Congressional Republicans and the Trump administration have promised that their new tax-cut package will put more money in the pockets of middle-income families. But as of now, one of the biggest questions looming over the proposal is whether it would actually result in a tax increase for many working-class Americans, including single parents.
The nine-page document the White House and GOP legislators released on Wednesday does not contain enough detail to know for sure how it would affect particular households (let’s say its layout makes pretty generous use of white space). But there’s at least one major reason to worry about how it would impact parents of modest means.
Here’s the issue: The GOP wants to create a larger “zero tax bracket” by doubling the standard deduction to $12,000 for singles and $24,000 for married couples. Any income below those thresholds would be exempted from the income tax, which would reduce what some families owe the IRS, potentially.
However, in order to “simplify the tax rules” (and save costs) the plan would also do away with personal exemptions, which currently allow Americans to deduct $4,050 from their taxes for themselves and each of their dependents. As a result, many parents could actually end up owing taxes on more of their earnings than before. Worse yet, the GOP plan would increase the lowest tax rate from 10 percent to 12 percent.
Consider a married couple with two children earning $50,000. Today, they’d be allowed to take the standard deduction, worth $12,700, plus four personal exemptions, worth $16,200—bringing their tax-exempt income all the way up to $28,900. Under the Trump plan, they’d only have a single $24,000 deduction. As a result, they’d end up paying $888 more in taxes, as University of Chicago Law School’s Daniel Hemel and Kyle Rozema noted in a blog post Thursday.
“The key takeaway is that all working-class couples with children whose adjusted gross incomes fall between $24,000 and $60,000 will pay more in taxes under the Trump plan than under the current tax system,” they write.
There is a big caveat to that analysis. The Republican plan says it will increase the size of the Child Tax Credit—today worth up to $1,000 per kid—but doesn’t say by how much. In theory, that could make up for the loss of personal exemptions. But only if the boost is big enough.
To keep married parents from seeing their taxes rise, Hemel told me that the credit’s value would need to jump by approximately $500 a head. That just happens to have been the amount the House GOP planned for in its last official tax proposal. If they stick to that proposal, two-parent families should come out fine even without personal exemptions.
But not necessarily single mothers and fathers. Worrisomely, the Republican plan does not say what it would do about what’s known as “head of household” filing status, which increases the standard deduction available to solo parents and other caretakers. If it’s eliminated, as it was in Donald Trump’s campaign tax plan, then the child tax credit would have to rise by some $700 to keep a single mom with two children earning $35,000 from getting a tax increase, Hemel told me.
Again, the new GOP framework is silent on this issue. But that alone is reason to be wary. “I think a fair inference is they’re hosing heads of households,” Hemel said.
It’s easy to get lost in the details with tax policy. So try to keep in mind the big picture. As New York University law and public policy professor Lily Batchelder has noted, 35 percent of taxpayers already have incomes that fall below their standard deduction and personal exemptions. They don’t stand to benefit at all from Trump and the GOP’s plan. They can only really lose. “We can tell that the bottom 35 percent of taxpayers are getting nothing” from the proposal, she told me. “And we don’t know if they are going to get a tax hike.”
