TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, October 11, 2017

How The Trump Tax Plan Affects Working Families

Two weeks after the release of their tax reform blueprint, the Trump administration and congressional Republican leaders still haven't said how much their plan would raise the child tax credit or how they would treat head-of-household filers. In the meantime, Kyle Rozema (Chicago) and I have tried to estimate the change in net tax liability under the Trump plan for working families (adjusted gross income of $75,000 or less) under a number of plausible scenarios.
Figure 1. Effect of Trump Tax Plan on Net Liability of Working Families (No Increase to Standard Deduction for Heads of Household)
Figure_ctc_combined (1)

More details here (Hemel & Rozema, Which Working Families Will Lose Under the Trump Tax Plan?, Whatever Source Derived (Oct. 10, 2017)).  The figure above illustrates results on the assumption that heads of household will choose to claim the new $12,000 standard deduction for single filers. Perhaps the most striking result is that many heads of household with incomes in the $30,000 to $40,000 range would see their net tax liability increase even if the child credit is increased by 50% (from $1000 under current law to $1500 under the Trump plan). This effect of the Trump plan on heads of household could be mitigated by raising the standard deduction for heads of household to $18,000 a year, as the Tax Policy Center has suggested Trump and Congress might do. Yet then-candidate Trump said he wanted to eliminate head-of-household filing status altogether, and neither he nor his top officials have signaled a change in heart so far.

Figure 2. Effect of Trump Tax Plan on Net Liability of Working Families ($18,000 Standard Deduction for Heads of Household)



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working families (adjusted gross income of $75,000 or less)

According to this paper, families with gross income greater than $75,000 don't work. I suppose the money magically appears in their bank accounts while they watch TV or sun themselves on the French Riviera? Sorry, but I find this Marx-inspired jargon insulting to affluent people who work very hard indeed for their higher incomes.

Posted by: AMTbuff | Oct 11, 2017 1:06:45 PM

David, Don't payroll taxes, i.e., FICA and SECA, have to be factored into this? Since they will not be changed, won't the effect be to push off to higher income brackets any benefit from the Trump plan?

Posted by: Willard Taylor | Oct 12, 2017 7:02:44 AM

How could they possibly model this when none of the rates or bracket structure are set, when none of the details of the CTC changes, EITC and other provisions have been detailed. Just as bad as the TPC effort -- weak.

Posted by: TheTurk | Oct 12, 2017 1:37:08 PM

My, my. A delicate little thing aren’t we ATMbuff? Despite your claim, I found no disparaging remarks about those earning more than $75,000 in the referenced article. Not sure how the phrase “working families (adjusted gross income of $75,000 or less)” made you see red.

The article questions an element of Trump’s proposed tax reform plan. Fox News reporter Kaitlyn Schallhorn writes in “Trump's tax reform plan: Who are the winners and losers?” that low-income households are among the plan’s winners. She writes “The plan doubles the standard deduction, which reduces the amount of taxed income, to $12,000 for individuals and $24,000 for married couples, making low-income taxpayers a winner, Steve Odland, CEO of the Committee for Economic Development, told Fox News.”

The plan challenges that statement. According to the Hamilton Project (admittingly a left leaning organization), “More than half of America’s working-age families with children under age eighteen (approximately 20.1 million families) have annual incomes of $60,000 or below.” The U.S. Census Bureau reports that the typical American family income was $53,657 in 2014. Perhaps arbitrary, the $75,000 limit makes sense and appear to encompass the “low-income taxpayer” mentioned in the Fox News article above. Using the available information, the article shows that low income taxpayers do not fare well despite this administration’s message. If you wish to discredit the article, it seems your target should be misapplication of available information or an error in assumptions to arrive at their results. You simply missed the mark. Looking forward to your next rant.

Posted by: Eddy from Accounting | Oct 12, 2017 3:59:24 PM