- The GOP’s tax plan is being billed as a boon for hard-working middle-class Americans.
- Exactly how much you save would depend on many factors, including whether you itemize deductions.
- In the chart below, we’ve calculated potential tax savings for a single, childless taxpayer who claims the standard deduction.
The GOP’s tax plan is being billed by the White House and Republicans as a boon for the middle class.
The House passed its 429-page tax bill, called the Tax Cuts and Jobs Act, in November. Under the plan, tax brackets would be reduced from seven to four, and the standard deduction would be increased.
Senate Republicans voted to pass their version of tax legislation early Saturday. Significant differences exist between the two plans.
Republican leaders expect the next step will be a conference committee, where Senate and House Republicans will agree on a final version. President Donald Trump has said he wants tax reform on his desk by Christmas.
As it stands, take-home pay could increase — albeit slightly — for most Americans under the tax plan.
We were curious how it might change, so we ran some numbers using the current proposals.
The estimates in the chart show how much single, childless taxpayers at different income levels who claim the standard deduction might save if tax reform becomes law. We also calculated how the tax plans could affect a family of four with two kids under 17.
Tax savings for a single, childless taxpayer under Senate Republicans’ tax plan
- $25,000 household income: estimated annual tax savings of $369.
- $75,000 household income: estimated annual tax savings of $2,129.
- $175,000 household income: estimated annual tax savings of $5,240.
Tax savings for a single, childless taxpayer under House Republicans’ tax plan
- $25,000 household income: estimated annual tax savings of $202.
- $75,000 household income: estimated annual tax savings of $2,078.
- $175,000 household income: estimated annual tax savings of $4,289.
Most Americans will see a slight increase in their take-home pay under the current proposals, but that could change in the future as many of the provisions are set to expire after 2025. Some analysts have said that nearly half of Americans would see a tax increase at that time.
Exactly how much taxpayers will save if Republicans succeed in overhauling the US tax code will depend on many factors, but tax cuts for average Americans aren’t likely to be as sweeping as Republicans make it sound.
Wealthy Americans, including President Donald Trump, stand to benefit handsomely from the tax plan, thanks to proposals to eliminate the estate tax and the alternative minimum tax, among others.
There are a couple of important points to help clarify how the plan could affect the average American taxpayer, not just high-earning Wall Street pros.
Most Americans do not itemize tax deductions
According to the most recent IRS analysis of individual tax returns, 70.4% of taxpayers claimed the standard deduction on their tax return.
Americans who do claim the standard deduction would be able to further reduce their taxable income under the GOP’s tax plan, in turn reducing their tax bill.
Single filers would deduct $12,200 under the House’s plan or $12,000 under the Senate’s plan — slightly higher than the current combined $10,400 deduction, which includes the standard deduction and one personal exemption.
Joint filers would deduct $24,400 under the House’s plan or $24,000 under the Senate’s plan — up from the current $20,800, which includes the standard deduction and two personal exemptions.
But the House’s tax plan does away with many deductions, which could increase federal taxes for Americans who itemize their deductions. Among those who do, the average claimed for 2014 was $27,447.
The US does not have a flat tax — federal income taxes are calculated on a progressive basis
If your income falls into the 25% bracket, you don’t give the federal government 25% of your income. That would be a flat tax, the type of plan favored by Sen. Ted Cruz, but it isn’t how our current progressive system operates.
Here’s how the most basic calculation works — something you probably learned in a high-school government class and then quickly forgot — for a single taxpayer who will not itemize their deductions in 2017:
- Figure out your taxable income: annual salary – deductions – any exemptions.
- Everyone pays 10% federal income tax on their first $9,325 of taxable income.
- Everyone pays 15% federal income tax on their next $9,326 to $37,950 of taxable income.
- Everyone pays 25% federal income tax on their next $37,951 to $91,900 of taxable income.
- And so on through the rest of the tax brackets up to your total amount of taxable income.
Your tax bracket applies only to the amount you earn above the minimum income threshold for that bracket. For income below that limit, you pay the same federal income tax percentage as everyone else, even if they earn less overall.
Trump and his tax team — which includes House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, National Economic Council Director Gary Cohn, Treasury Secretary Steven Mnuchin, Senate Finance Committee Chairman Orrin Hatch, and House Ways and Means Committee Chairman Kevin Brady — have said they want to make “the tax code simple, fair, and easy to understand.”