The Trump Tax Bill has been signed, the good and bad of which may not be known for at least a couple of months.
The recent tax bill, signed on December, 22nd of this year, is not without its pros and cons. Two J.P. Morgan officials believe that the bill will bring both benefits and detriments to American tax law.
In fact, the two J.P. Morgan officials feel there are 10 major points or ramifications that will be seen as soon as next year as a result of the new Trump Tax Bill.
A brief summary of each of these points are given below:
Most Taxpayers will Benefit
Even though the initial sentiment has been negative towards the tax bill due to the fact that the middle-class benefits will be changed during 2025 and corporations will continue their 21% flat rate, everyone is still going to get a tax break for another 7 years which can’t be all that bad.
The tax bill may continue to encourage U.S. citizens to move to places which have lower or no state taxes at all. This would not be good for individual states who rely on their residents to support the state’s government through taxes.
Tax Cuts Can Not Keep Up With Deficit
The budget deficit will continue to rise until at least 2021 and that is why the reversal of tax benefits will end for most taxpayers by 2025. The bill is a temporary relief to taxpayers that can not be sustained for any reasonable length of time without drastically increasing the federal deficit.
Encouraging U.S. Companies to Stay
By only taxing U.S. companies doing business within the U.S., the new tax bill encourages U.S. companies to stay put and not seek tax refuge in other places across the globe.
Corporate Tax Cut Increases Cash Flow for Businesses
Since the corporate tax rate is now a paltry 21% as compared with its former 35%, corporations are expected to improve their cash flows by a large margin resulting in increasing profits and shareholder wealth.
Improving International Competitiveness
Due to the large tax cuts for corporations listed above, U.S. corporations should be able to compete more effectively on the international scene and keep up with international companies that have lower labor expenses.
Higher Stock Market
According to J.P. Morgan, approximately 4% of this year’s stock market gain is attributed to the new tax bill. It is no wonder, as lower taxes should equal higher profits for U.S. companies and thus higher gains for the U.S. stock market in the future.
The Wealthy Will Also Benefit
The Trump Tax Bill allows for an estate tax exemption of up to $11 million per individual. Large estate owners will obviously be helped by this tax break.
Not All Companies Measured Equally
While the overall corporate tax was reduced, some business entities in the U.S. only received half the tax reductions. It seems that the major corporations with influence were the ones to benefit the most.
Interest Expense Exemption
While interest expense can be deducted under the new tax law, corporations are only allowed to deduct up to 30% of cash flow for interest expenses. This will hurt high-yield companies the most.