By Chad Silver of Silver Tax Group posted in Tax Law on Tuesday, February 7, 2017.
President Donald Trump’s first few weeks in office have been met with a flurry of activity from the White House. Among the many proposals President Trump has for his administration is a tax plan that could cut the total number of tax brackets from seven to three and eliminate the estate tax.
Little has been said about Trump’s tax plan since the November election, but it is one of a handful of proposals that could affect every income earner in the country. Before the election, a poll by RAND Corporation, a nonprofit global policy think tank, showed that 51 percent of Trump voters supported raising taxes on the wealthy. However, that could turn out just the opposite, according to NPR.
How the plan will affect different groups of earner
Let’s take a look at how the President’s plan will affect different groups of earners. It is important to note that any proposal touted by Trump will have to originate as a bill in the House of Representatives and gain approval in the Senate before it becomes law via the President’s signature.
Under Trump’s plan, the wealthiest Americans will pay a rate no higher than 33 percent, seven percent less than the current tax bracket for income more than $415,000. Meanwhile, single Americans earning $37,500 to $112,500, who are considered “middle class,” will be taxed at 25 percent.
Married filing jointly
All married filing jointly couples that make less than $75,000 could pay a 12 percent tax. This plan increases taxes two percent on couples making less than $18,550 per year because it eliminates the 10 percent bracket for the lowest earners.
Child care costs
Married filing jointly families could see changes related to child care costs. Although a family earning $40,000 to $50,000 would be in a lower tax bracket, they could lose deductions of child care costs. Single parent families could see the biggest changes as a result of Trump’s proposal. A single mother earning more than $75,000 could face a tax increase of $2,400 if the plan also eliminates a child tax credit.
If Trump is successful at reducing the corporate tax rate, the cost of child care could be offset by a better economy overall, according to his advisors, but the actual benefit is still subject to debate by experts.
Trump’s proposal would also eliminate the federal estate tax, also known as the “death tax.” Currently, only the wealthiest one percent of estates are subject to this tax.
Well-to-do families want to be honest in their income tax reporting, but rapid changes to the law can make compliance difficult. Despite the best of intentions by Trump and economic experts, the market may respond in unforeseen ways. Facing a potential for uncertainty, families can rely on advance tax planning as the law changes.