Republican Tax Reform – Three and a Half Points

The Republican Congress and President Trump just passed a sweeping new tax reform law that significantly changes the American financial landscape.  This new law will strengthen American business competitiveness in world markets and will result in income tax reductions not just for companies but also for about 80% of taxpayers.

Three important points about this new tax reform law.

First, by lowering the United States corporate tax rate from one of the highest in the world to a competitive one, tax reform significantly improves American business competitiveness on the world markets.  This will result in higher corporate profits that will be passed along to shareholders and workers.  Already officials in other parts of the world are expressing deep concern about this substantially-improved American competitiveness, warning their countrymen that they must also now act to counter the American move lest they lose business and jobs to American companies.

Secondly, by greatly expanding the standard deduction tax reform will mean an estimated 80% of tax filers will be able to use the simple and quick easy form.  This really is tax simplification for a lot more people.

Finally, the tax reform bill substantially limits the deductibility of state and local income taxes on the federal tax calculation.  The ability to deduct state and local income taxes on the federal return amounts to a direct and grossly unfair subsidy to taxpayers in higher-tax states from taxpayers in lower-tax states.  The amount someone pays in federal income tax should not depend upon the state in which he or she lives.  Although some Republicans wanted the subsidy eliminated altogether, a compromise was reached that caps the state and local tax deduction to $10,000 per year.  Thus, a huge bump in tax fairness across America.

Of course, the disgraceful and outrageous special tax break specifically for hedge fund managers, the so-called "carried interest" loophole, was left untouched.  One can only imagine all the dollars those financiers drop into politicians' coffers.  But hey, nobody's perfect, and there's always next time. 

R Balsamo