Some industries stand to win big from the GOP tax plan. The Republican tax bill includes an approximately 20% deduction for pass-through income, ostensibly for small businesses and job creators. As The New York Times explains, business income that gets taxed at the individual rates of the business owner instead of through the corporate structure is categorized as “pass-through income.” While economists use the term to refer to small businesses, a Treasury Department analysis found that’s not universally true. About 69% of pass-through income goes to the top 1% of households.
According to Small Business Labs, this provision will likely benefit the wealthiest of business owners, but not highly-paid professionals who run “service firms,” including doctors and lawyers. But it’s not all bad news. Here’s who really wins in the bill.
1. Lawyers and accountants in this specific field
CBS reports that rather than close loopholes, the bill likely creates more of them. Tax lawyers and accountants will therefore become deluged by clients looking for professional advice for restructuring companies and incomes to avoid higher taxes. Tax experts and lawyers who reviewed an earlier version of the tax bill outlined a ton of loopholes in a report. That document warned the bill would “allow new tax games and planning opportunities for well-advised taxpayers.” In short, accountants and lawyers will see more clients needing help.
Next: Those tax games help this bracket.
2. Some small business owners
Small Business Labs predicted small business owners in the 35% or 39.6% tax bracket — meaning those who make over $416,700 a year — will see “a tax reduction on their business income.” That said, small business owners nationwide earn an average annual salary of $68,897, according to PayScale. In real terms, that means not all small business owners will benefit from the reduction, but some definitely will. That’s good news for main street, overall.
Next: Here’s why certain contractors and freelancers will see a bump.
3. Contractors or those who set themselves up as such
Slate posits that the new tax plan “sets the stage for an enormous amount of tax chicanery.” Under the new law, the top ordinary rate on labor income will come in much higher than the top rate on corporate income. Vox explains that many taxpayers can therefore shield a portion of their income from taxation by setting up a corporation. For example, Joe Smith, an assistant account director for a real estate firm, can become Joe Smith, Inc., a new LLC within the firm. The firm can pay Joe the company instead of Joe the worker, shielding his income from the higher tax bracket.
Next: Even the average Joe wants this industry to succeed.
4. Brewers, distillers, and winemakers
One provision reduces the federal excise tax on alcohol manufacturers, some of the most heavily taxed business people in the country, Forbes reports. Lobbyists from craft beer, wine, and distilling industries worked for the inclusion of the Craft Beverage Modernization and Tax Reform Act, which will provide tax breaks ranging between $20,000 and $100,000. These industries can use those monies to hire employees, purchase equipment and — good news for us all — make more booze.
Next: These institutions will also cash in from the new plan.
5. Bankers and financial employees
Goldman Sachs researchers expect the corporate cut in the tax bill to increase earnings-per-share by approximately 13% on average for America’s largest banks, The New York Times writes. Wells Fargo stands to earn the most from the change. The cuts will also help some industries disparately, especially because sectors like financial firms already pay higher tax rates than others, like manufacturing.
For example, the study found that real estate firms would see a 16-point reduction in their effective rates in 2018, and financial firms may see a 12-point reduction. The analysts expect the bill will save financial firms $250 billion on corporate taxes over the next decade. That represents a 35% cut on a $715 billion tax liability.
Next: These workers will “build” on their tax base.
6. Architects and engineers
Vox reports that the tax bill blocks some “specialized services” from getting the new pass-through deduction. This list includes doctors, lawyers, artists, and athletes. That said, the final bill removed architects and engineers from this list, for no clear reason. So if you’re working in one of those fields — good news! Your pass-through deductions are safe.
Next: This industry can make capital investments more easily.
7. Manufacturing employees
The manufacturing sector — which includes industries like mining and automobile manufacturing — stands to see a break, The New York Times reports. While the Goldman Sachs study projects manufacturers will save about the same dollar amount as the financial industry, the cut works out to only 22% for the larger manufacturing sector. In the short term, manufacturers can immediately deduct the full cost of machinery and other capital investments. While it expires after five years, manufacturing lobbyists say they intend to fight the expiration.
Nearly 95% of respondents in a recent National Association of Manufacturers survey said they felt optimistic about their company’s outlook, a record for the 20-year-old survey. More than three-fifths said approval of the bill would likely cause them to increase capital spending. And for American industry, that’s great news.
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