"Taxes are what we pay for a civilized society."
U.S. Supreme Court Justice Oliver Wendell Holmes’s statement is engraved on the front of the Internal Revenue Service building in Washington, D.C. Some people agree with the sentiment. Others believe it to be a logical fallacy.
It’s likely the tax plan proposed by House Republicans last week had all of them talking, regardless of position on the opinion spectrum. Some of the changes suggested in the proposal include:
• Reducing current marginal income tax brackets from seven to four (12, 25, 35, and 39.6 percent). The New York Times reported, "While the lowest income rate would increase, typical families in the existing 10 percent bracket would most likely be better off because of a larger child tax credit and an increase in the standard deduction."
• Repealing the Alternative Minimum Tax.
• Increasing the standard deduction to $12,000 for individuals and $24,000 for married couples, while eliminating personal exemptions (the $4,050 exemptions you claim for yourself, your spouse, and your dependents).
• Repealing state and local tax deductions.
• Reducing (and eventually eliminating) estate taxes.
• Setting the corporate tax rate at 20 percent. Financial Times wrote, "This will not increase wages or growth by much, and nowhere near the wild claims made by its proponents. But a lower rate combined with a broader tax base is not a terrible idea…To pay for the cuts, the tax law writers have gone after corporate deductions…"
• Eliminating medical expense deductions. The Hill explained, "Under current law, the IRS allows individuals to deduct qualified medical expenses that exceed 10 percent of a person’s adjusted gross income for the year. The bill would repeal that itemized deduction, effective in 2018."
In addition to headline news about tax reform, investors contemplated the appointment of Jerome Powell as the next Chair of the Federal Reserve and embraced strong earnings. The Standard & Poor’s 500 Index, Dow Jones Industrial Average, and NASDAQ closed at record highs last week.
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