Your Money editor Lauren Lyons Cole compares the Senate and the House’s tax reform proposals and how they may affect your take-home pay. Following is a transcript of the video.
Lauren Lyons Cole: Tax reform is inching forward. Currently there are two separate versions of the plan. The House has already introduced and passed their version, but the Senate is in the middle of trying to bring theirs to a full vote maybe this week.
The two plans are actually pretty different and before they can bring a bill to President Donald Trump to sign tax reform into law, the Senate and the House Republicans are going to have to figure out a way to merge the two. In the meantime, they’re pretty different. Here are the major differences that could affect your take-home pay if tax reform is signed into law.
As it stands now, the Senate’s version of the tax plan seems like it could end up saving you a little bit more than the House’s version, but a lot of that depends on how much money you make, where you live, and whether you itemize deductions or take the standard deduction.
We ran the numbers using both plans’ proposals for a single childless taxpayer who claims a standard deduction at three different income levels: someone making $25 thousand a year, $75 thousand a year, and $175 thousand a year.
Here’s why the numbers are a little bit different. First we have this year’s taxes, where we have seven different tax brackets, a standard deduction, and a personal exemption, you just get one if you’re single.
Then we have the House’s tax plan. That proposal eliminates the personal exemption, doubles the standard deduction, and collapses the tax brackets from the seven we have now down to four.
The Senate’s tax plan keeps the seven different tax brackets but tweaks the income ranges for each of those just slightly. It also eliminates the personal exemption and increases the standard deduction, but as you can see, the House’s plan and the Senate’s plan don’t end up at exactly the same place, even if you’re claiming the standard deduction.
Based on these calculations you can see that the Senate’s tax plan would end up saving you a little bit more, perhaps, than the House’s tax plan, but it’s still not a sweeping tax cut. It’s not enough to renovate your kitchen, it’s not enough to go on a big vacation. Unless, of course, you’re a wealthy American, because the top 1% does stand to benefit handsomely.
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