Recently, the Republican-controlled Congress released its latest plan for tax reform. The goal, according to those within the party is to cut business tax rates while also cutting individual rates and the deductions that people and businesses are able to claim so that revenue does not drop too low. Some people will come out better under the new plan, but others may have to take out title loans and other high interest loans to deal with higher taxes. Here are some major changes that could cause problems for middle-class earners.
The Loss Of Personal Exemptions
This proposed change to the tax code could benefit single earners who do not itemize their deductions. However, it could cause major problems for larger families. The new GOP plan called for nearly doubling the standard deduction from just above $12,000 for a married couple who files a joint return to $24,000, but the personal exemptions for the taxpayers and any dependents will be taken away. This change would make more income taxable for a family of four. In 2016, this family would get right around $12,000 for the standard deduction and then another $4,000 for each person in the family. They could effectively exempt the first $28,000 of income from taxation. Under the new plan, only the $24,000 standard deduction would be exempt. Those on the margins of the new tax brackets could theoretically wind up paying more in taxes.
Reduction Of Deductions For Students
The tax code currently rewards people who further their educations. There are deductions directly related to lifelong learning and student loan interest. The proposed Republican tax plan would do away with both of these benefits. It would also make employer tuition benefits taxable. All of these changes would make getting an education less attractive and potentially more expensive.
State And Local Taxes
State and local income taxes are currently deductible for those who itemize their returns. This would change under the new GOP tax plan. Those who deduct state and local sales taxes would also lose the ability to do so. Additionally, property tax deductions would be capped at $10,000 under the proposed plan. The loss of these deductions could wind up hurting middle-class tax payers as they would lose some of their bigger deductions.
The Loss Of A 10-percent Tax Bracket
Those who had a taxable income of less than $18,550 as a married couple ($9.275 for a single filer) would have incurred a tax rate of only 10 percent
in 2016. If the new tax plan were to pass in the form that was initially proposed, these taxpayers would wind up paying 12 percent of their income toward the tax man. Those in the current 15-percent bracket would possibly see a slight cut, depending upon how high their taxable income wound up coming to.
When combined with the potential loss of the mortgage interest deduction for many people in areas with high property values, as well as the deduction that’s available for catastrophic medical expenses, it quickly becomes obvious that many taxpayers who live paycheck to paycheck could see the amount that they send to the IRS go up. This would lead to even tighter budgets. Should an emergency happen for these folks, they could wind up in debt that would be even more difficult to pay off.
