REUTERS/Shannon Stapleton
- The Republican tax plans are being billed as a boon for hard-working middle-class Americans.
- But analysts have pointed out that the proposed tax plans from the House and Senate will also give a boost to the wealthiest in the country.
- We estimated how tax reform will affect single, childless taxpayers who make between $ 300,000 and $ 10 million a year.
Republicans keep pushing forward with their massive tax plan.
The House passed its version of the Tax Cuts and Jobs Act two weeks after coming out with their proposal in November. The Senate, meanwhile, pushed its version through just after 2 a.m. ET on December 2.
Both plans are being billed as a boon for America’s middle class by Republicans and the White House. But many have pointed out that a number of changes in both the House and Senate’s versions of the Tax Cuts and Jobs Act give a few boosts to the wealthiest in the country.
We were curious to see how the proposed changes to the tax brackets and the proposed eliminations of many itemized deductions might change the amount of taxes owed by wealthy Americans, so we ran the numbers ourselves.
READ MORE: Here’s what Trump’s tax plan means if you’re making $ 25,000, $ 75,000, or $ 175,000 a year
First up, here’s how tax reform would affect a single, childless taxpayer earning $ 300,000 a year:
Any Kiersz/Business Insider
Next, here’s how tax reform would affect a single, childless taxpayer earning $ 500,000 a year:
Andy Kiersz/Business Insider
Next, here’s how tax reform would affect a single, childless taxpayer earning $ 1 million a year:
Andy Kiersz/Business Insider
And finally, here’s how tax reform would affect a single, childless taxpayer earning $ 10 million a year:
Andy Kiersz/Business Insider
For our calculations, we assumed each theoretical taxpayer would itemize deductions and not be subject to the Alternative Minimum Tax. (More on why we made these assumptions below.)
How tax reform could affect a wealthy, single, childless taxpayer under the Senate Republican’s tax plan
- $ 300,000 household income: estimated annual tax increase of $ 1,491.
- $ 500,000 household income: estimated annual tax increase of $ 7,841.
- $ 1 million household income: estimated annual tax savings of $ 9,758.
- $ 10 million household income: estimated annual tax savings of $ 222,004.
How tax reform could affect a wealthy, single, childless taxpayer under the House Republicans’ tax plan
- $ 300,000 household income: estimated annual tax increase of $ 2,208.
- $ 500,000 household income: estimated annual tax increase of $ 9,537.
- $ 1 million household income: estimated annual tax savings of $ 2,652.
- $ 10 million household income: estimated annual tax savings of $ 116,972.
Most Americans will see a slight increase in their take-home pay under the current proposals. But all of that may change as many provisions are set to expire. Some analysts have said that nearly half of Americans would see a tax increase if that happens.
Exactly how much taxpayers will save if Republicans succeed in overhauling the US tax code will depend on many factors.
It’s noteworthy that even just from the changes to the tax brackets and the eliminations of deductions, very wealthy households, including President Donald Trump, stand to benefit handsomely from the plan. But, in our estimates, those making around $ 200,000 to $ 500,000 would benefit less so from the proposed changes to the tax brackets and deductions.
How we arrived at these numbers
Calculating taxes is complicated.
And it gets even more complex the higher your household income becomes. High earners may make money in ways that go beyond a traditional salary, such as through investment returns or real estate income.
The eligibility to claim different deductions also varies from person to person. (We know, because we tried a bunch of combinations while calculating these examples.) So, we tried to use only the deductions that the vast majority of people under a given income bracket actually use, according to the most recent IRS data.
We focused specifically on the potential changes to the amount of taxes owed by different income groups if the proposed changes to the tax brackets and the proposed elimination of deductions were to go into effect.
To put together the charts, we made the following assumptions to capture what would happen to a “typical” individual earning $ 300,000, $ 500,000, $ 1 million, or $ 10 million:
- We assume the person is single and has no children.
- We assume that all income comes from the person’s salary. (In reality, some of that $ 10 million might come from stocks, real estate, or another source that could be treated differently for tax purposes.)
- We assume the person will itemize deductions in 2017 and in 2018. Over 90% of taxpayers who earn more than $ 200,000 a year itemize their deductions, according to the IRS.
- The itemized deduction amount we used for the “current system” is the average total itemized deduction for income groups in the $ 200,000-$ 500,000, $ 500,000-$ 1 million, and $ 1 million+ ranges reported in the most recent CRS analysis of the IRS’s statistics of income data for 2014.
- The House and Senate proposals eliminate many deductions, so instead of using the average total deduction amount, we broke down deductions by category. Both plans keep the charitable deduction and the property tax deduction (capped at $ 10,000). We assume our taxpayers will use both of those deductions, and will max out the property tax one. The amount we used for each deduction is the average reported in the CRS analysis of the IRS’s statistics of income data for 2014.
- The Senate’s plan keeps the mortgage interest rate deduction up to $ 1 million, while the House’s plan caps it at $ 500,000. For simplicity sake, we assume that our taxpayers will use the full amount of the deduction under the Senate’s plan, and half that amount under the House plan. This is not the most nuanced way to do it, but we wanted to represent the difference between the proposals somehow. Again, the amount we used for the mortgage interest deduction is the average reported in the CRS analysis of the IRS’s statistics of income data for 2014.
- The Senate also keeps the deduction for medical expenses. But only 1-3% of people who earn over $ 200,000 a year claim that deduction, according to the IRS. For this reason, we decided not to use this deduction in our calculations.
- We did not factor in the alternative minimum tax (AMT), which prevents wealthy taxpayers from using too many tax breaks. While it primarily hits people earning over $ 500,000, only about 1% of single taxpayers are subject to the AMT. (Trump’s leaked tax bill from 2005 increased to $ 36.5 million from $ 5.3 million because of AMT.)
- We omitted smaller details that might benefit wealthy people because they don’t necessarily represent the “typical” single taxpayer in our examples. Those benefits include: the fact that private school tuition could be paid through a 529 plan; the carried interest provision, which allows fund managers to access a loophole to pay a lower tax rate on investment profits; and the fact that the stock market might soar thanks to the one-time repatriation tax.
- To save time, we ran the calculations for our current system using H&R Block’s tax calculator, but manually calculated estimates for the Senate and House proposals.
- All the estimates for the House and Senate proposals are based on the latest iterations of the two proposals as of December 8.
Just in case all of that above doesn’t make it clear, this article is not a comprehensive list of what will happen to your taxes if you earn an income of $ 300,000, $ 500,000, $ 1 million, or $ 10 million. Contact your tax adviser for advice catered to your specific situation.
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