April 28, 2017
Trump’s Tax Plan: A Rude Awakening for America’s Middle Class
The United States Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn announced President Trump’s latest tax plan that proposes to cut corporate taxes and lower personal tax rates. – You can see more at: http://www.financialsamurai.com/the-best-things-about-the-trump-tax-plan-earning-business-income/#sthash.3El0Ixw0.dpu.
Trump’s tax plan will mean more taxes for some filers and less taxes for others. Here’s how you can expect to fare if Trump is able to get his tax plan through Congress in its current form.
If you’re in the middle class
If you are one of the millions of middle-class Americans, your tax bill could either rise or fall depending upon your circumstances. Trump’s plan would eliminate the “head of household” filing status and raise the standard deduction to $15,000 for single filers and $30,000 for married couples filing jointly. But he will also scrap personal exemptions and put a cap, albeit a large one, on itemized deductions. Trump’s plan will reduce the number of tax brackets from seven to three, and most Americans will fall into one of the lower two brackets.
The breakdown of Trump’s proposed tax brackets under the most recent version of his tax plan:
What’s even more amazing is that the vast majority of Americans save LESS than their effective tax rate! Can you imagine being taxed at a 20% effective rate when you can only save 6% of your after tax income? No wonder why so many people can’t escape the Matrix. There are government officials who are laughing behind closed doors at the masses for saving so little and paying so much to the government. – See more at: http://www.financialsamurai.com/the-best-things-about-the-trump-tax-plan-earning-business-income/#sthash.3El0Ixw0.dpuf.
However, if you currently file as head of household, then you may end up paying more in tax than you do now, as the $15,000 standard deduction for single filers under Trump’s plan may be less than the combination of your current standard deduction and the personal exemptions you can claim. Under the current tax structure, a single parent with one child who files as head of household can earn $17,400 without owing any tax, while a couple with three children can earn up to $32,850. Both single- and dual-parent households with at least two or three children will therefore suffer under Trump’s new tax plan, as the new standard deduction does not take into account the number of dependents in the household, which means that families with several children will end up receiving a smaller deduction and thus pay more in taxes.
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Trump’s Home State
The state and local tax deduction is just one of the proposals that could provoke a titanic fight among Republicans as the White House tries to get its plan off the ground. The broader GOP fight is likely to focus on cost and how to pay for the individual and corporate tax cuts, if at all. There are 28 House Republicans from New York, New Jersey and California — more than GOP leaders can afford to lose on a tax bill without Democratic votes.
Ditching the deduction would raise federal tax revenue by $1.3 trillion over 10 years, according to the Tax Policy Center, which found that 90 percent of that increase would be paid by taxpayers who earn $100,000 or more. Dropping it from the bill would make it even more difficult to ensure that tax reform is revenue neutral, or doesn’t add to the deficit. Revenue neutrality is needed to make a tax overhaul permanent under budget reconciliation rules in the Senate.
Republicans from Trump’s home state of New York also said they want to keep it.
“I’m going to stand up for New York,” said Representative Chris Collins, who represents a district in western New York. “I do oppose” ending it, Collins said, but added that he’s going to weigh it along with Trump’s other proposal to double the standard deduction.
The tax plan on Wednesday also called for doubling the standard deduction, which would help lower- and middle-class taxpayers.
The proposal to eliminate the state and local deduction represents a rare case in which conservative activists actually back a federal tax increase. The anti-tax activist Grover Norquist has argued that it effectively subsidizes — and therefore encourages — tax hikes on the state level, and that unwinding it would ratchet back that incentive.
Eliminating the state and local tax deduction will help to level the playing field and prevent some states from subsidizing others, according to an administration official who briefed reporters Thursday on the condition of anonymity to discuss White House strategy.
“It’s something I’m obviously very sensitive to coming from a high tax state,” said Representative Tom Reed, who represents upstate New York. “People have made it very clear to me, from New York that the property tax burden is huge and this is something that’s very important to them.”
Still, he said, “I’m keeping an open mind as we go through tax reform.”
New Yorkers claimed $68 billion in itemized deductions for state and local taxes in 2014, according to an analysis by the conservative Empire Center for Public Policy. The average deduction in New York for state and local taxes was $21,038 that year.
Senate Democratic Leader Chuck Schumer of New York singled out the proposal to eliminate the state and local tax deduction on Thursday when he attacked Trump’s blueprint as “a direct assault on the middle class.”
“It would mean an increase in taxes for middle class families,” Schumer said.
Asked Thursday about Trump’s plan to scrap the state and local tax deduction, House Ways and Means tax subcommittee chairman Peter Roskam, an Illinois Republican, made no promises.
“We’re going to look at all that,” he said.