January was the first month under the new tax law that President Donald Trump signed in December.
During January, the Treasury collected approximately $361,038,000,000 in total tax revenues and spent a total of approximately $311,802,000,000 to run a surplus of approximately $49,236,000,000.
Despite the monthly surplus of $49,236,000,000, the federal government is still running a deficit of approximately $175,718,000,000 for fiscal year 2018. That is because the government entered the month with a deficit of approximately $224,955,000,000.
The $361,038,000,000 in total taxes the Treasury collected this January was $11,747,870,000 more than the $349,290,130,000 that the Treasury collected in January of last year (in December 2017 dollars, adjusted using the Bureau of Labor Statistics inflation calculator).
The Treasury not only collected record taxes in the month of January itself, but has now collected record tax revenues for the first four months of a fiscal year (October through January).
So far in fiscal 2018, the federal government has collected a record $1,130,550,000,000 in total taxes.
However, despite the record tax collections so far this fiscal year, and despite the one-month surplus in January, the federal government is still running a cumulative deficit in this fiscal year of $175,718,000,000.
That is because while the Treasury was collecting its record $1,130,550,000,000 in taxes from October through January, it was spending $1,306,268,000,000.
The levels of federal taxes and federal spending fluctuate from month to month, and it is not unusual—but not always the case—for the federal government to run a surplus in January.
Over the last twenty fiscal years, going back to 1999, the federal government has run surpluses in the month of January 13 times and deficits 7 times. Six of the Januaries in which the federal government ran deficits overlapped President Barack Obama’s time in office—including January 2009, the month Obama was inaugurated, and the Januaries in 2010, 2011, 2012, 2014 and 2016.
The federal government also ran a deficit in January 2004, when President George W. Bush was in office.
According to an analysis published on Dec. 21 by the New York Times, a “majority of provisions” in the tax law President Trump signed in December would “go into effect” in January. However, according to the Times’ analysis, February “is the earliest that most will see changes in their paychecks.”
The Internal Revenue Service released its new withholding tables, based on the tax-cut law, on January 11.
“The Internal Revenue Service today released Notice 1036, which updates the income-tax withholding tables for 2018 reflecting changes made by the tax reform legislation enacted last month,” the IRS said that day in a press release. “This is the first in a series of steps that IRS will take to help improve the accuracy of withholding following major changes made by the new tax law.
“The updated withholding information, posted today on IRS.gov, shows the new rates for employers to use during 2018,” said the IRS release. “Employers should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.”
The record total federal taxes the Treasury has collected in the first four months of this fiscal year have included $606,726,000,000 in individual income taxes; $75,533,000,000 in corporation income taxes; $371,931,000,000 in Social Security and other payroll taxes; $27,738,000,000 in excise taxes; $7,550,000,000 in estate and gift taxes; $12,634,000,000 in customs duties; and $32,637,000,000 in miscellaneous other receipts.
In a continued tantrum against the “Tax Cuts and Jobs Act,” Governor Cuomo called the tax changes an “economic missile” as he unveiled his new budget proposal for the fiscal year. His solution? Raise more taxes mainly on businesses and restructure certain taxes so that New York gets its share of the pie.
One major change Cuomo has proposed is to eliminate the state income tax on wages for many New Yorkers; it would be replaced by a new payroll tax paid for by employers. This would be an disastrous burden for New York businesses who would conceivably have to cut wages in order to cover the cost of such a tax and deal with an excessive amount of increased paperwork.
Other ridiculous ideas include: a) a 2-cents-per-milligram tax on all opioids produced, paid for by the drug manufacturer; b) expanding the internet sales tax, a measure that has already failed twice; c) a 10-cents-per-milliliter tax on vapor products, paid for by the distributors; and d) a $120 “safety inspection fee” for motor coaches, ambulances, and other for-hire, for-profit cars that carry passengers subject to inspection by the DoT.
Just as egregious is Cuomo’s proposal to go after health insurers who stand to benefit from the tax reform bill. As some insurers could see up to a 40% reduction on their federal corporate taxes, Cuomo wants to pick their pockets by implementing a 14 percent surcharge on those gains in order to close the budget deficits.
For a governor who once emphasized his fiscal restraint, this budget shows how unhinged and out-of-touch with New Yorkers and New York businesses Cuomo has become.
Governor Cuomo has come out blasting the new tax law, and in particular the substantial reduction in the deduction for State and Local Taxes (“SALT”), as unconstitutional and an “attack only on blue states.”
But everybody who has any knowledge of taxation and its constitutionality knows that Cuomo’s assertion is ludicrous. The SALT deduction – and ALL deductions – are at the complete discretion of Congress. And as long as deductions apply under the same rules to every taxpayer no matter where situated, constitutionality can never be an issue All the Governor’s raving does is show that he and his entire staff are either totally clueless, or they know that their statements are total nonsense, but think so little of voters that they can be fired up with something that is utterly phony.
If Cuomo is concerned about what is devastating to New Yorkers, it is astounding that he is objecting to this law and yet he did not object to other tax issues in the past that clearly targeted his constituents. Despite acknowledging the very bad effects of high taxes on New Yorkers, Where was Cuomo’s concern when:
1) the federal government (Obama) raised taxes on capital gains by almost 60%? 2) the federal government raised the regular rate by 25%?
Furthermore:
1) Cuomo reneged on his campaign promises and kept income tax rates on New York’s high income earners outrageously high, 2) he continues to hide from his constituents that his tax law already denies New Yorkers some or all of their deduction for SALT. 3) he continues to hide that NY tax law also denies middle and high income earners significant parts of the charitable deduction as well, buried so deep that most New Yorkers are not even aware they are being fleeced. 4) as a final point, a New Yorker who dies leaving $10 million to his heirs would now pay no federal estate tax – but he would owe $1.06 million to New York State.
But now Cuomo is bothered by the elimination of the SALT deduction in New York? He was AFFIRMATIVELY IN FAVOR of all of these past provisions, which have been devastating to his constituents for some time. Cuomo’s sudden compassion is complete hypocrisy.
I am very glad the new Tax Cuts and Job Act is now law. With ongoing work reforming and reducing regulations, the tax bill will spur economic growth, and get people to understand the importance of reducing marginal rates. On the corporate side, the huge rate reduction (from 35% to 21%), move to territorial taxation, and expensing of equipment, is a home run. However, on the individual side, Congress allowed politics to get in the way of real reform, and that is inexcusable.
Without any discussion, Congress eliminated the deduction for miscellaneous itemized deductions. This is truly the only legitimate deduction, and it is absolutely necessary to maintain the integrity of the tax code. It gives people the chance to write off expenses incurred to allow them to earn the income they are taxed on. For instance, under current tax law, a person who earns $100K in a venture but had to pay $30K for legal fees to get it, would be able to pay taxes on only the $70K net that was actually made. With the new change now removing the miscellaneous itemized deduction, the person will have to pay taxes on the full $100K!
Another deduction Congress removed summarily is the moving deduction. Similar to the miscellaneous itemized deduction, this is a real and actual expense that is incurred when moving to get a new job (in order to earn the income that will be taxed.) It was removed from the tax code without discussion, and should not have been.
The casualty loss deduction was also eliminated. This enabled you to deduct a loss that was due to a sudden, unexpected event, such as a fire, hurricane, or robbery. Now, if your house burns down, you can no longer write it off. The exception to this change is if your loss is in a federally-declared disaster area. So if your house burns down, you get no deduction. But if it burns down in a large wildfire that was declared a disaster, you can claim the deduction. This is egregious; the effect on the individual — the loss of a house — is absolutely the same. This deduction elimination is unacceptable.
Furthermore, the alimony deduction was thrown out. The alimony deduction is a mechanism that prevents an inequitable tax burden to be created when a married family unit is split into two. It is inequitable and mean-spirited to create a targeted tax burden on people who suffered a family breakup.
While eliminating these important and equitable donations, Congress left in place a number of purely political, social engineering deductions and credits. Congress left in a substantial part of the mortgage deduction, which is really nothing more than a government subsidy to the real estate industry. They left in energy credits, rehabilitation and low income housing credits, and the Alternative Minimum Tax (AMT). It’s disappointing to see Congress talk about simplicity, efficiency, and equitability, and then remove good provisions from the tax code while leaving in parts that are merely political.
Everyone talks about how true reform of our tax laws should have three goals: 1) equitable; 2) efficient; and 3) simpler. In doing that, many have argued for removing the individual mandate, but at the same time have left in things like charitable deductions, SALT, and the mortgage deduction. This is ludicrous. With those three concepts above, the other provisions need to be addresses, as they are not equitable, efficient, or simpler — they are political. To leave them in, while removing the individual mandate, is illogical.
Richard Rubin makes some major errors in his summation of burgeoning tax bill. He uses a scenario of five people and goes through how they would be affected by the current proposed legislation. However, he does not get his calculations correct. He’s comparing apples and oranges. He’s also not looking at the reasons for the tax law changes and if the changes make the tax law fairer. He’s only looking blindly at how the tax law changes affect the current tax burden of the people. Rubin should have run his article by a real tax accountant before he published his account. From the article, under the GOP plan: “The executive would pay $868,000 in taxes. The manufacturer pays $704,400, but might be able to argue her way into a lower bill. The passive business owner pays $576,000. The dividend-earning investor pays $476,000. The heir to the estate pays nothing. The manufacturer, the estate and the passive owner all get big tax cuts from the GOP plan. The investor and the wage earner generally don’t.”
Now, in this scenario, Rubin doesn’t explain that the the first person — the executive — would remain unchanged; His tax rate is 43.4%, which is a 39.6% rate + 3.8% medicare tax. The manufacturer’s lower tax bill has to do with how flow-through businesses do things, because they are not a corporation. The passive business owner is changed because he pays a new 25% tax rate + the 3.8% medicare tax. The dividend investor pay the $476,000 because he pays 23.8%. It’s a dividend tax. However, what Rubin does not explain is that the dividend investor already paid another tax, a corporate tax, before the dividend was issued. That part of the tax law remains unchanged, and the investor remains unchanged.
The heir to the estate doesn’t pay any taxes because it is not income. Never has an heir paid an estate tax, because it has already been paid.
Rubin is essentially trying to be provocative here by using a $2 million base figure as a means to show a great difference in numbers, when really, this random list of five people makes no sense. The comparisons don’t really compare, such as including some things that are not income items. Rubin needs to be more careful with his writing.
The GOP Senate released its own version of a tax reform plan with a few differences from the House version. The most notable example is a one-year delay on cutting the corporate tax rate from 35% to 20% — meaning that the tax change would not take affect until 2019.
Their rationale is that the cost of the marginal cut would save $100 billion in costs. One drawback, however, is that companies would likely just sit and wait to make major changes and business decisions. This would certainly delay economic recovery.
In another departure from the House, the Senate bill would eliminate the deduction for state and local taxes (SALT), a move that is positive, yet affects states with high taxes. This was originally in the House bill, but after pushback from places such as New York, California, and other high-tax states, the House modified the deduction to allow a cap of $10,000. This full elimination is really what needs to happen; it puts all taxpayers around the country on a level playing field, especially if it helps to reduce federal tax rates across the board.
The House and Senate also differ in the estate tax. While the House has a plan to repeal the estate tax entirely by 2024, the Senate plan does not. Instead, it will only target a select few taxpayers, by doubling the size of estates that are exempt from being taxed. The estate tax is a punitive tax and really should be eliminated; the House form is much better.
Finally, the Senate bill would lower the top marginal rate by 1%, to 38.5%. While a slight reduction is better than none, neither bill version goes far enough. The final tax reform plan must include a return to at least the Bush tax cut rates (35%) if Congress is serious about really jump-starting the economy.
It will be interesting to see what the final form takes. A true tax reform bill, like the IRC code reforms of 1986, are long overdue. The taxpayer deserves a cleaner, more streamlined tax code.
The Wall Street Journal has done a nice roundup of the October Jobs Report released a few days ago. U.S. employers hired at strong rate in October, reflecting a sharp bounce back from September, when payroll growth slowed in the wake of hurricanes striking the southern U.S. Meanwhile, the unemployment rate fell to a new low for this expansion. Here are some of the key figures from Friday’s Labor Department report.
UNEMPLOYMENT RATE
4.1%
The jobless rate last month edged down to 4.1%, the lowest reading since December 2000. That low rate, however, reflects that fewer Americans were working or seeking work during the month. The labor-force participation rate slipped to 62.7% from 63.1% in September. The prior month’s reading was the highest in years—and the participation rate slipped in October back to a level recorded this spring.
JOBS
261,000
U.S. employers added 261,000 jobs to payrolls in September—the best pace of monthly pace of hiring in more than a year. Employment rose sharply in food services and drinking places, mostly offsetting a decline in September that largely reflected the impact of hurricanes Irma and Harvey, the Labor Department said. Hiring last month also improved in business services, manufacturing and health care.
WAGES
-1 Cent
Average hourly earnings slipped by a penny to $26.53 in October. It was disappointing showing for wages, which had appeared to break out the prior month. From a year earlier, hourly pay rose a lackluster 2.4% in October. Many economists are waiting to see wages rise at a faster pace given the historically low unemployment rate.
UPWARD REVISIONS
90,000
Payroll growth was significantly stronger than previously estimated in recent months. Upward revisions showed 90,000 more jobs were added to payrolls in August and September than previously reported. September hiring was revised to a gain of 18,000 from an initial estimate of down 33,000. That keeps intact the longest stretch of consistent job creation on Labor Department record.
UNDEREMPLOYMENT
7.9%
A broad measure of unemployment and underemployment known as the U-6, which includes people stuck in part-time jobs and others, was 7.9% in October. That was the lowest monthly reading since 2006.The rate has been declining this year in concert with the narrower unemployment rate, known to government statisticians as the U-3.
The Wall Street Journal weighs in on the surprise surcharge that the Republicans presented in their tax plan — and subsequently defended when it was discovered. I have reposted it below in its entirety, because it is excellent:
You know Republicans are intellectually confused when they send out press releases defending a top marginal income-tax rate of nearly 50%. Yet that’s what they were up to this weekend as they tried to justify their bubble bracket tax rate of 45.6% after our criticism on Saturday.
We called it a stealth tax rate because it’s buried in the fine print of the Ways and Means proposal. It also isn’t part of the tax simplification story Republicans are selling by publicly claiming the House reform shrinks the individual code to four rates from seven. But caught out by our reporting, they are now denying that the fifth rate is stealthy while defending it as good policy.
The 45.6% is a bubble rate because it applies to tax-filing couples who make between $1.2 million and $1.6 million (above $1 million for single filers). The surcharge is intended to claw back any benefit these filers get from the new 12% income bracket that applies to income of less than $90,000 for couples ($45,000 for single filers).
Republicans apparently think it’s unfair for people to pay the same rate on the same dollar of income. So their surcharge applies the 39.6% rate to those first dollars of income for those more affluent taxpayers, which adds about six-percentage-points to the top rate and gets to the 45.6% bubble rate.
Add that to the 3.8% ObamaCare surcharge that Republicans are keeping as part of tax reform, and these taxpayers would now have a top marginal rate of 49.4%. Add state and local taxes, which would no longer be deductible against federal taxes (a policy we support), and these mostly Republican voters would in many states pay a marginal rate (on the next dollar of income) close to 60% and an effective rate (total share of income) higher than they do now. Keep in mind this is Republican tax policy.
It’s no surprise, then, that Republicans are resorting to Democratic arguments that this is no big deal because these taxpayers can afford it. They’re also claiming this is kosher because the 1986 Reagan reform also had a bubble rate of 33% in addition to a top rate of 28%. But a bubble rate of 33% is a lot lower than 50%, which was the top rate before Reagan’s 1986 reform.
And as we wrote at the time (“Gephardt Soap Bubble,” Sept. 25, 1989), Reagan’s bubble rate was also a mistake. It greased the skids for raising the top marginal rate to 31% from 28% as part of George H.W. Bush’s tax increase in 1990. Democrats argued then that the wealthiest shouldn’t pay a lower marginal rate than the merely affluent, and the bipartisan deal was the 31% top rate for everyone.
If the Kevin Brady-Paul Ryan 45.6% bubble bracket becomes law, this will soon become the new top rate for everybody—perhaps when Nancy Pelosi is Speaker after 2018.
The other Republican defense is that this bubble surcharge raises some $50 billion over 10 years to pay for pro-growth tax cuts elsewhere. But these rate increases never raise what they claim because people change their behavior. The political truth is that the estimated surcharge revenue is really going to finance the huge increase in the family tax credit that costs $640 billion over 10 years. This family credit will also be refundable over time, which means it will be paid as a welfare check to people who don’t pay taxes.
In other words, Republicans are embracing higher tax rates a la Democrats to redistribute the money to non-taxpayers a la Democrats. Remind us again why college-educated suburbanites who are successful in business or the professions and are unenthralled with Donald Trump should vote Republican?
The best solution would be for Ways and Means to clean up this surcharge mess when it marks up the bill this week. Failing that, we need a cleanup in aisle two, which is the Senate Finance Committee.
Politico is reporting that there is a surcharge in the new Republican tax plan for high income earners. As described,
“Thanks to a quirky proposed surcharge, Americans who earn more than $1 million in taxable income would trigger an extra 6 percent tax on the next $200,000 they earn—a complicated change that effectively creates a new, unannounced tax bracket of 45.6 percent.”
But in the new plan, House Republicans want to claw back some of that benefit for individuals who earn more than $1 million, or couples earning more than $1.2 million.
Here’s how it would work: After the first $1 million in taxable income, the government would impose a 6 percent surcharge on every dollar earned, until it made up for the tax benefits that the rich receive from the low tax rate on that first $45,000. That surcharge remains until the government has clawed back the full $12,420, which would occur at about $1.2 million in taxable income. At that point, the surcharge disappears and the top tax rate drops back to 39.6 percent. This type of tax is sometimes called a “bubble tax,” because the marginal tax rate effectively bubbles up for a brief period before falling back to a lower level.”
Besides the obvious frustration that the GOP plan did not restore the Bush tax cuts and roll back the highest bracket permanently to 35% , having yet another surcharge on the wealthy is inexcusable. The Republicans can do better, and yet they succumb to the class warfare rhetoric that the rich must “pay their fair share.” Hopefully this will be eliminated in the final bill that gets voted on.
