Kinder Generous Corporations?

        Before the tax bill passed it was reported that a group of CEOs were asked what they would do with the additional money rendered from the tax benefit that corporations would receive. Not surprising most said they would expand their business and increase profits and dividends to shareholders. When asked about workers most seemed to just scratch their heads. Now the entire theory of this tax reform is Ronald Reagan’s trickle-down effect. Give the rich what they want and eventually it will find its way into the pockets of ordinary citizens. Of course this does not does not take into account the primary purpose that corporations exist. We don’t have to go too far back into American history to learn that before corporations were created wildcat entrepreneurs tried establishing colonies in the New World using their own funds. After one devastating disaster after another those rich entrepreneurs like Lord Baltimore and Sir Walter Raleigh simply refused to fund these dangerous enterprises any longer since the burden of cost and loss was upon their individual shoulders. By inventing the corporation these wildcatters were allowed to make their investments and should they produce profits the crown would get a share, i.e. a tax, and if losses were generated their liability was limited to their investment. In essence the birth of the modern-day Corporation. So from its beginnings its purpose was to insulate investor- risk takers and shareholders not to take care of workers. Notwithstanding this analysis some companies have already joined the tax reform bandwagon. Walmart recently announced that it would be increasing wages from a crummy $7 an hour to a still crummy $11 an hour. It cited the relief it was getting in the tax reform bill for its willingness to begin sharing with its employees. Walmart, they say, is the bellwether in low wage employment. Curiously at the same time Walmart announced that it would be closing 63 stores and putting thousands of workers out of jobs. The Ying and the Yang of corporate America. Walmart has not as yet revealed just how great a benefit it will receive from the tax reform bill but one can only guess. Fiat Chrysler says that because of the tax credits involved in the new tax bill it will be moving its pickup factory from Mexico to Michigan as well as awarding $2000 bonuses to each of its 60,000 hourly and salaried employees in the United States. The company said that the action was made possible by the tax bill and that it was “only proper” that employees share in the savings generated by the new law. The US treasury has gotten into the act as well. The other day it released new tax withholding tables and encouraged companies to incorporate them as soon as possible so workers can begin seeing bigger paychecks. Those lower withholding rates should go into effect no later than February 15. Things look pretty rosy right now. We’ll have to see where we are by year end.

The Skinny on the New Tax Law

        Okay the tax reform machine is now in business. Many taxpayers in high income and property tax states doled out their money before December 31, 2017 to try to take advantage of the last vestige of deductibility. But now it is 2018 and the new tax law takes effect. Taxpayers will be scrambling with their advisors to figure out their personal situation. Nobody is an expert, including the IRS, of all the changes and what the effects will be. Hell, Congress didn’t know what it was doing either so how can we professionals expect to know a whole lot more. But the pundits are churning out their newsletters as fast as they can. And there’s nothing like major changes in the tax law to bring once reluctant clients out of the woodwork and to the conference table. This reform bill more perhaps than any since 1986 could be called the Tax Attorney and Accountants Full Employment Act of 2018. So among those that appear to be really part of the law are the following:

 

• Slightly lower and broader tax brackets

 

• Elimination of the personal exemption

• Double the standard deduction, $12,000 for single and $24,000 for couples

• Limit mortgage interest deduction to that on a $750,000 mortgage

• Elimination of home equity deduction for interest

• Limit the deduction for property and state income taxes to $10,000

• Repeal all 2% allowable deductions for employee business expenses, casualty, theft losses and gambling expenses

• Allow casualty losses only in federally declared disaster areas

• Create a pass-through deduction of 20%

• Lower the corporate tax rate to 21% maximum

• Increase bonus depreciation to 100%

• Increase the estate tax exemption