How The Republican Tax Plan Would Impact Middle-Class Households
NOEL KING, HOST:
We're going to spend a moment now to take a closer look at the tax plan unveiled by Republican lawmakers this week. The plan would give businesses a significant tax cut, permanently lowering the corporate tax rate. President Trump and the GOP also promised the plan will lower taxes and spur growth for the middle class. NPR political reporter Danielle Kurtzleben has been looking deep into the bill. She's with us now. Hey, Danielle.
DANIELLE KURTZLEBEN, BYLINE: Hey.
KING: All right, Danielle, here's the big question. How would this Republican tax plan affect the middle class?
KURTZLEBEN: Right. So there are a few changes that would affect a lot of households that would probably consider themselves the middle class. One that will hit a lot is a change to the standard deduction, it is roughly doubled. For tax year 2018, the standard deduction is $6,500 right now for a single person. That would double to 12,000. And for a married couple, it would go from 13,000 to 24,000. So that's the amount that you would deduct on your income immediately on your taxes, and so you'd have a lower income to be taxed. That means, you know, your tax bill would end up lower. So some households are going to, you know, be happy about that. However, there is this thing called personal exemptions - that's an amount that you deduct for each person in your household more or less - and that would go away.
So a lot of people will come out better because of those things, but not everyone because, you know, if you have a lot of kids which equals a lot of exemptions, this might actually end up being worse for your household. So those are a few things. Aside from that, the mortgage interest deduction is a big thing people are talking about and that a lot of American homeowners benefit from. That will change. It is not going away, but it's going to shrink a bit. Right now, you can deduct interest on up to $1 million in home debt. Under this bill, it would change to $500,000. Importantly, this would only apply to new home debt. So if you already have a mortgage, this would not apply.
KING: There are also changes in this plan for parents. Do I have that right, the child tax credit is going up?
KURTZLEBEN: Right. Yes, so the child tax credit right now goes up to $1,000. Under this bill, it would go up to $1,600. So you could get up to $1,600 from that credit, but this is where it gets hard to make generalizations about which families will do better or worse because that bigger child tax credit will offset some of those lost exemptions that I mentioned. So whether you come out better or worse under this tax plan - at least in its current form because it could change - it will change - that depends on so many things. It depends on your income level. It depends on the number of kids you have. It depends on whether you are a married or single parent. I could go on.
KING: You know, I remember there was a lot of talk and a lot of worry before this bill came out over potential changes to how much people can save tax free for retirement. What happened there?
KURTZLEBEN: It didn't show up in the bill. This is something that, you know, had been kicked around quite a bit and you know it polled badly. People were worried about it. Perhaps in retrospect, not very surprising that it got axed.
KING: We've been talking about the middle class, but let me ask you, what does this tax plan do to or for very wealthy people?
KURTZLEBEN: Well, let's start with the regular wealthy people...
KURTZLEBEN: ...Just the somewhat high earners. You know, you've probably heard in the coverage of this week that the 39.6 percent income tax bracket - that is the top one - that that remains. It's true, but the cutoff for that is going up. Right now, the cutoff for that is $470,000, give or take, for a married couple. Under this bill, it would go up to a million dollars. So all the people in that gap would now see a tax reduction, so those people would end up better off. But when we move into the realm of the very wealthy, that's when we get into estate tax land. You know, the estate tax only applies to a very small amount of very, very rich estates and it would be eliminated after six years. So that's another thing that would benefit the very wealthy.
KING: NPR political reporter Danielle Kurtzleben. Thanks so much, Danielle.
KURTZLEBEN: Yes, of course. Transcript provided by NPR, Copyright NPR.