Trump tax plan?

[bedraggled]

As best as I can determine, Trump will collapse the 28% and 33% brackets down to the 25% bracket. The new 25% bracket may apply to many of us here on the Forum. I imagine the 25% bracket, when implemented, would be beneficial.

How is my assessment?

[Maddy]

The Internal Revenue Code, to the best that I can recall, spans something like six shelves. Yet their idea of "simplification" always seems to amount to reducing the number of brackets.

[Mountaineer]

The Internal Revenue Code, to the best that I can recall, spans something like six shelves. Yet their idea of "simplification" always seems to amount to reducing the number of brackets.

Brackets that hold up the shelf?

[bedraggled]

So, will the 28% and 33% brackets disappear and fold into the 25% bracket?

Looking for opinions from this thoughtful group.

[sophie]

It depends on what happens with deductions. The big one of course is the state/local tax deduction. Blue state residents will get creamed, and the tax increase will more than offset the rate reduction for most people. Over 10% of my income goes to state/local income and property taxes. I realize that this deduction acts as an enabler for certain states to overspend, and that it probably is a good thing in the long term to take away the crutch - but there will be a lot of short term pain, and instead of tackling the causes of the overspending (pensions, early retirement for city workers, corruption, expensive welfare programs) people will spend their energy complaining about Trump.

I agree with Maddy. Tax simplification should mean reducing the complexity of rules for deductions, extra taxes etc. Reducing the number of brackets doesn't simplify anything, it will only change some numbers in the tax table. A big increase in the standard deduction will help for most people, but it still won't bring US taxes in line with, say, Canada's income tax system, where you can file your taxes on a postcard.

[Maddy]

So, will the 28% and 33% brackets disappear and fold into the 25% bracket?

Looking for opinions from this thoughtful group.

I presume we're still talking about marginal tax brackets, but who knows. If they're talking about a flat 25% tax assessed on both your first and last dollar of income, there could be some rude surprises.

[sophie]

Standard deduction according to the unofficial descriptions out there is supposed to increase to $25K/$50K, so presumably that will take care of the problem of losing the 10 & 15% tax brackets. It will also increase the number of people who don't owe taxes. Not a bad move.

It will also make it easier to get rid of the mortgage interest deduction eventually. It's already not helpful for people on the low end of the salary & home value scale, and an increased standard deduction with only two things you can deduct (mortgage interest & charitable contributions) means that you'd have to be a lot wealthier than pretty much anyone on this forum to itemize.

[Xan]

Doesn't that also amount to killing the charitable contribution deduction? Is that such a good thing?

[bedraggled]

Does anyone care to make a conjecture on the final form of the new tax plan?

[Tyler]

From what I understand reading early reports, they're proposing doubling the standard deduction while eliminating virtually every other deduction except for mortgage interest and charitable contributions. IMHO, that's a pretty legit simplification that I can totally get on board with.

Blue states will kick and scream about how losing the state tax deduction will harm them the most, but IMHO the tax code has disproportionately favored blue states for too long. They'll still be getting the benefit of the mortgage interest deduction that most people in normally-priced homes don't get, so I think that's a fair trade.

Overall, I like it.

[ochotona]

I don't like the effects on the public debt. These cuts won't pay for themselves. But they will save me thousands, if enacted.

[Desert]

From what I understand reading early reports, they're proposing doubling the standard deduction while eliminating virtually every other deduction except for mortgage interest and charitable contributions. IMHO, that's a pretty legit simplification that I can totally get on board with.

Blue states will kick and scream about how losing the state tax deduction will harm them the most, but IMHO the tax code has disproportionately favored blue states for too long. They'll still be getting the benefit of the mortgage interest deduction that most people in normally-priced homes don't get, so I think that's a fair trade.

Overall, I like it.

I haven't studied it yet, but if it turns out to be as you described it Tyler, I like it too. Unfortunately, the national debt will climb .... but I suppose that's inevitable with any presidency these days.