The Senate tax bill — which Republicanswith no Democratic support — is supposed to provide “broad relief” to companies and families.
That is complicated by the Joint Committee on Taxation’s finding that the bill will still add at least $1 trillion to the deficit and grow the economy slower than Republicans had hoped. The nonpartisan JCT has also said “every tax bracket” would pay less. Its proponents, including recent supporter Sen. John McCain, have claimed that the bill would “directly benefit all Americans.” Critics, meanwhile, point to the millions of low- and middle-income families whose tax cut would be modest and whose taxes would rise in 10 years.
But averages obscure the reality that each family’s tax situation is unique. Families earning the same dollar amounts can pay vastly different income tax rates, depending on the particulars of their family and where their income comes from.
The New York Times analyzed how the bill would play out for a wide range of taxpayers classified as middle class — those earning roughly between $40,000 and $125,000 per year — and found some common themes. People with children would benefit under the proposed bill, but single earners would not. Higher earners would benefit more. And when the tax rate reductions expire, they would return to their current, much higher, levels.
Here’s a look at how four hypothetical households will fare. These examples are simplified, and don’t include changes it will undergo in conference. Nor do they include the effects of payroll taxes — those paid on the first $118,000 of income to fund Medicare and Social Security.
Married with children
Let’s take a couple that fits the archetypal idea of “middle class.” Maya and John are married, have two children and two jobs, earning a combined $71,000 — the US median for a family. Like about two-thirds of taxpayers, they don’t itemize but take the standard deduction. Let’s also assume they contribute a tenth of their joint income to a tax-deferred 401(k) plan run by their employer.
Under current law, Maya and John would pay $3,250 a year in federal taxes. That’s after the standard deduction and personal exemptions for themselves and their dependents bring their taxable income down to $35,000; they also benefit from the child tax credit. That figure also doesn’t include payroll taxes that are taken out of their paychecks.
The Senate’s tax plan would lower the tax bracket they’re in from 15 percent to 12…