Tax season is already underway, and Americans have until April 17th to submit their tax returns for 2018. All in all, the Internal Revenue Service (IRS) is expecting nearly 155 million individual tax returns by the April deadline.
There’s no better time to celebrate tax reform—and its positive impact on the economy.
Because of the Tax Cuts and Jobs Act (TCJA), the overwhelming majority of Americans will send less money to the federal government this year than before. Passed by congressional Republicans and signed by President Trump in 2017, the TCJA lowered rates and increased deductions across the income spectrum. Among other provisions, the new law reduced the corporate tax rate from 35 percent to a more competitive 21 percent and introduced a 20 percent deduction for “pass-through” businesses. (Pass-through business income is “passed through” to the business owner, and taxed at the owner’s standard rate.)
Tax reform has paid real dividends. According to the right-leaning Tax Foundation and left-leaning Tax Policy Center, the TCJA lightened the tax burden for roughly 80 percent of Americans. Those who claim the standard deduction will see higher savings than ever before, as the new law almost doubled the standard deduction to $12,000 for individuals and $24,000 for married couples.
This is welcome news for America’s Millennials, many of whom are swimming in student loan debt and struggling to save for the future. Even a “minor” tax cut is a helping hand for monthly rent payments, weekly grocery runs, and other expenses.
Tax reform is also welcome news for small business owners like myself, who can use their tax savings to invest in business expansion and job creation. When job creators are forced to give away less of their hard-earned money to the IRS, they have more left over to grow the U.S. economy—and the local communities where they reside.
The potential economic impact is anything but insignificant when you consider the outsized importance of small business. America is home to more than 30 million small businesses, which employ nearly 60 million workers—half of the private-sector workforce.
And many small business owners are passing on their tax savings to their employees—and those who depend on them. Based on a recent National Federation of Independent Business survey, over 47 percent of small business owners plan to ramp up investment or expand their business because of the TCJA’s pro-growth reforms. More than 44 percent vow to increase employee compensation, while almost 27 percent are looking into hiring additional staff members.
In real terms, the TCJA has benefitted millions of employees and job-seekers. According to Americans for Tax Reform, 750 U.S. employers have taken advantage of their tax burden to distribute pay raises, bonuses, and other employee benefits. This includes 401(k) match increases and utility rate cuts, in addition to new jobs created.
From large corporations like Apple and Walmart to sole proprietorships, America’s business community is proving that the best way to help employees is to help those cutting the checks. As the late Democratic Senator Paul Tsongas famously said, “You can’t be pro-jobs and anti-business at the same time. You cannot love employment and hate employers.”
Of course, the new tax code isn’t perfect. As the Tax Policy Center points out, tax cuts could have been deeper for low- and middle-income families, which explains in part the TCJA’s enduring unpopularity. Indeed, the TCJA’s lower individual rates are set to expire after 2025, unless they are extended by Congress.
But, when 80 percent of Americans receive a tax cut, that’s undoubtedly a step in the right direction.
As Tax Day approaches, that is cause for celebration. Let’s hope for more tax relief in the years to come.