What to Expect From Trump’s “biggest Tax Cuts” Plan
On Wednesday, President Trump is set to propose a tax plan that will include “possibly the biggest tax cut we’ve ever had.” Here’s what he wants to do and what it means to you.
Trump’s “massive” tax cut
First, he is likely to announce a cut in the corporate tax rate, which he proposed to drop from 35 percent to 15-20 percent . But he also promised to cut individual taxes. He wants to reduce the number of tax categories and simplify the system, including deductions and loopholes, as well as reduce the top tax category from 39.6 percent to 33 percent.
Right now, our tax system includes seven brackets, and Trump’s tax plan will cut them to three : 12 percent, 25 percent, and 33 percent. He also proposed increasing the standard deduction from $ 6,300 to $ 15,000 for single taxpayers and from $ 12,600 to $ 30,000 for joint filing couples. To offset the cost of this, he proposes eliminating personal benefits , including dependents’ benefits, and a deduction for the head of household. During the campaign, he did come up with a childcare deduction plan (the Center for American Progress estimates it will save middle-class families an average of $ 5.55 a year).
How much will you save
The Tax Policy Center analyzed the numbers to see how much taxpayers would save with the change . Unsurprisingly, the richest taxpayers benefit the most from the cut. Middle-income households will receive an average tax cut of about $ 1,010 (1.8% of after-tax income), while the richest 1% will receive $ 214,690 (13.5% of after-tax income).
With the abolition of benefits, some taxpayers will actually pay more under the new plan , namely those who earn between $ 20,000 and $ 50,000 a year and have children. You can use this calculator to see how your own taxes will change according to Trump’s proposed plan.
Trump also proposed abolishing the Alternative Minimum Tax , a tax designed to offset the cost of loopholes that allow the super-rich to harbor a large percentage of their income (although the AMT has also made taxes harder for many middle-income taxpayers). ).
How will this affect the economy
Overall, he is proposing some pretty serious cuts, which begs the question: How will this affect the budget? Treasury Secretary Steve Mnuchin said that “the tax reform will pay off with economic growth.” The idea is that we give taxpayers more money and they use it to stimulate our economy .
However, economists don’t think it’s that simple. Mark Mazur, director of the Center for Tax Policy, says the effect will be modest. We can see short-term growth, but this contraction is likely to lead to an increase in debt, which will stunt any growth.
As economist Alan Cole of the Tax Fund said , “Net tax cuts don’t pay off.”