Not every bracket gets a 3% drop. In fact some of the lowest bracket goes from 10% currently to 12% proposed. Here are a couple of excerpts from Forbes and Business Insider to help explain it to you.
- A larger standard deduction. To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would increase to $12,000 for individuals (up from $6,350) and $24,000 for married couples (up from $12,700). These are slightly less than the doubled deductions expected - and, as Business Insider's Josh Barro has written, the idea that this would save people money may be misleading since it eliminates other personal deductions and a secondary standard deduction.
In selling their soon-to-be-released tax plan, Republicans have been leaning hard on what they say is a provision to cut and simplify taxes for the middle class:
doubling the standard deduction that people who pay income tax may take.
"You have to look at the plan in its entirety. It doubles the standard deduction, so in the end, even the lowest rates get a tax cut,"
Rep. Jim Renacci, a Republican who sits on the tax-writing Ways and Means Committee, told Reuters.
But a document
published by Jonathan Swan of the news website Axios shows this is badly misleading - the plan would increase the standardized deductions available to taxpayers by 15% or less.
Meanwhile, taxpayers who still wouldn't take the standard deduction under the Republican plan - those who would instead deduct things like mortgage interest - would pay tax on more of their income than they do now.
Here's the important fine print: "To simplify the tax rules, the additional standard deduction and the personal exemptions for taxpayer and spouse are consolidated into this larger standard deduction."
Here's how that math works. Let's say you are single with no dependents, and you have a moderate income. Currently, you get to take the standard deduction ($6,350) and one personal exemption ($4,050). If you are 65 or older, you also get to take an additional standard deduction ($1,250). That adds up to $10,400, or $11,650 if you're over 65.
The Republican plan would replace all these provisions with a single deduction of $12,000 ($24,000 for married couples.) That's a 15% increase - except for seniors, who get a 3% increase.
And then your first dollar of taxable income would be subjected to a 12% tax rate, instead of the current 10%. But don't worry - the framework says "additional tax relief," as yet unspecified, will emerge for you during the committee process.
For married couples, all the relevant amounts are doubled under the current tax code and under the Republican proposal, so the percent changes would be the same.
If you have children, your fate is uncertain. The plan would abolish the $4,050 exemption you get to take for each of your dependent children. But it would also increase the child tax credit - by an unspecified amount. Once that amount is specified, you'll be able to figure out whether you face a tax increase or a tax cut or what.
Meanwhile, taxpayers who itemize their tax deductions for things like mortgage interest and state and local taxes would pay tax on more of their income under the Republican plan. The proposal says "most" itemized deductions would be abolished anyway, but those for mortgage interest and charitable giving would be retained.
Currently, you get to take the personal exemption even if you also itemize deductions, but you get to take the standard deduction only if you forego itemized deductions. Combining these provisions into a single, standard deduction would mean itemizers lose their personal exemption and get nothing back - meaning they'll typically pay tax on an extra $4,050 of income if they're single, or $8,100 if they're married.
Sad!
