- President Donald Trump’s tax plan aims to change the seven tax brackets we have now.
- Republican leaders in the House and Senate have taken different approaches to modifying current federal income tax brackets.
- Both proposals increase the standard deduction and eliminate personal exemptions
The long-awaited details of US President Donald Trump’s tax plan are beginning to come together.
In November, the House voted to pass the “Tax Cuts and Jobs Act,” which Trump has said he wants to be finalized and on his desk before Christmas. The Senate passed its own version early Saturday. Republican leaders are likely headed to a conference committee to combine their separate bills into a final tax reform plan.
One tax-reform theme has been consistent since the days of candidate Trump: The federal income-tax brackets could be simplified from the seven we have today.
The charts below show what we know so far about how Trump’s tax plan could change federal income-tax brackets compared to 2017 tax brackets.
House Republicans have proposed four federal income tax brackets: 12%, 25%, 35%, and 39.6%. The plan laid out by Senate Republicans keeps seven tax brackets but tweaks the rates and the income ranges associated with each. The brackets proposed are 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%.
Most Americans — about 70% — claim the standard deduction when filing their taxes. For those who do, their paychecks will almost certainly increase if Trump’s tax plan passes, thanks to proposed tweaks to the current standard deduction and tax brackets.
In 2017, the standard deduction for a single taxpayer is $6,350, plus one personal exemption of $4,050. The House’s proposal essentially combines those into one larger standard deduction: $12,200 for an individual, and $24,400 for joint filers.
Under the House Republicans’ plan, many deductions would be eliminated, including the state and local income tax deduction and the student loan interest deduction. The mortgage interest deduction would be cut in half, affecting home buyers in expensive housing markets. Taxpayers will still be able to deduct 401(k) savings, however.
“We have to acknowledge that any effort to cut or reform taxes is inevitably more complicated than tackling healthcare,” Mark Hamrick, the senior economic analyst at Bankrate.com, said in an email. “Healthcare involves around one-sixth of the US economy, while taxes covers pretty much everything. That makes the broader fight even larger and more complicated.”