Since we’re not multi-millionaires (yet?) or owners of multi-national corporations, it’s unlikely the GOP tax plan (likely to pass in some incarnation of the House and Senate approved plans from earlier this month) will be good for us.
Removal of the Marriage Penalty
The one thing about the tax plans that I agree with is getting rid of the marriage penalty. This has been a major taxes peeve of mine since I first understood how it worked – even before I was married. I’ve written about the marriage penalty extensively in the past, but basically it seems inhumane to make married couples pay more in taxes just because their married. Ironically, the marriage penalty is caused by its design for a marriage bonus – when the wife stays home and the husband works, they actually pay less in tax. Two working parents (a necessity of modern society in most parts of the country) means marriage penalty.
As it stands right now, if you’re single, you can make up to $195k and be in the 28% tax bracket. However, if you’re married (and both working and making the same amount) you can only make up to $118.9k in the 28% bracket. Which is total bullshit and if there is one thing this tax reform accomplishes for the good I sure hope it’s getting rid of the inhumane marriage penalty.
*it’s not clear they are getting rid of the marriage penalty. The House Act still has it in… the Senate Act I believe got rid of it. I wonder what the Republicans really think of this penalty and if they want to keep or get rid of it. For the house plan, you cam make up to $200k single and be in 25% tax bracket but only $130k married for the 25% tax bracket. That means that if you’re single, you pay $40k in tax on $200k. If you’re married, you’d pay $47k — $7000 more (PER PERSON) for the privilege of being married. That’s $14k per year, or $420,000 over 30 years.
The tax plan seems to be getting rid of this, making the tax brackets the same for single filers and individuals filing jointly as a married couple. I’m not sure if this will make it into the final plan, but it seems to be a very fair update to tax law.
I’m surprised there hasn’t been coverage of how the marriage “bonus” (for households with one working parent or partner) will likely go away. Perhaps this won’t be noticed as much, or the way the tax plan is written somehow maintains the marriage bonus while getting rid of the penalty. We’ll see.
Reduction of State Tax (SALT) Deductions
Living in California, this certainly impacts us. I’m not sure how much. We don’t own real estate (and with all of the anti home owner tax law passing, this pretty much cements that we never will.) I definitely pay more than $10k in income tax to California, so it sounds like I will only be able to deduct the first $10k of it. I’m unclear if this is a $10k per person or $10k per couple limit. If $10k per person AND per couple, then it’s a new marriage penalty.
Corporation Tax Reduction from 35% to 21%
It’s good to be a competitive nation for businesses to prosper and thrive. But, we’ve been that for many years. I don’t know exactly what the corp tax rate should be — but I don’t think reducing it is going to increase jobs or salaries over the long term. If I’m a CEO and I get an infusion of cash, I’m going to maybe pay back shareholders in the form of increased dividends and buy backs. Maybe. In the short term. I’m also going to invest in technology to automate jobs (so I can save money by reducing my work force) and I’d invest in acquiring companies and then reducing headcount due to redundancies. That’s smart business. Not sure how it adds up to tons of new jobs and increases in salaries?
Reduction in Taxes for $1M / Year Earners
Clearly, this won’t impact us. They’re trying to pass bringing the top tax bracket from 39.6% to 37%. Wealthy people (those making more than $10M a year) will save $360k a year in taxes. Do people making that much really need an extra $360k a year? I don’t believe in over taxing people, but at the same time, that $360k is pennies to these people, especially the ultra-rich, whereas to a community in need $360k can pay for improved infrastructure and education. In any case, this won’t impact us directly, other than the additional taxes we’ll have to pay to make up for the cuts for the ultra-rich.
Increase of Standard Deduction
Probably a net positive for us. For now, it might be enough to make up for the loss of SALT deductions (since we’re not home owners and only deducting state income tax.)