Did Trump’s Tax Cut Help You?

I know. I know. It’s really the Republican Tax Cut. Likes to Sign 150The only thing that President Trump knows about income tax is the same thing that he knows about military service … how to avoid it. His only part in the tax cut, for which he takes credit, was signing the bill passed by Congress. He signs a lot of things, but it was Congressional Republicans who created the Tax Cuts and Jobs Act of 2017.

 

Taxes on a Fixed Income

When one’s income and deductions remain almost unchanged from year to year, it’s fairly easy to look at the effects of a major change in the tax law. I retired in December 2015. My tax returns for that year was similar to the 9 preceding years. Because I received my go-away-and-don’t-come-back retirement bonus in 2016, that year’s income was actually a bit higher. In 2017, my income … from Social Security, a couple of annuities, and a small amount of interest and dividends … dropped to less than half of what it had been in 2016. In 2018, my income went up 3.29% because of a Social Security Cost of Living Adjustment (COLA) and, maybe, some slightly increased interest rates on my savings accounts. My income has become what is typically called “fixed“. [1]

 

Nothing Withheld

I’ve seen and heard a lot of press about 2018 filing surprises that suggest that the taxpayer who must pay a higher tax failed to adjust his or her withholding amount. Because the taxpayer did not change his or her W4, he or she received too much in each paycheck. Too much of the tax break went to regular paychecks. Too little of it went to withholding. If each taxpayer were to add the extra money in all of his or her 2019 paychecks together there would be more than enough money to cover the difference between 2017 and 2018 taxes.

That does not explain my experience. Since I retired, my withholding has been 0%. Social Security gives one the option of withholding 7%, 10%, 12%, or 22%. Not wanting to give the Federal Government interest-free use of my money … and knowing full-well that I would have to pay the following April …, I chose not to withhold any amount. I use TurboTax Deluxe to file my taxes, but that doesn’t mean I couldn’t do them by hand. Looking at the Tax Tables for 2017 and 2018, I confirmed that the 2018 rates were not different from the 2017 rates for smaller taxable incomes. [2]

 

Same Income; Lower Rates; Higher Tax?

In spite of the facts that:

  • My income was almost the same in 2017 and 2018;
     
  • My withholding was unchanged from 2017 to 2018;
     
  • The 2018 Federal Tax Rate was lower than the 2017 Federal Tax Rate;
     
  • My 2018 Itemized Deductions were 7% higher than those of 2017;
     

my 2018 Federal Income Tax was higher than my 2017 Federal Income Tax. What happened? Did the Russians sneak some malicious code into my PC or Intuit‘s tax package? After comparing the 2017 and 2018 Form 1040s, I saw the difference. In 2017 and earlier years, one received a $4,050 credit for being over 65 years old and not bringing in way too much money. [3]

2017 Form 1040 Standard Deductions 400

In 2018, that deduction was gone.

2018 Form 1040 Standard Deductions 400

In retirement, my annual income is in what some demographers classify as the lower middle class. My Federal Gross Income is small enough that losing the over-65 discount makes a noticeable difference in my Federal Taxable Income.

0 C No $ 400 Comparison of 2017 and 2018 Federal Tax

The dark green columns show my Federal Gross Income for each year. The dark red ones show my Federal Taxable Incomes. The difference between the gross income columns indicates a 3.29% increase from 2017 to 2018. The difference between the taxable income columns indicates a year-to-year increase of 106.50%. My 2018 taxable income was below the amount where the tax tables show a tax reduction between the two years. [4]  As a result, the dark blue columns that reflect the actual Federal Tax are proportional to the Federal Taxable Income columns.

After helping you to file your Federal Income Tax Return, TurboTax Deluxe uses your input for your State Income Tax Return [5] … and asks for any additional information needed by your state.

0 D No $ 400 Comparison of 2017 and 2018 State Tax

Massachusetts uses the Federal Gross Income, but calculates taxable income differently. [6]  My Massachusetts Taxable Income for 2018 was 28.19% lower than it was in 2017. Here’s a graph that compares my Federal and State Taxable Incomes for 2017 and 2018.

0 E No $ 400 2017 and 2018 Federal and State Tax and Taxable Income Comparison

As in the preceding two graphs, the dark green columns show my Federal Gross Income and the dark red ones show my Federal Taxable Incomes for each year. The dark purple columns show my Massachusetts Taxable Incomes.

 

Not Even a Trickle

The Tax Cut and Jobs Act is a yet another thinly-disguised example of Trickle-Down Economics … a recurring Republican Party scam designed to give tax cuts to the wealthy at the expense of all the rest of us and/or the economy. I’m sure there are some in Congress who have “drunk the Kool-Aid“. They actually believe that those who control enormous wealth will raise wages, expand facilities, and create jobs. History proves them wrong over and over again.

Why doesn’t trickle-down economics work? The answer is simple. Trickle-down economics is antithetical to the main purpose of business … to make as much money as possible in as short a time as possible. Here’s how America’s businesses are spending their “Trump” tax cuts:

  • 4.3% of workers are getting one-time bonuses or wage increases from their employers. These bonuses or increases are coming from only 413 businesses.
     
  • Corporations are getting 11 times as much in tax cuts as they are giving to workers.
     
  • Corporations are spending 153 times as much on stock buybacks as they are giving to workers.
     
  • 237,296 private-sector jobs have been cut at 360 companies since the tax law was passed by Congress.

 

Did Trump’s Tax Cut Help You?

  • If your 2018 taxable income was dramatically higher than your 2017 taxable income and your gross income did not increase proportionally, you probably did not benefit from the Tax Cuts and Jobs Act of 2017.
     
  • The greater the ratio [7]  between your taxable income and your gross income; the less likely it is that you were helped by the Tax Cuts and Jobs Act of 2017.
     
  • If your taxable income was less than $9,350, you did not benefit from the Tax Cuts and Jobs Act of 2017. The 2018 Tax Tables below that amount were unchanged from the 2017 Tax Tables.
     
  • If your Gross Income exceeded $40,000, your After-Tax Income increased by about 1.4% ($570). If your Gross Income exceeded $1,000,000, your After-Tax Income increased by about 3.3% ($69,600).

The answer is simple if you earn a LOT of money, the Tax Cuts and Jobs Act of 2017 benefited you a LOT. If you didn’t earn a LOT of money … well, according to most Congressional Republicans and President Trump, that’s your fault for not being rich.
 
 

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End Notes
  1. Is it “Fixed” or “Broken”? Many (including me) who collect Social Security believe that the Cost-of-Living-Adjustment is less than adequate because “Senior Citizens” have expenses that are different from those of “Junior (?) Citizens”.
     
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  2. Single people and Married people Filing Separately had to have a taxable income of at least $9,350 to get a tax reduction of $2 in 2018. Heads of Households had to have a taxable income of at least $13,350 get a tax reduction of $1 in 2018. Married people Filing Jointly had to have a taxable income of at least $18,650 get a tax reduction of $1 in 2018.
     
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  3. In the pictures of my 2017 and 2018 Form 1040s, I have redacted my personal values (of course). Anyone who has even glanced at the Mueller report is quite familiar with redactions.
     
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  4. The “Tax Cut and Jobs Act of 2017” does not apply to any Federal Taxable Income below $9,350. Below that amount, the 2017 and 2018 Tax Tables are identical.
     
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  5. Even if your state doesn’t have personal income tax, keep reading. The point of this part of the article is to show that the Tax Cuts and Jobs Act of 2017 is not accurately named … and, don’t be too smug if your state doesn’t have personal income tax. Many states avoid an income tax with high property and excise taxes. Governments need funding to provide the services the people want. They have to get it somewhere.
     
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  6. For example, when I rented my home, I received a Massachusetts tax deduction for a portion of my rent. Now, I receive a Federal tax deduction for the interest on my mortgage. The Federal Government and State exempt different items.
     
    Return to Point of Reference


  7. This ratio is calculated by dividing your Taxable Income (line 10 on Form 1040 for 2018) by your Adjusted Gross Income (line 7 on Form 1040 for 2018).
     
    Return to Point of Reference


 

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