President Trump signed the Tax Cuts and Jobs Act of 2017 into law on December 22, 2017. It went into effect on January 1, 2018. The bill was passed by a majority of Republicans (95% of the Republican Representatives and 51 of the 52 Republican Senators voted yes on the bill) and with no Democrat support in either the House or Senate.
Opinion of the new law has been decidedly partisan. President Trump made the audacious claim that it was “the largest tax cuts and reform in the history of our country.” Nancy Pelosi, Minority Leader of the United States House of Representatives shot back saying, “President Trump signed into law a GOP tax scam that breaks every promise he has made to the American middle class..” Senator Chuck Schumer, Senate Minority Leader joined in by saying “ At every turn this year, the GOP & the Trump Administration put special interests ahead of middle-class Americans”. While the actual impact of the new law, which lowered both personal and corporate tax rates, will emerge through-out 2018 there are some very interesting ramifications that have already occurred.
Many wage earners will see the effect of lower personal tax rates in their first February paycheck as the new withholding rates went into effect on February 1, 2018. The new $10,000 limit on the deduction for state and local property, sales and income taxes (SALT), however, means that individuals in states with high income and property taxes will see an overall increase in their tax burden if they are in higher tax brackets and pay SALT taxes above the $10,000 limit.
What is perhaps unprecedented is how corporations are reacting to the lower tax rates. CNBC reported that, “The new law dramatically reduced the U.S. corporate tax rate from 35 percent to just 21 percent – from the highest statutory rates in the world to one of the lowest.” Proponents had argued that these cuts would benefit individual Americans. For instance, their October 16, 2017 report the Council of Economic Advisers (CEA) stated that “Reducing the statutory federal corporate tax rate from 35 to 20 percent would increase average household income in the United States by, very conservatively, $4,000 annually.” Opponents, however, argued that any corporate tax cut were unlikely to benefit workers. The Economist reported that Larry Summers, a former treasury secretary, wrote that if a student submitted the CEA paper, he “would be hard pressed to give it a passing grade”. Interestingly, according to Americans for Tax Reform, since the passage the new tax law, at least 262 companies, have announced plans to pass a portion of their windfall down to their employees and/or customers in the form of one-time bonuses, wage increases or other employee benefits or reduced utility fees. The complete list of companies can be found here. Time will provide further evidence as to how the corporate tax rates have impacted worker’s wages but these have indeed been very interesting developments.