Larry Jacob

Tax Cuts and Jobs Act

I would like to clear up some misconceptions about the Tax Cuts and Jobs Act (“TCJA”) recently signed into law.  Right off the bat, I will stipulate that the law is not perfect.  Name me one law that is.  No one group got everything it wanted.  The law is a compendium of compromises, as it should be in a democracy.

That said, the law is being completely mischaracterized by many of the Dems and the mainstream press.  For example, Nancy Pelosi and Chuck Schumer, among others, have characterized it as a “giveaway for the rich” and detrimental to the “middle class.”  Bernie Sanders has trotted out his favorite whipping boy – the “billionaires.”  (According to Wikipedia there were only some 500 billionaires in the US in 2016, and they are a heterogeneous group – white, black, Hispanic, liberal and conservative – yet he acts as if they are homogeneous, omnipresent and evil personified.  He blames them for everything except the weather.)
These criticisms are what one of my ex-bosses used to deride as “wandering generalities.”  I have to laugh at these disingenuous oversimplifications, particularly since these same politicians declined to participate in the drafting of the law.  They offered no suggestions or alternatives when given the opportunity.  In my view, having opted out of the process they have no standing to criticize the result.

Regardless of the particulars of the TCJA, common sense would tell you that not all “rich” people will “make out like bandits,” and not all “middle class” households will be disadvantaged.  Those two groups are not homogeneous at all.  Their individual situations are governed by a multitude of variables, such as, for instance, where they live, their age, the size of their families, whether they are retired or still working, etc.

Therefore, in order to give the TCJA an objective analysis, it is imperative to cut through the political bloviating and hyperbole, and analyze the facts.  I will attempt to do so, but keep in mind I am not a tax professional.

First, it is necessary to define what, exactly, is the “middle class?”  Everybody has an opinion, but no one really knows for sure.  The answer seems to be it depends upon whom you ask.  Everyone has a different conception, and most everyone, if asked, will identify him or herself as “middle class.”  The best definition of a middle class household I have found is one that earns income equal to between 66% and 200% of the median national income.  Currently, for a family of four that would be between $40,000 and $125,000.  Naturally, where one lives matters greatly.  $50,000 goes a lot further in Kansas or Alabama than in NY or SF.  Some people consider other factors as well, such as the level of education and type of occupation, but to keep this simple let’s just consider income, and let’s use $85,000, which is near the midpoint of $82,500.

According to a study by the Tax Foundation, under the TCJA the tax liability of a typical middle class family of four with an income of $85,000 would be reduced by $2,254, or 20%.  In fact, the TF presented eight examples of households earning from a low of $30,000 to a high of $2,000,000, and in each case their tax liability was lower.  The above household had the highest percentage savings, although, full disclosure, the $2,000,000 household had the highest dollar savings.  (Of course, the rich have a bigger tax liability to begin with, so even a small percentage results in a large dollar savings.)  The salient point of the survey is that the under TCJA a wide variety of households saved money.

One can argue incessantly over who benefits the most, but the fact of the matter is there are pros and cons for every household and every situation.  Some of the changes will help you; some will hurt you.  Don’t focus on one item that you may not like.   If you want to see how you come out, you have to actually run the numbers.

In particular, critics have been attacking the so-called SALT provision, the reduction in the corporate income tax rate, the healthcare mandate, and the estate tax exemption.

There is no doubt that the SALT restriction will impact most adversely households that own expensive homes in high-income locales, such as NY, Boston, San Francisco and LA and their suburbs.   Both property values and income tend to be higher there.  However, the likelihood is that most of those households earn well in excess of $125,000 per year.  That income level, however, is not “middle class.”  It  would put them in the “upper middle class” ($125,000 – $300,000), or, maybe even in the “rich class.”  Moreover, many of these households will be able to mitigate or, perhaps, offset, any increase due to SALT by taking advantage of the increase in the standard deduction from $12,000 to $24,000 and/or the lower tax rates.  According to the IRS, already, approximately 2/3 of filers use the standard deduction, so it stands to reason that, much if not most, of the “middle class” does.  Again, common sense would tell you that more households would do so, prospectively.  A further benefit would be that fewer households would be subject to the onerous “alternative minimum tax.”

The critics like to demonize the corporate tax cut.  Regarding publicly-held corporations one can argue whether or not the tax cut will be beneficial to the country, as a whole.  In my opinion, it likely will, as have previous ones.  Publicly-held corporations consist of individuals who work for them.  Generally, if corporations pay less taxes, they make more money.  They use that money either to pay dividends to their shareholders, increase compensation, and/or to expand, which causes them to hire more workers.  All of those would be beneficial to the economy.  Some corporations, such as Apple, have already announced company-wide bonuses.  Remember, anyone who owns a 401k, 403b, or IRA likely owns stock in these corporations, so anything that benefits the corporations passes through to them.  According to the Government Accountability Office in 2011, the latest year for which figures are available , some 43 million taxpayers own at least one IRA with a total value in excess of $5 trillion.  Those numbers are probably higher now.

According to the US Census Bureau there were approximately 28 million small    businesses in the US in 2010.  Many, if not most, of these were family-owned by “middle class” households.  According to the Small Business Association since 1995 small businesses have generated 64% of all new jobs.  So, a tax cut that helps small businesses is very beneficial to the country.  And, yet, the critics would have you believe that this tax cut is going solely to multi-national, multi-billion dollar corporations.

3.         With respect to the healthcare mandate the critics are saying it will leave some 13 million persons without healthcare.  Perhaps, but it will be pursuant to their choice.  Under the mandate, there were a goodly number of persons who were required to purchase health insurance whether they wanted it or not.  In my opinion, the constitutionality of the mandate was dubious anyway.

4.  Criticism of the estate tax exemption has some merit.  However, it should be noted it will not benefit only the very rich.  Many small business owners, ranchers and farmers may also benefit.  Also, generally, the very rich have the wherewithal to plan their estates to avoid or mitigate estate tax, anyway.


I apologize for being so long-winded.  I tried to be as concise as possible.  In summary, don’t listen to all the hyperbole and disingenuous criticisms you may hear.  The TCJA may not be perfect, but I think it a reasonable law that will benefit the country, as a whole.

Next month, workers will begin to see benefits firsthand in their paychecks.  As for long term benefits, time will tell.

About the Author
Larry was born and raised in New York. He is 73 years old. He has a Bachelors Degree in Accounting and a Masters Degree in Marketing Management, and worked in the financial industry for 42 years in accounting and Compliance. Larry is also a veteran, whose hobbies are reading and golf. He has been writing a blog for three years, which is being read by people in 90 countries.
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