Posted on 11/11/2017 7:41:56 AM PST by NaturalBornConservative
Point #1
Like a broken record, Republican promotors of the Tax Cuts and Jobs Act insist that by raising the 2018 standard deduction for single filers from $6,500 to $12,200, for couples from $13,000 to $24,400, and by lowering selective tax rates, that their plan will usher in a huge tax cut for the middle-class. It, in fact, does no such thing.
Whenever challenged with the reality that their proposal will result in a tax increase on many of their constituents, they exclaim, “Yes, but we are doubling the standard deduction!” Yet, not one of them ever mentions that they are, simultaneously, repealing the personal exemption deduction of $4,150, per person.
In 2018, the standard deduction for single filers will be $6,500, and for married taxpayers filing jointly $13,000, while the personal exemption will be $4,150 (per person). That means a single non-itemizer would already have received $10,650 ($6,500 standard deduction + $4,150 personal exemption) of tax exempt income before the proposal, versus $12,200 after. And, a married couple, without children and not itemizing, would already have received $21,300 of tax exempt income before the proposal, versus $24,400 after.
For single filers, the difference between $12,200 and $10,650 isn’t double, it’s only $1,550. For married couples, the difference between $24,400 and $21,300 is a mere $3,100. This isn’t a doubling of the standard deduction. It is effectively an increase to the standard deduction of $1,550 for single filers and $3,100 for couples without children. So, please stop lying to us.
Furthermore, since this is income that would have been taxed at a rate of 10% before the proposal, the amount of taxes saved will be just $155 for singles, and $310 for couples without children. Those with at least one child will start out in the hole, and must rely on an expansion in tax credits just to get back to par.
Point #2
According to the Congressional Research Service, more than 50% of taxpayers with adjusted gross incomes of $50,000, or more, itemize their deductions. Those with $50,000 to $100,000 of adjusted gross income claim average itemized deductions of $19,187, while those with $100,000 to $200,000 in income claim an average of $25,598 (see table below).
So, more than half of taxpayers, who pay most of the income tax, itemize. And, the Republican bill seeks to eliminate their deductions for state and local taxes, real estate taxes, medical expenses and unreimbursed employee expenses. This won’t end well.
Among the deductions Republicans seek to disallow, according to the Congressional Research Service, on average, most itemizers with adjusted gross incomes of $50,000 to $100,000 stand to lose a least the following (see table above):
You might say that mortgage interest, real estate taxes and state and local taxes go hand in hand. But, that doesn’t mean one should discount the importance of deductions for medical and unreimbursed employee business expenses.
Almost everyone knows at least one infirm or elderly person that spends all or most of their income on medical care. This is not by choice. Denying them the ability to offset their income will force many into a tax liability where none previously existed.
Collecting taxes from the elderly and infirm, those with the least ability to pay, is of course detestable, but well within the spirit of this horrible bill. The same applies to sales persons and other employees who spend much of their time on the road and are not reimbursed for all the expenses they must incur to earn their pay.
Add the loss of deductions for the state and local taxes, and real estate taxes to the loss of the $4,150 (per person) personal exemption deduction, and single itemizers with adjusted gross incomes between $50,000 and $100,000 stand to lose total deductions of at least $10,523, while married itemizers (without children) lose $14,673.
Thus, under the Republican proposal, an average single itemizer with adjusted gross income between $50,000 and $100,000 stands to lose $10,523 in deductions, which equates to an $1,884 tax hike (at 17.9%). An average married couple (without children) in the same bracket will lose $14,673 in deductions, which equates to a $2,421 tax hike (at 16.5%).
Single itemizers with incomes between $100,000 to $200,000 will lose total deductions of $15,066, while married filers (without children) lose $19,216. Thus, an average single itemizer with adjusted gross income of $100,000 to $200,000 will see a $3,254 tax hike (at 21.6%), while a married couple in the same bracket will see their taxes rise by $3,728 (at 19.4%).
Losing the ability to deduct state and local taxes, real estate taxes, medical expenses and employee business expenses may impair a taxpayer’s ability to itemize at all. That’s because mortgage interest and charitable contributions, alone, for the majority, will not be enough to exceed the proposed $12,200 and $24,400 standard deduction. Thus, taxes will rise more on some taxpayers than others.
At this point, Republican lawmakers will say, “But, you have to look at the whole package. We are also lowering tax rates, and your boss is going to give you a $4,000, or more, pay raise.”
Expanding the 12% bracket to the first $45,000 of taxable income for single filers, to $90,000 for couples; and the 25% bracket to incomes of $200,000 and $260,000, respectively, doesn’t make up all the shortfall for those losing deductions. Although the average tax rate will drop by 1.2 percentage points on single filers, and 1.4 percentage points on couples, middle-class itemizers will at best break even. That’s because a greater amount of their income will be subject to income taxes. At worst, they are punished with a tax hike.
Apples to apples, if deductions were not being disallowed, the GOP’s proposed adjustment to the tax brackets would be a good thing. But, this isn’t apples to apples, it’s apples to applesauce. The GOP is telling more than 50% of middle-class taxpayers, who currently itemize their deductions, “We’re going to tax you on a greater amount of your income, but you’ll save money because we’re taxing it at a lower rate.”
Voilà! That explains why a majority, already carrying the burden of taxes, now face a Republican tax hike. Meanwhile, health insurance premiums continue to spin out of control, and if you’re fortunate enough to afford it, it will no longer be deductible. If this bill passes, you better hope that pay raise comes fast, otherwise the public will vote against every one of you in 2018.
The GOP’s tax reform proposal effectively raises the standard deduction by $1,550 for single filers, and by $3,100 for married couples without children, while lowering it for couples with at least one child. It takes away average deductions of $10,523 to $19,216 for more than half of middle-class taxpayers that itemized their deductions. The lowering of tax rates and expansion of tax credits are fancy mechanisms designed to mitigate a portion of the damage. This is not a tax cut, it’s a tax hike by design.
Another Way
To avoid raising taxes on the middle-class, the GOP could increase its proposed standard deduction on single filers from $12,200 to $21,800, and on couples from $24,400 to 43,600. That way, more than 50% of middle-class taxpayers won’t be punished. A move in this direction would promote simplicity and fairness. It would also be more in line with the original proposal that put DJT in the White House.
Sounds like the Democrats are still running Washington.
Donald Trump is by far the best president since Reagan. However, the GOP for the most part suck. This is no tax break for the middle class, it’s just another ponzi scheme.
Sure it will be a tax hike on a lot of people but it will be simple and lots and lots of people like simple. Right?
FYI, people in assisted living and memory care facilities will be creamed by this. Imagine, fixed income, required 24 hour medical care running $60k/yr as a minimum and easily into the 80’s and up, with no offsetting medical expense deduction. That’s a tax hit of $10k or more.
This is deduction reform, not tax reform.
Simple rate cuts won’t do for the idiot GOPe. They have to pick winners and losers on brackets, caps and limits instead of simple rate cuts, elimination of the Death Tax, elimination of the Earned Income Tax Credit, and cutting the corporate rate to 20%.
The bills are turds. Both House and Senate.
>>Sounds like the Democrats are still running Washington.
There is no R or D. There are only the Transnational Progressives and they are certainly running DC, Wall St, and most board rooms. The goal is a constant decrease in the standard of living for American workers until we all demand socialism.
Can someone tell me what exactly “tax reform” is supposed to accomplish — even if the GOP actually manages to do it well?
“The goal is a constant decrease in the standard of living for American workers until we all demand socialism.”
It’s working.
This is the best and most thorough examination of the GOP tax proposal that I’ve seen, and confirms the immediate dread that I felt when they first announced this plan. Under the current plan, we get three exemptions, one each for me, my wife, and one child, which total $12,150. And we already itemize our deductions to the tune of around $19,000. So, our deductions will only rise by about $5,000, but we are losing $12,150 in exemptions.
Yes, they are raising the break points at which your income will hit the next tax rate, but I don’t see how that is going to account for the increase in taxable income. And we are certainly NOT “rich”, but squarely in the upper portion of the middle class in income. More importantly, we are in the exact demographic profile that most strongly supported President Trump and voted for him. It’s almost as if this plan is designed to punish the most ardent Trump supporters. I think Brady and his crew think they are going to pull the wool over our eyes, but people are onto them.
>>It’s working.
Yes it is. It is masked by the flow of cheap electronics, but once the new socialist order is in place, that will shut off because our Progressive Masters will need productive laborers again (at the lower Third World rate, of course) and our credit won’t be so good anymore.
“It’s almost as if this plan is designed to punish the most ardent Trump supporters.”
Ding!
They want to punish us, and they want us to vote for our own punishment.
That’s what’s considered “good legislation” inside the beltway.
They should restore the personal exemption or even better, add it onto the standard deduction. This would give everyone a deduction high enough to not need itemizing.
The medical deduction is big for some people. Without it many will self bankrupt and go on Medicaid.
I could support the present bill as a first cut but obviously more needs to be done.
Cheap electronics and Circus.
I agree, I have done a similar analysis for my individual situation (gross income around 100 K) and I receive a small decrease under the senate plan, but because I lose medical deduction under the house plan I experience a small increase. In other words the tax plan is a big nothing for me at my tax rate and the only true benefit may come from the fact that corporation taxes are reduced. (The economy may continue to get better.)
I agree with the final paragraph of the article that the correct standard deduction would be much higher if the plan were to actually do what was promised.
Now we need to ask what is wrong with Congress? Is this a confusing method for the Chamber of Commerce to tell Trump that he can win any election he wishes but he does not get to change the way business is done?
Yeah, it looks like this plan is an attempt to lock up those voters in the $60,000 to $85,000 income range. They do not typically itemize deductions anyway, so this plan helps them.
This is tax increase on the middle class. What kind of idiots are these people!
‘There is no R or D. There are only the Transnational Progressives and they are certainly running DC, Wall St, and most board rooms. The goal is a constant decrease in the standard of living for American workers until we all demand socialism.’
There’s no Republican party. The Democrat party is mired in schism, but at least it still politically and philosophically tilts strongly left. The GOP is perhaps not quite as far left, and as you said they are crony capitalists (and globalists) with a socialist goal. But between the two, the Democrats do a far better job of representing their base than the Republicans.
I.e.: The Democrats work hard at advancing their platform. The GOP spends its time giving the middle finger to its constituents.
Flat Tax! 10 percent. NO DEDUCTIONS for anything. Its good enough for God. Should be good enough for the morons in DC!
Boy that really simplifies it and helps my small business. The entire Washington sewer is an incompetent bunch of fools and criminals.
Sounds like the chamber of Commerce is running things. Been reading that they love this plan. Damn them ALL
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