Top 6 ways the GOP tax bill affects average Americans
The GOP tax bill, awaiting President Donald Trump's signature, gets slammed by Democrats because much of its manna goes to corporations and the well-to-do. While the criticism is valid, it's also true that average Americans receive benefits from the legislation, although they lose some tax breaks, too.
The middle class may be getting a mixed bag, but Republican and Democratic leaders depict the legislation in the starkest terms, as befitting a politically polarized nation. "For all those millions of men and women in America who are living paycheck to paycheck, who are struggling to get ahead, help is on the way," House Speaker Paul Ryan, R-Illinois, said Tuesday, after his chamber passed the tax measure.
The tax overhaul, pushed through the Republican-controlled Congress, is "a Trojan horse for providing tax cuts for the very wealthy and, again, financed by raising taxes on millions of folks in the middle class," Senator Chris Van Hollen, D-Maryland, head of his party's Senate campaign arm, told NPR.
And indeed, middle-class Americans are demonstrably not the main beneficiaries of the bill -- even though Mr. Trump has promised a "big, beautiful Christmas present" in terms of a tax cut. The average tax reduction for the middle fifth of American taxpayers, as divided by income, will be $800 in 2019, and $55,000 for the richest 1 percent, calculations from the Institute on Taxation and Economic Policy show.
Because wealthier people hold the most assets, particularly in the stock market, the bill's repercussions should deliver even greater rewards to the richest one-fifth of the population, according to an analysis by the same tax group. (The second largest beneficiaries are foreign investors.) That's because the large tax cut for corporations (to 21 percent from 35 percent currently) should send stocks higher, and the well-off have the largest stock ownership..
That said, let's examine six provisions that affect average Americans the most. Three of them help this group, and the other three don't.
On the plus side:
The standard deduction doubles. Many more taxpayers will surely take this break, which makes filing returns much easier. About 30 percent of filers now itemize, which means they need receipts for their charitable donations and mortgage interest. That headache would be gone, as the new standard deduction becomes more valuable. Muting that somewhat is the loss of the personal exemption, which now lets you write off $4,050 for each member of a household.
Child tax credit expanded. This also doubles, to $2,000 from $1,000. Also, it lets parents get up to $1,400 as a refund, if the credit is bigger than their federal income tax liability. Children under age 17 can get a tax credit. It lowers a tax bill dollar-for-dollar, meaning three kids could cut their parents tax bill by $6,000.
Lower threshold for medical expense deduction. This helps those with high health expenses. Previously, you could deduct out-of-pocket medical expenses only if they exceeded 10 percent of your adjusted gross income (what's left after deductions). That will be lowered to 7.5 percent, permitting many more to deduct their health outlays.
On the minus side:
Inflation adjustments are held down.The bill changes the inflation adjustment formula for things like tax brackets and eligibility for benefit programs. The consumer price index, or CPI, tabulated by the changing costs of goods and services, had been the yardstick. The new method is called "chained CPI," and it factors in changes in quality of the items people buy -- which tends to lower the reported inflation advance. So Social Security payments, linked to inflation, would rise more slowly for retirees. And tax brackets wouldn't budge much, even while taxpayers earned more, thus pushing them into higher brackets.
Obamacare gets trimmed. The plan axes the Affordable Care Act's individual mandate, which requires that most people take out health insurance. Result: Some 4 million more Americans would be uninsured by 2019 and 13 million by 2025, the Congressional Budget Office finds. Younger, healthier people would tend to drop off the insured rolls, which would bring higher premiums to older Americans, who need the coverage more.
State and local tax deductions are reduced. Dwellers in blue-leaning states on the coasts have long benefited from being able to write off their high state income taxes, as well as their hefty local property taxes. But the new bill lets them deduct these only up to $10,000 per year. Currently, nearly half of US homes are worth itemizing -- but under the legislation, that would shrink to 14 percent because of the lost tax breaks, a study by real estate company Zillow said.
