Episode 814: The Tax Plan Is Huge
The new tax bill is long. More than 1,000 pages. And complicated. And very important.
For starters, the corporate tax rate has been cut! For it or against it, this is a change of massive importance, and one many economists never thought they'd see. It's gone down from 35 percent to 21 percent. But what happens to the money that these corporations are saving? Will it increase investments? Or will it just enrich shareholders who are mostly rich already?
The tax bill also overturns generations of thinking on deductions — you know, those items whose cost you can take off from your tax bill, like charitable giving or paying for the interest on your mortgage. Deductions are the government's way of nudging you to spend your money in a certain way. And they're about to nudge in a different direction. The ability to deduct state and local taxes has been capped at $10,000. Second, the mortgage interest deduction has been scaled back, and economists are pretty excited. Homeowners in rich, blue-state neighborhoods are not so excited.
One of the most controversial parts of the tax bill is its treatment of pass-through entities. Pass-through entities are businesses, but they don't pay taxes. The income "passes through" directly to the owners, who pay the taxes on their individual income tax returns. And we're wondering if we might be happier as a corporation. Because the new tax bill allows owners to deduct 20 percent of their pass-through income.
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