Political Calculations
Unexpectedly Intriguing!
January 17, 2018
Pay Advice Example - Source: U.S. Department of Labor - https://blog.dol.gov/sites/blog.dol.gov/files/images/2015/01/johnsmith.jpeg

How much will your net take home pay change because of the Tax Cuts and Jobs Act of 2017 becoming law?

This is the third of three tools that we've built to do paycheck-related math in 2018, and is the only one that goes straight to the bottom line in showing how different your take home pay may be because of the new tax law. If you want greater detail into all the major parts of where your money goes in your paycheck, be sure to check out the previous two tools that we've developed:

In this version, we've stripped down the inputs and outputs to just the bare essentials, just to get at the bottom line answer that many Americans are seeking. Please enter the indicated information into the table below, click "Calculate" to get your results, and hopefully, you'll be pleased by the results. [If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version.]

Your Paycheck and Tax Withholding Data
Category Input Data Values
Basic Pay Data Current Annual Pay
Pay Period
Federal Withholding Data Filing Status
Number of Withholding Allowances
401(k) or 403(b) Contributions Pre-Tax Contributions (%)
After Tax Contributions (%)
Flexible Spending Account Annual Contribution Data Health Care Spending Account
Dependent Care Spending Account

Federal Income Tax Withholding Estimates
Calculated Results Values
Before 2018's Tax Cuts Take Effect
After 2018's Tax Cuts Take Effect
How Each of Your Paychecks Will Change (Positive if increase, Negative if decrease)
Change Multiplied Over All Paychecks for an Entire Year
Equivalent Tax-Free "Raise" With Respect to Annual Income

Previously on Political Calculations

We've been in the business of calculating people's paychecks (not including state income tax withholding) since 2005!

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January 16, 2018

The S&P 500 continued its rapid rise in the second week of January 2018, having now risen some 112.63 points, or 4.2%, since the last day of trading in 2017, to close at a new record high value of 2,786.24 on Friday, 12 January 2018.

Alternative Futures - S&P 500 - 2018Q1 - Standard Model - Snapshot on 12 January 2018

Although slower than in Week 1, the actual trajectory of the S&P 500 in Week 2 of January 2018 continues to be consistent with a Lévy flight, where investors are shifting their forward looking focus from one point of time in the future to another.

We are observing an interesting development in that process. More often than not, when we see shifts in how far investors are looking into the future, we can typically tie the shifts to changing expectations for things like how and when the Fed will change its interest rate policies, which is why we pay close attention to the CME Group's Fedwatch tool, which provides an indication of the kind of odds that investors are giving for various changes in the Federal Funds Rate that investors are expecting at different points of time in the future. The following table summarizes those probabilities at several key future dates.

Probabilities for Target Federal Funds Rate at Selected Upcoming Fed Meeting Dates (CME FedWatch on 12 January 2018)
FOMC Meeting Date Current
125-150 bps 150-175 bps 175-200 bps 200-225 bps 225-250 bps 250-275 bps
12-Mar-2018 (2018-Q1) 26.3% 72.6% 1.1% 0.0% 0.0% 0.0%
13-Jun-2018 (2018-Q2) 8.4% 40.7% 49.2% 1.8% 0.0% 0.0%
26-Sep-2018 (2018-Q3) 3.6% 22.0% 43.0% 28.2% 3.0% 0.1%
19-Dec-2018 (2018-Q4) 2.3% 15.3% 35.1% 33.2% 12.4% 1.6%

What this table shows is that investors are expecting two rate hikes in 2018. The first would be a quarter point increase that they expect would be announced at the FOMC meeting scheduled for 21 March 2018, which has been expected for some time. The second would be another quarter point increase that would take place at the FOMC meeting scheduled for 13 June 2018, which is a new development - prior to the second week of January 2018, investors had been anticipating that action would not take place until sometime during the third quarter of 2018.

So there would appear to be a disconnect between where our dividend futures-based model is indicating that investors are focusing their future-oriented attention and what the current expectations are for the future of the Fed's monetary policies. The current trajectory of the S&P 500 with respect to our model's projections suggests that investors are focusing more of their attention on the more distant future of either 2018-Q3 or 2018-Q4, which coincides with where stock prices are today, than they are on the nearer term future of either 2018-Q1 or 2018-Q2, where stock prices would be considerably lower if that were the case.

The question is why, and we suspect the answer may be the recently passed permanent reduction in the U.S. corporate income tax rates, which would primarily impact investor expectations for their investments in one of three ways:

  • The corporate tax cuts make more money available to pay increased dividends to shareholders.
  • The corporate tax cuts make more money available for U.S. firms to pursue new growth opportunities that can lead to faster than previously expected growth.
  • The corporate tax cuts make more money available for share buybacks for U.S. firms without strong growth prospects, allowing them to artificially boost their dividends per share.

Many of these share price-boosting actions at different companies may be in addition to other changes, where the corporate tax cuts have also made more money available to pay higher wages and/or bonuses to their employees or to lower their prices to their consumers, which we've seen in the case of public utilties, but would also apply in the case of companies seeking greater market share.

As of 12 January 2018, we haven't seen any significant change in the expected levels of future dividends, but that may be about to change as we get into the earnings reporting season for 2018-Q1, where we've mainly been waiting for corporate boards to meet and set their new policies following the passage of the Tax Cuts and Jobs Act of 2017 back on 23 December 2017. The next six weeks have the potential to be a lot of fun!

As for the second week of 2018, here are the headlines that stood out.

Monday, 8 January 2018
Tuesday, 9 January 2018
Wednesday, 10 January 2018
Thursday, 11 January 2018
Friday, 12 January 2018

Barry Ritholtz lists the positives and negatives for the U.S. economy and markets in Week 2 of January 2018, and if that weren't enough, also discovers a new investment strategy based on betting on companies slammed by President Trump that has been delivering outsized returns.

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January 12, 2018
Uncle Sam: You are the one who earned it - Keep more of your paycheck

How much of your paycheck will you be allowed to keep for yourself in 2018 after a less greedy Uncle Sam has extracted what he wants out of it to put into his own till?

For many Americans, that has been something of a burning question ever since the Tax Cuts and Jobs Act of 2017 was signed into law before Christmas, where we have had to wait until the IRS issued an official notice of what will be the nation's new income tax withholding rates will be going forward on Wednesday, 9 January 2018. U.S. employers have been instructed to implement the new tax withholding rates as soon as possible, but by no later than 15 February 2018 (if your employer needs time to change their paycheck processing system, please click here to access the "before the tax cuts" version of this tool!)

In fact, you'll probably want to visit that tool specifically to get that information so you can determine how much your take home pay is changing as a direct result of the Tax Cuts and Jobs Act of 2017. After you have that information, plug the same information into the tool below, and we'll estimate what your paycheck will look like after the tax cuts have kicked in.

But wait, that's not all! Because a growing number of major U.S. employers have announced that they'll be giving many of their employees raises as direct result of the tax cuts being passed into law, you'll be pleased to know that our tool below can also take your raise into account too!

We can also answer other paycheck-related math questions that might be important to you, such as:

  • What if I boost my pre-tax 401(k) or 403(b) retirement plan contributions - how will that change my take home pay?
  • Will I take a hit from the Additional Medicare Tax? [That's the "shared responsibility contribution" that doesn't ever go into Medicare's trust funds, which can affect higher income earners.]
  • How would a flexible savings account for health care or dependent care expenses affect my take home pay?

Our tool below is designed to answer those questions, as well as a number of others that may occur to you that we haven't considered! Just enter the indicated information as it applies for you, and we'll do our best to estimate how much of the money you work hard to earn will still be in your possession after the federal government has withheld what it wants from your paycheck! [If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version.]

Your Paycheck and Tax Withholding Data
Category Input Data Values
Basic Pay Data Current Annual Pay
Pay Period
Federal Withholding Data Filing Status
Number of Withholding Allowances
401(k) or 403(b) Contributions Pre-Tax Contributions (%)
After Tax Contributions (%)
Flexible Spending Account Annual Contribution Data Health Care Spending Account
Dependent Care Spending Account
What if You Had a Raise? Desired Raise (%)

Your "Typical" Paycheck Data
Category Calculated Results Values
Basic Income Data Proposed Annual Salary (Including Raise!)
Typical Paycheck Amount
Federal Tax Withholding Amounts U.S. Federal Income Taxes
U.S. Social Security Taxes
U.S. Medicare Taxes
U.S. Additional "Medicare" Taxes (If Applicable)
401(k) or 403(b) Contributions Pre-Tax Contributions
After-Tax Contributions
Total Contributions
Flexible Spending Account Contributions Health Care Spending Account
Dependent Care Spending Account
Your Paycheck's Bottom Line
Take Home Pay Estimate Basic Net Paycheck Amount
... But, After Social Security's Taxable Income Cap Is Reached, It Becomes (If Applicable, for a Full Paycheck)
... And Then, After Additional Medicare Tax Income Threshold Is Reached, It Becomes (If Applicable, for a Full Paycheck)

Now for some quick results. For the default annual income of $36,000 with all the other default settings in place including having taxes withheld at the Single filing status and Biweekly paychecks, we estimate that the 2017 Tax Cuts and Jobs Act would increase the take-home income of a person with that income by $34.74 per paycheck. Multiplied by 26 paychecks in a year, that represents and increase in take-home pay of 903.24, the equivalent of a tax free raise of 2.5% with respect to a pre-tax income of $36,000.

Just for fun, we did the exact same math, but for an annual income of $50,000. Here, we found that take home pay increased by $59.16 per paycheck, or $1,538.16 per year, which works out to be the equivalent of a tax-free raise of 3.07%.

And because we couldn't just leave it there, we also ran the numbers for an annual income of $400,000 that is paid out quarterly, which just happens to currently be the annual salary of the President of the United States (which President Trump donates to various causes). Thanks to the Tax Cuts and Jobs Act of 2017, and assuming all the other default settings, President Trump's after federal withholding tax income rises by $61.44 per quarterly paycheck, which would nets him an additional $245.76 per year and is the equivalent of a tax-free raise of slightly over 0.06%. [Note: These figures apply until the President's cumulative income exceeds certain thresholds - keep reading....]

Now that we've given you a sense of how much money you'll have withheld in 2018 from each of your paychecks by the U.S. federal government, at least until the new tax cuts take hold, we should note that there are some really complicating factors that may come into play during the year depending upon how much you earn.

For example, in 2018, once you have earned over $128,400, you will no longer have the Social Security payroll tax of 6.2% of your income deducted from your paycheck (or 12.4% if you are self-employed, but our tool above is designed for those employed by others). But then, by the time that happens, you'll have long been paying taxes on your income that are taxed at rates that are at least 10% higher than those paid by over half of all Americans.

There's also the complication provided by the so-called "Additional Medicare Tax" that your employer is required to begin withholding from your paycheck if, and as soon as, your year-to-date income rises above the $200,000 mark, which is part of the extra taxes imposed by the "Affordable Care Act" (a.k.a. "Obamacare"). Since the money collected through this 0.9% surtax on your income does not go to directly support the Medicare program, unlike the real Medicare payroll taxes paid by you and your employer, it is really best thought of as an additional income tax.

In the tool above, in case the amount of your annual 401(k) or 403(b) retirement savings contributions exceed the annual limits set by law, we've limited the results our tool provides to be those consistent with their statutory limits, and will do so as if you specifically set the percentage contributions for these contributions with that in mind. Also, our tool does not consider whether you might take advantage of the "catch-up" provisions in the law that are available to individuals Age 50 or older.

The IRS Is Developing Its Own Withholding Tax Calculator?

Maybe the funniest story we saw yesterday was published by Reuters at 5:18 PM Eastern time. Here's the money quote (emphasis ours):

The Trump administration on Thursday said most U.S. workers will see bigger paychecks in February, as a result of the Republican tax overhaul, but many will need to make sure taxes are withheld accurately with an online calculator that does not yet exist.

Well, we fixed that problem pretty easily now, didn't we? And it only took about an hour of actual work, most of which involved writing up the text that changed from the "before the tax cuts take effect" edition and to add the results of the three income scenarios that we ran. How much do you suppose the IRS' coders are getting paid?

More seriously, we'll be happy to link to the IRS' withholding calculator when they get around to posting it online.

Update 12 January 2018, 8:15 PM EST: Here is where the IRS Withholding Calculator will be able to be found. Although more than 24 hours after Reuters' report, it's not there yet!

Elsewhere on the Web

There are other salary and hourly paycheck calculators like this on the Internet, including the very well done tools available at PaycheckCity.com. We really like PaycheckCity's calculators because they allow you to determine the amount of state income tax withholding that will be taken out of your paycheck separately from what the federal government takes. Meanwhile, payroll processor ADP also has a salary paycheck calculator, but we find the interface for PaycheckCity's calculators are more user-friendly.

Then again, if you live in one of the seven states that have no personal income tax for wage and salary income (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming), our tool above will provide you with a very good estimate of your actual take-home pay.

Previously on Political Calculations

We've been in the business of calculating people's paychecks (not including state income tax withholding) since 2005!

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January 11, 2018

Philadelphia's controversial 1.5 cents-per-ounce soda tax was supposed to bring in $92.4 million per year to the city's coffers. Through its first 11 months of collections, the city has collected just $72.3 million, leaving city officials over $20 million short of their goal.

In order to have been on track to hit its target of $92.4 million, the city would have needed to average $7.7 million per month from its tax on all naturally and artificially-sweetened beverages distributed within the city for retail sale. Instead, the city has averaged less than $6.6 million per month from its sugary drink tax.

But not to worry, because Philadelphia's mayor's office sees no need to discuss scaling back either their revenue projections or their plans for spending the revenue that they desired to collect from the Philadelphia Beverage Tax (PBT).

Despite the likely shortfall, Mike Dunn, a spokesman for the Kenney Administration, said the $92 million yearly projection will remain. When asked if the dollars meant Philadelphia residents should expect a curtailing of the programs funded by the PBT, he said, "We’re not going to speculate."

Those comments echo similar ones that Dunn made back in May 2017.

"We're experiencing the growing pains of a new tax. We still expect to reach our projections in the long term," Dunn said.

Perhaps with the assistance of lots of inflation or if "in the long term" really means "after many years". Still, to be fair, what kind of growing pains could there be?

Robert Inman, Wharton's Mellon professor of finance and public policy at the University of Pennsylvania, called Dunn's assessment appropriate – especially given the lack of historical data for PBT and other similar policies.

"If they are within 85 to 90 percent of their projections," Inman said, "that's pretty good." Changes in weather, among other variables, could also influence collections since some consumers may buy more of the impacted beverages in the summer months.

Explaining there will be a lot of "uncertainty" and "randomness" with such estimations when there is little to no previous information to work from, Inman said, "They just don't have the history with this."

In our chart above, we've taken the basic seasonality that beverage makers typically see throughout a year to indicate how much revenue that Philadelphia could reasonably have expected to collect from its beverage tax each month in order to reach their annual $92.4 million projection. There have really only been two months that haven't at least somewhat followed that pattern so far - April 2017, where the gap between "desired" and "actual" collections really began to open up, and September 2017, where we suspect an unusual number of beverage distributors made late tax payments to the city.

Through its first eleven months, the city's cumulative soda tax collections of $72.3 million are falling nearly 15% below their desired revenue of $85 million that would apply over that period of time. If the bar for evaluating the success of Philadelphia's Beverage Tax is lowered to $78.54 million for the full year (85% of the city's annual $92.4 million revenue projection based on Professor Inman's generous grading curve), Philadelphia will need to collect nearly $6.3 million in December for the tax to be considered a success by those reduced standards.

Based on the seasonal pattern, where December's tax collections would reasonably be expected to come in at a lower level than those for November, that may be pretty unlikely with the preliminary estimate for November having been reported to be $5.9 million. Since Philadelphia's soda tax payments are due in the month following when they are assessed, we should find out later this month just how far short the city was from both its unchanging annual target revenue figure or even the reduced standard of 85% of that level in collecting revenue from the sweetened drink tax during its first year in effect.


January 10, 2018

A lot of people don't know this, but the humble soybean ranks among the top products that the United States exports to China. The vast majority of those exports come in the months from September through December each year and, if the U.S. Census Bureau's data on U.S. soybean exports to China is any indication, 2017 is lagging far behind 2016.

Estimated Bushels of Soybeans Exported from the United States to China per Month, January 2012 to November 2017

For the peak export month of October, the estimated volume of soybeans being shipped from U.S. ports to China has fallen by 91.5 million bushels from 2016's record 384.3 million bushels (a 24% drop). Likewise, the just released data for November 2017 indicates that month's 264.6 million exported bushels of soybeans is 21% below 2016's level of 335.2 million bushels. And all this is happening as the price of soybeans has been largely stable at an average of $9.40 per bushel from 2016 to 2017.

2016 was an unusual year for soybean exports for two main reasons. First, U.S. farmers had a bumper crop of the oil seed, which was especially good news because the world's second largest grower and exporter of soybeans, Brazil, endured drought conditions that significantly reduced its crop as the second reason. In 2017 however, Brazil is back, reclaiming much of its market share with China, the world's largest importer of soybeans.

For the overall state of U.S. exports to China, you might expect then to see a spike the year over year growth rate of exports in late 2016, which would then not be present in 2017. Worse, with such a large decline in U.S. soybean exports to China, you might expect that the growth rate of the overall value of U.S. exports to China could even be negative. The following chart shows what we're really seeing today.

Year Over Year Growth Rate of Exchange Rate Adjusted U.S.-China Trade in Goods and Services, January 1986 - November 2017

Instead of being negative, the year over year growth rate of the value of the goods and services that the U.S. exports to China just above the zero growth line for both October and November 2017.

Remember that these months saw the year over year growth rate of U.S. exports to China spike a year earlier, thanks to the record surge in U.S. soybean exports that year. For the estimated volume of those exports to have declined by over one-fifth in 2017 and to still have enough other exports to fill the gap so that the overall value of U.S. goods going to China is slightly positive is an indication of how successful the U.S.' other export products to China have been in 2017.

A big portion of those additional exports is in the form of crude oil, which is a story that we'll follow up next month after the U.S. Census Bureau releases its trade data for December 2017.


About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

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Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.