How Trump’s tax plan could affect ordinary taxpayers
The White House unveiled a broad outline Wednesday for a dramatically simpler tax code that could lead to lower tax bills for many ordinary taxpayers but also eliminate many of the tax deductions that Americans currently claim.
Until more details are known, it is difficult to know exactly how some taxpayers will fare. The White House will need to work with Congress on the final plan, which could look very different if lawmakers push back against some of the proposed changes.
Here is a look at some of the major changes that could affect you:
Larger standard deduction
The plan calls for doubling the standard deduction that taxpayers can claim, which would lower tax bills for some and lead to a much simpler tax filing process for others. Under the proposal, married couples filing jointly would not owe income taxes on the first $24,000 of income (up from $12,600).
Most tax deductions are going away
All individual tax deductions would be eliminated, with the exception of deductions related to homeownership and charitable contributions, Treasury Secretary
Under that scenario, taxpayers would no longer be able to write off expenses now commonly deducted, such as state and local property taxes and medical expenses. The White House will have to work with Congress to finalize the details of the plan, and it's not clear if lawmakers will be willing to eliminate some of the deductions that may be popular in their home states.
Fewer tax brackets
The proposal would reduce the number of tax brackets from seven to three, with rates of 10%, 25% and 35%. Current rates range from 10% to 39.6%. High-earning taxpayers could see an immediate break on their income taxes, while low-income families may not feel much of a change, says Alan Cole, an economist with the Tax Foundation, a conservative think tank. However, the proposal did not disclose the income ranges for the new tax brackets.
Bigger tax breaks for parents
The plan calls for increasing the tax benefits available to families paying for child and dependent care, such as day care, but few details were provided. Trump is considering raising the Child and Dependent Care Tax Credit, a tax break that currently allows parents to reduce their tax bills by up to $2,100, based on how much they spend on child care.
The approach would be different from Trump's earlier plan, which was criticized as favoring higher earners. That plan would have allowed parents to deduct the cost of child care from their income, which would not have resulted in substantial tax savings for lower-income families that don't owe much in income taxes in the first place.
Reduced taxes on the wealthy
The plan calls for eliminating two key taxes that traditionally affect higher earners: the alternative minimum tax and the estate tax. The alternative minimum tax is intended to prevent high earners from being able to avoid all income taxes but can also affect middle-income taxpayers.
The estate tax affects people who inherit wealth or businesses worth more than about $5.5 million. Some people struggle to pay tax bills owed on money and assets they inherit from family members, National Economic Council chief Gary Cohn said.
Lower tax rate for business owners
Some small and family-run businesses are subject to individual income tax rates, which are currently as high as 39.6%. Under the president's plan, they would pay a lower rate of 15%. Mnuchin said the administration would include provisions to keep the wealthy owners of large businesses from taking advantage of the lower rate, but did not offer details.
Jonnelle Marte writes for the Washington Post.
