I've been trying to keep up with the "discussion" of the much-ballyhooed GOP Tax Plan. To say that there is spin from the left and spin from the right doesn't do justice to the word. They don't make a stone big enough for all the blarney we have been hearing from both sides!
The favored name for the plan is the "Tax Cuts and Jobs Act" -- because who doesn't like the idea of less taxes and more jobs? But, due in part to the haste with which said bill has been hacked together and pushed through our fair Congress, the actual name of the legislation is "To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018."
Kind of warms your heart, doesn't it?
I'm not going to delve into the rhetoric of whether this legislation will actually provide any jobs -- there are statistics from multiple perspectives to demonstrate that it will, that it won't, and that it might. Take your pick. You know what they* say about statistics, right?
* Mark Twain popularized a saying, attributed to British Prime Minister Benjamin Disraeli:
"There are three kinds of lies -- lies, damned lies, and statistics!"
But in trying to figure out just who will pay less taxes and who will not, I chose to boil it down to the two factors that most middle-income earners will pay attention to: the personal exemption and the standard deduction.
Ever since I have began paying income taxes (at the age of 15, with my first job at the IGA grocery store in my hometown of Martin, TN), Americans have been allowed to "exempt" from their income -- in other words, take it right off the top -- a certain amount of the money they earned based on the number of people in their household.
As a young person, my household was basically me, and in 1973, I was able to eliminate the first $750 I earned bagging groceries from any federal income tax. At $1.65 an hour, that allowed me to work for 454 hours without any taxes. That pretty much covered me back in those days, so I got a sweet deal!
On top of that, we were all allowed a standard deduction of $1,300 off of any income taxes owed. So, I was rocking and rolling with the ability to earn up to $8,667 essentially tax-free (I did get to learn about Social Security and Medicare taxes via my weekly paystub!)
If I had been married with a couple of kids (as lots of folks were in 1973), my personal exemptions would have risen to $3,000 (remember, right off the top!) and I could have chosen either to take the standard deduction for my household, or I could have "itemized" my deductions if they added up to a larger sum.
Being as the average annual income in the US in 1973 was $7,580, it was all-in-all a pretty good deal!
* * * * * * * *
Let us fast-forward to nearly Christmas time in the year 2017; our Representatives and Senators are about to pass the aforementioned "Law with an Abominably Long Name" in order to give us some tax relief. The average wage in America is somewhere around $48,600. How does a 15-year old grocery clerk and a family of four come out under this whole deal?
Well, for starters: you can kiss that personal exemption thing goodbye! For 2017, the personal exemption (which was $750 in 1973, remember) was $4,150. So, our family of four was able to take $16,600 of income right off the top -- no taxes for you! The young grocery clerk got the $4,150.
Not anymore!
Oh, but you get to DOUBLE your standard deduction! This is a move the Congress actually endorses, as they wish to entice income-earners away from those pesky itemized deductions (most of which will be eliminated anyway for 2018.) Our grocery clerk who was able to deduct $6,350 last year will get to deduct $12,000 this year. And the family will get to deduct $24,000 -- compared to last year's $12,700.
Did we say DOUBLE your deduction? Well, we didn't mean that it would actually DOUBLE. Either that, or we flunked third-grade math.
Anyhow, my grocery clerk may come out pretty good (just as I did back in '73) -- but my next-door neighbors with two kids are kind of getting screwed (or so it seems to me.) They get to swap $16,600 in exemptions for an extra $11,300 in deductions. As a result, they will pay more taxes in 2018 than they did in 2017.
Can I hear you cheering, Middle America?
Now, there has also been a lot of talk about lowering the tax brackets on income. It's true that every single tax bracket for 2018 will see a reduction in the percentage of income owed for taxes. Most categories will see reductions of 2-3% (with the exception of those who earn between $157,500 and $400,000 as individuals -- they only get a break of 1%)
But, with the wily shift in how your income is counted, you will pay a smaller percentage on a greater amount of the cash you use to feed your family. Especially if your income is earned on your job, rather than received from your investments. (Oh, boy -- that's a whole other blog post!!)
So, to paraphrase a great writer from many years ago: "As for me and my house, we think this whole thing smells a bit like week-old fish heads."