U.S. Rep. Andy Barr, R-Lexington, faced a much different reception Tuesday as he met with local business owners than he did on a trip to Madison County about a year ago, when he faced tough questions about his vote to repeal the Affordable Care Act and his support of the Republican-proposed American Health Care Act.
Barr met with several business owners and others Tuesday at Davis Law Office in Richmond, where he discussed the Tax Cuts and Jobs Act that slashes tax rates for corporations and provides large deductions for “pass-through” businesses, which make up about 95 percent of businesses in the U.S.
Comments on the tax act were overwhelmingly positive, with attendees touting the ability to grow their business, higher take-home pay and advantages of a simplified filing process.
Throughout the roundtable, and in an interview with The Register prior to, Barr stuck to the talking points conveyed by many supporters of the Act.
“Congress listened to the American people,” Barr said. “This is a terrific piece of legislation that will allow Americans to keep more of their hard-earned income.”
Barr said the House Ways and Means Committee has estimated the average median income family in Central Kentucky, which is a couple with two children, will receive a $2,052 tax cut as a result of the tax reform, which doubles the standard deduction and the child tax credit, a credit families can take for children 17 and younger.
“That means they can save a little more for retirement; that means they can save a little more for college,” Barr said. “Or maybe that just means they can take a vacation.”
All income groups will see a tax reduction, both in 2018 when the initial provisions take effect and in 2025, when many of the Act’s cuts expire, according to an analysis by The Tax Policy Center. But higher-income households will receive larger cuts on average as a percent of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of income distribution, the analysis found.
The bigger advantage for higher-income earners will grow in 2027 due to the 2025 expiration of many of the cuts but retention of the provision changing the indexing of tax brackets to the chained Consumer Price Index. Experts have calculated that the tax increases brought on by chained indexing will be bigger in percentage terms for those near the bottom of the income distribution than for those at the top.
But Barr said he has sponsored a bill this legislative session that would make many of the cuts in the tax reform permanent, and asserted that lower- and middle-income Americans are benefitting.
“Middle-class families with kids are really big winners,” he said.
Though many analyses have estimated the tax reform Barr voted for will add about $1.5 trillion to the national deficit over the next 10 years, Barr said he remains committed to reducing the debt and asserted that growing the economy is essential to doing so.
“The main thing that we need to recognize is that of course we need to reduce the deficit” he said. “Every year in Congress I’ve voted for a balanced budget.”
The Congressman said “spending discipline” also is crucial.
“I take a back seat to no one when it comes to being fiscally responsible,” Barr said. “That’s one of the reasons I ran for Congress was to save the country from bankruptcy.”
The comments at Tuesday’s roundtable, whose attendees included newly appointed Estill County Judge-Executive Kevin Williams and Madison County deputy judge-executive Colleen Chaney, were overwhelmingly in support of the tax reform.
A real estate agent said his agency has seen an uptick in customers looking to buy investment property. The agency has sold five single-family homes in the $100,000 range since the beginning of the year, he said.
Richmond veterinarian Frank Skipworth, who owns Skipworth Veterinary Clinic, said he had put off expanding, but feels confident enough in the economy now to go ahead.
“It’s a big thing for us,” Skipworth said. “We know there’s somebody out there who wants us to succeed.”
Myron Fisher with Baldwin CPAs said one of the great things about the tax reform is that it simplifies filing for many.
“That aspect maybe isn’t getting talking about enough,” he said.
The simplification is expected to lead to greater tax compliance, particularly for lower- and middle-income earners, Barr said.
Some higher-income earners could be hit by a provision of the act that limits the deduction for state, local and property taxes to $10,000, Fisher said.
Another CPA with the same firm, Lisa DeVaughn Foley, said a few of her clients whose only income comes from employment will pay more in taxes, but most will break even.
The Act cuts the corporate tax rate for C corporations from 36 percent to 21 percent, a move that could prompt some local businesses to switch to that business type, though the provision of the Act that imposes a 15 percent tax on dividend payments might be a deterrence to some doing so, Foley said.
But corporations across the nation are expecting huge tax savings, prompting some to announce bonuses or raises for employees, citing tax savings as the impetus.
“We received a letter from 137 economists that told us the Act would result in much higher wages,” Barr said.
Other businesses, those with “pass-through” income (income that flows through the business to owners to be taxed under the individual income tax), will see tax savings as well. The Act allows for a 20 percent deduction of the first $315,000 of joint income from those businesses, including LLCs, sole proprietorships, partnerships, and S-corporations.
Bar said that provision is a big deal for those “Main Street” establishments.
“We created a precedent that hasn’t existed before in the tax code,” he said. “We just need to build on that precedent.”
According to the Brookings Institution, a nonprofit public policy organization based in Washington, D.C., the deduction for pass-through businesses will mostly benefit the highest earners, because about 70 percent of partnership income accrues to the top 1 percent, compared to less than 50 percent of corporate dividends and 11 percent of wages. The institute also asserts that the under-reporting of income from pass-throughs contributed to more than 40 percent of the tax gap from 2008-2010.
Barr, who filed for re-election for the Sixth District Congressional seat on Jan. 4, faces tough opposition this election year. Democratic candidates who have filed for the seat so far include Lexington Mayor Jim Gray, Marine Corps veteran Amy McGrath, state Sen. Reggie Thomas and Geoff Young.FacebookTwitterGoogle +