Those of us old enough remember Ronald Reagan’s tax overhaul will realize that President Donald Trump’s notions really do represent the biggest tax reform proposal since.
This time, Trump’s bluster, telling an Indiana crowd he was delivering “historic tax relief,” is tinted with truth. If adopted, the plan the GOP released earlier this week will indeed revamp the tax code.
The claim of the plan representing the largest tax cut in history may be another matter. There’s simply no way to evaluate that claim. The tax code is many thousands of pages long, and all we’ve been treated to thus far is nine pages of bullet points.
Generally, when a politician of any affiliation makes claims of the best, worst, biggest, smallest ever whatever, it’s advisable to look under the hood.
We did that for you, as best we could. For this make and model, here’s what’s in it for you:
Bigger standard deductions: The plan doubles the basic tax breaks, so a married couple can deduct $24,000 right off the top and a single filer $12,000. That’s up from $12,700 and $6,350, respectively. Verdict: More money in your pocket.
Simpler forms: Trump has said the vast majority of Americans will be able to file all of their taxes on a single sheet of paper, without the need for a professional tax preparer. No more long nights with a pencil, calculator and reams of receipts — or the 21st century digital online version thereof. Trump does this by basically wiping almost all of the itemized deductions. Some of the most popular remain: education, retirement, mortgages, charitable giving and health care expenses. Verdict: Less money in your pocket.
Fewer tax brackets: Currently the IRS breaks us all up into seven income blocks. Trump aims for three, but we don’t yet know what the brackets will be. This is where the details will matter. The Trump plan calls for the highest earners to pay 35 percent, the middle bracket to pay 25 percent, and the least affluent to pay 15 percent. Currently, taxes range from just under 40 percent for people making $418,400 to 10 percent those earning less than $9,325. In Arizona, the median household income is around $53,500. This year they paid a base rate of 25 percent, and would again. Verdict: For most people this will likely be push.
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The “Death Tax”: Under the Trump plan, the inheritance tax will come face-to-face with The Grim Reaper. It’s gone. This will not affect that many people, because taxes are only collected on estates larger than $5.5 million. Verdict: The rich get to keep their riches.
State Taxes: The new plan would eliminate the itemized deduction of state taxes, one of the most popular tax breaks. Verdict: Depends on where you live. A New York Times analysis showed that this favors red states that tend to have lower taxes than blue ones. A smaller proportion of taxpayers in red states claim this deduction, and in Arizona between 25 and 30 percent do, the Times reported. Verdict: For about a quarter of you, this means less money in your pocket.
Alternative Minimum Tax: This tax will be repealed. Uncle Sam currently levies this on households earning between $200,000 and $1 million and was designed to ensure they paid some tax and not slip between the cracks with deductions. Verdict: About 5 percent of Arizona families earn more than $200,000. They would likely have more money.
Corporate Taxes: These would be sharply cut to 20 percent, down from the current 35 percent and below the average for industrialized nations, which stands at 22.5 percent. Small businesses would be taxed at 25 percent. Also, businesses can write-off their capital investments in anything that’s not a building. Verdict: If you believe in trickle-down economics this will indirectly help people by stimulating the economy. If you don’t, or if corporations sit on their wealth as some have in recent years, then it largely benefits shareholders and execs.