Four surprising real-world effects of “tax reform”

The propaganda from the right around talk of lower tax rates has been light on actual examples of the effects for middle-class and other non-rich taxpayers. Why? Because they are miniscule.

The ludicrously wealthy are buying politicians and running ads meant to convince you that you will benefit from this “reform.” Rather, it’s the 1% who will benefit, and they are spending a LOT of money on ads and politicians trying to convince you otherwise. [1]

The .01% will reap the most:  98% of the benefits. [2]

This is my field. I hold a LL.M. in International Taxation. I prepare taxes for poor, middle class, and affluent families. People in all  these categories will be injured under the new proposed tax changes. ‘How can that be?’ you ask. By the basic act of lowering tax brackets. “Why is that?” you ask.

I have seen the effects of tax reform on families for decades now. I have been preparing and analyzing middle-class tax returns for 50 years. Every single time the GOPs reform the tax code, the middle class pays more. Please allow me to demonstrate.

First, largely due to the fact that middle-class income is earned income, taxed at a higher rate than investment income, working families suffer.

Second, FICA, the social security tax, does not apply to investment income. Why can’t the rich help pay for the retirement of the people who make them rich? That would be a civilized thing to do. What if we took FICA out of everyone’s income (except the retired)? The FICA tax rate is 6.2 % for the employer and 6.2% for the employee. The rich could make out like bandits if they just paid 6.2% alongside whatever tax they owed on the first $114,000 or so, like workers do.

Third, cuts in the tax rate do not always work in your favor. When you cut the tax rate, you also cut the value of deductions. If my tax rate is 25%, then my deduction is worth 25 cents on the dollar. But if my tax rate drops to 15%, my deduction is only worth 15 cents on the dollar. Clever, yes?

Fourth, Congress is creating MORE tax deductions for the rich, and taking away yours. Don’t be fooled by the new more generous standard deductions. They are not sufficient to account for every family’s financial situation. Plus, see “Third” for effects on deductions.

Be very suspicious of tax “reform” coming from the pathologically greedy. They do not mean you well.

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Deborah Lagutaris started her career in finance, real estate, and taxation in 1973. She managed bank branches, obtained her California Broker License in 1987, and went back to school to finish her BA studies in 1997. Thence she graduated from UC Hastings College of the Law with a JD Concentration in Public Interest, International Human Rights and International Trade Law. She earned an LL.M. Legal Masters Degree in International Taxation and Wealth Management in 2016. She serves as a crisis manager and financial risk-management strategist for clients from many continents.

[1] Accounting today: 9 instant takeawys from the House GOP Tax Proposal

[2] Washington Post: What’s in it for Johnny Lunchbucket? 

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