By Ryan Ellis
The Senate Finance Committee this week will report out a tax reform bill that cuts taxes for the middle class. The committee estimates that a typical middle class family of four will see an annual tax cut of $1500.
Below are the top five ways the bill reduces taxes for working families:
Lower tax rates
The most obvious way the bill cuts taxes for the middle class is that it cuts the tax rates paid by the middle class. It’s pretty obvious in the table below:
|Old Middle Class Tax Rates||Tax Reform Tax Rates|
The tax reform brackets also remove the marriage penalty in all the tax brackets, so married couples can earn the same amount as two singles and have the same tax bill. That’s only fair.
Larger Standard Deduction
Today, about seven in ten taxpayers claim the standard deduction instead of itemizing deductions. Under tax reform, we can expect this number to grow to nine in ten taxpayers. The great majority of the middle class will choose this de facto “zero bracket” as an easy way to shelter the first dollars of income from taxation:
|Old Standard Deduction||New Standard Deduction|
|Head of Household||$9550||$18000|
Bigger Child Tax Credit
Under tax reform, the child tax credit doubles from $1000 per child today to $2000 per child starting in 2018. That’s a dollar-for-dollar reduction in a family’s tax bill.
Additionally, the child credit will be available to parents of children under age 18, up from under age 17 today. Beyond that, non-minor children dependents will yield a $500 dependent tax credit.
Eligibility for the child tax credit will be extended to more families. Under current law, child tax credit eligibility starts to phase out at $110,000 for a married couple. Under tax reform, that figure is increased to $500,000.
Kills the AMT
If there’s one tax provision that drives middle class families nuts, it’s the alternative minimum tax, or AMT. The AMT is a parallel tax system that forces people to calculate their taxes twice, and then pay whichever version comes out higher. The AMT hits over 5 million families today, and millions more who don’t pay it have to calculate it or pay a tax preparer to calculate it. Under tax reform, the AMT is gone.
Repeals Obamacare’s Individual Mandate Tax
The Obamacare individual mandate penalty tax is squarely aimed at the middle class. Almost all who pay it make less than $200,000 per year, and 80 percent of families who pay it make less than $50,000 per year. Their average Obamacare tax bill is $450.
Tax reform permanently repeals Obamacare’s individual mandate surtax.
Read more here.