The biggest help for low and middle-income earners will be a doubling of the standard deduction from $12,000 to $24,000. Anyone earning under the standard deduction will pay zero income tax and those in the middle-income bracket will pay substantially less.
Itemized deductions are also being almost completely eliminated. While the mortgage and charitable donation deductions would remain under the plan, state and local tax deductions, among many others, would not.
The tax reform plan also features a reduction in the number of tax brackets from seven to three at 12%, 25%, and 35%. While the lowest rate increases from 10% to 12%, the increase is expected to be more than offset by the increased standard deduction resulting in lower taxes for those in the lowest bracket. The exact income breakouts of who will end up in which bracket has not yet been released making it difficult to understand who will see higher or lower rates. Top income earners will see a drop of 4.6% from the current 39.6% but the elimination of almost all itemized deductions, a tool the wealthy use to limit tax exposure, will likely lead to them paying the same or more than under the current system.
The corporate tax rate will be reduced from 38.91% to 20% making America competitive with other highly-industrialized nations. The EU measures in at 21.8% and Asia at 20%.
Small business owners that file their company’s earnings on their personal tax returns would also see relief as the top rate they would pay for business income would be capped at 25%
The plan also mentions that the child tax credit will be increased, the elimination of the marriage penalty for those making less than $110,000, and a $500 tax credit for non-chile dependents such as elderly parents.
President Trump and House Majority Leader Paul Ryan have several times mentioned that filing taxes is far too complicated, but the released talking points don’t mention how the White House tax reform initiative will accomplish that goal.