Getting a Big Break From the Tax Bill? Give It Back
Posted December 29, 2017 3:35 p.m. EST
If you are among the majority of Americans whose tax bill will decrease next year, there are some obvious ways to put the money to work.
People who are sick, indebted, or in an unstable job or relationship will need to pay the bills or save for imminent hardship. Others who are more stable but not saving enough to meet even modest retirement or college savings goals should probably increase account contributions by the amount they’re getting from the tax bill.
The more comfortable among us, however, ought to consider a less obvious course of action: Give the money back.
This is a bipartisan appeal. If you believe the Republican theory that these tax cuts will stoke more economic growth, you can help make it so by spending any extra money in a way that directly improves the American economy. Hire someone in your business. Pay a household employee more. Buy something that helps American workers.
Find the tax cuts and the Republicans who voted for them objectionable? Then take the money and put it toward people who have been left behind economically and causes that can help them.
This tax bill officially makes us all data in a grand experiment on how big changes in tax incentives influence behavior and alter the economy. If nothing else, we should be deliberate and specific in how we want to be counted.
Whatever you decide, declare your intentions on Twitter over the weekend using the #GiveItBack hashtag. I’ll be following along.
Meanwhile, here’s more on how to do the giving.
There is plenty of reason to believe that many large public companies won’t give it back to workers. Their executives work for shareholders after all, so the default reflex may well be to use winnings from the new, lower corporate tax rates to buy back shares or do other things that will lift stock prices directly and immediately.
One exception so far is Fifth Third Bank. Rather than handing out bonuses, which don’t help employees over time, the bank recently raised its minimum hourly wage to $15, which then becomes the baseline for any future raises. I reached out to the company’s chief executive, Greg D. Carmichael, to see if he wanted to take a pledge to give his personal tax winnings back, but the bank’s representatives did not respond to requests for comment.
If you own or run a business, you, too, can hand out raises or make new hires. Or perhaps you employ a babysitter or housekeeper. If so, consider offering those workers raises that outpace inflation. Not paying them on the books? Now might be a good time to start. Once you do, your employees may collect larger Social Security checks in retirement, improving their own ability to contribute to the economy over the long haul.
If you don’t employ anyone at the moment, hiring occasional part-time help to buy back your own time may contribute to greater personal happiness, as a recent study showed, in addition to putting more money in someone else’s pocket.
If you’re among the top earners, your tax winnings may be enough to tip the scales toward buying or replacing a car sooner than you might have otherwise. Buying an automobile is a relatively rare opportunity to make an outsize economic impact, given how much cars cost.
Do you believe that the quality of American cars has finally caught up to those made by foreign companies? Buying one in 2018 that was made in America will let you play your part in moving the economic needle a bit. Don’t want an American car? Perhaps you can support an American worker by purchasing a car that was still made here, like a Honda Accord or a Toyota Highlander.
Any extra money, no matter your income, also presents an opportunity to spend more and more selectively on services. That new local restaurant that buys local food and employs local workers and pays rent to a local landlord? Perhaps you could treat yourself to dinner there a few times with your tax winnings, instead of buying imported food from a grocery store owned by an international conglomerate.
Before you consider which charities you might want to give your newfound tax winnings, you’ll probably think about a tax change that could affect philanthropy directly: the increase in the standard deduction. Now that it’s going up, people who will no longer itemize deductions, including charitable contributions, may feel less incentive to give as much as they used to.
Or at least that’s what philanthropy researchers fear, with one estimate suggesting that our collective giving could fall by a few percentage points. This makes some intuitive sense; nonprofits would not be flooding you with messages right now if people weren’t already racing the calendar each December to make tax-deductible donations.
Sen. John Cornyn, R-Texas, lost his cool on Twitter in recent days over suggestions that the new tax law might fundamentally alter Americans’ giving. I offered him the opportunity to take a pledge to give back his tax winnings but received no reply. Crickets also chirped when I asked for pledges from Rep. Kevin Brady, R-Texas, Sen. Susan Collins, R-Maine, and President Donald Trump, all of whom also supported the tax bill, via their representatives.
I do hope Cornyn is right about one thing: that we don’t give merely or even primarily for the tax break. If you agree and are lucky enough not to need your tax winnings for yourself, perhaps you can find a way to support a cause that helps people who have been left behind by the improving American economy for whatever reason. Please note, however, that if you want to use the money to try to run your least favorite politician out of office, your campaign contributions are not tax deductible even if you are still able to itemize your charitable donations. Automating your contributions is a good way to capture your tax winnings, especially if those winnings are small enough that they’ll add up to only double-digit dollar figures each paycheck that you might otherwise fritter away. Or if you’re a beneficiary of the stock buybacks I mentioned above, consider giving away appreciated shares. That way, you get a deduction if you still itemize plus you avoid possible capital gains taxes on the increase in value.
My family intends to dabble in all three of the above categories. In 2018, we plan to pay more to people who help us already and replace our 15-year-old car. Through my work this year, I’ve learned more about how heavily Americans rely on Medicaid for elder care. As a result, I worry about possible cuts to that program that some politicians may wish to make.
Meanwhile, think about what difference you hope to make with your tax winnings, if any. Then #GiveItBack if you possibly can.