“This plan is for middle-class families in this country who deserve a break,” Speaker Paul Ryan said last week as the House leadership released its “tax reform” plan.
“With this plan, the typical family of four will save $1,182 a year on their taxes,” he said.
Ryan never mentioned the actual income this “typical family of four” needed to earn — or not earn — in order to qualify for this $1,182 tax cut.
But Ways and Means Chairman Kevin Brady noted later that it was $59,000 per year; and his committee published a set of “taxpayer examples” that included more details on this hypothetical “typical family.”
“Steve and Melinda have two children in middle school and are living (a) secure middle-class life — but budgets are tight,” said the committee’s example. “With tax reform, they’ll get some much needed-breathing room financially.”
“As a result of lower taxes, a significantly larger standard deduction and an enhanced Child Tax Credit and new Family Credit, Steve and Melinda will pay over $1,182 less in taxes than last year, reducing their total tax bill from $1,582 to only $400,” it said.
But does a married couple who have two children and who earn $59,000 represent the “typical family of four”?
The median income of American families with four people — regardless of the marital status of the parents — was $90,746 in 2016, according to Census Bureau Table F-8. The average income was $116,236.
The median income of a married couple family with any children under 18 was $94,068 in 2016, according Census Bureau Table HINC-04. The average income was $120,327.
The median income of a married-couple family with two or more children under 18 in which both the mother and the father worked full-time was $123,293, according to Census Bureau Table FINC-04. The average income was $152,606.
That means the median income for a married couple with any children ($94,068) is about 59 percent more than what Ryan and the Ways and Means Committee presented as the “typical family of four.” The average income of a married couple with any children ($120,327) is more than twice as much as the Republicans’ “typical family of four.”
The “typical family” as traditionally understood — a married mom and dad with kids — is now what some liberals may fatuously call “rich.” But it is not a social or economic unit establishment Republicans will aggressively defend.
The Republican tax reform proposal demonstrates this. The Republican plan does not dramatically reform the U.S. tax code: It does not seek to repeal the 16th Amendment and replace the income tax with the sort of consumption taxes the Founding Fathers envisioned. It does not trade the income tax for a national sales tax. It does not even trade our current progressive income tax rates and the various itemized deductions that go with them for a single flat income tax rate.
What it does is trade many of the deductions traditional families now take for a cut in the corporate income tax rate, while retaining individual income tax rates that, as the Republican-controlled congressional tax committees promised in their “framework” for the bill, would “ensure that the reformed tax code is at least as progressive as the existing tax code.”
Their proposal eliminates the current $4,050-per-family-member personal exemption. It eliminates the deduction for state and local income or sales taxes. It eliminates the mortgage interest deduction for mortgage debt over $500,000. It eliminates the deduction for interest on a student loan.
In exchange for eliminating these deductions now available to traditional families, the Republicans (in addition to cutting the corporate rate) increase the standard deduction from $12,700 to $24,400 (for families that do not itemize their deductions), increase the child tax credit for children 16 years or younger from $1,000 to $1,600, allow a $300 credit for other dependents, and increase the income levels at which their “at least as progressive” tax rates take effect.
They call this simplifying the tax code. But the key question for families that itemize their tax deductions will remain a mathematical calculation that may differ from household to household.
E.g. If you lose the deductions for your state income taxes and student loans, plus the $28,350 in personal exemptions you can no longer claim for yourself, your spouse and your five children, will the $600 increase in the child tax credit and the shift in applicable income levels for the still-progressive tax rates make up for it?
Then there will be the other question: Will the next Democratic Congress simply shift the income thresholds downward for the progressive tax rates the Republicans have now enshrined in law — while reinstating none of the deductions the Republicans abolished — and say they are simply imposing a slight tax increase on the “rich”?
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