Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act of 2017 was the largest overhaul of the tax code in almost three decades, creating a single corporate tax rate of 21% and bringing sweeping changes to the tax code. The Act made several significant changes to the individual income tax, including reforms to itemized deductions and the alternative minimum tax, an expanded standard deduction and child tax credit, and lower marginal tax rates across brackets. The tax law cuts corporate taxes permanently and individual rates temporarily, and made many of the tax benefits set up to help individuals and families that will expire in 2025. It also unleashed higher wages, more jobs, and untold opportunity through a larger and more dynamic economy. The Tax Cuts and Jobs Act of 2017 includes many pro-growth features, including a deep reduction in the corporate tax rate, a scaled-back state and local tax deduction, full expensing for five years, and lower individual tax rates.
- Reduce taxes on corporations & help them repatriate cash to the United States from foreign subsidiaries
Important Provisions of the Tax Cuts and Job Act of 2017
- Limited the amount of interest expense that companies can deduct to 30% of EBITDA
- Limited the 1031 Exchange tax benefit to real estate only (no longer can be used for art or collectibles)
- Reduction of top corporate tax rate from 21% to 35% reduced the benefits of corporate holding tax-free municipal bonds
- Resulted in multi-billion reduction of muni holdings by corporations
2017 Tax Cut Criticisms
- Increased the US budget Defecit
- Although growth was strong in 2017 and 2018, the defecit started to grow
- The Deficit had been shrinking in previous years
- The benefit of the cuts went mostly to corporations and the affluent
- These groups have a low Marginal Propensity to Consume (MPC), so the cuts did little to spur the economy
- The extra cash for corporations fueled stock buybacks and asset price inflation (the rich got richer)
- Repatriating cash to the US was never a problem in reality
- Companies could already take loans against that cash to invest in the US
- Companies used that cash held internationally to invest in US assets - the cash was already put into use in the US economy
- This is shown by the fact that not much of the cash was repatriated within a year of the tax cut
- The foreign designation was really just an accounting factor, not a true indication of where the $ was actually held or invested
- Less than 20% of 3.0 Trillion repatriated as of October 18