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Tax Reform Bill: The February Surprise

Tax-Bill-House-Vote

What is the New York Times going to say when voters see their taxes go down and their wages go up?

Unable to stop pro-growth tax reform, many media folk have consoled themselves with persuading middle-income Americans that there’s little in it for them. This may go down as the most misleading political message since President Obama told insured patients that his health plan had nothing to do with changing their coverage. And it will have a much shorter shelf-life.

Typical of the genre, a New York Times editorial claims, “The tax bill’s generosity toward real estate titans stands in stark contrast to its stinginess toward the average wage earner as well as its very real damage to taxpayers in high-cost states.” Like much other recent media coverage, the piece suggests that those Americans not named Trump have little upside under the pending reform. Former Obama adviser Larry Summers chimes in with a tweet arguing that the plan is “designed almost” to reduce the President’s tax bill.

But how long can this progressive fun last? Even the liberals at the Joint Committee on Taxation are forecasting that the biggest percentage tax reductions in 2018 will go to those making between $20,000 and $50,000 per year. And the Joint Tax forecast admits that tax relief is coming for every income bracket.

Employees won’t have to wait until the end of the year to realize they’re getting relief. Most workers are subject to withholding—their employers collect a portion of the income tax each pay period, with the amount determined by Internal Revenue Service guidelines. The tax agency announced last week:

“The IRS is continuing to closely monitor the pending legislation in Congress, and we are taking the initial steps to prepare guidance on withholding for 2018. We anticipate issuing the initial withholding guidance (Notice 1036) in January reflecting the new legislation, which would allow taxpayers to begin seeing the benefits of the change as early as February.

USA Today reports on the pending transition in corporate payroll management:

“We’ve been doing things like this for years,” said Pete Isberg, a vice president at ADP, which handles payroll for 1 of every 6 American workers. “It’s pretty routine to have a major tax bill get signed into law in late December.”

The paper adds that a “potential glitch” is that employees may need to fill out new W-4 forms aligned with the simplified tax code for individual deductions and exemptions. Also, it’s possible that the agency that infamously targeted conservative organizations and isn’t particularly consumer-friendly regardless of the political views of the taxpayer may drag its feet in facilitating reduced tax burdens. But whether or not Larry Summers and the Times can handle the truth, it’s going to start showing up in paychecks very soon.

In some ways it already has, as business enthusiasm for the Trump agenda of reduced taxes and regulation has been a boon to the economy. Today the Federal Reserve Bank of Atlanta issued its latest forecast for GDP growth in the final three months of this year. The Atlanta Fed is expecting a healthy 3.3% increase. This would make three quarters in a row of growth of 3% or more, which hasn’t happened in more than a decade.

Can Democrats persuade voters to ignore this hopeful news? Before this afternoon’s [Wednesday, December 20th] House vote to pass tax cuts, House Minority Leader Nancy Pelosi elaborated on the anti-reform argument. According to ABC News:

“Republicans will vote to let the wealthiest one percent steal the future of the middle class in America,” Pelosi, D-Calif., stated prior to the vote. “The GOP tax bill will go down as one of the most scandalous, obscene acts of plutocracy ever.”

It seems that Ms. Pelosi offered one of the more measured criticisms coming from House Democrats. In a tweet, ABC News reports that prior to the vote the bill’s opponents chanted, “kill the bill, don’t kill us!”

Lately a favorite argument of those who oppose reform is that reducing tax burdens is not just unwise but lethal.

Flanked by other top Democrats in the Capitol, the minority leader blasted Republicans for championing a tax proposal she equated to “the end of the world.”  The Hill, Pelosi Denounces Armageddon

On the other hand, maybe they don’t really believe people are going to die due to a competitive tax system. Perhaps House Democrats were speaking seriously but not literally about their hopes of regaining the majority once voters see next year’s paychecks.

[This article first appeared in the Wall Street Journal on December 19, 2017]

Additional reading on the impact of the 2017 Tax Reform Bill expected to be signed by President Donald Trump before Christmas:

5 Liberal Myths About Tax Reform, and Why They’re Wrong, The Daily Signal, December 14, 2017.

Tax Policy Center Report on Tax Cuts and Jobs Act of 2017

In 2018, taxes would be reduced by about $1,600 on average, increasing after-tax incomes 2.2 percent (table 1). Taxes would decline on average across all income groups.Taxpayers in the bottom quintile (those with income less than $25,000) would see an average tax cut of $60,or 0.4 percent of after-tax income. Taxpayers in the middle income quintile (those with income between about $49,000 and $86,000) would receive an average tax cut of about $900,or 1.6 percent of after-tax income. Taxpayers in the 95th to 99th income percentiles (those with income between about $308,000 and $733,000) would benefit the most as a share of after-tax income, with an average tax cut of about $13,500 or 4.1 percent of after-tax income.Taxpayers in the top 1 percent of the income distribution (those with income more than $733,000) would receive an average cut of $51,000,or 3.4 percent of after-tax income. (Page 3 of REPORT published on December 18th by the Tax Policy Center/Urban Institute & Brookings Institute on the Tax Cuts and Jobs Act of 2017 )

Why and How the $1.5 Trillion Tax Cut Will Help the Middle Class, The American Spectator, December 20, 2017

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