Summary Sundays is a weekly post where I put out a short list of the personal finance blog posts and articles I liked the most throughout the previous week. Links to each post are in the headers. I hope you enjoy them too!
This week was pretty important in terms of news that could affect your finances, so I’m focusing on that. Here are a few articles that cover President Trump’s tax plan, some of the second and third order effects of the plan, and some speculation on what might happen in the future.
No analysis here, but if you are going to learn about the tax plan I thought it would be helpful to actually see it first. It appears they passed around a hard copy at the press briefing where the plan was revealed, and journalists took photos with their phones. Sorry I don’t have something better to show you, but this was the best I could find.
Washington Post – April 26, 2017
This article breaks down Trump’s tax proposal, including what it could mean to the individual taxpayer. One thing to keep in mind is that the tax proposal was a very brief document and we don’t yet have a thorough accounting of what it would really mean to people. This article does have six main points, though:
- The standard deduction would double, lowering tax bills for many
- Many tax deductions would be eliminated, other than mortgage and charitable giving deductions. However, these would be less needed, since the standard deduction would be so much higher.
- There would only be three tax brackets, instead of the current seven. This is intended to simplify taxes. The rates would be 10%, 25%, and 35%, however the income ranges associated with those rates were not included in the proposal.
- There would be increased benefits for child and dependent-care costs, but details were not provided.
- Two controversial taxes would be eliminated: the alternative minimum tax (AMT) and the estate tax. These taxes mostly affect the wealthy and those with higher incomes.
- The part of the proposal that seems to be receiving the most press is a lowering of corporate tax rates. Corporate rates would be lowered from the current 35% to 15%.
Fortune – April 28, 2017
Knowing that Trump’s tax plan would result in less tax revenue for the Federal government, there has been a lot of speculation in the financial world about how the money would be made up. A main possibility that has been discussed is eliminating the tax deductible status for retirement plans, such as the 401k. Eliminating the tax deduction would have a major effect on contributor’s tax bills. Someone contributing $18,000 and firmly in the 25% tax bracket would owe $4,500 more than with the current tax-deductible status.
It appears the deduction is safe for now, but it will be important to keep your eye on this as Congress starts working on the tax plan. In order to keep the Federal deficit from increasing, the government will either need to drastically reduce expenses or find new sources of revenue, or both. Removing the tax deduction for retirement account contributions would raise an estimated $1.5 trillion over the next decade. That’s a huge boon to tax revenue, but not a good way to encourage people to save for retirement.