Forget the Politics
I don’t like politicians; I just hate some less than others. So this isn’t a political post, and I don’t have an agenda. This post isn’t about Trump… it’s just about you and whether or not you are going to see YUGE tax savings from Trump’s Tax Plan!
What we don’t know about the Plan
I don’t know the impact it will have on the national debt. I don’t know how it will affect job growth. I don’t know if it will get corporations to bring money back into the United States. I don’t know what will happen in 2025 when it expires. I don’t know if it will affect wages. I don’t know definitively if this is good or bad for the country in the long-term. As you can see there’s a lot I don’t know and there’s really no point in talking about it. So… I won’t.
What we do know about the Plan
We do know that a majority of people will be paying less in taxes from 2018-2025. According to TaxPolicyCenter.org, “Compared to current law, taxes would fall for all income groups on average in 2018, increasing overall average after-tax income by 2.2 percent.” So on average, people are going to have 2.2% more money in their pocket. You can estimate your tax liability under the new law with this easy to use Tax Calculator.
Is a 2.2% pay raise Yuge?
The answer is, it really depends on how financially educated and disciplined you are. I’ve actually seen this discussed quite a bit lately, and sometimes it can be really hard to listen to people who don’t understand finances, talk about finances. I have seen a lot of comments on Facebook and Twitter with folks just not thinking about this the right way. Here’s a comment I saw today, “I used that calculator, Big deal. When you spread it over 24 pay checks that’s only $66.67. I spend that much on coffee. Not Yuge!”
A few bucks a payday
True, I’m sure most Americans will just spend the extra money as soon as they get it, they won’t know where it went, and it will have little impact on their life. For those people this will indeed be just a few meaningless bucks. But readers of blogs like this one may have different plans.
Smart People Think Bigger
Now let’s look at that $66.67 example from a different perspective. Instead of inflating our lifestyle as soon as we get the money, let’s instead keep our lifestyle the same and just save the $66.77 every payday. How much would you have in 1 year? $1600! And if you put that saved money under your mattress for the entire 8 years the tax plan is in place you would end up with $12,800. That doesn’t sound like a few meaningless dollars to me. What if you invested the money in the market and got a 7% annual return? You would have over $16,000! You can do a lot with $16,000; like pay off your credit cards, save for retirement, or even buy a car. (You may also enjoy reading, Why you Shouldn’t buy that New Car.)
SO…. Is the Trump Tax Plan Yuge?
Well…. First of all it depends on if you are in the majority of Americans receiving a tax cut in the first place (Tax Calculator). Secondly, if you are saving on taxes, the “hugeness” of it all really depends on you. $50 here and there may not seem like a lot, and if you let it slip away it probably won’t have a meaningful impact on your life. But if you systematically use it to create long term solutions toward paying down debt or increasing savings… then yes, it might very well be thousands of dollars in your pocket.
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C.J. is the blogger behind the Vow of Practicality. “Let’s grow your wealth, increase your productivity, and maximize your happiness.”