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GOP Tax Plan: Tax Brackets for Married Couples

More details of the GOP tax plan have leaked, and the new tax brackets look enticing (other than that we won’t have the funds to support infrastructure needs in the country) — on an individual level, even with the marriage penalty on the SALT deduction ($10k can be deducted per individual OR $10k per married couple), the actual brackets are promising in removing the marriage penalty for everyone except those who make over $600k as married filers.

As you can see in the old versus new brackets, federal tax rates will go down for everyone. Those who make over $480k will experience the greatest cuts. Anyone making under $19k will pay the same amount. Everyone else will pay less. I’ve estimated that a married couple making $350,000 (a normal, livable middle class salary for the Bay Area) will pay $30k less in taxes. But, of course that’s not the full story – and the savings disappear with various complications in terms how how deductions work with the new plan (see below.)

Old Brackets New Brackets
10% 0 19050 0 19050
12% 0 0 19050 77400
15% 19050 77400 0 0
22% 0 0 77400 165000
24% 0 0 165000 315000
25% 77400 156150 0 0
28% 156150 237950 0 0
32% 0 0 315000 400000
33% 237950 424950 0 0
35% 424950 480050 400000 600000
37.00% 0 0 600000
39.60% 480050 0 0

 

Personal Exceptions Gone, Standard Deduction Doubling (sort of)

Additionally, the standard deduction will double. Instead of $13k deduction per person , it will be $24k for a married couple (not quite double.)

BUT it removes the Personal Exemption, which is $4050 per person in 2018. Personal exemptions are separate from the standard deduction in the plan today. This will hurt people with children the most. For a married family with one child, they lose out on $12,150 of federal tax exemptions. Suddenly, the “doubling” of the standard deduction doesn’t look that great. For single people or married with no kids, the new plan is a better deal as doubling the standard deduction is worth more than the personal exemption.

Child Tax Credits & Phase Outs

Current tax plan allows for a $1000 per child tax credit in 2018 – but only if you make less than $110,000 as a married couple (or $75k as a single person.) The child tax credits today are clearly designed for people who need them most. They phase out by $50 for every additional $1000 made. So if you make $130,000 as a married couple, you do not get a child tax credit at all.

Unfortunately, that means a married couple in a high cost-of-living area that makes $130,001 does not qualify for the credit. However, the credit itself isn’t worth that much – but kids are expensive and a tax credit can cover diapers for a month is still a tax credit that can cover diapers for a month.

Liberals are angry that the GOP Tax Plan is focused on providing the child tax credit to those earning more than $130,000 a year. Although I’m a registered Democrat, it really trips me up when the liberal media says that people who make $250k a year as a married couple are “wealthy.” While I agree people who make $250k a year as married couples with kids have very different challenges than those who make, say, $50k as a married couple, or $20k as a single mother — this doesn’t mean that people making $250k, jointly, are rich — at least in high cost of living areas. This is where the liberal media feels so out of touch.

However, I believe the credit should be worth the same for every child, regardless of how much you make. It is clearly unfair for a credit to be worth more for a married couple earning $250k than it is for a couple earning $30k. But, the credit is worth more for people who make more since they are reducing their taxable income in a higher bracket. This doesn’t make sense. If you’re going to give a credit for the cost of having a child, it should be the same for everyone who has a child, not based on income bracket.

In the GOP tax plan, the child tax credit doubles to $2000 per child from $1000. Marco Rubio fought to increase the refundable portion of that credit, since really it should be designed to help poor people put food on their kid’s tables vs help middle class people buy diapers (even though we don’t mind the help paying for diapers, they’re damn expensive.)

The liberal Center on Budget and Policy Priorities notes that the benefits are restricted based on income. It estimates that 10 million children from poor working families would receive a “token” $75 or less. By contrast, a family of four earning $500,000 with two children would, under the Senate bill, receive a $4,000 credit.

It’s important to note that the child tax credit expires in the current plan. So while it may go up in the short term, it will disappear once people forget that the Republicans set it to expire. Also, with the personal exemption gone — that’s $4050 per person, or $16.2k for a family of four (phases out if you make more than $313k jointly AGI), this “child tax credit” for the “wealthy” doesn’t replace the loss of the personal exemption for the “high-cost-of-living area” middle class.

SALT Deduction Losses Offset Gains from Plan for CA Middle Class

Despite all the talk about the GOP tax plan benefiting the wealthy (and bucketing in married couples who make more than $200k as “wealthy”), the SALT deduction will reduce if not completely offset any savings in the tax plan for people who live in high-tax states. Since married couples will only be able to deduct $10k in state taxes (property, sales or income tax), middle class married couples will have pay an additional $2400 for every $10k in state taxes they pay above the $10k deduction.

Also, home ownership with be disincentivized due to the reduction of the mortgage deduction from $1M to $750k.

 

 

 

 

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