The White House outlined its long-awaited tax plan, which Treasury Secretary Steven Mnuchin claimed would be "the biggest tax cut and the largest tax reform in the history of this country," on Wednesday. The proposal aims to simplify the tax code and lower people's taxes, but it's important to understand how Trump's tax proposal will affect you if it's passed by Congress.
It's safe to assume no one likes doing their taxes, and it's certainly not fun trying to decipher the federal tax code, which is why we're here to walk you through what the proposed changes would actually mean.
For starters, White House chief economic advisor Gary Cohn and Treasury Secretary Mnuchin revealed the plan's main points, but the exact details aren't known yet. And while a lot of it has to do with corporations overseas and lowering the corporate tax rate from 35% to 15% (with no plan for how to make it up), the income tax changes will affect everyone with an income.
Here's a breakdown of what the Trump administration's tax plan would do.
Make Three Income Tax Brackets
Currently, there are seven individual income tax brackets, and the Trump administration wants to cut them down to just three: 10%, 25%, and 35%. However, it's still unclear what income ranges will fall under each bracket.
It's worth pointing out that the highest income tax rate would drop from 39.6% to 35%, which will end up saving the wealthiest Americans money. The lowest bracket will stay the same at 10%, and people who currently fall in the middle will either see their taxes rise or fall depending on how the three brackets are defined.
Double The Standard Deduction
The plan proposes doubling the standard deduction (the amount you can deduct from your taxable income) to include the first $24,000 of a married couple’s income. Essentially, this means less of your earnings would be taxed.
Eliminate Most Tax Deductions
Somewhat counteracting the standard deduction increase, most other tax deductions would be trashed, with the exception of deductions for mortgage interest and charitable donations.
Cut The Estate Tax
The estate tax (also known as the death tax) that takes a portion of someone's estate when they die, would be completely removed. However, 99.8% of Americans aren't affected by the estate tax as it stands now. This won't change anything for you unless you inherit more than $5.45 million, in which case Trump's plan will save you money.
Repeal The Net Investment Income Tax
If you earn money from investments, Obamacare added a 3.8% tax on that money. But, that only applies to people who's modified adjusted gross income is more than $200,000 for a single person and $250,000 for a married couple filing together. Under Trump's plan, that 3.8% tax would disappear.
You might have figured out that most of these changes really only affect the wealthy, which isn't all that surprising coming from a president who's reportedly worth billions and won't release his tax returns to the public.