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My apologies if this has been brought up before, but unless I am misunderstanding something, I don't understand how ANYONE can benefit from this tax plan. Forget the loss of itemized deductions for a second, which, BTW, is a major blow to the middle class.
Consider a married couple with one child: The standard deduction is doubled (increased from ~ 12k to 24k, for an additional 12k write off, assuming that this married couple takes the standard deduction).
They lose the personal exemption. This increases their tax liability by 4k each, for a total of 12k. So this totally negates any benefit from the increased standard deduction.
Then, their tax base goes up from 10% to 12%. So they end up paying more in tax.
The benefit to those in the middle who do not itemize from the increase in the standard deduction is negated by the loss of the personal exemption. Those with dependents will actually have a higher taxable income than they do currently.
Any impact beyond there is hard to determine at this point without knowing what the new child credit will be or the income levels for each bracket.
It was stated in a previous post that if you have lots of kids, after so many kids it is a wash, more kids, it's a negative but there is the child credit. Besides, that personal exemption will go away some day, you should be planning on that. Should we be subsidizing people who have so many kids? The decision of how many kids should be a personal decision as to what they can afford, not one where other people are forced to subsidize these people.
My apologies if this has been brought up before, but unless I am misunderstanding something, I don't understand how ANYONE can benefit from this tax plan. Forget the loss of itemized deductions for a second, which, BTW, is a major blow to the middle class.
Consider a married couple with one child: The standard deduction is doubled (increased from ~ 12k to 24k, for an additional 12k write off, assuming that this married couple takes the standard deduction).
They lose the personal exemption. This increases their tax liability by 4k each, for a total of 12k. So this totally negates any benefit from the increased standard deduction.
Then, their tax base goes up from 10% to 12%. So they end up paying more in tax.
Originally Posted by Boo_Urns View Post
My apologies if this has been brought up before, but unless I am misunderstanding something, I don't understand how ANYONE can benefit from this tax plan. Forget the loss of itemized deductions for a second, which, BTW, is a major blow to the middle class.
Consider a married couple with one child: The standard deduction is doubled (increased from ~ 12k to 24k, for an additional 12k write off, assuming that this married couple takes the standard deduction).
They lose the personal exemption. This increases their tax liability by 4k each, for a total of 12k. So this totally negates any benefit from the increased standard deduction.
Then, their tax base goes up from 10% to 12%. So they end up paying more in tax.
Did I get this right, or did I miss something?
Another middle class family raised their kids and their kids are productive citizens, supporting themselves and contributing to society. The parents are no longer getting the personal exemption. They've worked many long years, paid taxes, paid down their mortgage and are ready for downsizing and retirement. It helps them. I don't know about you but I want to retire some day. Its not all about today.
The feds have been subsidizing expensive housing for decades. The practice artificially raised all home prices. Raising the standard deduction and eliminating mortgage interest dramatically benefits the poor and middle class. The math is simple.
State taxes - same deal. Not all states have state income tax. Others like CA and NY have high taxes. Our idiots in Sacramento raise taxes with a “Who cares, they are deductible†attitude. That will change.
Any change to a tax code inevitably creates winners-and-losers (not unlike health) - even among the "middle-class." Where any one individual or family falls can depend on a complex interaction of various factors.
I'm considering buying a second home. Wonder if this might suppress housing values? But then I'm in a state with relatively high taxes. With a paid-off mortgage, I no longer deduct. Lower housing prices or not, maybe this could cause me to defer my purchase?
Likewise, any factor that reduces the appeal of purchasing a property (say a condo) increases the demand for the alternative (rental apartments). For a variety of reasons, there have been fewer condos built and purchased over the last decade in our high-density city.
It was stated in a previous post that if you have lots of kids, after so many kids it is a wash, more kids, it's a negative but there is the child credit. Besides, that personal exemption will go away some day, you should be planning on that. Should we be subsidizing people who have so many kids? The decision of how many kids should be a personal decision as to what they can afford, not one where other people are forced to subsidize these people.
Of course the decision on to have kids should be a personal one. That doesn't change the point. If you have dependents your taxable income will increase under this plan. Those without kids who take the standard deduction will see their taxable income decline, but the loss of the personal exemption will eat much of those savings from the higher standard deduction.
So far I love this tax plan but I see how it is hard to argue for a benefit in the absence of firm tax brackets.
I believe those should be - 60K and under -- 12%
60k and over to 220K 25%
220K and up 35%
This is how someone would win. Right now the first 6K of income is not taxed. That would be increased to 12 percent (so imho) that would take care of the exemptions. In addition as this probably will be a more simple code, you won't need a tax prep service $220 fee saved.
So assuming I am single and have 80K gross per year. Off the bat 22K comes off for the standard deduction. Then take out 12 K of income not taxed. Down to 46K
Assume a 12 % rate -- taxes 5520
Assume a 25% rate - 11500 (roughly what I pay now)
This is what it does though that I think is good.
- provides an incentive for people to pay off their mortgages early, leading to less chance of a financial crisis.
- Yes we don't need anyone having a ton of kids and, if they do they should pay for it.
- In incentiveizes people to move away from over crowded cities and expensive states.
- It makes the code less complex so you don't have to pay someone to do it.
Another middle class family raised their kids and their kids are productive citizens, supporting themselves and contributing to society. The parents are no longer getting the personal exemption. They've worked many long years, paid taxes, paid down their mortgage and are ready for downsizing and retirement. It helps them. I don't know about you but I want to retire some day. Its not all about today.
It's all situational.
Assuming they take the standard deduction in both cases tand claim no dependents they would see a decrease in $3,200 in taxable income. The bottom portion of their income will be taxed at a higher rate. Beyond that we would need to know the breakouts of each bracket.
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