POONWAT
CHARA-AMPHAIW
ANFROM THE EDITOR
Mark Solheim
Let Me Explain
S
ome time ago I promised in this
column that Kiplinger’s Personal
Finance would steer clear of
politics. I have tried very hard to keep
that pledge. But in the December issue,
I unintentionally crossed the line.
What got me into hot water with
some of you was how I characterized
the new tax law. I said that the bal-
looning federal deficit was “exacer-
bated by the latest tax law.” I also said
that “I’m still feeling the pain of the
new tax law on my family’s budget.”
That unleashed a number of reader
e-mails. Several readers said that
everyone they knew got a tax
cut, so what’s the deal with
me? A few readers noted
that federal revenues fol-
lowing passage of the new
tax law actually increased.
The comments from
Greg nicely (and in a nice
way) summed up the reader
reaction: “Your negative
references to tax
reform seem quite
biased and likely
driven by personal
experiences with
lost tax deductions.
I know that a sig-
nificant portion
of your readers
will not share your
sentiments, while
there is near uni-
versal agreement
that we indeed have
no sense of deficit
or spending control
as a nation.”
I didn’t mean to
broadly condemn thetax law or reveal a political bias,
although I can see why what I
wrote was interpreted that way.Digging deeper. I took another look
at the tax returns my wife and I filed
before and after the tax law took effect.
Our tax bill did increase, mainly be-
cause of a one-time bonus my (hard-
working) wife received and the newly
imposed $10,000 cap on deductions
for state and local taxes, which sliced
off a big chunk of what we used to
deduct. However, our marginal tax
bracket was lower for 2018, and our
federal effective tax rate (the average
rate on total income) decreased
a little. So, yes, the new law
trimmed our tax bill, althoughI had hoped it
would lower it
even more.
The interaction
of the new tax
law, revenues
and the deficit
is trickier, and
I turned to the
Kiplinger Letter’s
staff economist,
David Payne, for
help in sorting it out.
“The theory behind
the tax cuts was that
they would control the
deficit by goosing eco-nomic growth so much that revenue
would accelerate,” he says. That hap-
pened a little, he points out, but not
enough for the tax cuts to pay for
themselves.
Revenues did rise 4% in 2019, ac-
cording to the Congressional Budget
Office. Individual income and payroll
taxes have gone up—largely because
of wage increases—to offset a decrease
in corporate income taxes. No doubt,
the increase in the deficit is fueled by
a rise in expenditures (3.2% in 2018,
8.3% in 2019). As David explains, the
higher expenditures were mostly the
result of an increase in automatic pay-
ments for entitlements such as Social
Security and Medicare, and for interest
payments on the public debt.
The point about the deficit I inele-
gantly tried to make was that if the
tax laws had not changed, revenues
would have been higher and the deficit
would have been lower. I should also
have said that increases in spending
are a big part of the
problem—and I wish
Congress and the
president would
focus more on a plan
to reduce the deficit.
And I offer that sen-
timent in the spirit
of nonpartisan fiscal responsibility.
Speaking of fiscal responsibility, our
cover story offers a 10-step process for
zeroing in on how much you need to
save for retirement, plus a worksheet
to estimate your post-retirement ex-
penses (see page 44). That’s an exercise
you should do to be sure your balance
sheet isn’t hijacked by red ink. ■MARK SOLHEIM, EDITOR
[email protected]
TWITTER: @MARKSOLHEIM6 KIPLINGER’S PERSONAL FINANCE^w got a tax
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