President Donald Trump announced his much-anticipated tax plan today, saying it would simplify the tax code and cut taxes on workers and corporations. Here’s what that actually means:
- What Trump’s plan says: “The framework shrinks the current seven tax brackets into three – 12%, 25% and 35% – with the potential for an additional top rate for the highest-income taxpayers to ensure that the wealthy do not contribute a lower share of taxes paid than they do today.”
- What that means: There are currently seven tax brackets, and this changes it to three. Trump did not reveal the cutoffs for the brackets, but some people in the current lowest bracket, which is 10 percent, could actually see a two-percent tax hike. And the highest earners, people who make more than $418,400 a year, will have their taxes cut from 39.6 percent to 35 percent. That could save a $500,000-a-year executive $23,000.
Standard deduction and child tax credit
- What Trump’s plan says: “The framework roughly doubles the standard deduction so that typical middle-class families will keep more of their paycheck. It also significantly increases the Child Tax Credit.”
- What that means: The current child tax credit is for families in the 15-percent tax bracket and is supposed to offset the expense of raising a family. Currently, families can receive as much as $1,000 per child. Trump’s plan would increase the child tax credit to an unspecified amount and also create a new, $500 tax credit for all dependents, which can be children or dependent adults.
Loopholes for the wealthy
- What Trump’s plan says: “To provide simplicity and fairness, the framework eliminates many itemized deductions that are primarily used by the wealthy, but retains tax incentives for home mortgage interest and charitable contributions, as well as tax incentives for work, higher education, and retirement security.”
- What that means: The new plan would get rid of a number of itemized deductions, like the alternative minimum tax, plus eliminate the estate tax, a tax on inherited wealth, and state and local tax deductions. This allows people to write off their property taxes and their state and local income taxes, which could hurt the middle class. It would keep, as the plan says, deductions for mortgage interest, which wildly benefits wealthy people, along with charitable giving, education, and retirement savings plans.
The death tax and AMT
- What Trump’s plan says: “The framework repeals the…