Welcome to the final part of this series of articles. The first part can be found here.
Now that we’ve gone in over detail some of the people who are benefitting from this tax bill, as well as those who aren’t, let’s recap quickly. The individual taxpayer is winning short-term and losing in the long-term. That’s because the tax breaks and increased deductions received by individuals according to the bill will expire come 2025. Then, because of inflation combined with an array of other factors, 53% of taxpayers will have their tax rate mildly increased by 2027, according to the Tax Policy Center.
The other aforementioned winner was the corporate world. The corporate tax rate has been cut from 35% to 21%. Unlike the adjustment to the individual tax brackets, this change is permanent. This example of giving corporations a break is accompanied by a bevy of other changes designed to stimulate the economy by investing more profits into companies. Now, let’s go through the remaining four winners and losers.
Given the healthcare-focused nature of the new bill, Obamacare markets are negatively affected. The bill kills the individual mandate, the Affordable Care Act stipulation that required eligible citizens to hop on Obamacare or face a harsh penalty. That mandate was essential to the structure of the ACA, however. The revenue generated by the mandate acted as a primary funding source for the ACA. Without that money, America’s health insurance market is no longer solvent, forcing premiums to skyrocket even farther. The impact, as estimated by the CBO, is 13 million more uninsured people over the next ten years, as well as the average insurance premium rate being inflated by ten percent.
Winner: Donald Trump
Undoubtedly, the passage of a bill this large and dynamic serves as a significant victory for Donald Trump; especially because of the gloomy perspective held previously by many Republicans.
For Republicans, the Trump presidency and largely right-wing Congress hasn’t been able to make much of the legislation promises from campaign season come to fruition. The effort to repeal Obamacare, one taken on by the right for the past year, was a bust. Now that the tax bill passed (which also greatly impacts Obamacare markets), Republicans and Donald Trump have a major legislative victory under their belt.
Once again, the bill benefits everyday American taxpayers by lowering the amount they have to pay in taxes. This benefits Trump in the short term, as well as the Republican party. However, as time moves forward, and the bill expires, and Americans are feeling the effects of higher premiums being pushed, Republicans will no-doubt lose footing in the long-run.
The reason behind ceasing tax cuts for the individual by 2025 is because of the amount of tax revenue the government would lose if they didn’t. The government is still losing money; in fact, the bill will add approximately $1.46 trillion to the deficit over the next decade. Conservatives lose not only in the short-term, but the long-term as well. While advocating for lower taxes is a large part of the modern conservative ideology, if the tax cuts don’t stick in the future, it’s not worth it to incur such a massive deficit if you’re a fiscal conservative.
Despite promises from Republican leadership to simplify the tax code, it has yet to be done. The new bill fails to deliver in that department, as the tax code is still archaic and not simple to understand for the everyday taxpayer. Older versions of the draft did make an effort to make the tax code simpler, stripping away three of the tax brackets and lots of deductions; however, the bill that was passed featured no such simplification method. The tax code is still tediously tricky to understand fully, and taxpayers still need accountants just as much as before.
This omnibus bill tweaks much more of America’s tax codes that what was gone over, so it is recommended you read it for yourself. Foster Financial is tried and true thanks to the years of experience we bring to the table. For your accounting needs, feel free to contact us today.