlook if the Republican logic is correct, but tempered with “What if …” caveats on how the law could hurt Republicans in the 2018 and 2020 elections absent appreciable evidence to the average voter in those years of substantial improvements in the economy.

“Repeat a lie often enough and it becomes the truth.” Although not all of what the “mainstream” media is pushing is actual lies [more accurately, it could often be labeled “partial truths”], this quote by Joseph Goebbels [Adolf Hitler’s Propaganda Minister] has  a great deal of applicability here. An excellent case in point is all the flack in the past few days about the so-called Corker “bribe”. Based on “undisclosed sources,” a component of the law regarding special treatment of real estate companies [which were the source of Corker’s considerable wealth] was characterized as a “last minute change” to get his vote. That has been debunked repeatedly [that provision was at least a month old, going back to the House version of the bill], but it is still being reported on and commented on.

Alarming Number Of “Low Information Voters”

Let me begin expanding on #3 in my introductory paragraph with this quote often attributed to P. T. Barnum: “There’s a sucker born every minute.” [there is no clear evidence that the attribution to Barnum is valid; early examples of its use among gamblers and confidence men can be found]. Now, let me just report some facts, not opinions or “spin” on somebody else’s “spin.”  The new tax law is not skewed toward the rich [I actually did the research with a spreadsheet — figure it out for yourself if you think I’m biased]:

    • First, under the current tax law, a couple whose Adjusted Gross Income is $20,800 or less pays no income tax. Under the new plan, that zero-tax threshold increases to $24,000.
    • For a married couple with Adjusted Gross Income of $59,039 [U. S. median as of 2016 returns], filing jointly and taking the Standard Deduction and [under current law] $8,100 [2 x $4,050] in personal exemptions, tax: under current law, is $4,783; under the new law, is $3,824 [reduction: $960, or 20.1%].
    • For a married couple filing jointly, at the income levels below and with a 5% mortgage five times their income, giving 5% of their income to charity, their taxes are affected as follows:
      • Income $59,039, tax: under current law, is $4,032; under the new law, is $3,824 [reduction: $208, or 5.2%].
      • Income $500,000, tax: under current law, is $83,435; under the new law, is $75,379 [reduction: $8,056, or 9.7%]. Note: a little higher percentage reduction here only because of my choice of income levels — the $750,000 limitation on the mortgage interest deduction in the new law did not “kick in” for this particular couple with a $500,000 income [it did “kick in” at the $5,000,000 level below, shifting those “rich people” to tax increases instead of reductions].
      • Income $1,000,000, tax: under current law, is $209,000; under the new law, is $198,379 [reduction: $10,621, or 5.1%].
      • Income $5,000,000, tax: under current law, is $1,323,635; under the new law, is $1,419,379 [INCREASE: $95,744, or 7.2%].

I put these facts in this section about low information voters because there are literally millions of people who have absorbed negative media spinning of the content of this law. My guess is that when its intended results begin to manifest themselves — and I believe they will — the opinion polls will change dramatically, and in a year the current polls will be looked back upon the same way we now look back upon the polls leading up to the 2017 election [worthless].

So Who’s Right?

The short answer is “Nobody actually knows whether Ms. Pelosi’s “Armageddon” characterization of the law or Speaker Ryan’s “generational defining moment” characterization will prove to be more accurate when viewed in our rear-view mirror a decade or two from now [all ten-year projections, whether optimistic or pessimistic, are based on too many assumptions to be reasonably accurate]. This is particularly true of projections about what net impact, if any, this law will have on our national debt [which as I’ve often said is probably the single most significant number that will define our future — see the Unsustainable Fiscal Path page at this site].

Which “side” is right will determine the degree to which our currently unsustainable path continues its recent turn toward a more sustainable direction. I sincerely hope the Republicans are right — not because I’m a Republican, but because I believe that our current leadership is at least trying to move us toward financial sustainability and moral clarity, and that our leadership under the alternative outcome of the 2017 election would have already made significant progress toward sealing our ultimate doom.

Thanks for reading this post, and if you regularly follow my Blog, for that, too. Please consider sharing this or other posts with your friends, colleagues and associates.

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Charles M. Jones

Author: Charles M. Jones, PE, CPA

[retired — neither license active]

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