So, what kind of a Blog would this be, if I didn’t weigh in on the much-needed Tax Reform Act of 2018?
No one would dispute the “much needed” part. The distribution of “ tax relief”, however, is heavily skewed, as we’ve all heard, to Corporate America and the very wealthy. Nonetheless, most of us will feel some relief; since wages have been flat…again, the “much needed” part.
I’ve taken the time to “crunch “ the numbers using the 2017 and 2018 tax rates for wage earners, and, even here, the larger share of tax relief goes to those with the most. Consider examples of two married couples filing jointly, with final taxable incomes (after all exemptions/deductions) of $100,000 and $300,000, applied to each tax rate table. In 2018, Couple A (100K) could see a tax savings of 2.5% or $2,600 over 2017 rates; while Couple B (300K) a 4.5% savings or $13,600.
Simple math might have you believe that 3 times more taxable income should reasonably yield 3 times the tax savings…..Not So…because of the way our income is taxed, spread over 7 tax brackets, the larger savings in this example, is 5 times that of the smaller one. And this is a “fair distribution:???? HOW???
And what about the Corporate side? It’s no secret that the rates in the U.S. for corporations have been much higher than those in other developed countries, but where do we draw the line. Corporations have just been handed a top rate reduction from 35% to 21% …Yeah…. 14% on millions $$$$ or more of taxable income. Furthermore, money, now held in off shore banks, can be brought back home and enjoy a 15.5% top rate of taxation. And, the rudest thing of all, Corporate rates have been made permanent while yours and mine will expire after 2025.
However, I recently learned that several large Corporations are offering $1,000 bonuses to employees (now that they realize the huge windfall they’re about to enjoy). Call it “good will” or sharing the profits or whatever, perhaps trying to stem the outrage many feel about the unfair distribution of the tax cut (corporations favored over individuals).
This could easily become a “rant”, if not already, but what can you and I do, now that this is Law, unfair as it is? The best, and perhaps, only thing that everyone can do is position himself for what’s to come. If your employer offers a 401K plan increase your contribution, if not, consider a Roth Ira; just $1,200 yearly savings can open and fund an account at many investment firms. Many waive the initial investment with a $100 monthly commitment. In both cases, one can invest in, say, a Mutual Fund comprised of many of those companies enjoying the tax windfall. And by becoming a shareholder, you too can enjoy some of that windfall.
Your paycheck will soon reflect the tax savings; don’t wait!!!!!! here’s your “window of opportunity” Worried that you’ll need the money / Open that Roth …contributions to It are always available for withdrawal without penalty.
To Your Financial Health
Cents Maker