President Donald Trump’s tax reform proposal purports to benefit the middle class and simplify the tax code.
Unfortunately, that may not be the actual result. A few examples based on the president’s initial broad outline of his desired changes:
The standard deduction will almost double — from $12,600 to $24,000 for a couple. However, at the same time, personal exemptions — $4,050 per person — are eliminated. For a family of four, this loss of $16,200 in exemptions would result in a net increase in taxable income of $4,800, despite the increased standard deduction.
Deductions for medical expenses, state and local taxes, and various miscellaneous expenses are eliminated. This will simplify things, but for many middle-class taxpayers, particularly those living in high-tax states and those with high medical and/or long-term care expenses, this may result in a large tax hit.
The estate tax will be eliminated. This will help the beneficiaries of the few estates that are currently taxed — those valued at more than $5.5 million ($11 million for a couple). However, its full repeal would presumably also eliminate the “step-up” provisions of the estate tax, which would result in potentially large capital gains taxes for everyone, including the middle-class.
These concerns may well be addressed as the tax bill gets refined. In the meantime, it’s critical to truly understand the detailed proposals and what they will mean to you personally and to the country. Once that is done, please call your congressional delegation and express your informed opinion.