Up until the moment it was signed into law, many press reports on the tax law portrayed it or strongly implied that it contained increases or virtually nothing for most taxpayers while granting big breaks to "wealthy" households (the term preferred over the genuinely accurate "high-income" label). So imagine how surprised some Americans must be to learn that the press is having a very difficult time finding actual examples of individuals and families — both theoretical and in real life — whose taxes will go up.
Very few if any news reports are reporting the percentage decrease in individuals' and families' tax bills. Instead, they focus on the savings as a percentage of gross income, which is a much smaller and far less impressive-looking figure. While the latter is a valid comparison, it's not how most people think. If you make $48,000 a year and figure out how to cut $40 a month from the $400 you've been spending on groceries, you don't tell everyone, "Gosh, I just saved 1 percent" ($480 divided by income of $48,000). You say "I'm saving 10 percent" ($40 divided by the original $400 in monthly grocery purchases).
A table accompanying a column seen at Motley Fool which shows how things shake out for the average family in three filing categories exemplifies this point: Single, Married Filing Jointly, and Head of Household:
Using IRS data from the 2015 tax year (the most recent for which finalized data is available):
- ... The average single filer reported AGI (adjusted gross income) of $31,630 ... the average single filer uses the standard deduction ...
- The average American married couple filing jointly reported AGI of $122,073 ... since the average taxable income for this group was $91,758, this implies that the average married couple had $30,315 in deductions.
- The average American filing as head of household reported AGI of $37,197.
To recap, here's how the new tax plan affects the average American households that use each of the three most common filing statuses (Note: Percentage Change and Saving columns added by me):
A rundown of the overall impact found at MarketWatch.com shows the following:
When the level of average savings identified earlier is combined with the extraordinarily high percentage of Americans who are seeing their tax bills reduced, it's not surprising that the press has had difficulty finding individuals and families whose taxes will go up.
USA Today carried a December 20 item submitted by the Motley Fool's Matthew Frankel which showed four income tax-related situations (five situations were presented, but one looked solely on the estate tax, more properly described as the death tax, notably informing readers that the tax won't kick in on couples' estates below $22.4 million instead of the current $11.2 million). This item deserves attention, because, as I have done below, readers could at least calculate the tax savings as a percentage of the tax under the old law:
- "A single filer with $50,000 in annual adjusted gross income (AGI) and who uses the standard deduction currently." Old law tax: $5,491; New law tax: $4,370; Savings: $1,121, or 20.4 percent.
- "A married couple with $100,000 in AGI, no children, $7,000 in annual mortgage interest, $4,000 in charitable contributions, and $3,000 in other itemized deductions." Old law tax $10,676; New law tax: $8,739; Savings: $1,937 (incorrectly calculated at the USAT article as $1,919), or 18.1 percent.
- "A married couple with $110,000 in AGI, three children, and itemized deductions of $10,000 in mortgage interest, $4,000 in charitable contributions, and $7,000 in state and local property and income taxes." Old law tax: $6,285; New law tax: $4,799; Savings: $1,486, or 23.5 percent.
- "A single taxpayer with $1 million in AGI who rents their home, donates $40,000 to charity, pays $45,000 in state income tax, and has no other itemizable deductions." Old law tax: $317,283; New law tax: $317,190; Savings: $93, barely more than breakeven.
Critics panned the final of the four examples above as atypical (how many people with $1 million in earnings don't own their primary residence?). USAT originally assumed $50,000 in state taxes and a new law tax increase of $1,887. It looked as if USA Today was trying to force an unrealistic example into the presentation just to show that somebody would see an increase. Without notice, the paper changed the example to show the tiny decrease seen above.
Finally, late last week CBS News looked at the situations of three actual taxpayers, and found that all three will, based on their current circumstances, see their tax bills lowered, as seen in the following CBS This Morning video:
Highlights — Note that in the second and third examples, perhaps conditioned by media reporting, the couples involved expected tax increases:
(Marcie George) A single mother who rents a home in Cary, North Carolina, her income last year as an administrative assistant was a little under $40,000.
... (CPA Jeffrey Levine) says she'll benefit from a doubling of the child tax credit. Based on her returns last year, he estimates a savings of about $1,300 in taxes.
... Amber and Jason Edwards were also hoping for some good news.
"I hope it alleviates pressure on the middle class. Whether it does or not, I don't know. I guess we'll find out," Amber said.
They're married homeowners with no kids in Providence, Rhode Island. As college educators, they took in more than $150,000 last year as they worked to pay down their student loans.
... "I actually think they would pay tax on about $12,000 more of income but because of the lower rates, they actually end up saving a little bit of money," Levine said.
... Levine says the couple will switch to the newly-increased "standard deduction" which means a simpler return with no itemized deductions. He thinks they'd owe about $650 less than before.
"Honestly I'm a little surprised because well what you had said – initially you thought we were going to have a higher tax bill," Amber said. "Right," Jason replied.
They're not the only ones. Melissa and Layne Lev also expressed concern about next year's taxes.
"I'm thinking they're going to be higher and by how much? I don't know if I could answer that. I'm just thinking they're going to be higher," Melissa said.
Married with three children, they own a home in Fresno, California. They opened a cycle studio last year and Melissa is a pharmaceutical sales rep. Their combined income in 2016 was around $300,000.
... Levine says their itemized deductions, including breaks for state and local taxes, will be much lower. But they'll no longer be hit with the alternative minimum tax and will now qualify for child tax credits when they didn't before. Overall, Levine estimates they'll be responsible for nearly $13,000 less in taxes.
"Well, that's good," Melissa said. Layne added, "I like the sound of that."
The only pathetic fig leaf the "it's really a tax increase" holdouts have is seen in these two paragraphs at the MarketWatch link:
Things change however once 2025 rolls around. If no change is made, what were tax cuts will become tax hikes, even relative to current law.
A majority of Americans in a decade’s time will then pay higher taxes, including 69.7% of the middle quintile.
Strangely (no, not really), no press report I've seen has made what should be an obvious historical comparison, namely that the Bush 43 tax cuts enacted early last decade, which were originally set to expire in 2010, never did expire for the vast majority of Americans, and "the tax cuts were made permanent for single people earning less than $400,000 per year and couples making less than $450,000 per year ... under the American Taxpayer Relief Act of 2012."
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Given the history, why are Democrats and the press (but I repeat myself) simply assuming that the then-President and Congress will sit on the sidelines and just let the scheduled tax increases in 2025 happen?
Cross-posted at BizzyBlog.com.