BOSTON (CBS) – If the new Republican tax overhaul plan becomes law, how will it affect you?
House Speaker Paul Ryan says middle class families will see a tax cut of nearly $1,200 under the new plan.
The House bill reduces the number of tax brackets from 7 to 4. It also increases standard deductions and expands the child tax credit.
But, it largely eliminates state and local tax deductions and limits mortgage interest deductions.
TAX BRACKETS REDUCED
The proposed tax brackets would work this way, according to CBS News business analyst Jill Schlesinger.
For individuals, if you make up to $45,000 a year, you would pay 12-percent of that in taxes.
For those who earn $45,000 to $200,000, it jumps to 25-percent. The tax rate would be 35-percent for anyone who makes between $200,000 and $500,000. Those who make more than $500,000 a year would pay 39.6-percent in taxes.
“So what’s good about this is it is a simplification. But what you also note is that 39.6-percent rate, that’s still in there. That wasn’t going to be in there. It’s applied to much higher income, so, yes indeed, the middle class is likely to be helped by this, but if you make a lot of money you’re going to get helped by a lot more,” Schlesinger said Friday on CBS This Morning.
STANDARD DEDUCTION INCREASES
Another part of the proposal is to double the standard deduction.
“What’s interesting about doing that is, essentially if you make less than $24,000 you’re not going to pay tax. So that seems really great. And when you claim the standard deduction, tax filing is far easier,” Schlesinger said.
“Right now about 70-percent of filers claim the standard deduction. Under this new plan it looks like it’s going to jump to 84-percent, so that’s good, it’s easier. But there’s a caveat here. In doubling the standard deduction the plan will also get rid of personal exemptions. That’s what you claim, 4-grand for yourself, for your spouse and for your kids. If you’re a middle class family and you’ve got a bunch of kids, this plan may not be so good for you.”
“It’s a very strange plan because it’s quite particular to each person’s situation,” she said.
EXPANDS CHILD CARE CREDIT
The child tax credit, currently at $1,000 per child, would increase to $1,600 per child.
“This is going to be a family tax credit,” Schlesinger said. “That’s very helpful. Also it expands the income range by which you can qualify for that. You’ll also get a $300 deduction if you are taking care of maybe an elderly relative.”
“Again, this really is focused on your family, and by the way, where you live, it’s extraordinarily important.”
STATE AND LOCAL TAX DEDUCTIONS
Some of the most controversial aspects of the proposal are the repeal of the state and local tax deductions and limiting the home interest mortgage deduction.
“Here’s what goes on right now. If you itemize your taxes, currently, you can deduct your state and local taxes against your federal return. Under the new plan, you can no longer do that. But you can actually deduct property taxes. That’s capped at $10,000,” Schlesinger said.
“So what’s happening right now is the National Association of Home Builders, the National Association of Realtors (are) against this plan because they believe those deductions help the housing market.”
The mortgage interest deduction – what happens there?
“If you have a mortgage, relax, you’re grandfathered in. New mortgages, interest is only deductible up to a $500,000 mortgage. This is very important. It looks like it’s also going to apply to re-fis. It’s a complicated plan, very much depends on where you live,” she said.
So who benefits the most from the new plan?
It’s the “ultra wealthy,” said Schlesinger.