WASHINGTON (MEDIA GENERAL) — President-elect Donald Trump has promised to simplify the federal tax code and shield middle-class bank accounts from the IRS.
His plan calls for fewer tax brackets, shrinking corporate taxes, extending child care tax credits and eliminating the head-of-household category.
But the actual wins and losses will be a more complicated matter.
Congressional GOP leaders and Trump have pegged the passage of major tax reform as a top-tier priority for passage shortly after he takes office on Jan. 20, 2017.
Nuts and bolts
Slimming down the bloated tax code will be difficult.
Let’s start with the basics.
Under the Trump plan, the number of individual- and married-filing brackets will be whittled down from seven to three.
These categories would impose a 12 percent, 25 percent or 33 percent tax, depending on income.
Corporate taxes will fall from 35 percent to 15 percent, which Trump promises will encourage businesses to reinvest billions and hire millions of additional employees.
“The wealthy are going to create tremendous jobs. They’re going to expand their companies,” Trump vowed during the campaign, predicting that his plan could spur the creation of 25 million new jobs.
The nation’s wealthiest citizens stand to gain the most under Trump’s plan.
Despite the president-elect’s previous assertion that some aspects of his agenda will “really not be a great thing for the wealthy,” it would create a windfall for the affluent.
“The top one percent would get about half of the benefits of his tax cuts,” NYU Law professor Lily Batchelder told NPR.
You read that right – half.
In fact, by her calculations, “A millionaire, for example, would get an average tax cut of $317,000.”
(Some) Lower-income Americans
Trump’s plan will drastically expand the non-taxable bracket.
This category is made up of low-earning workers.
The nonpartisan Tax Policy Center found that the number of Americans falling into this group will explode:
On balance, the plan would significantly increase the number of households that would pay no income tax (or would receive an income tax refund). In 2017, an estimated 110 million households would pay no income tax under the plan, compared with 77 million under current law. That would boost the percentage of households paying no income tax from 44 percent to 63 percent.
Republicans’ stated goal is to goose the market, resulting in higher wages and lifting this low-income category of workers into higher brackets of tax-paying citizens.
Tax-filing software companies
Accountants can make a killing off of clients willing to fork over major sums in return for their expertise in navigating the 74,000-page federal tax code.
The head-of-household category and four tax brackets would be nixed, along with widespread use of exemptions and deductions.
The Trump plan is aimed at streamlining this process, encouraging taxpayers to use a newly-expanded “standard deduction” rather than a hodge-podge of existing exemptions and deductions.
“He would increase the standard deduction from $12,600 to $30,000 ($15,000 if single) and eliminate personal exemptions,” writes Forbes.
With fewer boxes to fill in, tax-filing software companies will likely capitalize on the straightforward process and encourage taxpayers, once intimidated by the system’s intricacies, to DIY and save a bundle on accounting fees.
Child care users
The new tax code would allow families to deduct child care expenses.
As every parent knows, child care costs can stretch family budgets to their absolute limits, eating up tens of thousands of dollars over the course of childhood.
Under the Trump plan, “Parents could deduct the average cost of child care in their state, based on their child’s age. The deduction would be available for up to four children or elderly dependents,” explains CNN Money. “Anyone making less than $250,000 ($500,000 if married) would be eligible to take the tax break.”
Low-income workers in the non-taxable category would be eligible for an earned income tax credit (EITC) of up to $1,200 annually.
The current $4,050 personal exemption (per child) is on the chopping block.
For families with several children, that’s a big deal.
Parents will theoretically be able to offset this loss by claiming the enlarged standard deduction (see above), but some families may find this transition difficult if the standard deduction doesn’t cover their large family or if they don’t utilize expensive child care, which can be written off.
(Other) Low-Income, Single-Parent Families
While millions of households will fall into the non-taxable category, Forbes reports that “approximately 7.8 million low-income large families will experience increased tax bills under the Trump plan.”
For these families, every dollar counts and the Trump plan could present fresh economic difficulties.
“The tax hikes that would hit single parents and large families would result from Trump’s plan to eliminate the personal exemption and the head-of-household filing status,” explains Christopher Rugaber of the Associated Press. “These features of the tax code have enabled many Americans to reduce their taxable income.”
NPR laid out a few scenarios by the Tax Policy Center where the Trump plan is disadvantageous:
- A single parent with $75,000 in earnings, two school-age children and no child care costs would face a tax increase of around $2,440.
- A single parent with $50,000 in earnings, three school-age children and no child care costs would also face a tax increase of around $1,188.
- A married couple with $50,000 in earnings, two school-age children and no child care costs would face a tax increase of about $150.
While many groups will benefit financially, particularly the mega-rich, most single parents won’t profit to the same degree.
Taxes aren’t popular, but they fund federal programs which benefit and employee millions of Americans.
The Tax Policy Center estimates that the Trump plan will cut federal revenues by $9.5 trillion over the next five years and an additional $15 trillion the following decade.
$25 trillion. That’s a lot.
Trump claims his program will spark huge job growth and its attendant tax revenue will fill in the budgetary gap but most experts find this to be highly improbable.
With trillions of dollars drained from federal coffers, Congress would either be forced to increase the national debt, raise taxes or drastically cut federally-funded programs.
Follow Chance Seales on Twitter: @ChanceSeales