By Kris Follmer
The Trump tax reforms, signed into law at the end of 2017, have now been in effect for a full year of tax filings for individuals and corporations. While many corporations saw a huge cut in taxes, many individuals have not seen the tax refunds to which they are accustomed, although most have seen a modest rise in pay as tax rates for many brackets dropped as much as 3%. There are many reasons for the smaller-than-expected tax refunds to individuals, the most significant of which likely stems from the IRS, whose withholding tables underestimated the amount needed to be withheld from paychecks this year. As a result, many taxpayers are finding a shortfall in the amount of payroll tax collected during 2018. This has caused no little distress among many people who, while they saw an increase in weekly take-home pay, have come to depend on an annual refund from the government to fund larger purchases for which they otherwise may not have saved. Other reasons for the underpayment of taxes have to do with major changes in how deductions are calculated.
While I won’t give a complete rundown of all of the 2018 taxation changes, I will review several in light of three of the American Solidarity Party platform planks on taxation, which support:
- A fair and progressive tax system that ends subsidies and exemptions which disproportionately benefit the wealthy and favor speculation over work.
- A review of existing regulations and taxes, to assess their impact on small businesses.
- Tax credit programs that give families the practical means to choose the form of education they prefer.
Probably the most significant change to the taxation of individuals in 2018 was the near-doubling of the standard deduction. This deduction is designed to ensure that at least some income is not subject to tax. Doubling this deduction significantly reduces the number of filers who itemize deductions. However, because the amount of charitable giving needed to gain any tax savings must be above the new standard deduction, charitable donations are now worth less, from a tax perspective, than they were a year ago. This undermines economic subsidiarity, a central tenet of the ASP.
As of 2018, personal exemptions have been eliminated. Prior to 2018, taxpayers could deduct income for each person in their household. Now without personal exemptions, families with many children may pay more federal income tax, despite the increase in the standard deduction. While the child tax credit has doubled under the tax reform bill, from $1,000 to $2,000 per child, that increase may or may not compensate for the lack of personal exemptions. There is now also a $500 credit for each non-child dependent, which particularly helps families caring for elderly parents.
The estate tax exemption, which is the amount of inheritance that is not taxable, has been doubled to $11.2 million for singles and $22.4 million for couples. The implementation of the estate tax was an effort by the government to reduce unearned wealth and the hoarding of untaxed wealth in the same families from generation to generation. Doubling the estate tax exemption effectively increases the accumulation of wealth in fewer hands, where it is not generally spent, donated, or invested for the benefit of the common good.
The tax deduction floor for medical expenses has been reduced from 10% to 7.5% of income, a reduction which is welcome for the millions of Americans who are in medical debt but a far cry from what is necessary to fix our national shame of crippling personal medical debt (and resultant bankruptcy, in many cases).
One major win, in terms of the ASP platform planks on taxation, is allowance for 529 savings plans (a type of savings fund that could formerly be spent only on higher education) to also be used for public, private, and religious elementary and secondary school tuition.
The biggest change to taxes affecting businesses large and small is a reduction of the corporate tax rate from 35% to 21%. Insofar as this helps small businesses to flourish, it is a welcome change. However, the major beneficiaries of this tax cut are huge corporations. Although this 21% corporate tax rate is the lowest rate since 1939, it is now in alignment with the corporate tax rates of most of the rest of the world. It should be noted that most American corporations never actually paid the old rate of 35% (the effective rate is about 18%). The change in the corporate tax rate has allowed many companies to repatriate earnings made overseas at a tax rate consonant with the rate in the country where the money was earned. Despite the general equalization of the US corporate tax rate with those of the rest of the world, the overall effect of the reduction has been to further enrich investors, not workers. While some workers saw one-time bonuses due to the repatriation of funds as well as some modest capital investment, most of the wealth has been returned to shareholders through stock buybacks.
The Trump tax changes offer some definite boons to the poor and the middle class, including welcome changes to medical and educational deductions and to tax-advantaged programs. However, so much more could have been done if lawmakers had taken into consideration the ASP principles of subsidiarity. Overwhelmingly, the Trump tax bill benefits the richest Americans the most: the top 1% of earners took home 83% of the tax cut, while the poor and the middle class are left without an equal or greater benefit, as has been typical throughout American history. We call upon the US government to take swift action to drastically reduce tax giveaways to the wealthy. We further call for the implementation of a progressive tax policy that truly benefits the poor and the middle class, focuses on small businesses rather than on large corporations, and gives families real choices in the education they can provide to their children.