Since there have been Presidents there have been Presidential Politics. And that means there have been political promises. There are some that seem to reside with one party or another. There are some that are non-partisan – meaning a promise that is made by both sides.
National security, domestic prosperity, and tax-reform; these head the list of non-partisan political promises. The first two promises are made by both parties using very similar imagery and words. But the last one – “tax-reform” has very different meanings depending on who is saying it.
During the Presidential race the candidates both promised tax-reform. And they both promised to lower taxes for the “every man”. One of them promised to raise taxes on high income earners and the investor class, the other was silent on the topic other than to say he knew more about the tax code than anyone.
But as my Mother used to say “I’ll listen to what you do.” By that she meant to quit promising to clean my room and be nice to my siblings, and do it. That she would know my intention by my actions. That what I did would inform what I meant and who I was. The same can be true of Politicians. Let’s listen to the actions of the President elect to understand what “tax-reform” means to him.
A reduction in taxes for those on the bottom – Increasing the “standard deduction” that every filer gets by almost doubling it. The advantage here is that many lower income tax payers don’t itemize. The doubled standard deduction results in the benefits of itemizing without the burden of big house payments. A consolidation, and increasing of lower and lowering of top income tax rates has the overall effect of decreasing the actual taxes paid on the lower income tax payers.
An increase in taxes for those in the middle – largely accomplished by the change in rates and the steps at which those rates are reached. Middle income payers will end up with more taxable income in the slightly higher middle rate band (simply by how the math is done) and will see increase in their bill. The surprise exception to this is the proposed abolition of the Alternate Minimum Tax. This is a tax provision that has limited the effectiveness of certain deductions and created a “minimum” amount of tax paid by all. Doing away with AMT would be great – but don’t hold your breath. If it does happen those on the upper end of the middle will be helped.
A reduction in taxes for the top (more significant the higher your income) – The consolidation from six brackets to three, and the reduction of the top bracket from 39.6% to 33% has a massive impact. And the more you make, the bigger the impact. Couple that with the proposed repeal of the Affordable Care Act and the surcharge taxes that went with it and you could easily see a 10% rate reduction for those at the top.
Estate Tax reform – currently the estate tax is a non-issue for anyone whose estate is less than $5,400,000 ($10,800,000 for a married couple) – which is just about everyone. The President elect would like to do away with the estate tax completely. This will only benefit the super wealthy, and benefit them mightily. The purpose of this tax was to limit the concentration of wealth by a single family (creating kingdoms) by heavily taxing super-estates. Effectively limiting aristocracy and promoting meritocracy. Eliminating it will allow families to pass wealth unfettered from generation to generation.
Last consideration, and a side note (tax related) is that the President elect is appointing the wealthiest cabinet in history. Any appointee to or ranking employee hired into the executive branch is required to divest themselves of assets that may cause a conflict of interest in performing their duties. Because this quick sale of assets could create significant taxes there is a “Tax Free Sale” provision these individuals are afforded. So: 1) very wealthy appointees must sell their long held/highly appreciated assets 2) but the taxes that would be created are forgiven 3) making those individuals even more wealthy.
Keep your eye on the ball America – it isn’t an accident that “the rich get richer”. It’s important because your money matters!