Donald Trump stuffs coal into a stocking (illustrated)
The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the opinions and/or policies of Debt.com.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the opinions and/or policies of Debt.com.

It’s the most magical time of year, and the perfect time to talk about the magical thinking in Congress.

Actually, I pitched my colleague Holden Miller on writing about the best and worst things Trump did for our money this year. This week we’ll share our idea on what was best, and next week we’ll share our worst. And it turns out we’re in agreement on the best thing Trump accomplished — his long-promised tax cuts.

In my case, that’s because there aren’t many other options to choose from. This is the one accomplishment that’s going to have a positive tangible effect on (some) people’s wallets.

To be clear, I think it’s bad, poorly planned policy that will be hurtful in the long run. But in the short term I have to admit, just like Holden: I could do with a few more bucks in my wallet, and Trump got it done.

The short-term benefit is clear

There are a lot of moving parts in this tax cut bill (I still refuse to call it “tax reform” because it does nothing to simplify the tax code, quite the opposite) but the new brackets are the easiest part to understand. We’re going from this…

  • 10% (taxable income up to $18,650)
  • 15% ($18,650 to $75,900)
  • 25% ($75,900 to $153,100)
  • 28% ($153,100 to $233,350)
  • 33% ($233,350 to $416,700)
  • 35% ($416,700 to $470,700)
  • 39.6% (taxable income over $470,700)

To this…

  • 10% (taxable income up to $19,050)
  • 12% ($19,050 to $77,400)
  • 22% ($77,400 to $165,000)
  • 24% ($165,000 to $315,000)
  • 32% ($315,000 to $400,000)
  • 35% ($400,000 to $600,000)
  • 37% (taxable income over $600,000)

Trump’s original goal was to consolidate tax brackets, which didn’t happen. But the typical American will now move from paying a 15 percent tax rate to a 12 percent rate, and see an average take-home pay increase of 2.2 percent. That’s awesome. I don’t know anyone who complains about free money.

We also get a higher standard tax deduction, which helps most Americans who don’t itemize their deductions to shield more income from being taxed. That could bump some people on the cusp of tax brackets down a bracket for even more savings.

It’s not as big as you think, though — contrary to popular belief, your taxes don’t suddenly jump when you enter a new bracket. Only the portion of your income that’s in the bracket gets taxed at the higher rate, not the whole thing. So if your taxable income is $80,000, less than $3,000 of it is taxed at the new 22 percent rate.

However, those tax cuts are also temporary, and slowly fade away before disappearing entirely in 2025. (Unless Congress changes the law again, which they will surely try to do when given the chance.) When trying to maintain some semblance of fiscal responsibility, Congress decided to make the consumer benefits dwindle and the corporate benefits permanent. So enjoy them while they last — if you can afford to save the extra cash, you definitely should. You could need it sooner than you think.

What happens in the long run?

Republicans are hoping these tax breaks, which help the average guy a bit but are mostly for big business and the wealthy, will stimulate the economy and ultimately pay for themselves.

That’s what I call magical thinking, because there isn’t much evidence that’s ever worked before. And there’s no reason to think it will work now, when we’re at what the government already considers full employment with a pretty solid economy.

One good thing is that the tax cuts give the Federal Reserve cover to continue increasing interest rates — which will give them more flexibility to help the economy should things turn south. But that also means borrowing money is going to get more expensive, and in turn many things will simply be more expensive whether you have to borrow for them or not. The cost of doing business is simply going up. Combine that with the fact the tax bill removes the penalty for not buying health insurance — which means young people are more likely to avoid it and drive up premiums for everyone else — and you could see your tax savings eaten up by everything else pretty quickly.

This tax bill also adds $1.5 trillion to the federal deficit, which is apparently something Republicans only care about when Democrats do it. They can claim the cuts will pay for themselves, but they’re already eyeing cutting other aspects of the federal government just in case. What one hand gives, the other hand takes away — that’s how this always works.

Still, to end on a merry note and since I’ve voiced my fears already: Trump promised tax cuts, and he delivered. Hopefully we can all enjoy them for a little while.

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Article last modified on December 22, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: The Best Thing Trump Did for Consumers in 2017 - AMP.

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Article last modified on December 22, 2017. Published by Debt.com, LLC .