Woodstock Quarterly Newsletter / Q1 2020
Tax Cuts and Growth
Although the day that all a taxpayer’s owed taxes have to be paid in is still April 15th every year, the “tax season” doesn’t end until the extension deadline around October 15th. The calendar year end brings the start of a new tax season although actually filing returns won’t start until February 1st. What state is the Internal Revenue Service (IRS) in?
After the government shut down in 2017 escalated operating problems at the agency and operating with “the oldest centralized databases in the entire federal government” and with less tax examiner staff than they had in 2010, the answer is not good, according to the National Taxpayer Advocate’s 2018 annual report.[1] The author of the National Review article claims the agency has “been victimized by ‘mission creep’, asked to do more and more work unrelated to its core mission of tax administration and enforcement”. The enormous and mostly voluntary US tax collection system is the envy of the rest of the world. As tax preparers we understand the problems with fraud in applying for benefits (EITC), misrepresentation in applying for refunds, and the complexity both of filing and in interpretation of the tax code. We need representatives in Washington DC who understand limits. It is reported that Wilbur Mills, Democratic Chairman of the House Ways and Means Committee long ago, would not let any addition go into the US Tax Code that he personally could not understand. As taxpayers we lost a lot when that simple test disappeared.
When the Tax Cuts and Jobs Act of 2017 was signed into law, there was debate about whether tax cuts would stimulate growth, raise wages and create jobs. The data are in.[2] The growth assumption was “based on abundant economic literature examining how tax policy affects decision making by businesses and individuals”. John Kennedy, Ronald Reagan and now Donald Trump believed that to be true. Because capital spending by businesses raises productivity and wages for workers, over the last year the wage growth rate for workers without a high school diploma was 9%! Real disposable personal income per household, thought by the proponents of the law to rise by $4,000, actually rose by $6,000 since passage of the law. Without the law, the Congressional Budget Office forecast 2 million more jobs would be created from January 2017 to 2019. However, with the law, 7 million jobs have been created. US growth of 2% in 2019 is the highest of any Group of Seven country.[3] One more time tax cuts have proved their worth.
If you or any of your other advisors have questions about the issues raised here, please contact your investment manager or one of us.
William H. Darling, CPA – Chairman & Chief Executive Officer
Jeanne M. FitzGerald, CPA – Tax Manager
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[1] National Review, 11/6/2019
[2] WSJ, 12/23/2019
[3] Canada, France, Germany, Italy, Japan, UK and US