Here's what Trump's new tax plan means for a family making $25,000, $75,000, or $175,000 a year
President Donald Trump's tax plan - if it passes - will be the first major change to the US tax code in decades.The 429-page GOP tax plan , called the " Tax Cuts and Jobs Act ," proposes many changes, such as reducing the seven tax brackets we currently have to four, increasing the standard deduction, and eliminating personal exemptions.
As it stands now, Trump's tax plan would lower taxes for most Americans, but one in five could see an increase in their tax bill by 2027, according to a new government report from the nonpartisan Joint Committee on Taxation. In many ways, the new tax plan shuffles the taxpayer deck - adding some benefits while removing others.
We already looked at how Trump's tax plan could affect single, childless taxpayers at various income levels. After receiving a lot of reader emails asking how it might change the tax bill for families, we decided to take a look.So, we ran some numbers using the current proposal to see how Trump's tax plan might affect an American family of four, with two kids under the age of 17.
The estimates in the chart show how Trump's tax plan could affect families at three different income levels.$25,000 household income: estimated annual tax increase of $72 $75,000 household income: estimated annual tax savings of $1,711 $175,000 household income: estimated annual tax savings of $2,264
Exactly how much taxpayers save - or how much more they pay - will depend on many factors, and as Business Insider's Josh Barro pointed out , tax cuts for middle class Americans aren't likely to be as sweeping as Republicans make it sound.
Wealthy Americans , including Trump himself, stand to benefit handsomely from the tax proposal, thanks to provisions eliminating the estate tax , among others.
As the conversation around tax reform continues to unfold, there are a couple important points to help understand how the plan could affect the average American taxpayer, as well as the wealthy.
Most Americans claim the standard deduction, but high earners are more likely to itemize deductions
Approximately 70% of Americans claim the standard deduction, according to IRS data . High earners are more likely to itemize, but they aren't the only ones who do. Of taxpayers who itemize their deductions, 86.8% have an adjusted gross income below $200,000.
Under the GOP proposal, Americans who claim the standard deduction will be able to deduct $12,200, slightly higher than the current combined $10,400 deduction, which includes the standard deduction and one personal exemption. Joint filers would deduct $24,400, up from the current $20,800, which includes the standard deduction and two personal exemptions.
Among those who itemize deductions, the average claimed was $27,053 in 2015. The most common itemized deductions and the total amount deducted by US taxpayers in 2015 were:Taxes paid, including state and local income and sales tax: $539.8 billion Interest paid, which primarily covers mortgage interest: $294.5 billion Charitable contributions: $201.3 billion Medical and dental expenses: $84.2 billion
Trump's tax plan would do away with or limit many deductions, which could increase federal taxes for Americans who itemize their deductions .
The US does not have a flat tax - federal income taxes are calculated on a progressive basis
If your income falls into the 25% bracket, you don't give the federal government 25% of your income. That would be a flat tax, the type of tax reform favored by Ted Cruz , but it isn't how our current progressive tax system operates.
Here's how the most basic calculation works - something you probably learned in high school government class and then quickly forgot - for a single taxpayer who will not itemize their deductions in 2017:Figure out your taxable income: annual salary - deductions - exemption(s) Everyone pays 10% federal income tax on their first $9,325 of taxable income Everyone pays 15% federal income tax on their next $9,326 to $37,950 of taxable income Everyone pays 25% federal income tax on their next $37,951 to $91,900 of taxable income And so on through the rest of the tax brackets up to your total amount of taxable income
So, your tax bracket only applies to the amount you earn above the minimum income threshold for that bracket. For income below that limit, you pay the same federal income tax percentage as everyone else does, even if they earn less than you do overall.
Trump and his tax team - which includes House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, National Economic Council Director Gary Cohn, Treasury Secretary Steven Mnuchin, Senate Finance Committee Chairman Orrin Hatch, and House Ways and Means Committee Chairman Kevin Brady - have said they want to make "the tax code simple, fair and easy to understand."
Getting the bill passed, however, could prove challenging, given the trouble Trump has faced in his attempts to overhaul the US healthcare system .