Everyone is jumping up and down celebrating the tax cut which has just been approved. On top of this news, several Companies are announcing that as a result of this tax cut they will be giving out $1000 dollar bonuses to many of their employees.
This move is making everyone feel very happy and you should if you are one of the individuals who will be receiving these funds. I don’t blame you for being happy, but there is a catch.
I don’t want to burst your bubble but if you look deeper into the underlining details of the tax cut, you will realize that it’s only a “front-loaded” perk. On a front-loaded perk, it appears to be very good at the beginning. What the Republican administration failed to explain is that we will have to pay for this perk down the road. This is called the backside of the budget process.
How is it going to affect us down the road I don’t know but believe me, it will show up. When a sizeable amount of funds which were collected before and are no longer being received, it’s going to hurt somewhere in our communities.
In terms of finance, whenever a tax cut is made, from the present rate of 39% to the 21%, who is going to take up the lack to cover the shortfall in funds? This is an issue that no one is thinking about, but they should as it will hit us in our pockets sooner or later.
The euphoric feeling that people have in receiving these bonuses in their paychecks can make most people disregard the big picture view of this tax cut. For example, if the tax receipts are smaller for your township or your state, they will eventually have to cut civic services like childcare, health coverage, library funding, museum grants, food stamps and you get the point.
If you take a closer look at the people who will be receiving the largest benefit on this tax cut they are the wealthy families. This high net worth group of individuals will not be affected by the loss of these services. This is because their incomes are high enough to cover any inconveniences. This advantageous benefit doesn’t apply to many of us and that is ashamed.
What should you do you may ask? I’m suggesting that you put your additional funds in your emergency funds bucket so that when you receive the bad news that the goods and services that you were receiving in the past have closed down, you won’t be shocked. Consequently, you will have to spend your funds wisely as it will have to last longer than many of us think.
Another suggestion you can do is to add more money to your 401K, IRA, or your Health Saving plan, which are pre-tax initiatives that will help you down the road.
I hope that this article helps you in some way to better understand the tax cut bill and how it is going to affect the middle-class households and the families that have lower incomes.