The Republican Congress passed, and President Donald Trump signed, their first legislative accomplishment of the Trump administration, a sweeping tax bill that will largely benefit the wealthiest in America.
The changes are significant, and many. Some changes go into effect on Monday, January 1, 2018.
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What changes go into effect and how might they affect the average American?
There are four changes to the individual tax code that takes effect on January 1, though they are not permanent. They will expire at the end of 2025. Only a few of the tax changes are permanent, and all of the permanent changes benefit only the wealthy and large corporations.
Starting January 1, individual tax cuts will be implemented, and the child tax credit will be expanded.
There is a double exemption for estate taxes that will go into effect in January as well. The estate tax affects the wealthiest Americans. The estate tax is a tax levied on estates left to heirs that are worth more than $5.49 million. Parents can jointly leave their children $11 million without applying the estate tax. That relates to .o2 percent of the population. Parents will now be able to pass $22 million to their children without paying a cent in estate taxes.
Similarly, the Alternative Minimum Tax (AMT) is a tool used to calculate taxes for the wealthy. The new tax bill increases the exemption for the AMT, giving the wealthy a break, though only temporary.
The AMT requires taxpayers that make over a certain amount of money to calculate their taxes twice. They are calculated using the normal tax system and also the AMT, the taxpayer then is expected to pay whichever amount is higher.
Under the old law, a single filer could exempt $54,300 and a married filing jointly filer could exempt $84,500 in order to avoid being required to use the AMT. The new law allows single filers to exempt $70,300 and married filers $109,400. This temporary change will mean fewer higher income earners will be required to calculate their income using the AMT.
An additional provision in the tax bill is a retroactive increase in the deduction for medical expenses. The provision is retroactive beginning in 2017; however, it is only good through 2019.
As for corporate tax breaks, businesses will enjoy a permanent decrease in the corporate tax rate from 35 percent to 21 percent beginning this Monday. Another permanent change set to begin in 2019 is the elimination of the deduction for alimony payments for new divorces and also the repeal of the Affordable Care Act individual mandate.
So, in short, while many Americans will enjoy a short-term tax reprieve as a result of the temporary individual tax cuts and increased child tax credit, those benefits will go away. In the long-term, middle-class families will see their tax burden increase.
Featured Image via YouTube Video.