Just saying the words "tax reform" makes you want to scream. We have heard so much about it of late. Articles, cartoons and letters — almost all negative — have portrayed it as bonanza for the wealthy and continued suffering for the middle class.
What goodies are going to the privileged few? Are corks really popping in the abodes of the wealthy because tge maximum tax rate has been lowered from 39.6 percent to a mere 37 percent? That doesn’t seem to shake the earth.
At the other end, we have a doubling of the standard deduction, so a married couple gets the first $24,000 tax free. If that couple has two kids, they get a $2,000 tax credit for each. My quick calculation says no tax on the first $57,000. At $80,000, the tax would be about $2,760 and $5,260 (or a little over 5 percent) at $100,000.
A hundred thousand is to me good money and the taxes strike me as middle class and family friendly.
Now the other end. Under the old law, someone would get a $27,500 deduction for the almost 5 percent Illinois income tax and another $24,000 off for property tax on his mega mansion. Under the new law, that total $51,500 deduction is limited to $10,000. That is a big hit and is worse in New York and California, where state income taxes can be in double digits.
This limited deduction is more than fair, because residents in high tax states are presumably getting an array of services for their tax money unavailable to the rest of us. Even in high tax states, only those with higher incomes take that itemized deduction.
Other areas of no relief for the rich include retention of the Obama-era 20 percent tax on capital gains and dividends for those with higher incomes, and his 3.8 percent Medicare tax of investment income. It also retains the hated alternative minimum tax (AMT), which makes many even in the middle class have to calculate their taxes twice. Another disappointment is mortgage interest on only $750,000 of that million-dollar vacation home will be deductible.
It is a common enough belief that, with the help of clever experts, the rich don’t really pay their fair share. In fact, our top 1 percent do pay an average of 27 percent of their income, and a full 40 percent of the personal federal income taxes. This means a rich $550,000 guy pays $148,500, or more than 28 times our $100,000 family, whose income is substantially above average.
The top 25 percent pay almost 88 percent of the taxes. Fairness is in the eye of the beholder, but our system is highly progressive.
The changes in personal taxes were tweaks to make life a little easier in the middle. The big changes were on business taxes. Our 35 percent corporate tax was lowered to 21 percent.
Still who, or what, is corporate America is a fair question. As all other employees at Illinois State, I have a retirement account at the State Universities Retirement System (SURS). The website has valuable information, including how much we have and where it came from.
For every dollar in my account, 10 cents comes from the state and another dime from me. The other 80 cents of each dollar is from corporate America. Obviously that is not a charitable contribution, but our money invested over the years. Bill Gates, as rich as he is, owns only about 4 percent of Microsoft. Some 74 percent is owned by funds and institutions, meaning us ordinary people.
Remember, the Dow Jones Industrial Average is a composite of 30 very large American companies, not the entire market. Together they employ over 6 million people. Those employees and those working for almost any other American corporation have their futures bound up with a healthy and vibrant corporate America. That, anyway, is what we teach in our business college.
The next business theory is a bit divided. What happens when corporate taxes are substantially lowered? Some say with lower taxes prices can go down and employee wages up. Those against the cuts argue that the already overpaid top dogs will, with the rich owners, wallow in the extra money.
“May you live in interesting times” is an ancient curse. This one will be an exception. What a time to be a business teacher and watch events unfold with our students. I say American workers and retirement accounts over at SURS will be big winners. Stay tuned!