Because most philosophies that frown on reproduction don't survive.

Saturday, December 02, 2017

The Tax Plan Cometh

I'd seen some people discussing today how the Senate tax plan which was just passed would affect middle class families. The element which seems to cause the most concern is that the plan eliminates the per person exemption which currently allows a married couple with children to take $4,050 for each member of the couple plus for each dependent child off their taxable income. On the more positive side, the new plan also increases the child tax credit from $1,000 per child to $2,000 per child and increases the standard deduction from $12,700 to $24,000. For many families this might mean that the standard deduction is actually a better deal than the itemized deduction and result in a decrease in taxable income. (source on tax plan changes) Another major change not specific to families is that the deduction for property taxes is capped at $10,000 and state and local income taxes would no longer be deductible.

I Wasn't sure exactly how these different factors would balance out. I created a fairly basic model which dealt with just the major deductions and credits in question and applied the new rate table. I then ran three scenarios, families of four making $50k, $100k, and $200k per year. The last of these is the sketchiest as at that income level under the current tax regulations the child tax credits mostly phase out and the alternative minimum tax starts to phase in. According to the new Senate plan, both of those would happen at much higher income levels, so they would cease to be factors for the $200k family.

According to my estimate, the family making $50k would see a slight reduction in the amount of credit they get back, going from -$2,780 in tax to -$1,261.  In other words, they would be worse off by around $1,500 due to the expanded child tax credit not being refundable.

The family making $100k would see a reduction in the amount of tax they would pay, from $3,047 to $739.

The family making $200k would see a decrease in their tax burden from $24,353 to $22,349.

Families that would be most likely to be worse off as a result of the new bill would be families with a number of children who currently get back a net credit rather than paying federal income taxes.

Here are the scenarios:

While I've made a good faith effort here, I'm not a tax expert. If you see errors please point them out and cite sources, and I'll be happy to make corrections.


ladywisdom said...

Well, according to this analysis, the family that can least afford a negative change is the one that will experience the most negative change. $1,500.00 is not a slight change at that earning level.

Darwin said...


"Slight" was a word choice that should have got edited out. I did a number of revisions of the results and updated the numbers but not the text.

Zoe Brain said...

Most families of four don't make nearly $50,000.
Why concentrate on the effects only on the well-to-do to moderately rich?
Why ignore 60% of the population?

I know these calculations are hard, there are far too many assumptions that have to be made. The more children in the family, the greater the chance that one will have a serious illness during childhood, one with potentially bankrupting costs with the inevitable legally mandated cuts to Medicare flowing from this bill, unless existing laws get changed.

Thank you for your efforts though, I'm not sure anyone could do much better. I certainly couldn't.

Darwin said...

Zoe Brain,

I with I had a good way to post a web version of the Excel form that I'd created, because the ideal would be to allow people to plug in their own values and try them out. Unfortunately, I'm not that clever with web programming (and Blogger isn't set up for such things anyway.

I would note, though, that $50k/yr is actually a below-median income for a married couple with children. According to the census, the median income for married couples in 2016 was $87k:

Digging into the historical income tables, Table F-9 here shows income by type and size of family (though I don't believe it's filtered on only married couples) and it gives the median income for a family with two or more children under 18 years of age as $71k

Steven said...

Darwin, we can probably get a copy up on gsheets, protect all fields but the ones to change, and let people copy it to their own gdrive and play with it. That is, if you want to make it available for others to use. If you send me a copy I don't mind setting it up.