Following the President’s announcement of a “tax reform” outline, critics and supporters have had a field day. However, until the entire piece of legislation is drafted and released, we will not know who benefits from this “reform.” As I indicated in an earlier essay, the key lies in the effective tax rate imposed on individuals and corporations. That is the rate applied after all exemptions and deductions are subtracted from adjusted gross income.
My initial analysis of our own situation leads me to believe that the rates reflected in the tax tables must be significantly lowered if our taxes or going to go anyway but up. The elimination of personal exemptions and the deduction of state and local taxes has a significant impact on us and, I am guessing, many others in the “middle class” as well. It is important to note that the increase of the standard deduction for couples to $24,000 will have a positive effect for many whose deductions have traditionally been less than this amount.
While the current publicity about the “reform” has hinted at new rates for the top of the schedule, it has said nothing about the large number of other exemptions and deductions that exist for corporations and the very wealthy. For them we have rates without exemptions and deductions. For the rest of us there is news about exemptions and deductions, but not rates. Our local congressman is flooding the airwaves with self praise about the tax cut which he has helped to get for us. I cannot tell how he arrives at that conclusion from the information available.
While the proposal may mean large tax cuts for the wealthy and corporations as liberals claim, it may not. While it may mean tax cuts for many working and middle class people, it may not. Frankly, I suspect that much of the debate over the next few months will be of the kind that muddies the waters. Many of our elected representatives are clueless about the intricacies of taxation, and other are knowledgable but unwilling to share their knowledge with us.
Stayed tuned. I am counting on our taxes to increase.