With Tax Day looming, you may be wondering how the recent federal tax reform legislation affects you.
Nearly all the tax changes went into effect this year, so your 2017 return will follow the old tax code. But you are likely to see many other benefits, from a fatter paycheck to a stronger economy. Lowered rates for individuals and businesses mean you will keep more of your earnings and have access to greater career opportunities than you did before.
On the individual side, tax rates are not only lower, but the income threshold for most tax brackets has been raised. That means more money in your pocket to pay the bills or save for your future.
Tax cuts and the individual taxpayer
The Treasury Department estimates 90 percent of Americans will receive a tax cut under the new rules. A single taxpayer earning $50,000 will take home nearly $50 more each week. In case you were wondering, these savings are already reflected in your paychecks, so there’s no need to feel guilty about splurging on that slice of avocado toast.
Millennials can also take advantage of a roughly doubled standard deduction of $12,000 for single filers and $24,000 for married couples. That money is completely exempt from federal taxation, and taking the standard deduction means you don’t have to fret about itemizing every obscure deduction you qualify for. Adulting just got a little easier.
The benefits of tax reform don’t stop with lower tax bills. The lowered corporate tax rate will lead to greater investment and higher wages for young workers. Companies nationwide have already announced a raft of bonuses, pay raises and expanded benefits due to tax reform.
Apple is giving most employees $2,500 stock bonuses, building a new campus and hiring 20,000 new employees. Chipotle announced $1,000 cash bonuses for restaurant workers as well as improved parental leave. Disney also announced bonuses and is creating a $50 million program to help employees pursue higher education and vocational training.
Companies benefit greatly from tax relief
Big businesses aren’t the only ones sharing their tax reform windfalls with employees. Bruns General Contracting in Tipp City, Ohio, is buying more equipment and strengthening retirement benefits. The owners of Don Ramon Restaurant in West Palm Beach, Fla., plan to expand their business and hike pay for employees. Wherever you live, tax reform is helping your local businesses thrive.
The success of small businesses matters deeply to millennials, who surveys indicate are more entrepreneurial-minded than older generations. Two-thirds of young people say they would like to start their own company, and thanks to the new tax code, more of them will have the opportunity to become their own boss and grow a successful business.
In fact, many who were initially skeptical of the law are changing their minds after seeing how it is giving a boost to small businesses.
Erin Parker, a high school history teacher in San Antonio, is a political independent who tends to vote Democratic. She at first doubted the tax law would do much to improve the economy, but she says the bill will likely help the technology start-up that employs her husband.
“Hearing about the implications for my husband’s business improved my view of it a bit,” she told The New York Times.
Thanks to tax reform, small business owners nationwide are the most optimistic they’ve been in decades.
Small businesses are optimistic about tax reform
The small business optimism index by the National Federation of Independent Business (NFIB) rose to 107.6 points in February, the highest reading since 1983.
NFIB President and CEO Jaunita Duggan credits lower taxes and reduced regulatory burdens for the renewed optimism. “When small business owners have confidence and certainty in the economy, they’re able to hire more workers and invest in their businesses,” she said.
In the past two years, small business owners reported that taxes and regulations were their biggest problems. Today, they say their biggest problem is finding qualified employees – an indication of the high demand for workers in our strengthened economy.
It’s no coincidence that small business optimism peaked in the 1980s. President Ronald Reagan’s 1981 Economic Recovery Act cut individual rates by 23 percent. Five years later, per-capita disposable income rose more than $2,700 and the economy added nearly 12 million new jobs.
Contrast these numbers with the economy after the 2009 “economic stimulus” that millennials were treated to. Per-capita disposable income rose by just $798 after five years and the economy added a relatively paltry 2.2 million jobs.
Get ready for a prosperous economy
With tax reform now rocketing the economy forward as it did during the Reagan era, young people are set to experience tax savings and wage growth unlike anything our generation has experienced. That thought should take some of the sting out of tax filing season.
David Barnes is the director of policy for Generation Opportunity Institute.