The GOP tax reform bill was unveiled Thursday and while it will not affect the 2017 income tax payments, the changes that will take effect next year will have a great impact on many middle-class Americans when they file their 2018 income tax returns.
Contrary to what President Donald Trump promised, those who are affected by the new tax reform bill would be paying higher taxes. The President promised that the middle class would have tax cuts, but under the Tax Cuts and Jobs Act, some of them would be paying more, according to the Joint Committee on Taxation report of Congress, which was released on Friday.
According to the Trump administration, there won’t be any support coming from the President, as the tax bill does not include tax relief for the middle class.
However, based on the report of the Joint Committee on Taxation (JCT), some of the middle class taxpayers will have to pay more. The committee said that the GOP bill would add close to $1.5 trillion to the debt spanning the next 10 years. Based on an average, a family whose annual income is between $20,000 and $40,000 and between $200,000 and $500,000 would have to pay more individual income tax starting in 2023.
What’s in the bill
The tax reform bill is quite comprehensive. Individual tax rates starting in 2018 would be reduced from 7% to 4%, beginning at 12%, 25% and 35% up to 39.6%. Under the current tax law for individuals, 39.6% is the highest rate.
The four tax rates will affect the current income brackets of married joint-filers, heads of households, singles and those who are married but filing separate returns. Most of those who would be affected are those in the third income bracket level, as follows:
- Married joint-filers whose income is from $260,000 to $999,999 – 35% (from the current 33%, 35%, and 39.6%). Those in the 33% would be elevated to the 35% rate.
- Heads of households with income between $200,000 and $499,999 – 35% (from the current 33%, 35%, and 39.6% rates).
- The same tax rate applies to singles with $200,000 to $499,999 annual income and those who are married but files separate tax returns whose income is in the $130,000 to $499,999 bracket.
Reason for the increase
The JCT did not provide explanation why some taxpayers would have an increase in tax payments. It’s speculated because the tax credits to help the middle class taxpayers are expiring in 2023, where the Family Flexibility Credit is also included.
Debate is going on among Republicans on whether the credit should be extended but this will necessitate looking for alternative revenue sources. Others are relying on Congress to prevent the credit from expiring. Others are thinking that the middle class would be paying higher taxes because they are losing SALT (state and local income tax) deductions.
House Republicans say that the analysis of the JCT did not fully show the benefits the middle class are getting. According to the House Ways and Means Committee statement on Sunday, the JCT missed the tax reform’s economic effect. But tax experts from the Democratic side say that following the new tax reform rates, it is clear that the wealthy would be the ones enjoying the new rates’ benefits.