From the child care credit to the estate tax, here’s how the proposed changes could impact you
In a document called the Uniform Framework for Fixing Our Broken Tax Code, President Trump and GOP congressional leaders briefly outlined their tax reform proposal. Here are the most important points in the proposal for individual taxpayers, along with some commentary.
Individual tax rates
The Republican plan would reduce the number of individual tax rates from the current seven to three: 12%, 25% and 35%. Under current law, the highest rate is 39.6%. The Republican plan reserves the right to add a fourth rate that would be higher than 35%. That will probably be necessary to disarm critics who charge that the GOP plan is “tax cuts for the rich.”
The plan doesn’t specify the income levels that will determine the new tax brackets. However during the presidential campaign and shortly thereafter, President Trump proposed the following brackets for married joint-filing couples:
- Less than $75,000: the lowest rate bracket
- $75,000 to $225,000: 25% rate bracket
- More than $225,000: 35% rate bracket
For unmarried individuals, the following brackets were proposed.
- Less than $37,500: the lowest rate bracket
- $37,500 to $112,500: 25% rate bracket
- More than $112,500: 35% rate bracket
Personal and dependent exemptions and standard deductions
Under current law, personal and dependent exemption deductions are $4,050 each for 2017. The standard deduction is $6,350 for single taxpayers and married individuals who file separately, $9,350 for heads of households, and $12,700 for married joint-filing couples.
The Republican proposal would eliminate personal and dependent exemptions. To compensate, standard deductions would be increased to $12,000 for singles and married individuals who file separately and to $24,000 for married joint-filing couples.
The Republican proposal would apparently eliminate itemized deductions except those for home mortgage interest and charitable contributions. Naturally, politicians from both parties that represent high-tax states are screaming about the apparent elimination of itemized deductions for state and local taxes. A possible compromise would be to allow deductions for state and local property taxes but not income taxes. Another possible compromise would only eliminate state and local taxes for folks with really high incomes.