Proposed Tax Changes
Earlier I posted a link to the new GOP tax plan on my Facebook page. Now that I’ve had a chance to look it over, there still isn’t much to tell. It would be great to do a little calculator that tells people how these proposed changes will affect them. Unfortunately, there isn’t enough information to do that.
Here’s what has been disclosed so far:
- Standard deduction is going up. If you take the standard deduction this, by itself, is a win for you. And even if you itemize, you still might benefit from this. From 2016 numbers, the standard deduction for single taxpayers goes from $6,300 to $12,000 ($12,600 to $24,000 for married filing joint.) However, before you get too excited, see item #2.
- Personal exemptions are going away — replaced by the increased standard deduction. Since the per person exemption was $4,050 in 2016, if you have any dependents, that increase in standard deduction will NOT make up for your loss of personal exemptions.
- Child tax credit – this is supposedly going to increase “substantially”, however no dollar amount is given. If you have children under 17, this may make up for losing your personal exemption, but we really don’t know.
- Non-child dependants will get a credit of $500. That should make up for the loss of personal exemption. I have to wonder though, does it also include child dependants 17 and over? We don’t know the answer to that.
- Elimination of most itemized deductions other than mortgage interest and charitable contributions. Notice what’s missing? Taxes paid. That means that most people who did itemize will not itemize anymore.
- Fewer tax rates – There will be only three personal rates instead of seven (12, 25, and 35%.) Is that a good thing? We have no idea, because there have been no specifics on what income levels these rates will apply to.
- Small business maximum tax rate of 25%. By maximum, we assume that small business owners would get the same benefit of the 12% rate, but we really don’t know.
- Elimination of AMT – This normally affects only high-income taxpayers, and could result in significant tax savings for them.
- Elimination of Estate Tax – This only affects you if you have an estate worth over 5.45 MILLION dollars. ($10.9 million if married). What concerns me, and I don’t know the answer to this, is whether the elimination of the estate tax means the elimination of the “step up in basis”. The step-up in basis is something that people of all income levels benefit from when they inherit assets.
After going over this, I have to say that based on what we have so far, I don’t see any big benefits to the middle class. Some middle-class taxpayers could potentially come out worse. The truth, however, is that there are some big benefits for extremely high-income taxpayers in items #8 and #9. If you are concerned, I would suggest you call your elected representatives and ask them to release the missing information, particularly:
- Tax rate brackets
- Child tax credit amount
- Other dependant credit for children 17 and over
- Will we still have the “step up in basis” on death?
If you would like to read the proposed tax plan for yourself, you can find it here: