A Rundown Of The Trump Tax Plan

Trump and his “Big Six” working group consisting of  Treasury Secretary – Steven Mnuchin, Senate Majority – Leader Mitch McConnell, Speaker of the House – Paul Ryan, Economic Council Director – Gary Cohen, and Finance Committee Chair – Orin Hatch have released the framework for the new Trump Tax bill. Here’s what we know so far, what the administration is saying, the pros and cons.

The plan reduces the number of income tax brackets from seven, ranging from 10% to 39.6% – to just three brackets 12%, 25%, and 35%.
The reality:  
Doubled the amount of income people can keep at $0 tax rate. People paying 10% now may not owe any tax under the new plan. People that were paying 15%  in taxes will now pay 12%. The wealthiest of Americans would get the biggest tax break with a 4.6% tax cut or $46,000 on every $1 million in income.
Does not benefit low-income households that pay no federal income taxes or call for a reduction in payroll taxes.  The plan would not increase any earned-income tax credit.

The pros: The plan nearly doubles standard deductions, the amount that’s subtracted from incomes before the tax rate is applied.
The cons: The plan eliminates personal exemptions. Taxpayers would no longer be able to deduct what they pay in property tax, state, or in local income. About half of the middle-class families living in such states with higher tax rates like California, Connecticut, New Jersey and New York and earning between $50,000 and $75,000 a year will actually get a tax increase because you eliminate the state and local tax deductions. The tax plan also calls for getting rid of most of the other tax deductions but does not specify which ones.

The plan eliminates the Alternative Minimum Tax – Saves 4.1 million people who make more than $100,000 from paying the AMT
The reality:  The AMT is designed to prevent people from avoiding tax entirely through deductions and credits. The AMT should really be indexed to inflation. for How does this policy ensure that the wealthiest pays its fair share?

The plan eliminates Estate Tax –  If you run a business, you’ll be able to leave it to your family without them being taxed 40%
The reality: 0.2% of inheritance end with any estate tax liability. Only liable when assets are over $5.49 million for an individual and $11 million for a couple

Increase Child care credit – remove a “marriage penalty” that allows two single parents making up to $75,000 each, or $150,000 combined, to get the full credit
The reality: Shrinks the credit for married couples when their incomes exceed $110,000.

Corporate tax rate drops from 35% to 20% also limits “pass through” small businesses to 25%
The reality: The average income for these “small businesses” is $750,000.

 

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