Bad News If You Make $150,000 to $300,000: Higher Taxes for Many
July 28 2017 - 5:59AM
Dow Jones News
By Laura Saunders
If President Donald Trump sticks to what he has said, Americans
earning between $149,400 and $307,900 are most likely to see an
increase in their taxes as a result of tax reform.
Those figures come from a recent study by the Tax Policy Center,
a nonpartisan group in Washington, and are based on Mr. Trump's
statements and proposals. The study concludes that nearly one-third
of about 19 million households in that income range could see tax
increases averaging from $3,000 to $4,000 a year.
By contrast, less than 10% of households earning the least or
the most -- below $25,000 or above $733,000 -- would owe more after
a tax overhaul. Over all, the study found that about 20% of
taxpayers would owe more after tax reform than before it.
The issue of tax reform's winners and losers has resurfaced
after top congressional Republicans and the Trump administration
released a set of broad principles for tax policy on Thursday
containing few details.
In an interview with The Wall Street Journal this week, Mr.
Trump affirmed that a major overhaul could bring "upward revisions"
that raise taxes for some people. He also struck a new tone,
stating that he doesn't like it that a "rich guy who made...$25
million last year is going to pay less" after tax reform than
before.
But based on his proposals and statements, that is exactly what
would happen.
It's important to note that the one-page tax proposal released
by the White House in April omitted many important details. And the
Big Six, a small group of Republican law- and policy makers now
working on an overhaul plan, are meeting in secret.
A final deal, if any, could include many changes. But the Tax
Policy's Center's estimates provide a useful marker in the
interim.
"The broad conclusions are likely to be stable because they are
based on the tax cuts Trump has promised," says Joe Rosenberg, an
economist with the Tax Policy Center.
The study assumed a tax plan that loses revenue overall but has
tax increases to stem losses. The provisions that would hurt
revenue include changing individual income-tax rates to 10%, 25%
and 35%; doubling the "standard deduction"; repealing the
alternative minimum tax; reducing to 15% the tax rate on corporate
income and business income of "pass-through" entities such as
partnerships; and repealing the estate tax.
The provisions that would boost revenue include repealing
"itemized" deductions other than for charitable giving and mortgage
interest; repealing personal exemptions; repealing the
head-of-household filing status; taxing payouts of large
pass-through entities as dividends; and taxing capital gains at
death above an exemption of $5 million a person.
The effects of these changes aren't constant across income
tiers, so the percentage of tax reform's net losers varies greatly
among people with different incomes.
The affluent are at the greatest risk of owing more for several
reasons. Compared with the working poor, they have more ability to
pay higher taxes. Compared with the highest earners, they often
derive a large chunk of their tax benefits from a host of
deductions and exclusions that could be cut back.
The highest earners are more likely to reap additional benefits
from favorable rates on investment income, such as long-term
capital gains, than the affluent are. Unlike in the 1986 tax
reform, which raised rates on capital gains, there are no current
plans to do that this time. The highest earners also stand to gain
greatly from provisions taxing business income at lower rates.
The Tax Policy Center didn't break out which changes would
contribute most to tax increases for the affluent. But it's a good
bet that a big one is eliminating deductions for state and local
taxes. These write-offs currently cost Uncle Sam $103 billion a
year, far more than the mortgage-interest deductions at $64 billion
and charitable deductions at $61 billion.
Loss of the state and local tax deduction could raise taxes for
many even if the alternative minimum tax, or AMT, is repealed,
according to a different study by Tax Policy Center economist Frank
Sammartino.
This result might seem surprising because currently the AMT
curtails the benefit of deducting state and local taxes for
taxpayers who owe AMT. Because of complex interactions in the two
provisions, however, about three-quarters of those who owe AMT and
also deduct state and local taxes would see a net tax increase if
both provisions are repealed.
In this case, the affluent taxpayers at risk of owing more after
an overhaul are especially likely to live in high-tax states such
as California, Connecticut, Illinois, Maryland, Massachusetts, New
Jersey and New York.
With luck, we'll learn more about the actual plan soon -- and
see if the losers have changed.
Write to Laura Saunders at laura.saunders@wsj.com
(END) Dow Jones Newswires
July 28, 2017 05:44 ET (09:44 GMT)
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