We got a lot of feedback and questions about Monday’s piece examining the arguments for and against the GOP tax plan, so we’re taking the time to address many of them here.
In this article, we’ll explore important differences between the House bill and the version that passed a committee vote in the Senate. We’ll also address questions we got after our analysis of the arguments over the House version.
VERIFY – YOU’VE GOT QUESTIONS, WE’LL FIND ANSWERS
A 9NEWS project to make sure what you’ve heard is true, accurate, justified. Want us to verify something for you? Email email@example.com.
THE SENATE BILL IS A DIFFERENT ANIMAL
A viewer named Ron wrote us confused about the results of our analysis of the House version of the bill:
“My understanding of the direction this is headed contradicts what you said. For example, Congress' own Joint Committee on Taxation has said of the Senate version…”
To be perfectly clear, we chose to focus Monday on the House version of the bill for the simple reason that it’s actually passed the entire House of Representatives while the Senate version is in flux and awaiting a floor vote.
We explained that under the House bill, about seven percent of taxpayers in unusual situations would pay more taxes instead of getting a cut. That number jumps to 24 percent of taxpayers after a decade, according to the Tax Policy Center, which is often cited by members of both political parties.
That increase over time is largely due to the fact that the GOP plan does less to adjust deductions for inflation each year.
Ron is correct that this effect is much more severe in the early Senate version of the bill.
In fact, the TPC analysis of the Senate version figures that slightly more than half of taxpayers would see a tax increase after a decade.
That figure is worst for middle-income people. Almost two-thirds of taxpayers in the middle would see a tax increase (averaging $140) after a decade, according to TPC.
THE SENATE BILL ALSO TAKES A WHACK AT HEALTHCARE
Low and middle-income families would lose federal money from the beginning in the early Senate version of the tax plan, according to a new score from the Congressional Budget Office.
You can see that effect growing over time in this chart, imposing a new tax burden on all Americans making less than $75,000 by the year 2027.
One reason for these numbers is that unlike the House, the early version of the Senate plan lumps healthcare into the debate.
The Senate bill does not repeal Obamacare, but it does make the Affordable Care Act toothless. It reduces the penalty for not buying insurance to $0 per year-- effectively eliminating the individual mandate.
CBO’s analysts estimate 4 million Americans would drop their insurance by 2019 and 13 million would go without coverage by 2027.
Senate Republicans say losing a credit or subsidy is not the same as taking money from someone’s wallet.
They asked the CBO to run the same numbers you see above, excluding the impact of the healthcare subsidies people would forego.
Those numbers show all Americans getting a net benefit from the federal government into the year 2025, and then an increased tax burden on everyone making less than $75,000 per year starting in 2027:
Democrats say giving up health insurance would be a detrimental loss for many American families and needs to be included in any calculation.
Mick Mulvaney, the director of the U.S. Office of Management and Budget, told CNN the White House is open to removing the section repealing the individual health-care mandate if it becomes “an impediment” to passing tax reform.
HOUSE BILL: PERSONAL EXEMPTIONS AND TAXPAYERS WITH KIDS
Our demonstration of the impact of the House bill on people with children didn’t make sense to a viewer named Carol, who wrote:
“HOW can either of these bills possibly save families money considering the elimination of the personal exemption??? The tax rate may go down, but the TAXABLE INCOME HAS to go up - the larger the family, the more it goes up.”
Carol is correct that the current tax law allows you an exemption of $4,050 per person in your household, while the House GOP plan eliminates this.
However, the House bill also includes a larger child tax credit of $1,600 instead of the current $1,000. Combine that effect with an increase in the standard deduction and reduction in tax rates, and it can more than compensate for the loss of exemptions.
In our example, we used of a single parent of two who earns $50,000 and who currently benefits from the maximum student loan deduction, which would also be eliminated.
As you can see, the current law ($29,000) does leave this person with less taxable income than the GOP plan ($37,800). And despite the larger standard deduction and lower tax rate, the subtotal of taxes before credits is greater under the GOP plan.
However, the GOP plan provides child tax credits that are $600 more per child, which makes up the difference.
(A hypothetical comparison of tax bills under current law vs. the version of the GOP tax plan recently passed by the House.)
If you add two more children to this single parent’s household, both plans provide a refund.
However, the House bill’s refund would be $2,164-- compared to $1,331 under today’s law.
With four children, this hypothetical parent would be better off to the tune of $833 under the bill passed by the House.
A recurring questions that comes up when discussing taxes is class; specifically whether someone is in the “middle class.”
After Monday’s tax plan Verify aired, 9NEWS got this question from a retired teacher who is married to a state worker. The couple earns $95,000 a year.
Americans are in the “middle class” if their income falls between the 30th and 80th percentiles, according to the Pew Research Center. But the amount of income that amounts to varies from city to city and state to state.
That’s why national numbers on the middle class might seem off to folks living in larger cities like Denver.
Pew’s middle class calculator puts a couple earning $95,000 a year in the middle class for the Denver metro area. But it would rank them in the upper class if they lived in Pueblo or Canton, Ohio.
HOW TO CALCULATE THE EXACT IMPACT ON YOUR TAXES
We got a LOT of emails asking “what about X, Y, or Z tax situation?”
Unfortunately, taxes are complicated-- and no matter how much Congress members want to simplify it, it’s still going to be complicated if they pass one of these bills.
There are just too many variables that can affect a tax bill for us to answer all of these questions about individual cases, but we do want to help you get as close as possible.
So here is a guide to help you figure out your 2018 taxes (remember, inflation can change the burden years into the future) under the House and early Senate tax bills:
1. THE EASY, BUT LESS SPECIFIC WAY
Some organizations have attempted to make calculators that you can use to estimate your tax bill.
Marketwatch has a calculator that does a fair job, though we found that they missed some deduction details in their 2018 calculations.
Still, if you’re looking for a rough estimate, we found that it tended to generate numbers that were fairly close to what you can expect to pay.
However, that calculator does not allow you to add in every possible deduction or to compare the numbers to your current tax bill.
2. THE HARD, BUT MORE ACCURATE WAY
If you have a particularly complicated tax situation, or you just value accuracy, you’re going to need to do some homework.
We’re not going to sugar-coat it: this is not fun for most people. But if you’re up for a challenge, we’ve tried to make it as painless as possible for you with the steps below:
You’ll need the following:
- Your 2016 tax return
- A copy of the tax bill passed by the House
- A copy of the Senate version (this link is the version passed by the Finance committee, it has not made it to a floor vote as of this publication and could change. Alternatively, you can use a summary of the changes in this version.)
- An idea of any changes to your income or deductions you’d like to factor in for calendar year 2018
Follow these steps:
- Check each bill for changes to the deductions, and credits you took on your 2016 taxes (or that you plan to take in 2018) and add these up.
- Estimate your 2018 pre-tax income.
- Subtract all your deductions for an estimate of your taxable income under each bill. (Remember, no personal exemptions under these bills.)
- Apply the appropriate tax bracket to calculate your tax subtotal. (The proposed new tax brackets are in the first sections of the bills, toward the top. They will tell you how to calculate what you owe.)
- Subtract all your tax credits from the subtotal to calculate your actual tax.
- Compare this to your 2016 total tax for a rough idea of how it adds up.
- Marvel at your ability to do math, even though you haven’t had math homework for a long, long time. (Optionally, calm your nerves with a sweet treat or an adult beverage.)