How Much Will Tax Reform Really Affect the American Family?
Liberals and most media publications have been quick to jump on the new tax reform plan, criticizing it for being bad for the middle class, or putting pressure on the American family. But what effects will the new tax plan really have on the American family? Are there going to be major changes, or have these been exaggerated by the press?
Let’s break down exactly what this plan is changing, and when it’s changing it.
- Consolidated tax brackets. First, the standard tax brackets we’ve been using are going to change. This year, there are seven tax brackets broken down by income. Under the new plan, these would be collapsed and simplified into four. The rates would change significantly, with a slight increase to the lowest marginal rate, and the highest rate remaining the same.
- Higher standard deductions. One of the most important components of the plan is an increased standard deduction and a child tax credit. The standard tax credit is most important for middle-income earners, giving them a specific exemption on the income they make. This amount is set to double, potentially giving a bigger tax break to everyone who uses it.
- Higher child tax credits. There would also be higher child tax credits. The exact amount here hasn’t been decided, but it could be around an additional $500 extra per child. This could add up to enormous savings for families.
- No more personal exemption. There’s no longer a personal exemption, which currently offers around $4,050 per person in total deductions. However, this elimination has been compensated for with the new higher standard and child deductions.
- Elimination of most tax deductions. Many deductions have been eliminated entirely, consolidated into the standard deduction. Mortgage interest and charitable deductions are going to remain, but deductions for state and local taxes could go.
- Lower corporate income tax rates. The corporate tax rate will be slashed from 35 percent to 20 percent, with the intention of incentivizing business owners to invest, expand, and create more jobs for the American people.
- Territorial corporate tax rates. The corporate tax rate won’t be consistent around the world, however. United States companies can treat foreign income as tax-free, but any untaxed income overseas will be taxed at a one-time fixed rate, which will depend on how the money is held.
- Other specifications for companies. There will be a number of other tax changes for companies, including the elimination of depreciating investments and a limitation on how much debt can be deducted from taxable income.
- Other tax cuts for the wealthy. There are also a handful of important cuts meant mostly for the wealthy, including the elimination of the alternative minimum tax and the abolishment of the estate and gift tax.
Do note that the current tax reform bill has not yet been signed into law. There are separate House and Senate bills, each with minute discrepancies, that need to be ironed out. Once reconciled into a single piece of legislation, it will be available for President Trump to sign, at which time, it will go into effect.
What It Means for American Families
So what does this mean for American families?
- Simpler taxes. Everything is simplified under this tax plan. Instead of the complexities of itemized deductions and confusing tax bracket cutoffs, there are more standard, overarching deductions and fewer tax brackets.
- Higher standard deductions. The higher standard deductions, including a higher child tax deduction, mean that most families will pay less in taxes moving forward.
- Smaller tax payments for small businesses. Small businesses, too, are going to see a significant tax break with the reduction of corporate taxes and other changes to business-related tax laws.
- Loophole eliminations. Many of the changes in the tax reform plan were meant to eliminate tax loopholes being taken advantage of. This means there will be more accountability throughout the country for businesses and individuals, and less of a tax burden on people who aren’t exploiting those loopholes.
This isn’t a perfect tax plan, but no tax plan is. Too many people are criticizing the tax plan just because it’s associated with President Trump, without looking at the objective benefits it’s going to have for the average American family. There are many variables to consider here, and not every middle-class citizen is going to benefit equally, but the new rules aren’t a plight for the middle- and lower-class; in most cases, they’re an improvement.