Federal Income Taxes Cut by 20 Percent in Detroit

COMMENTARY Taxes

Federal Income Taxes Cut by 20 Percent in Detroit

Aug 3, 2018 4 min read
COMMENTARY BY

Former Senior Policy Analyst, Grover M. Hermann Center

Adam N. Michel focused on tax policy and the federal budget as a Senior Policy Analyst in the Grover M. Hermann Center.
By one metric, the Detroit area will receive some of the largest tax cuts in America. pawel.gaul/Getty Images

Key Takeaways

Typical taxpayers are receiving significant tax cuts this year—and that, over the next 10 years, they can look forward to cashing in on tens of thousands of dollars

The Detroit area will receive some of the largest tax cuts in America. In one district, for example taxpayer will see income taxes drop more than 20 percent.

The Tax Cuts and Jobs Act was a landmark achievement.Making the tax cuts permanent is crucially important; low- and moderate- income families have a lot to lose.

Last year’s tax cuts generated a lot of over-heated rhetoric. (Think: Tax cuts for the rich!). That has now given way to outright disinformation, with some critics deriding the benefits as mere “crumbs,” while others insist that taxes are actually going up for most Americans.

But new research from The Heritage Foundation sets the record straight. It shows that typical taxpayers are receiving significant tax cuts this year—and that, over the next 10 years, they can look forward to cashing in on tens of thousands of dollars in increased take-home pay.

By one metric, the Detroit area will receive some of the largest tax cuts in America. In former Rep. John Conyers’ district, for example, the average taxpayer will see income taxes drop more than 20 percent this year--by about $500. A typical family of four will see its tax bill cut by nearly one-third, saving more than $1,000.

In Rep. Mike Bishop’s district, the average household will see a $1,400 tax cut and a family of four can expect a 12 percent reduction--about $2,500.

Overall, the average Michiganian can expect to pay about $1,000 less in taxes in 2018. But numbers will vary—primarily as a function of earnings and how many kids you may have.

Communities that had high tax bills last year will see the biggest cuts. In Rep. David Trott’s district, for example, the cuts will average more than $1,600. Lower-income communities, such as Conyers’ District 13 will see much larger percentage decreases in their tax bills.

Last year’s tax reforms befitted virtually every community in America by cutting their income tax rates, doubling the standard deduction and increasing the child tax credit. Forget that “tax cuts for the rich” nonsense. These reforms disproportionately benefited low- and middle-income families.

The Heritage district-by-district study found that, as a share of income taxes paid, the lowest income congressional districts are getting the biggest tax breaks. You won’t hear that from lawmakers who are trying to repeal the law. But if they are successful, it is the poorer communities that would be hurt the most.

The benefits of a bigger economy

The Tax Cuts and Jobs Act is actually benefiting Americans twice: First, from paying less in taxes and, second, from higher incomes brought about by economic growth.

Heritage calculates that, over the next decade, the typical household in Rep. Bishop’s district will reap an additional $24,000 in take-home pay thanks to the cuts and the growth they fuel. For a family of four, the 10-year benefits exceed $41,000—enough to buy a new Ford Focus or pay the mortgage for two years.

The economic growth has already started to take off. Since tax reform passed, 27,000 new jobs have been created in Michigan. Across the country, Americans for Tax Reform has counted more than 650 companies that have announced new jobs, larger bonuses, higher wages, charitable giving, and new investments. All of them have explicitly cited the tax cuts as the reason for the bonuses and investments.

In Detroit, DTE Energy announced it will pass along—in the form of lower rates—nearly $190 million of its tax savings. And John James, CEO of another area company, notes: “Tax reform helped Renaissance Global Logistics, headquartered in Detroit, give bonuses to my employees….Tax reform gives small businesses like mine the chance to reinvest into our workforce.”

The good economic news is not just happening in Michigan. Nationally, businesses are in the midst of the longest-running streak of job creation in U.S. history. For the first time since we started counting these types of things, there are more jobs available than people looking for them.

Now that work is easier to find, more workers are looking for it. They are relying less on unemployment and supporting themselves. In the coming years, the tax cuts will continue to raise wages and expand economic opportunities. Economists across the board agree that the economy is fundamentally strong.

What happens next?

The future of last year’s tax cuts is far from certain. Many are scheduled to expire after 2025, and some in Congress are determined to repeal them well before then.

Of course, lawmakers could go the other way, and make the tax cuts permanent. Doing that would actually increase the benefits over the next 10 years—and allow those benefits to compound for years to come.

Unfortunately, the reverse is also true. If tax cuts are rolled back, the benefits will shrink or disappear entirely.

Some Congressmen are already talking about how to make our tax cuts permanent through what they are calling “Tax Reform 2.0.”

While making all the tax cuts permanent would give another big boost to the economy, Congress shouldn’t stop there. Instead, they should consider additional reforms that will build on the successes already materializing from last year’s improvements. Here are three ways to do that.

First, businesses should be able to fully deduct investments in the year they are made. This policy, called expensing, makes it more affordable for people to start a business and for existing businesses to upgrade and expand their operations—things that create new jobs and enable employers to raise wages.

Second, lawmakers should simplify the regulations governing personal retirement accounts — and create a new Universal Savings Account that helps people save, not just for retirement, but for whatever purposes they have in mind.

Lastly, Tax Reform 2.0 should complete the unfinished education reforms started last year to give families more education choice through 529 savings plans and a simpler higher-education tax credit system.

When grafted onto a permanent tax code, the three new reforms would make it even easier for businesses to invest in growth, easier for individuals to save, and easier for students to access the type of education they need.

The Tax Cuts and Jobs Act was a landmark achievement. It eased America’s tax burden and updated a system that was pushing jobs overseas and damaging the economy. Making the tax cuts permanent is crucially important; low- and moderate- income families have a lot to lose.

For the typical Michigan household, there’s more than $17,000 on the line over the next 10 years. And that ain’t “crumbs.”

This piece originally appeared in Detroit News