The responses to last week’s Why Trump’s Tax Plan is a Slap in the Face to the Middle Class were incredible and thought-provoking… Many of you agreed with my position, and many didn’t, but just about everyone had something useful and intelligent to say.
Today, I’ll address a few that left me eager to respond.
Q: I read an article explaining that Trump’s corporate tax plan is all a bunch of smoke and mirrors as well. The average S&P 500 company pays an effective tax rate somewhere between 10-20% (rough numbers as I don’t remember the exact number). With all the loopholes and deductions, they pay nowhere near the 35%. So, basically, the premise was that lots of businesses will actually see tax increases.
It all goes back to the fact that Trump misrepresents just about everything he talks about. He is as big a liar as the rest of the politicians. It will be interesting to see how long it takes the masses to catch on… – SS
A: It’s not fair to say the President’s business tax plan is all smoke and mirrors. We haven’t seen it fully fleshed-out.
I believe we agree the so-called 35% top corporate rate isn’t paid by many, because with deductions, credits, etc. their effective tax rate is about 14%.
Lowering the rate to 15%, I think is too aggressive right out of the gate. Because the wealthy own most of this country’s big producing assets (corporations) and manage them for exorbitant compensation (including stock options), it makes more sense to lower the corporate tax rate to a flat 25% while eliminating most deductions for two years starting in 2018.
Then, we lower it to 20% in 2020, then to 15% in 2023. Also, it makes sense to graduate the tax rate based on net profit. If we want to be fair to small businesses and start-ups, their tax rates should be lower and increase as they hit net profit milestones. That’s essentially the same proposition as lowering the burden on individuals who don’t make a lot. It makes business sense to let small and growing businesses keep more of what they make to hopefully expand.
Q: I agree with you, Shah, but as a middle class taxpayer with no children and relatively normal investments, my main desire is ACTUAL tax simplification. Why do I have to spend several hours a year figuring out how much I owe or how much of a refund I should get? I should get a bill or a credit notification from the federal government, along with a form allowing me to add or subtract things that are not reported or have been reported incorrectly, and changing the total accordingly. THAT would cut the budget for the IRS to nearly nothing. Frankly, if the amount is not completely out of line, and I agree with what the government records show, I would probably not bother to fill out that form – just pay them, or agree to their calculated refund. – Susan C.
A: The conflict there is that tax simplification means fewer brackets, fewer deductions, and maybe a progressive flat tax. While that would make sense, I don’t think it’s fair to cut out all deductions. There are many deductions that make economic and personal sense, for example for: children, education, job training, and healthcare costs should be deductible. Given the current tax code, it would be risky to trust the federal government to calculate all deductions and credits you might be entitled to, considering they want your money as much as you want to keep it.
Q: More people need to get hold of good tax guides and figure out for themselves what they can do to lower their taxes. You can’t depend upon accountants to do it for you. This may not solve the whole problem, but I believe that most people could lower their taxes somewhat if they were to search out those features that are used by the wealthy. A couple thousand dollars saved in this way can be used to increase security and decrease taxes more in the future. This requires some work, but it may be more worth the effort than you may think at first. I never did earn much money, but I have achieved some success with this strategy. It enabled me to retire at 50. I don’t have a lot of money now, but I am comfortable.
There is a book entitles Five Acres and Independence which you should read. Even if you live in the city, you may be able to raise some of your food, which is always a great idea. – Ken
A: Ken, I hope everyone reads your post, thank you.
You are right in that a lot of people could “save” a lot of money if they took advantage of the current tax code. The problem, and it’s a BIG one, is that hardly any middle-class folks know what they can do and there are no advertisements telling them how they can lower their taxes.
Part of the problem is that tax preparation services, as convenient as they are, and “simple” filing options are designed to shoehorn taxpayers into neat little boxes (kind of like tax coffins).
Tax preparers, for example, are hopefully decent at wringing out more deductions than filers may be aware of, but they certainly don’t know how to “structure” a filer so they can take advantage of a lot of other deductions they may be entitled to.
And that short form… well, it’s a ruse to get folks to shut up and just pay up, and not bother with any of those “pesky” deductions. Until we get a fairer tax system that flattens the field, everyone should do whatever they can to lower the inordinate tax burden on all of us.
Q: I have looked at the tax code. Yes, lowering corporate taxes will lower costs, but will that extra revenue be used to enhance those at the top? There are no deductions for the employed, except dependents, state taxes (which are taxes), property taxes. In business, there are so many available. What about needing a car to get to work, etc.? No deduction for the employee.
You are often so right; I just want a mathematician’s view point. – Janet
A: You’re mostly right, Janet, with a few exceptions addressed by Ken and me above. But you’re absolutely right as far as businesses. Businesses deduct the cost of pretty much anything that goes into making their business work, which lowers their tax burden. That makes sense if rates are high and we want to encourage businesses to hire people and produce goods and services.
Lowering the tax rate individuals pay to offset what they should otherwise be able to deduct, like businesses do, is the only fair way to even the playing field.
Q: Shah, you are right on the money! This country had much higher tax levels at the upper income brackets in the past, and it didn’t undermine investment and growth. Thank you for having the courage to speak out like this. – Allen
A: Thanks, Allen. We had always managed, whatever our tax burdens were. Now, they’ve become too lopsided and the once thriving middle class, with its access and aspirations to the upper class of income earners and wealth accumulators has been sorely disadvantaged. I’m not for soaking the rich at all. I just believe that if you make a million dollars you should pay a slightly higher percentage of your net income than someone making less than $100,000. And if you make $10 million you should pay a little more.
Q: I find your comments interesting though very much like the Democrats. The solution to tax problems does NOT lie in the wealth of the 1% or 10%, but rather in the horrible spending habits of our government. – Michael C.
A: We are in total agreement Michael (although, not on me sounding like a Democrat). There is a huge problem with government spending; I didn’t go down that path only because it’s a whole other can of worms. Instead, I’m suggesting we simplify the tax code, simplify tax brackets and eliminate most deductions.
If the rich have a “flat” tax that net-net takes more out of their pockets because they don’t have all those deductions and tax avoidance opportunities, we can all bet they will start to work on cutting spending in the government if it’s them (more than the middle class) who are shelling out money for government waste.
Thanks to everyone who’s taken the time to write me a note. Whether we agree or disagree, this is a topic that touches a very sensitive nerve, and we’ve got plenty to talk about.