If President Donald Trump sticks to what he has said, Americans
earning between $149,400 and $307,900 are most likely to see an increase
in their taxes as a result of tax reform.
Those figures come from a recent study by the Tax Policy
Center, a nonpartisan group in Washington, and are based on Mr.
Trump’s statements and proposals. The study
concludes that nearly one-third of about 19 million households in
that income range could see tax increases averaging from $3,000 to
$4,000 a year.
By contrast, less than 10% of households earning the least or the
most—below $25,000 or above $733,000—would owe more after a tax overhaul. Over
all, the study found that
about 20% of taxpayers would owe more after tax reform than before it.
The issue of tax reform’s winners and losers has
resurfaced after top congressional Republicans and the Trump administration
released a set of broad principles for tax policy on Thursday containing few
But based on his proposals and statements, that is exactly what
It’s important to note that the one-page tax proposal released by the
White House in April omitted many important details. And the
Big Six, a small group of Republican
law- and policy makers now working on an overhaul plan, are meeting in
A final deal, if any, could include many changes. But the Tax
Policy’s Center’s estimates provide a useful marker in the interim.
“The broad conclusions are likely to be stable because they are based on
the tax cuts Trump has promised,” says Joe Rosenberg, an economist with
the Tax Policy Center.
The study assumed a tax plan that loses revenue overall but has tax
increases to stem losses. The provisions that would hurt revenue include changing
individual income-tax rates to 10%, 25% and 35%; doubling the “standard
deduction”; repealing the alternative minimum tax; reducing to 15% the tax rate
on corporate income and business income of “pass-through” entities such as
partnerships; and repealing the estate tax.
The provisions that would boost revenue include repealing “itemized”
deductions other than for charitable giving and mortgage interest; repealing
personal exemptions; repealing the head-of-household filing status; taxing
payouts of large pass-through entities as dividends; and taxing capital gains
at death above an exemption of $5 million a person.
The effects of these changes aren’t constant across income tiers, so the
percentage of tax reform’s net losers varies greatly among people with
The affluent are at the greatest risk of owing more for several reasons.
Compared with the working poor, they have more ability to pay higher taxes.
Compared with the highest earners, they often derive a large chunk of their tax
benefits from a host of deductions and exclusions that could be cut back.
The highest earners are more likely to reap additional benefits from
favorable rates on investment income, such as long-term capital gains, than the
affluent are. Unlike in the 1986 tax reform, which raised rates on capital
gains, there are no current plans to do that this time. The highest earners
also stand to gain greatly from provisions taxing business income at lower
The Tax Policy Center didn’t break out which changes would contribute
most to tax increases for the affluent. But it’s a good bet that a big one
is eliminating deductions for state and local taxes. These write-offs currently cost Uncle Sam
$103 billion a year, far more than the mortgage-interest deductions at $64 billion
and charitable deductions at $61 billion.
Loss of the state and local tax deduction could raise taxes for many even
if the alternative minimum tax, or AMT, is repealed, according to a different
study by Tax Policy Center economist Frank Sammartino.
This result might seem surprising because currently the AMT curtails the
benefit of deducting state and local taxes for taxpayers who owe AMT. Because
of complex interactions in the two provisions, however, about three-quarters of
those who owe AMT and also deduct state and local taxes would see a net tax
increase if both provisions are repealed.
In this case, the affluent taxpayers at risk of owing more after an
overhaul are especially likely to live in high-tax states such as California,
Connecticut, Illinois, Maryland, Massachusetts, New Jersey and New York.
With luck, we’ll learn more about the actual plan soon—and see if
the losers have changed.
here for the original article from Wall Street Journal.