Left out of the current discussions during the presidential election debates and promises is the coming expiration of the time-limited lowered individual tax rates that came out of the Trump-era. These GOP tax breaks, otherwise known as the Tax Cuts and Jobs Act (TCJA), came about in June of 2017 and are set to expire on December 31, 2025 depending on who will be in control of the White House, the Senate and the House at the time.
In an editorial with RealClearPolitics, Julio Gonzalez, CEO and Founder of Engineered Tax Services, Inc. says that if the tax cuts expire, it’ll be “catastrophic to our overall economy and the well-being of many working families” with so many American families and businesses “hanging on by a thread.”
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Gonzalez concluded his warning by saying, “The bottom line? If you think the economy is bad now, it’s going to get a lot worse if Congress lets the non-permanent provisions of the TCJA expire. We must demand that our elected representatives don’t allow this to happen.”
However, the expiration of the tax cuts, and even taxes themselves, don’t seem to be a priority or even a small talking point for any of the politicians or presidential candidates except for Trump who was recently reported to have told a crowd at Mar-a-Lago, “We’re gonna give you tax cuts.”
Regardless of what Trump opponents have said about the Trump tax cuts, data shows that they weren’t just for the wealthy. The tax cuts were beneficial to most Americans. Sure, the top rates decreased but so did the lower ones, with the 28% bracket falling to 24%, the 25% bracket to 22% and the 15% bracket to 12%. In addition to that, the TCJA approximately doubled the amount of the standard deductions for individuals and families.
Tax data, according to the Heartland Institute proves that the tax cuts have benefitted the middle, working Americans the most. They have reported that, for example, after accounting for all tax deductions and credits, middle-class filers with an adjusted gross income (AGI) of $40,000 to $50,000 received an average tax cut of 18.2%. They concluded, “The available evidence is clear: Based on tax data from 2017 and 2018, the Tax Cuts and Jobs Act reduced taxes for the vast majority of filers, led to substantial improvements in upward economic mobility, and disproportionately benefited working- and middle-class households, many of which experienced tax cuts topping 18% to 20%.”
Yahoo Finance had a recent article saying that if the tax cuts go away, it will mean that every American will need to reassess their spending and tax returns to pay more in personal taxes unless provisions are extended, revised or made permanent before the end of 2025. The decisions that the politicians make about what to do with the Trump tax cuts will affect people in every income. Every political persuasion. Every race. Every gender.
Unfortunately, the federal tax rates that might be increasing aren’t the only ones that Michiganders need to be worried about. A recent decision by Michigan Court of Claims Judge, Elizabeth Gleicher, reverted the state’s 4.05% tax rate back to a default of 4.25%. The court ruling sides with the Michigan’s Democratic governor’s administration who argued in court that the tax cut had been temporary.
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In a lawsuit headed up by the Mackinac Center for Public Policy, a conservative think tank based in Midland, the suit was filed on behalf of Sen. Ed McBroom (R-Waucedah Township); state Rep. Dale Zorn (R-Onsted); the Associated Builders and Contractors of Michigan; the National Federation of Independent Businesses and six residents who are all listed as plaintiffs.
The plaintiffs had sued to make the state’s tax cut permanent after it was initiated through an increase in state revenues due in part to federal COVID-19 pandemic relief funds. Michiganders originally got the tax cut because of a 2015 law they passed that said if revenue grew faster than inflation, then the tax burden should be lowered accordingly.
Democratic Attorney General Dana Nessel had written an opinion that the tax cuts should only be in place for a year in response to a formal question from state treasurer Rachael Eubanks back in March of 2023. AG Nessel had written, “Because that situation is only temporary, it makes sense that, rather than provide a permanent tax reduction based on the (perhaps unusual) economic circumstances of a single fiscal year, the Legislature intended the relief to taxpayers to be only temporary as well.”
However, according to the Detroit Free Press, the plaintiffs argued that the legislation “intended to use any newly reset rate as the ‘current’ or new default rate and should stand unless revenues exceeded the cap, when it could be reduced again.”
Judge Gleicher granted a request to dismiss the claim and said the plaintiffs lacked legal standing to bring the lawsuit in the first place because the tax rate has not been set yet, writing, “No individual taxpayer-plaintiff has paid income tax, had any income tax withheld or received a tax assessment based on the 2024 tax rate. As even plaintiffs acknowledge, defendant’s interpretation of the 2024 tax rate will not begin to affect Michigan taxpayers until at least Jan. 1, 2024.”
Judge Gleicher also argued that the “triggering” mechanism is set on a yearly basis, saying, “Logically, it would make little sense to provide a permanent tax cut based on economic circumstances that exist in one calendar year.”
After the judge sided with the Democrats in the Whitmer administration, Senator McBroom said, “This decision is very disappointing but it follows the usual trend of the current administration to protect its revenue and take more taxes from people, even when the law was so clearly written to reduce that burden on taxpayers.”
An appeal will be filed in the tax rate case. Unless that appeal is successful, that means the state will be bringing in about $700 million more from Michigan taxpayers for the 2024 tax year.
Judge Gleicher, who decided the Michigan tax rate case, appears to be a consistent vote for the agenda of the Democrat party. She also ruled in September of 2022 that the 1931 state law that criminalized most abortion in Michigan was unconstitutional. Before she took on that case, she was accused of an ethical conflict because of her personal donations to Planned Parenthood of Michigan and previous legal work for them.
The only bright ray of sun that will be popping up regarding taxes is the story out of Fox Business that says higher federal tax brackets and standard deductions will be taking effect at the beginning of January due to an adjustment that’s being made by the IRS to avoid “bracket creep.” Fox reports this
happening when taxpayers are pushed into higher-income brackets even though their purchasing power is essentially unchanged due to steeper prices for most goods. The adjustments are made annually, but with the high inflation that America is facing, the recent 2% average is shifting to a higher 5.4% change. Those changes mean that the standard deduction will rise to $29,200, up from $27,700 in 2024 for married couples filing jointly. For individuals, the new maximum will be $14,600 for 2024, up from $13,850. Heads of households will see their standard deduction jump to $21,900 in 2024, up from $20,800.
