President Donald Trump unveiled more details of his much-anticipated tax plan on Wednesday, introducing sharp reductions in the taxes both individuals and corporations would pay.
In what Treasury Secretary Steven Mnuchin is calling the “largest tax reform in the history of our country,” Trump proposed the number of individual income tax brackets be cut from seven to three—10 percent, 25 percent and 35 percent—and the tax code become so simple, you can file your taxes on a “large postcard.” Although it’s not clear yet what income ranges would fall into each of the tax brackets, most Americans would likely see some tax relief (including the wealthiest).
How could the new tax proposal affect you?
A lot depends on what kinds of deductions you take. Here are some highlights from the White House memo released Wednesday:
- Individual income tax brackets would be cut from 10, 15, 25, 28, 33, 35 and 39.6 percent to just three: 10, 25 and 35 percent. The less than 3 percent of Americans currently in the top bracket—or those making more than $415,050 annually—would immediately see relief. It’s not clear yet how other taxpayers might benefit from the change, but last year Trump proposed that those paying 15 percent now (with annual income of $9,275 to $37,449.99) be moved to a lower bracket.
- The administration would double the standard tax deduction for individuals and married couples filing separately from $6,300 to $12,600. The standard deduction for a married couple filing jointly will jump to about $24,000.
- It looks like most itemized tax deductions would be eliminated with the exception of deductions for mortgage interest paid and charitable contributions.
- The President says he would also provide tax relief for families with child and dependent care expenses, but didn’t offer immediate details.
- The estate tax, which is estimated to affect less than 1 percent of the U.S. population, would be repealed. (In 2017, someone can leave as much as $5.49 million to heirs and pay no federal estate or gift tax under the current estate tax.)
- The Alternative Minimum Tax, an alternative method of calculating taxes owed that primarily affects well-off households, would also be repealed. (In 2017, for example, an estimated 30.9 percent of households with reported income between $200,000 and $500,000 will be affected by the AMT, says the Tax Policy Center.)
Who benefits most?
Wealthy Americans will clearly benefit from Trump’s proposed plan. As for the rest of us… Well, any taxpayer who typically takes the standard tax deduction will benefit from it doubling. And that’s most Americans. A recent Tax Foundation analysis of 2013 IRS data found more than two-thirds of households chose to take the standard deduction. (Those who depend on itemized deductions, on the other hand, could potentially see their taxes increase.) And depending on the final income ranges for each tax bracket, millions of Americans could enjoy a lower tax rate, too.
Trump has also proposed a deep cut in the corporate tax rate—from 35 to 15 percent—and expanded it to include not just corporations, but also small businesses and, notably, other conglomerates like Trump’s own real estate empire.
So what happens now?
The Trump administration says it will hold sessions with “stakeholders” to receive their input and continue working with the House and Senate to develop the plan’s details throughout May.
If it’s passed as is—and that’s a big if, as many Democrats oppose it and some Republicans have questioned whether projected economic growth can offset the loss of revenue from these tax cuts—most Americans could see some benefit. But the plan would be a windfall for Trump: NPR and others estimate Trump’s proposed cuts would potentially slash his own tax burden in half, saving him tens of millions of dollars.