Contrary to the doom-and-gloom predictions of some in Washington over enacted tax reform, quite the opposite is true.
Within a few weeks of the law’s enactment, more than 200 companies employing millions of people announced wage increases, bonuses, improved benefit packages, higher retirement plan contributions and additional investment in their companies and communities as a direct result of the tax changes.
Employers large and small are sharing the benefits of tax cuts with their workers. Grand Rapids engineering firm Fishbeck, Thompson, Carr & Huber announced $1,500 bonuses for all 400 full-time and part-time employees. WebHobby Shop in Pontiac gave everybody a $2 an hour raise. Fiat Chrysler said it would give $2,000 bonuses to 60,000 employees, invest $1 billion in its Warren plant, and create 2,500 jobs.
So no, tax reform is not the “Armageddon” predicted by some leading opponents of the law. Rep. Mike Bishop, who serves on the tax-writing Ways and Means Committee, and other members of the Michigan delegation who supported the bill should be commended.
In Michigan, one part of the new tax code is having another effect, but presents us with a great opportunity. In an effort to both cut taxes and simplify the code, the law nearly doubles the standard deduction while eliminating the personal exemption. State officials have interpreted the end of the federal personal exemption as meaning state taxpayers are now unable to claim the state personal exemption on their Michigan income tax returns.
There’s some debate about whether that’s the correct interpretation, but the legislature is moving ahead with a fix in any case. In fact, a measure to increase the state personal exemption to $5,000 just sailed through the state Senate to address these effects.
States should seize the opportunity presented by tax reform to reexamine their own tax codes, and Michigan is leading the way — embracing the positive effects of federal tax reform and making changes at the state level to help our residents.
This is, in other words, an easily resolvable unintended consequence that should not become a political football. And it in no way justifies the kind of rhetoric that is being tossed around by those who think the government — not you — are entitled to your hard-earned money.
A typical family of four earning the median income will get a tax cut of more than $2,000 a year under the bill. Millions of working-class taxpayers will get a cut not only because rates were reduced across the board, but also thanks to the nearly doubled standard deduction. Starting as early as next month, when the IRS adjusts its tax withholding tables, less money will be stripped from paychecks automatically, meaning many will soon see more money in their pockets every payday.
While critics call expectations of higher wages and growth “pure fantasy,” reality keeps smacking them in the head. “I think we should see relatively strong employment numbers and overall economic growth through first couple or three quarters through 2018 as the tax-cut effects filter through the economy,” Moody’s Analytics chief economist Mark Zandi said.
In addition to the hikes already announced, the future also looks bright, with Michigan’s inflation-adjusted income expected to rise 3 percent this year, 3.4 percent next year and 2.9 percent in 2020.
While Lansing is working to respond to how the federal tax cuts affected state tax returns, lawmakers should also use this opportunity to make good on bringing our income tax rate down to 3.9 percent — where it should have been had Gov. Snyder not halted a scheduled rollback of former Gov. Jennifer Granholm’s 2007 tax increase. That would grow our economy even more.
Pete Lund is Michigan state director of Americans for Prosperity.