I read about the proposed President Trump-Republican income tax bill. The most significant part is reducing the corporate tax rate from 35% to 20%. Personal income taxes get a small cut. It simplifies tax computation a bit, by removing the alternative minimum tax and fewer people will itemize deductions. Republicans say the bill will increase the deficit by $1.5 trillion over the next 10 years. Dividing $0.15 trillion (for one year) by 2018 federal revenues of $3.7 trillion yields about a 4% cut.
Simplifying enough to allow filing a postcard return shown by some Republican politicians is absurd. The postcard doesn't have separate lines for interest, dividends, capital gains, pensions, IRAs, Social Security, and several other income and subtractions from income on current tax forms.
A controversial and complicating part is a special 25% tax rate for "pass-through entities" (usually small businesses structured as a partnership, LLC, or S corporation that report business income on personal returns). The controversy comes from the distinction between "active" and "passive" owners. The tax rate on "passive" activities and the "capital" income of "active" owners is capped at 25%.
I made a spreadsheet to calculate personal income taxes per the President Trump-Republican bill to compare the results to 2017 tax amounts. I did so for $10,000 ordinary income up to $250,000 income and every $10,000 increment between, for both single and married filing jointly. The resulting tax per the Trump-Republican plan was less in every case when the 2017 tax was greater than $0. For most cases the tax reduction was between 2% and 3% of income. Married filing jointly with income less than than $100,000 and filing single with income less than $50,000 showed somewhat smaller tax cuts.
The spreadsheet overlooks a few outliers that have large deductions that will no longer exist under the Trump-Republican bill and were not limited by the alternative minimum tax. However, it is predictably a tiny percent. For lower middle income filers with children, they will lose the extra personal exemptions for the children, but that will be much offset by a higher child tax credit.
Earlier Trump proposed to cut the top rate from 39.6% to 35%, but the latest proposal keeps the 39.6%. Michael Kitces says the bill creates another bracket of 45.6% (=39.6% + 6%) for a segment of income above $1,000,000 (link). It phases out the 12% bracket for those with income above that threshold. Also, earlier Trump proposed ending the favorable treatment of "carried interest." That is not in the bill. Edit: I later learned that the bill reduces favored treatment somewhat. It would increase the minimum time assets would have to be held to qualify for the capital gains rate from one year to three years. .
It didn't take long after the proposal was made for Democrats like Nancy Pelosi to trash it. This story from CNANews says: "Pelosi said Republicans are unveiling a tax bill "designed to plunder the middle class" in order to put more money into the pockets of the wealthiest one percent." She obviously has only an iota of understanding of what's in the bill. (Recall what she said about Obamacare: "We need to pass this bill to see what's in it.") Many in the middle class will pay lower taxes under the bill. My spreadsheet shows that "plundering the middle class" is pure, ignorant demagoguery.
CNSNews had another story titled Tax Plan May Kill Deduction Taken by 95% of Itemizers. Well, whoop-de-do! Firstly, only about 30% of tax returns filed itemize deductions, and most that do itemize have higher incomes. The higher the income, the more likely to itemize. Second, the story ignores the higher standard deduction in the Trump-Republican plan, which will more than offset any lost state and local income or sales tax deduction in many cases. Lastly, per the Tax Foundation, almost 90 percent of the deductions for those who claim it go to those with incomes in excess of $100,000.
The bill eliminates deductions for medical expenses. So far I haven't seen much criticism of this, but it might surface.
The lesser corporate tax rate will, of course, put more money in the hands of producers rather than grubby non-productive politicians like Pelosi and Bernie Sanders and will likely lead to some tax revenue from repatriation of corporate funds overseas partly offsetting the overall lower corporate rate.
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