TL;DR: How The Tax Cut Is Like An iTunes Giveaway
Here’s what you need to know…
Well, it’s that time of year again: Tax Day. As if that weren’t reason enough to trade political barbs from both sides of the partisan divide, the 2018 tax year is the first year that Republicans’ Tax Cuts and Jobs Act is fully in effect. As we wrote in our November 2017 analysis of the then-just-unveiled legislation that would become the tax law, even before the policy specifics were released the package was being slammed by opponents with false claims, which have only become more prevalent in the public arena as part of a “sustained and misleading effort … to brand [the tax law] as a broad middle-class tax increase.”
Much of the blistering, negative coverage on the effects of the law are false and the result of a well-orchestrated messaging campaign that convinced people “Trump raised their taxes.” This dominant narrative obfuscates the reality that caused The New York Times to implore its readers to “face it,” they likely received a tax cut. Meanwhile, a prominent journalist at Vox, which declares its aim to “candidly shepherd audiences through politics and policy,” was a bit too candid, when he praised the “messaging success” of “progressive groups [who] did a really good job of convincing people that Trump raised their taxes when the facts say a clear majority got a tax cut.” So, in an effort to clear up the confusion, here are some key facts on what the tax law has actually done:
- First, Owing The Federal Government Money Doesn’t Mean Your Taxes Went Up: If your refund was less compared to prior years, or even if you owed money to the U.S. Treasury, that does not mean your taxes increased. As part of the new law, the Internal Revenue Service changed the withholding tables in December 2017 to reduce the amount of income tax employers deducted from paychecks. Throughout 2018, about 90 percent of American workers received bigger paychecks, yet one in fivetaxpayers did not adjust their W-4 forms to reflect this change in take-home pay, resulting in money being owed to the Treasury. Perspective is critical when hearing messaging from politicians and the media claiming people are getting less of a “refund,” not only because the federal government has no money of its own and is fully dependent on the hard-earned dollars of taxpayers for its expenditures in the first place, but because IRS data shows that individual tax refunds for 2018 on average were down only 1.1 percent – or $31 (not to mention what every CPA knows: tax refunds are bad). Ironically, the sources of such attacks are often the same political actors who called savings of thousands of dollars per year for middle-class families, or worker bonuses that were enabled by the law, “crumbs.”
- Most Americans Got A Tax Break: An analysis by the nonpartisan Tax Policy Center determined that 65 percent of Americans will pay less taxes because of the 2017 law, with six percent paying more, and the rest seeing little change. As The New York Times notes, studies (from nonpartisan ones to left-leaning think tanks) consistently show the law cutting taxes for most Americans. However, only 17 percent of Americans believe their taxes went down because of the law, while a plurality thinks their taxes have gone up – though not even one in ten households actually paid more. To reiterate the facts on tax reform we discussed in 2017, many concerns and narratives against the law focus on “which deductions are being eliminated or capped,” even though this focus is misguided because by simplifying and reducing the tax brackets, broadening the tax base, doubling the standard deduction, eliminating the Alternative Minimum Tax, and expanding the child tax credit, among other provisions, the large majority of taxpayers are seeing their tax liability go down. This reality held true even in high-cost, high-tax, blue states that worried about capping the deduction of state and local taxes (SALT) at $10,000. New York Governor Andrew Cuomo, a vociferous opponent of the tax law and the SALT deduction cap, paid less in federal income taxes last year thanks to the law he has attacked.
- Federal Revenues Hit An All-Time High In 2018: Another key attack leveled against the law suggested that instead of increasing tax revenues by invigorating the economy and broadening the tax base, the law would increase the deficit and require the U.S. to take on more debt. However, individual income tax revenues climbed 6 percent in fiscal year 2018, up $14 billion dollars from the prior year, for an all-time high of $1.7 trillion. The only revenue category that was lower was corporate income taxes, which were down a substantial 31 percent. But, focusing on this decrease loses the forest through the trees because overall federal revenues were 0.5 percent higher than the previous fiscal year, a key fact contrary to partisan messaging, to say nothing of the benefits that people received from tax law-enabled bonuses or in the form of investments and retirement plans.
- The Overwhelming Majority Of Filers Will Get More Relief In 2019: The benefits from the law are not going away for the 2019 tax year. A report from Congress’s Joint Committee on Taxation (JCT) shows the overwhelming majority of filers will receive relief and that the law will provide tax cuts at every income level—including larger payouts in refundable credits even for people who pay no income taxes. Examining the JCT data, the Tax Foundation’s Scott Eastman noted that in 2019, the Trump tax law “will reduce aggregate tax liabilities across all income groups by an estimated $259 billion relative to prior law. For example, the group of taxpayers making between $30,000 and $40,000 in 2019 will pay an estimated $5.4 billion less, a 13.5 percent reduction compared to prior law.” Such statistics don’t include the benefits in job and wage gains resulting from the corporate income tax cut, which triggered a spike in business investment and a full employment economy.
An MSNBC report examining why some taxpayers are angry despite paying less in taxes noted, “psychologically, people feel the loss” of the smaller refund or bill from the IRS “so much more.” (For a psychology parallel, see the backlash from Apple’s generous giveaway of a free U2 album in 2014). The above facts, then, can be used not only to push back on false and misleading claims about the new tax law – of which there is a seemingly endless supply – but to help you and others you know feel better about their check, or bill, from Uncle Sam this year.
News You Can Use
VETTING THE VESTS
Wall Street was well on its way to trading power suits for fleece vests as its uniform du jour, but its chief supplier is now refusing their business. Patagonia, which makes power vests that have become a staple in closets of “finance bros” everywhere, is putting stricter guidelines on its corporate sales program, restricting which companies can buy its corporate logo vests. In accordance with Patagonia’s mission “to save our home planet,” the company will now only partner with B corps and “mission-driven companies that prioritize the planet.” In a statement about this change, Patagonia singled out oil and mining companies, political-affiliated and religious organizations, food groups, and financial institutions as becoming customers non grata.
Patagonia’s latest move is yet another example of corporate activism and the politicizationof the business world that will ensnare unsuspecting companies in political risk, not only because of engaging in public policy debates, but even because of their desire to offer employees a branded vest. Whether employees prefer a vest made of hemp or filled with down from geese certified to not be live-plucked or force-fed, it seems that even a decision as personal as this will require executives to think through the negative consequences of political risk to their companies.
AN INCONVENIENT ANTI-PLASTIC TRUTH
As the war against plastic bags rages on, the Foundation for Economic Education found that plastic’s replacements may actually cause even more harm to the environment. A study found that reusable bags must be used 131 times before it has a smaller global warming impact than a lightweight plastic bag used once. Reusable cotton bags create their own environmental damage, requiring energy, land, fertilizer, and pesticides to create the cotton. Reports have also found that they are “a breeding ground” for airborne illnesses due to harmful bacteria that thrive in the bags unless washed after every use (requiring water and detergents).
While the war on plastic continues to be an easy way to virtue-signal among environmentalists, it is important to remember the costs and benefits of a situation and weigh all the facts available – even and especially if they are inconvenient.
EYES ON THE ROAD
Our homes are watching us, and now our cars are, too. A late model car can generate about 4,000 gigabytes of data a day, which includes not only vehicle performance but also personal information including your weight, music preferences, restaurants, and other places you visit.
While this data is collected and wirelessly transmitted to the vehicle’s manufacturer, there is no legislation or clear ownership over this data – which consulting firm McKinsey estimates could be worth $750 billion by 2030. Therefore, privacy advocates, vehicle owners, non-owners who use vehicles, and third-parties such as auto repair shops all have another major public policy issue on their hands as the auto industry continues to undergo rapid technological advances.
COUNTERING CHINA’S EXPANDING BELT
The U.S. is taking a new approach to foreign diplomacy and its effort to counter Chinese influence around the world in acting as an economic advisor and dealmaker for developing countries. The U.S. Agency for International Development (USAID) led a pilot program in Myanmar to help the country renegotiate terms for a port built by China in the country as part of its multibillion-dollar Belt and Road Initiative to spread Chinese influence and infrastructure around the world.
By working with officials to inspect contracts, flag concerning provisions, and highlight areas where better terms could be had, USAID helped Myanmar officials renegotiate the scope of the project and reduce the country’s future debt obligations – a program the U.S. hopes to replicate with other countries to counter China’s growing influence. As the negotiations for a U.S.-China trade deal continue, these impactful efforts to counter China’s expanding influence may provide added leverage in the home stretch. The program is also a reminder to China of a lesson the U.S. learned in the last century with the Panama Canal: such investments do not always guarantee a favorable future political environment for the lender.