It's finally here. Well, almost.
The Trump administration on Wednesday revealed its framework for a tax reform. Naturally, I took to Twitter to see what everyone was saying about the tax changes. As you would expect, supporters of the measure were already praising the "massive" tax break they would receive while those against it swore it was a scheme for the rich to get richer.
After just 10 minutes of scrolling through anyone using #TaxReform, I concluded that a majority of people really have no idea what tax reform actually means for them and their personal financial situation.
Unfortunately, the sad reality is that most Americans are financially illiterate, and not just about taxes.
To that point, about 66 percent of Americans cannot pass a basic financial literacy test, with "basic" being the operative word here, according to a 2016 Financial Industry Regulatory Authority survey. Let's be honest, most Americans are just not savvy when it comes to financial matters. A recent study found that 57 percent of Americans have less than $1,000 in their savings account. Meanwhile, U.S. consumers owe $1 trillion in credit card debt. So, it should come as no surprise that the average person has no grasp on what tax reform may mean to them.
Tax reform, as the name implies is about taxes, and taxes, by their very nature, are anything but simple. Even a financial whiz like me hires a tax professional to get down and dirty with the numbers each year. So, the odds that the average person knows enough about taxes (as they stand today or in general) to comprehend how any type reform would affect them seems like a serious stretch to me.
The truth is that anyone getting overly passionate about this subject is most likely just hearing what they want to hear or letting their emotions get the best of them. The good news is that you can change this behavior by educating yourself about the subject. When it comes to taxes, your friends at the American Institute of CPAs can help you take the first steps.
Even if you ask a tax professional, the fact is that we simply don't have enough information to know how the proposed changes would impact an individual taxpayer. Therefore, at this point, it's impossible to say which taxpayers will benefit and which will be hurt under this tax reform plan. The framework is painted with broad strokes, leaving things open for interpretation and the need to use of a wide range of assumptions to calculate a single tax return.
Let's remember, the framework is just the dangling of the carrot on a stick, which makes it easy for anyone to become distracted by any one piece of the framework when, in reality, there are many moving parts at play.
For example, there could be fewer brackets, but without knowing the income ranges for those brackets, we can't know who's going to benefit. Increasing the standard deduction sounds good, but what about itemizers losing certain valuable deductions?
Not everyone who itemizes is rich and not everyone who takes the standard deduction is poor. It looks like small-business owners might be getting a break, but how is "small" defined? You get the idea. The effects of the proposed tax reform are muddled by the plan's lack of detail. More information is required.
The moral of the story is that we need more information. For those of you who aren't keen on personal finance, let alone mastering the basics, I encourage you to spend less time tweeting about tax reform and more time financially educating yourself. The benefits from this are far greater than whatever tax break you think you're going to receive.
For those of you in the know, save your energy and computations for when we have more information. We're a long way away from anything concrete and even farther away from voting on legislation.
If the GOP's attempt to kill Obamacare is any indication on how fast things can move, we should expect that this issue will be no exception. However, even if any type of tax reform is passed, I will bet that it won't be a win-win across the board for the American taxpayers.