No taxation without representation! Well something like that. The current Republican Congress has officially proposed a new tax system, which for America is a very big deal. Congress has not attempted to revamp the tax system since 1986.
The generic promises from top Republicans, such as President Trump, have been along the lines of Tax reform will protect low-income and middle-income households, not the wealthy (2). President Trump’s signature promise to the American people is that we, as citizens, will be able to file our taxes on one piece of paper.
But independent journals and economists, along with many others have analyzed the nitty gritty of this proposed tax plan, and many see some flaws with it. But let’s analyze it before we make any judgements.
The proposed tax plan has been broken down into four tax brackets. There is your simplified tax system. This may sound great at first, but the brackets and their tax rates can differ, by a grave number for some citizens. Those who make $0 – $45,000 will pay 12% of their income to the government, compared to the current rate, which depends on the income.
The current tax bracket is divided into seven tax rates. This offers more diversity and in a sense it is a bit more tax friendly depending on the individual’s income.
But if we take an individual who makes $45,000, their tax rates will actually see no change between the current tax system and the proposed tax plan. So in a sense, these particular folks do not have a net gain.
Let’s take a person who makes $100,000, they would actually see a significant change. They would pay 25% compared to the current 28%.
To finish off the tax bracket citizens with incomes between $200,001 and $500,00 face a tax rate of 35%. Whereas citizens who make $500,001 or more will pay 39.6%, which equals the current tax bracket, however the current tax bracket makes the cut off at $418,401, so those who make $418,401 would be taxed at 35%.
This revision to the tax bracket seems to parallel much of the President Trump’s supporters. We tend to stereotype Trump voters and supporters as those who are uneducated and work in low wage paying jobs, and that may be true for a great deal, but another interesting component and probably the most revealing in terms of the new tax bracket are the educated and wealthy voters who voted red in 2016.
How does this all relate to the new tax bracket? Well spoils go to the victors. President Trump’s voters will win “bigly,” and they will see greater gains if they have money hidden in overseas banks. The federal government will not tax those who keep money in foreign countries, so private citizens can place their money in US banks. So maybe, depending on how money is circulated, the US might have more money.
Those who voted for the President won in a financial sense. A simplified tax bracket with lower tax rates across the board will surely nudge voters to keep faith in the President, despite growing investigations around his campaign and Russia.
While the victors potential won, depending on how the legislature votes, major incentives will be subtracted under the new tax plan.
A potentially lethal shock comes in the form of changing the rebates citizens can deduct from housing. Americans can currently deduct interest from their first $1 million in home loans. Under the new plan, this number would be reduced to $500,000.
From an economic standpoint, this may disincentive folks from entering the housing market, which can spur new economic development. If you think about the spending that comes from homeowners, a great portion of our economic spending comes in the form of consumer goods for the home.
Homeowners are more inclined to purchase multiple vehicles, they will hire contractors to improve their homes, these contractors will then spend and invest in their business, and if these homeowners have children, then we will see markets such as higher education and healthcare soar.
Does this disincentive have the potential to create a similar housing bubble that led to the 2008 Recession? That depends on how people invest in the housing market, but in a general sense, if the housing market takes a major hit, expect other market to suffer as well.
So technically those who voted for President Trump, are represented, and their voice in terms of taxes are in play. As for everyone else… ¯\_(ツ)_/¯
Henri Baxhellari is a contributing writer for The Bradlo. Any views expressed by contributors should not be interpreted as the view of The Bradlo.