Effects of Tax Cuts on Middle-Income Earners
Every citizen of the United States is obliged to pay taxes to the federal government. It is through taxes that the government finances its operations. Government responsibilities such as national security require heavy capital investment. For this reason, it is necessary that the government puts in place efficient federal tax laws and policies for maximum revenue collection. Despite the need for revenue, the government also focuses on cushioning the lives of its citizens. One of the ways to do this is by proposing and implementing tax cuts for citizens and businesses at different levels. Tax cuts are reductions in the total amount of tax paid to the government. With tax cuts, taxable individuals and businesses have more net income to spend on improving lives and reinvestments for business growth.
Recent tax cuts in the US
The most recent tax cuts in the US were appended in 2017 under the presidency of Donald Trump. They have been the subject of numerous debates since people have varied opinions about the policies set in place. The tax cuts include the following;
Corporate tax cuts- These are reductions in the amount of tax payable by business corporations. The tax cut was implemented with the aim of increasing production and attracting repatriation of foreign earnings. Corporate tax cuts saw the rates reduced from the initial 35% to 21%. The reduction is expected to be permanent unless the President Biden administration implements a rollback. Despite the publicity, corporate tax cuts did not deliver the expected results as companies only managed to repatriate less than 50% of foreign earnings.
Individual tax cuts- Unlike corporate tax cuts, individual tax cuts are expected to expire in 2025. Although the reduction was intended to help citizens, they do not equally benefit from the tax cuts. This tax cut was accompanied by various conditions and changes in the taxation process. For instance, the standard deductions were raised, and the personal exemptions and several itemized deductions were eliminated.
Tax cuts implemented in the TCJA have several implications on the economy and citizens’ lifestyles. In its ten-year implementation period, the appended tax cuts would cost the government up to 2 trillion dollars. These funds, experts suggest, could have been put in alternative uses for a permanent and steady boost to the economy. Proponents of the plans to roll back the tax cuts claim that the appended tax cuts and jobs act (TCJA) give the economy a temporary boost contrary to an expected permanent solution.
Impacts of tax cuts on middle-income earners
Middle-income earners form the majority of the total labor force in the United States. This implies that their lives are directly affected by the dynamics of the economy, including changes in taxation policies. Most of the middle-income earners have been affected in at least one of these ways by tax cuts set in the TCJA.
By eliminating personal exemptions, the tax cuts adversely affect individuals with large families. The increased credits for children and dependent adults might not match the amount saved with personal exemptions. Initially, taxpayers would deduct $4050 from their taxable incomes for themselves and their dependents. The current tax filing principle allows couples to only collect a doubled standard deduction. For instance, if a family had three children, they would collect at least $7,000 less if they had an initial standard deduction of $12,000 each.
Middle-income earners working in the tax preparation sector are negatively affected by the elimination of itemized deductions. Tax preparation is a fast-growing field that is significant in the collection of revenue for the federal government. The appended TCJA reduces the income earned by individuals working in the tax preparation sector. This makes it hard to secure satisfactory employment in the sector, causing a potential rise in unemployment rates.
Despite the reduction in revenue generated by tax professionals, SIMPLETAX is still dedicated to offering services to clients around the country. SIMPLETAX is a firm of well-skilled and experienced professionals that will help you prepare and file your taxes in the right amounts and within the required time. Through SIMPLETAX, you can successfully file for and claim tax refunds. Bookkeeping and tax records’ keeping offered by this firm allows you to keep track of your finances and information in case of an audit.