Wondering How Tax Reform Will Affect You? - The American Spectator | USA News and Politics
Wondering How Tax Reform Will Affect You?
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Tax reform is moving forward, which is good news for individuals and businesses burdened by a complex and inefficient tax code. Yet with the release of the Big Six tax reform framework last week, many Americans had three questions: Will I pay more or less next year? Who will benefit most from tax reform? What is the budget impact? These are all important questions, and Americans deserve accurate answers. Unfortunately, thus far all we have seen has been a lot of guesswork presented as fact.

While many organizations and news outlets came out with analysis of the framework, a few ventured to produce estimates of the foregone revenue, generally settling on a net cost of around $2.2-2.4 trillion over ten years. The problem is that there is still much that remains unknown, and many details still need to be worked out. The framework is not a final product, and as such lacks a great deal of specificity. This vagueness does not lend itself well to accurate cost estimates.

I pointed out recently a few specifics that are still to be determined. Perhaps most significantly, though we know how many brackets there will be and what tax rates they will each assess, we have yet to hear what the income levels for those brackets will be. It is for this reason especially that you should take with a grain of salt estimates of how much more or less Americans at a given income level will pay. Until the income levels are finalized, these are good faith estimates only.

Brackets are not the only important part of tax reform that currently lacks specificity. Some, such as Ryan Ellis, have suggested that what we know about tax reform as it stands will provide a substantial benefit to middle class filers. Others have speculated that the elimination of the personal exemption will mean that middle-income families with multiple children could lose out under the proposal. However, the framework also calls for the Child Tax Credit (CTC) to be “enhanced,” though the exact nature of this “enhancement” remains to be seen. Until details about how the CTC will be altered are available, it’s difficult to say for sure. To be clear, the organizations publishing these estimates of foregone revenue are not necessarily wrong for doing so; they have generally acknowledged the speculative nature of their estimates. For example, the Committee for a Responsible Federal Budget, which estimated that the impact would be around $2.2 trillion, noted in its report that it was a “very rough and very preliminary estimate.” Even so, overzealous media outlets took that figure and ran with it.

The Tax Policy Center, which estimated the impact to be $2.4 trillion over ten years while predicting that tax reform would help higher-income taxpayers and hurt lower-income taxpayers, likewise acknowledged the “preliminary” nature of its estimates. Senator Rand Paul (R-KY), a man who will undoubtedly be heavily involved in negotiations over final legislation, still responded by criticizing a “possible” tax hike on the middle class. Moreover, the Center’s analysis did not include economic impacts, so in additional to being premature, it only shows half the picture.

The purpose of cost estimates at this point in time is to give a general estimate of how tax reform will affect Americans and the budget based on what we know now. They are not intended to be taken as gospel, despite the media’s search for definitive answers. Reforming a broken tax code involves an enormous number of moving parts. Tax reform proposals must be viewed holistically to be understood, and without a final proposal, it is very difficult to do so. So if you’re wondering how tax reform is going to affect you, you’ll have to wait until actual legislation is produced.

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