Fort Report: The Tax Man
Andy from Nebraska wrote me a note yesterday that I would like to share. He said that he is very encouraged by the tax plan under consideration by the House of Representatives: "If it makes it into law, my back-of-the-napkin calculations show it should benefit my family by around $5,500. For a family of four making about $85,000 a year, that’s a big deal!"
Americans need a break, especially working men and women trying to get a bit ahead and provide for the family. For many, it’s harder and harder. Around 50% of Americans live paycheck to paycheck. That’s not fully a tax code problem—it's also the harsh reality of social fragmentation, downward mobility, a rising cost of living, and skyrocketing income disparity driven by inequitable globalization and concentrations of economic power in fewer ultra-wealthy hands. These forces have not benefited America, leaving millions behind and all too often forgotten. But tax reform can help--as long as it is fair, and as simple as possible for the benefit of all.
Under the House plan, the average family of four earning the median income of $59,000 will save over $1,100 a year on their taxes. Although there may be a few kinks left to be worked out, small business owners, who often file individually, should experience a significant decrease in taxes on their pass-through business income. Lowest-income earners will still pay zero in income taxes. The supplement of the Earned Income Tax Credit remains the same. The top 39.6% tax rate remains in place for the highest earners. Most everyone else paying taxes will see decreases from lower rates plus an improved Child and Dependent Care Tax Credit, a larger Child Tax credit, a new Family Credit, and a near doubling in the standard deduction. The alternative minimum tax is gone.
We are living in an age where we cannot keep pushing the same old policies over and over again and expect them to fit into our 21st century architecture of living. Moving forward, I believe the source and strength of the American economy will be in the new urbanism of small business—in which entrepreneurs, from village to city, add value through small-scale manufacturing, innovative new products, or brokering in repair services.
The conditions for entrepreneurial revival may be right on the horizon. Though the corporate structure of the 1950s has been made temporarily beguiling by modish shows like Mad Men, no young person I know yearns to be a “company man” and work for 25 years at the same place to earn his or her gold watch. That era is over, yet our tax code is based on old constructs of what it means to be “in business."
Now, here are a few of the controversies. There is a lowered cap on mortgage interest for very large new homes, and property tax deductions for the wealthiest are restricted. Another thorny problem: the anticipated initial spike in deficits. On the other hand, a surge of economic opportunity, coupled with a reorientation of tax policy around the family, can generate more jobs, more earnings, and reverse the downward trend in small business formation. Less tax, more taxpayers, more revenue over time. That’s the calculation anyway.
This bill attempts to be sensitive to the needs of all Americans, as it begins the push for a modernized revenue construct that no longer enables complex, lawyered-up, quarterly-profit-driven multinationals to unjustly benefit from lower tax rates abroad, while taking advantage of tax loopholes here at home. At the same time, it uses the carrot of lower corporate rates to bring foreign profits back to America.
On balance, this bill represents a sincere first step by the House of Representatives towards a massive, historic, and necessary overhaul of our antiquated, harsh, and complicated tax system—so families like Andy’s can not only get by, but also get ahead.