The outline of Donald Trump’s new tax plan has just been released.
The Trump administration discussed its tax plan in a press conference on Wednesday. So what are the most important aspects of this plan, and how will it affect the average taxpayer?
One major change is that under this plan, there will be three tax brackets rather than seven. In the current tax code, the tax brackets are: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent. Here’s how that breaks down at the moment, before any of the proposed changes:
|Single Filer||Joint Filer||Head of Household Filer||Rate|
|$0 – $9,325||$0 – $18,650||$0 – $13,350||10%|
|$9,325 – $37,950||$18,650 – $75,900||$13,350 – $50,800||15%|
|$37,950 – $91,900||$75,900 – $153,100||$50,800 – $131,200||25%|
|$91,900 – $191,650||$153,100 – $233,350||$131,200 – $212,500||28%|
|$191,650 – $416,700||$233,350 – $416,700||$212,500 – $416,700||33%|
|$416,700 – $418,400||$416,700 – $470,700||$416,700 – $444,500||35%|
|$418,400 +||$470,700 +||$444,500 +||39.6%|
Under this Trump plan, there would only be three brackets: 10 percent, 25 percent, and 35 percent.
The Trump administration has not yet clarified what income brackets will fall into which tax rate, though. Gary Cohn, White House chief economic adviser, said today that this is still being worked out.
However, in September 2016, Donald Trump released a tax plan which is similar to the one that was outlined today. Under that plan, Donald Trump said that for single filers, the first income bracket would be $0 to $37,500, the second bracket would be $37,500 to $112,500, and the third bracket would be $112,500 and above.
Here’s what today’s tax plan would look like, then, if the Trump administration keeps the income brackets the way they were in the September 2016 proposal while altering the tax rate:
|Single Filer||Joint Filer||Rate|
|$0 – $37,500||$0 – $75,000||10%|
|$37,500 – $112,500||$75,000 – $225,000||25%|
|$112,500 +||$225,000 +||35%|
The income brackets may be altered a bit as this becomes an actual bill. Still, if that’s how the tax proposal will end up breaking down, then the following will be true under Donald Trump’s tax plan as compared to the current tax code:
- The tax rate on income between $0 and $9,325 would remain at 10 percent
- The tax rate on income between $9,325 and $37,500 would be reduced from 15 percent to 10 percent
- The tax rate on income between $37,500 and $91,900 would remain at 25 percent
- The tax rate on income between $91,900 and $112,500 would be reduced from 28 percent to 25 percent
- The tax rate on income between $112,500 and $191,650 would be raised from 28 percent to 35 percent
- The tax rate on income between $191,650 and $416,700 would be raised from 33 percent to 35 percent
- The tax rate on income between $416,700 and $418,400 would remain at 35 percent
- The tax rate on income above $418,400 would be reduced from 39.6 percent to 35 percent
Another important change in this tax reform plan is the increase in the standard deduction. In 2017, the standard deduction for single filers was $6,350. Under Donald Trump’s new plan, it would be doubled, and the standard deduction for single filers would now be $12,600. Also, the standard deduction for married couples filing jointly this past year was $12,700. Under Donald Trump’s plan, that will be increased to $24,000.
However, all individual deductions will be removed under this proposal other than mortgage interest and charitable deductions.
The outline of Trump’s tax plan also notes that it will provide relief for families with childcare expenses. No numbers were provided, but during the campaign, Trump said that low-income families, i.e. single parents making less than $31,200 a year or married couples making less than $62,400 a year, will receive a refundable tax credit to be used for child care expenses. This would be capped at a rate that is based on the average cost of child care in the state.
Trump also said during the campaign that those making less than $250,000, or $500,000 for married couples, who have a child at home will be able to deduct from their taxes the average cost of child care in their state. Also on the topic of childcare, Trump promised to allow Americans to put up to $2,000 a year into a tax-free savings account, with that money being used for child care expenses. It’s unclear at this time how much of this will be incorporated into Trump’s actual tax reform plan.
Donald Trump’s new plan also lowers the corporate tax rate significantly. On the federal level, the corporate tax rate is currently 35 percent, but this plan reduces it to 15 percent.