Trump plugs tax cuts in State of the Union

President Trump touted the benefits of the new tax cut law in his State of the Union address, although experts questioned some of his claims.

“And just as I promised the American people from this podium 11 months ago, we enacted the biggest tax cuts and reforms in American history,” Trump said in his speech Tuesday night. “Our massive tax cuts provide tremendous relief for the middle class and small businesses. To lower tax rates for hardworking Americans, we nearly doubled the standard deduction for everyone. Now, the first $24,000 earned by a married couple is completely tax-free. We also doubled the child tax credit. A typical family of four making $75,000 will see their tax bill reduced by $2,000—slashing their tax bill in half. This April will be the last time you ever file under the old broken system—and millions of Americans will have more take-home pay starting next month.”

Trump noted that the Tax Cuts and Jobs Act included a provision repealing the individual mandate from the Affordable Care Act requiring individuals to buy health insurance coverage or else face tax penalties. “We eliminated an especially cruel tax that fell mostly on Americans making less than $50,000 a year—forcing them to pay tremendous penalties simply because they could not afford government-ordered health plans,” he said. “We repealed the core of disastrous Obamacare—the individual mandate is now gone.”

President Trump delivers the 2018 State of the Union address
Trump during the State of the Union address on Jan. 30. Photographer: Andrew Harrer/Bloomberg

Trump also pointed to the cut in the corporate tax rate and a new deduction for pass-through businesses. “We slashed the business tax rate from 35 percent all the way down to 21 percent, so American companies can compete and win against anyone in the world,” he said. “These changes alone are estimated to increase average family income by more than $4,000. Small businesses have also received a massive tax cut, and can now deduct 20 percent of their business income.”

Trump introduced a couple in the audience who own an Ohio business, Steve Staub and Sandy Keplinger of Staub Manufacturing. They are handing out raises, hiring an additional 14 people, and expanding into the building next door, thanks to the tax cuts. One of their employees, Corey Adams, who works as a welder, was also in the audience, and plans to use his raise from the tax cut to invest in his new home and his two daughters’ education.

“Since we passed tax cuts, roughly 3 million workers have already gotten tax cut bonuses—many of them thousands of dollars per worker,” said Trump. “Apple has just announced it plans to invest a total of $350 billion in America, and hire another 20,000 workers. This is our new American moment. There has never been a better time to start living the American Dream.”

However, some experts weren’t so sure about Trump’s claims. “Calling it the biggest tax cut in history is pretty clearly incorrect, and otherwise he seemed to choose his language fairly carefully,” said Bill Smith, managing director of CBIZ MHM’s National Tax Office. “For instance, with the bonuses, he said many have been in the thousands of dollars, which no doubt is true. But from what I’ve been able to tell, that’s far from the majority of them. I think by and large we still have yet to see the exact effect on individuals. You can certainly come up with an example that shows a family will receive a lower tax bill, and I think overall that’s probably true but as you factor in all of the changes, including the increased standard deduction and the elimination of exemptions, that’s going to be more favorable for a family with one child than a family with 10. We don’t know exactly how the elimination of most of the itemized deductions is going to play out, so it’s difficult to tell, but overall clearly the withholding tables are probably going to indicate that most families and workers are going to see less withholding in their paychecks.”

Mark Zandi, chief economist at Moody’s Analytics, was also skeptical about Trump’s estimate of the number of workers who received bonuses: “I know the president gave one statistic where he said there were 3 million workers who got bonuses because of the tax cuts,” he said. “I would say, ‘Maybe.’ That’s a pretty tough, hard to connect the dots thing. What’s the counterfactual? I would be surprised if it’s 3 million, but there’s got to be some number of workers who already have benefited from this tax cut. But it’s temporary. This is a one-time windfall. Unless the tax cuts raise long-term economic growth in a consistent way to a substantial degree, it’s not going to show up in wages in any consistent way. There are some people who think lower marginal rates on businesses—despite all of the other things in the tax cut, the fact that it’s deficit financed and that it will cause interest rates to rise—will still lead to a bigger economy down the road. If that’s the case, then it will add to wages in the long run. I’m suspicious of that. Maybe on the margin, it adds a tenth or two to long-run economic growth and GDP growth maybe. I’m not as convinced, but it has to have had some impact on the labor market.”

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