Business owners and financial advisers are cautiously optimistic about the tax bill that cleared Congress on Wednesday.
The Republican tax plan, known as “The Tax Cuts and Jobs Act,” cleared both houses of Congress along party lines Wednesday. It cuts the corporate tax rate to 21 percent from 35 percent in 2018, doubles the child tax credit and increases the standard deduction taken by most taxpayers.
The bill has the support of President Donald Trump and has been roundly criticized by Democrats, who voted as a bloc against the bill.
Americans will pay their taxes under the old rules this April, but employees are expected to start seeing more money in their paychecks as early as February as withholding begins to change.
The cut to the corporate tax rate is permanent, while reductions in tax rates on individual and family incomes will sunset in 2025. Republican lawmakers argue that the bill is a first but major step on tax changes and that they’ll take additional steps to make other tax cuts permanent.
But how will it affect the economies of Hall County and North Georgia? People in the know are optimistic but not completely sure given the thousands of pages in the bill and and the many changes made to the legislation late in the process.
Good, but not great?
Bob Willis, CEO of the Gainesville financial planning firm Willis Investment Counsel, said that at the end of the day he was feeling better about the tax system Wednesday than he was Tuesday — but with some caveats.
“I certainly believe that less regulation, less tax is at the end of the day a good thing, but I’ll tell you one thing I absolutely know for sure: This is not tax simplification,” Willis said after the bill passed Wednesday.
With the preservation of the alternative minimum tax, mortgage interest deduction, the child tax credit and other rules and deductions, don’t expect to be able to file your taxes on a postcard next year.
And don’t get swept up in the rhetoric; check your books before you think you’re in for a gigantic tax cut on your individual bill. The standard deduction for a married couple is jumping from $12,700 to $24,000. The child tax credit has doubled to $2,000 per child, and the total refundable portion increased to $1,400.
But even so, Willis said the rhetoric has outpaced the facts.
“I think a lot of individuals are going to be disappointed in how little they’re going to benefit,” Willis said.
Russell Hopkins, a certified public accountant at BatesCarter in Gainesville, said much the same.
“The proposed law increases the standard deduction for single filers by $5,650 but eliminates the $4,050 personal exemption,” Hopkins said. “The result is that most people won’t notice a significant decrease in their taxes.”
But there will be benefits to the bill. Millions of corporations and their employees stand to gain from a large tax cut, which could put more money in people’s pockets and continue to cut unemployment rates.
Willis said capital-heavy businesses — companies with plants, trucks and equipment who make or move products you can touch — stand to benefit by policy changes in the bill through tax rate and exemption changes.
Meanwhile, the new structure looks to be less generous with limited-liability companies, especially professional services companies. Hopkins said these businesses will be able to write off up to $1 million in capital purchases in the same year that money is spent instead of depreciating assets over several years.
Certified public accountants, architects, medical practices and other professional services firms “that are primarily about people and labor, and they don’t use a lot of property, plant and equipment, they’re not going to benefit very much. Some could even be hurt by the tax law,” Willis said.
Like Willis, Hopkins said the deepest tax cut depends on how a business files and in what industry it does business.
“Some will get a decent cut. Others will barely notice it,” Hopkins said. “The corporate tax rate cut from 35 percent to 21 percent isn’t something that benefits the average small business owner.”
Big mortgages, bad news?
In real estate, Frank Norton Jr., CEO of The Norton Agency, said after the bill passed Wednesday that he was more enthusiastic about the tax changes than he had been earlier this year.
“Overall I think we’re coming out better, at least in this region,” Norton said.
Republicans backed off reductions to 401(k) and IRA tax incentives while sticking to their deep corporate tax cuts — both good news for conventional employees and employers alike.
The Norton Agency is a privately held corporation, and Norton said he’s happy about being able to invest more of the company’s income into the business.
“There’s a lot of people buying houses that have corporations,” Norton said. “I think you could see more hiring — that’s one of the things we looked at.”
However, Republicans lowered the mortgage interest deduction to $750,000 from $1 million. There are only a few areas where homes are pricey enough to be affected by that, but one of them is important: Lake Lanier.
The bill still allows the exemption to be claimed on two homes.
On the upswing lately, the high-end lake market could cool in the coming years as buyers become more wary of taking out a mortgage for their second home if the total tops the $750,000 cap. The silver lining is that, at least in Norton’s experience, most second-home buyers are using cash to buy homes and not borrowing money.
Meanwhile, local property tax deductions have been capped at $10,000.
“If property tax (deductions) are held to $10,000, it will again affect the big-boy houses on Lake Lanier and a few in the mountains,” Norton said. “But most individual people’s property taxes are less than $10,000 a year.”
Money in pockets
By the federal definition, almost every business in Hall County is a small business — a small corporation.
At the end of the day, many of these sole-proprietor businesses and LLCs won’t see the same size of tax cut given to corporations, but they’ll benefit from an economy stimulated by broad tax cuts and an improving stock market that has been betting on a tax bill since January.
“It’s almost 93 percent (of businesses) that are 50 and fewer employees, so we have a lot of small businesses that make up the business community and the chamber,” said Tim Evans, vice president of economic development for the Greater Hall Chamber of Commerce.
Hopkins said some companies will see benefits of the tax bill immediately through increased demand for goods, while others will see it when they file their taxes in 2019. Employees, on the other hand, will see tax benefits depending on their industry.
“Those working in industries that noticeably benefit from the tax cut might see year-end increases in pay and benefits that are somewhat tied to business tax savings,” he said. “Most employees should see slightly lower tax withholdings from their wages due to the new bracket structure. That will be immediate.”
As with Norton, Willis and Hopkins, Evans said the chamber and businesses will need time to talk to their financial advisers and study the tax bill to learn its effects, but he was hopeful the bill would free up cash to invest and move around Hall County.
“A lot of small businesses are sole proprietorships, so the owners of those businesses — the business is them, and the tax consequence is their consequence,” Evans said. “It could have a big impact on small business owners in particular and their personal incomes — how much they’re able to put back into the community.”
This story has been updated from its original version.