[This post is co-authored with Kyle Rozema, the inaugural Wachtell Lipton fellow in behavioral law and economics at the University of Chicago Law School.]
The Trump administration and congressional Republicans released a blueprint today for a tax reform plan that will “provide relief for working families.” But does the new plan actually deliver the promised relief?
We have estimated the change in tax liability under the Trump plan for single individuals and married couples with up to three children. Our estimates are based only on the details posted on the Treasury Department website today: a standard deduction of $12,000 for single filers and $24,000 for married taxpayers filing jointly, the elimination of all personal exemptions, and a starting marginal tax rate of 12%. We assume that the 12% rate will apply to taxpayers who currently fall into the 10% and 15% brackets.
The key takeaway is that all working-class couples with children whose adjusted gross incomes fall between $24,000 and $60,000 will pay more in taxes under the Trump plan than under the current tax system, although all childless couples and single individuals with similar incomes who claim the standard deduction will benefit. For example, with $50,000 in adjusted gross income, a married couple with one child will pay an additional $280 in taxes; a married couple with two children will pay an additional $888 in taxes; and a married couple with three children will pay an additional $1415 in taxes. By contrast, a married couple with no children will get a tax cut of $328, while a single taxpayer with no children will get a break of $1072.
The hit to working-class families might be ameliorated by changes in the child tax credit, but the tax plan released today was silent on the specific changes that will be made. On the other hand, the impact on unmarried individuals with children might be especially severe depending on the fate of the head-of-household filing status under the new plan — the Trump administration and congressional Republicans have not yet told us how heads of households will be treated.