From the time he announced his campaign for the presidency, Mr. Trump touted the need for a new tax code. While there was much speculation as to whether this could be accomplished, President Trump and congress seem to have been successful in their efforts. However, was there really a need to make such sweeping changes and if so, how will they benefit the average taxpayer?
It appears at first glance that the majority of taxpayers will see a reduction in the amount they are required to pay. What isn’t as clear in the first reading of the reports is that the tax cuts that are intended for the average person are not permanent and a majority of them are set to expire by 2026 and 2027. The tax cuts for corporations, on the other hand, are written into the bill as a permanent rate.
The bill does seem to benefit the majority of middle-to-lower income workers. While the personal deduction options have been eliminated for the most part, for many married couples, the standard deduction has been doubled. This helps to offset the loss of no longer being able to deduct mortgage interest and charitable donations for some families. In addition, for those whose incomes permit it, families with minor children will be granted a higher tax credit that may result in eligible families receiving a refund on their taxes.
One reporter ran eight scenarios with various family demographics in an effort to determine how the tax reform will impact these types of families beginning in 2019. For six of the eight samples, the overall tax percentage was reduced, though the majority did not see a dramatic decrease. For two of the fictitious families, the tax bill and rate both increased, though neither job was alarming. The families who are expected to see the biggest initial savings are the lower earning families with children – though single or childless renters in an expensive city such as New York may realize a significant tax break in the first few years.
According to the example, the taxpayers who may see the biggest savings are those who run a small business and pay their business taxes through their personal returns. The new tax code allows for a 20 percent deduction for pass-through income for these small business owners that may allow them to reduce their overall tax rate.
There were a few points that the sample did not take into account, including the fact that some of the tax cuts will expire and the reforms may lead to higher insurance costs for lower income families. Conversely, some investors may benefit from higher returns due to the lower corporate tax structure.
Overall, the president and his party may state that they delivered on their promise to revise the tax code and increase government efficiency. However, it remains to be seen how these changes will impact the average American who is working hard to raise a family and hopefully, one day, enjoy retirement while leaving something to pass onto their loved ones.
Writer Bio: Angela Mose
I am a mom of 7 who has successfully homeschooled for 20 years. I was married for more than 25 years and have recently started my life over. I have a passion for writing and music and when the two can be combined, it is utopia. A Maryland native, I am planning to relocate north in the near future and will continue to strive to learn and experience new things on a regular basis. I am fortunate enough to be able to work from home while exploring new ways to increase my knowledge and skills and help improve the lives of those around me.