MILWAUKEE -- Flanked by Republican lawmakers, President Donald Trump took a bow outside the White House Wednesday, December 20th, shortly after the House finished its last-minute re-vote to pass the $1.5 trillion bill that provides generous tax cuts for corporations and the wealthiest Americans while providing smaller cuts for middle- and low-income families. As for what the bill means for local middle-class families, tax professionals here say it all depends on what happens with the new savings.
As Republican lawmakers praised the passage of their tax bill in Washington, it meant a lot of people wanted to talk to accountants like Mike Grabowski Wednesday.
"I've been on the phone with people and I'll be returning calls the rest of the afternoon," said Grabowski on Wednesday.
Grabowski said he was telling clients first and foremost, tax rates across the board for individual taxpayers are getting smaller.
"The biggest thing is the fact they are lowing the brackets for the average Joe and JoAnn in America, so everything being equal -- if your taxable income was here in '17 and it's here in '18 (gestures with hands at equal level), you will pay less tax. There's no doubt about that," Grabowski said.
"Most of the clients that I work with are gonna get screwed," said Jon Neal, who also owns an accounting business.
Neal said other parts of the bill could lead to an overall tax increase for some middle-class families. Neal said the reason for that is a new cap on how much people can write off on their state and local taxes.
"The deduction for state and local taxes, which includes the real estate tax and the Wisconsin withholding from your paychecks, is limited to $10,000, so someone who has a property tax bill of $5,000 and has $6,000 of withholding from their wages, they lose $1,000," Neal said.
Both accountants said the bill is especially friendly to corporations since the individual tax cuts come with an expiration date.
"As it is written right now, corporate or business (tax cuts are) permanent and the individual is 2025," Grabowski said.
Grabowski said the success of these tax cuts will depend on if corporations invest their savings or if they share them with shareholders only.
"That will dictate whether this turns out to be a good bill or not," said Grabowski. "You have one group of people saying they’ll hoard it, they’ll give it to themselves, they will not give it to the masses, the employees, new infrastructure, the new buildings, new equipment and then there’s the other group saying no, that’s what they’ll do with it – so ask me in five years."
Grabowski said the bill won't affect most people's taxes for 2017. It'll be next year when most people start to notice the changes.
Supporters of the bill pointed Wednesday to announcements from companies like Wells Fargo, AT&T, and Comcast announcing plans to give bonuses to employees this year or raise the minimum wage for their workers. Critics say the distributions are a small share of the overall windfall the corporations will see with the corporate tax rate slashed from 35% to 21%.
Benefits for some senators
A report from CNBC, citing research from the Center for Responsive Politics, determined a group of congressmen and senators, including Senator Ron Johnson and House Speaker Paul Ryan, would personally benefit from a real estate provision added to the bill just days before the vote.
"Sen. Johnson has been pushing for months for a much different tax reform proposal that would have left him largely unaffected," said Ben Voelkel, a spokesman in Sen. Johnson's office. "He's made no secret that this form of tax reform is not the way he would have done things."
Professor weighs in
Scott Drewianka, an associate economics professor at the University of Wisconsin-Milwaukee, said while supporters of the bill are banking on corporations investing their savings, a possible side effect is those investments going toward advances that lead to fewer jobs.
"One unpleasant possibility is that new capital investments may accelerate the process of automation and reduce the number of job," Drewianka wrote.
Drewianka noted the loss in revenue from the tax cuts will increase the federal debt, increasing it by $1.5 trillion over the next 10 years.
"How that will be financed will be an important factor in determining who wins and who loses from this legislation," Drewianka said.