from Business Insider
“President Donald Trump’s tax plan is being billed by the White House and Republicans as a boon for the middle class.
The 429-page GOP tax plan, called the “Tax Cuts and Jobs Act” was revealed on Thursday. Under the new plan, tax brackets would be reduced from seven to four, and the standard deduction would be increased.
Exactly how much individuals save will depend on many factors, and as Business Insider’s Josh Barro pointed out, tax cuts for average Americans aren’t likely to be as sweeping as Republicans make it sound.
Wealthy Americans, including Trump himself, stand to benefit handsomely from the tax proposal, thanks to provisions eliminating the estate tax and the Alternative Minimum Tax (AMT), among others.
Still, as it stands now, take-home pay could increase — albeit slightly — for most Americans under Trump’s tax plan.
We were curious how it might change, so we ran some numbers using the current proposal.
The estimates show how much single, childless taxpayers at different income levels who claim the standard deduction might save if tax reform passes — something that could prove challenging, given the trouble Trump has faced in his attempts to overhaul the US healthcare system.
$25,000 salary: estimated annual tax savings of $202
$75,000 salary: estimated annual tax savings of $2,078
$175,000 salary: estimated annual tax savings of $4,289
As the conversation around tax reform continues to unfold, there are a couple important points to help understand how the plan could affect the average American taxpayer, not just high-earning Wall Street pros.
The majority of Americans do not itemize tax deductions.
According to the most recent IRS analysis of individual tax returns, 70.4% of taxpayers claimed the standard deduction on their tax return.
Americans who do claim the standard deduction will be able to reduce their taxable income further under Trump’s tax plan, in turn reducing their tax bill. Single filers would deduct $12,200, slightly higher than the current combined $10,400 deduction, which includes the standard deduction and one personal exemption. Joint filers would deduct $24,400, up from the current $20,800, which includes the standard deduction and two personal exemptions.
But, Trump’s tax plan would do away with many deductions, which could increase federal taxes for Americans who itemize their deductions. Among those who do, the average claimed for 2014 was $27,447.
The US does not have a flat tax — federal income taxes are calculated on a progressive basis.
If your income falls into the 25% bracket, you don’t give the federal government 25% of your income. That would be a flat tax, the type of tax reform favored by Ted Cruz, but it isn’t how our current progressive tax system operates.
Here’s how the most basic calculation works — something you probably learned in high school government class and then quickly forgot — for a single taxpayer who will not itemize their deductions in 2017:
Figure out your taxable income: annual salary — deductions — exemption(s)
Everyone pays 10% federal income tax on their first $9,325 of taxable income
Everyone pays 15% federal income tax on their next $9,326 to $37,950 of taxable income
Everyone pays 25% federal income tax on their next $37,951 to $91,900 of taxable income
And so on through the rest of the tax brackets up to your total amount of taxable income.
So, your tax bracket only applies to the amount you earn above the minimum income threshold for that bracket. For income below that limit, you pay the same federal income tax percentage as everyone else does, even if they earn less than you do overall.
Trump and his tax team — which includes House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, National Economic Council Director Gary Cohn, Treasury Secretary Steven Mnuchin, Senate Finance Committee Chairman Orrin Hatch, and House Ways and Means Committee Chairman Kevin Brady — have said they want to make ‘the tax code simple, fair and easy to understand.’ “