Trump’s tax plan would increase the lowest tax rate and increase the number of people who don’t have to pay federal income tax.
The lowest earners currently have a federal income tax rate of 10 percent. Those are single filers who earn up to $9,325 and married couples who earn up to $18,650 in 2017.
Trump’s tax plan would increase that from 10 percent to 12 percent. The White House hasn’t said what income level would top out that bracket. The highest tax bracket rate, now 39.6 percent, for single filers who make more than $418,400 and married filers who make more than $470,700, would decrease to 35 percent.
Trump leaves open the possibility of adding a fourth tax bracket for the highest earners so the new tax code “does not shift the tax burden from high income to lower and middle income taxpayers,” according to the plan. The plan does not include details on that potential bracket.
More people in the lowest tax bracket would not have to pay federal income tax under Trump’s plan.
Most low-income filers already pay no federal income tax because their deductions are more than their reported income.
Two deductions benefit low-income filers the most: the standard deduction and personal exemptions.
The current standard deduction is $6,350 for single filers and $12,700 for married filers. Personal exemptions allow filers to deduct $4,050 for each taxpayer and dependent they claim, including themselves.
The two combined equal a deduction of $10,400 for a single filer without children in 2017. The amounts change each year.
Trump’s plan would eliminate personal exemptions but double the standard deduction to $12,000 for single filers and $24,000 for married filers. Filers who earn less would pay no federal income tax. A single filer with earnings in the gap between $10,400 and $12,000 would no longer pay federal income tax.
“The framework is basically taking the current 10 percent tax rate and increasing it to 12 but at the same time it’s effectively increasing the size of the zero tax bracket, at least initially,” said Joseph Rosenberg, a senior research associate at the Urban-Brookings Tax Policy Center, a nonpartisan tax policy think tank.
Trump’s plan would replace personal exemptions with a higher Child Tax Credit, which currently allows a $1,000 credit for each child claimed. The new plan does not specify how much the credit would increase.
A tax credit is a dollar amount put toward the amount of tax due while a deduction reduces the amount of a filer’s taxable income. The Internal Revenue Service says a tax credit is always worth more than a deduction of the same amount.
Many of the tax changes would benefit high-income earners more than others, a report from the Tax Policy Center said.
Some of the proposals, like ending the alternative minimum tax and estate tax, would benefit high-income earners disproportionately.
About 80 percent of the total tax benefit would go to the top 1 percent of taxpayers by 2027, the report said. Their after-tax income would increase 8.7 percent.
Taxpayers who make less than about $150,000 each year would see an average tax cut of half a percent or less by 2027 under the plan. Taxpayers who make between $150,000 and $300,000 would actually pay about $800 more on average in taxes.
Taxes would increase for about a quarter of all taxpayers by 2027. The report estimates about a third of people making between $50,000 and $150,000 and close to two-thirds of people making between $150,000 and $300,000 would see a tax increase.
The report partly attributes those increases to Trump’s plan to replace personal exemptions with a higher Child Tax Credit. Trading the deduction for a credit could leave larger low- and middle-income families worse off than the current tax code. That will depend on how much the Child Tax Credit increases.
There are lots of details missing from Trump’s tax plan. But the plan presented so far does deal with taxpayers who are not wealthy. It’s possible that by “completely focused,” Schumer meant the Trump plan benefits only the wealthy and the powerful. That also is not completely true. Doubling the standard deduction would mean more of the country’s lowest earners would pay no federal income tax and taxpayers earning less than about $150,000 would see a tax cut.
We rate Schumer’s statement False.
Trump’s tax plan is “completely focused on the wealthy and the powerful — not the middle class.”
— Sen. Charles Schumer, D-N.Y., on Sunday, Oct. 1, 2017 in an interview on CBS’ “Face the Nation”