If you’re trying to follow where tax cuts are headed, feel free to admit it’s hard to tell what’s really going on.
It’s pretty clear a big tax cut is coming. But it’s a lot harder to tell who will benefit the most, who could end up harmed, and whether the whole plan will be good for the U.S. economy or not.
President Donald Trump and his fellow Republicans insist their tax-cut proposals will benefit virtually all Americans, if not through direct tax cuts, then through stronger economic growth the cuts will trigger.
But many economists say tax cuts have never generated much economic growth. And nonpartisan analyses of the GOP tax plans show that businesses and wealthy people will capture most of the gains.
So, what should you think?
It’s very hard to predict how tax cuts will affect the overall economy in the long run. But at least some implications of the GOP tax plan are fairly clear, as Alexis Christoforous and I discuss in the podcast above. Here are the basics:
- Most of the GOP tax cuts are targeted at businesses.
- That’s not necessarily bad.
- Some individual taxpayers would get a tax cut, and others wouldn’t notice much of a change.
- Some individual taxpayers will end up paying more in taxes. It’s difficult to generalize who they’ll be, because it depends on where you live, how many kids you have, whether you own a home and other factors. But the biggest changes will probably affect individuals who claim a lot of itemized deductions. While this might only be a problem for less than 10% of all taxpayers, that could still affect as many as 16 million, according to a Yahoo Finance analysis. That could be a political problem for Republicans.
- Some important things won’t change, such as the tax breaks for investing in a 401(k) plan.
- And finally, the tax cuts would add around $1.5 trillion to the national debt over the next decade. Republicans say stronger economic growth will bring in enough additional tax revenue to offset that new debt, but that’s very unlikely. Conservative economist Gregory Mankiw says that at best, stronger growth triggered by tax cuts could offset about one-third of the lost revenue. And that assumes there’s no recession during the next decade, even though there probably will be.
The action in Congress will heat up during the last few weeks of 2017, as Republicans race to get a tax-cut bill signed into law by the end of the year. If they don’t, it’s not a big deal if a final bill drifts into 2018. If all goes as expected, Trump will sign a large tax-cut package sometime soon, and Republicans will crow about their generous gift to the nation. It will take a bit longer to tell if they’re right.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman