15 Ways the GOP Tax Plan Makes the Average American Pay More
If you think about it, Republicans in Congress have been honest about what’s at stake with the Trump plan for tax reform. While the authors of the GOP plan went on TV speaking about trickle-down economics and other theories, House Representative Chris Collins, a Republican, told The Hill about intense pressure he felt from certain members of his party: the donor class.
“My donors are basically saying, ‘Get it done or don’t ever call me again,'” Collins said. We heard a similar line from Senator Lindsey Graham (R-SC) about the end of “financial contributions” should the plan fail. The bill, which emerged on November 2, does not seem to have the same support from the grass roots.
Naturally, working people won’t interrupt their lives to get behind something that offers them little or nothing at all. We know the country’s richest men will profit in the billions from this plan, but middle-class Americans may not benefit much. In fact, the analysis of several tax experts says millions of average Americans (anyone earning less than $100,000) will actually pay more in taxes in the coming years.
To find out how it might affect you, we looked at the various proposals that could change the tax code for low-wage workers and the middle class. Here are 15 things in the Trump-GOP tax plan that will hurt the average American.
1. Families with children pay more
House Speaker Paul Ryan (R-WI) made his case for the tax plan in front of reporters on November 9. When asked about the richest Americans benefiting most, Ryan cited some numbers, beginning with the standard deduction. Right now, a married couple with two kids can immediately knock $13,000 off their income. Under the GOP plan, that couple would be able to instantly deduct $24,400, Ryan said.
So that’s good, right? If the story ended there, it would be great. However, Ryan did not mention his plan would end the personal exemption. According to the Institute on Taxation and Economic Policy, the $4,150 deduction for each family member will disappear. For a family of four, the parents could deduct $29,600 under the current system. So they would lose $5,200 in exemptions under the Trump plan in the House.
Next: Millions in the middle class will pay higher taxes by 2023.
2. The tax hike in 2023
What a difference a week makes. On November 6, Paul Ryan told Fox News that “everyone enjoys a tax cut across the board” with his plan. When fact-checkers at The Washington Post asked him to clarify, Ryan’s spokeswoman said the Speaker “misspoke.” Considering how many people will see their taxes go up because of the GOP plan, it was quite a misstatement.
Congress’s Joint Committee on Taxation showed taxes going up for over 10 million Americans by 2023. When the law kicked into gear in 2019, everyone would see a tax cut. Then, four years later, those earning between $20,000 and $40,000 would see their taxes go up again. However, if you earn over $1 million, don’t worry — your taxes will go down every year over the next decade.
Next: The biggest risk for seniors paying for medical care
3. Ending deductions for senior care
Current tax policy allows seniors (and everyone else) to deduct expenses for medical care when paying over 10% of income in a tax year. This deduction makes lives affordable for seniors who have to pay for inpatient care as well as nursing home fees for spouses and dependents. The House GOP tax plan would simply eliminate that deduction.
Readers of “The Color of Money” finance blog told Michelle Singletary what that change would mean to them. A Georgia woman with both parents in assisted living described the potential changes as “catastrophic.” A South Carolina man expected to pay another $6,750 in taxes. A 78-year-old North Carolina man who deducted $12,000 in 2016 expected his tax burden to go up by 23%. Seniors would hurt badly here.
Next: Some 69% losing these deductions earn under $75,000.
4. Medical and dental costs for the middle class
Actually, medical and dental deductions benefit all Americans — at least those who aren’t wealthy. AARP stats published in “The Color of Money” peg 69% of people claiming these deductions at incomes less than $75,000. Everyone will have a bad year of health at some point. Fortunately, current tax laws lighten the financial burden on less well-off Americans. To fund the corporate tax cuts, the GOP plan removes this helping hand.
Next: This win for foreign investors probably won’t mean more jobs.
5. Approximately $70 billion to foreign investors
If there was one under-reported aspect of the the Trump-GOP plan, we’d say it was the boon for foreign investors. The 15% drop in corporate tax rates (to 20%) means foreign investors, who own about 35% of U.S. stocks, would receive a windfall of $70 billion per year under this plan. (This analysis comes from a fellow at the Urban-Brookings Tax Policy Center.)
We have heard how lowering corporate taxes would somehow lead to better wages and more jobs, but that idea drops dead in this light. How many foreigners will take their tax break and give U.S. workers new jobs or higher wages? No one can be sure, but we would bet not many at all. So much for seeing the wealth trickle-down, as Trump advisor Gary Cohn suggested it would.
Next: Social Security becomes a clear target.
6. Risks for Social Security
This one gets a little complicated, but we’ll simplify by saying the bill includes “chained CPI,” a different way of calculating inflation. Paul Ryan and other Republicans say inflation is happening slower than you think, so Social Security payments should rise slower. Put another way, seniors should get smaller checks every month because the government has better things to spend its money on (e.g., the military or travel costs for Trump’s Cabinet).
That reality does not happen immediately with this tax plan, but the way of measuring inflation does. In other words, Social Security is next on the table for cuts. Ryan and Gary Cohn have been quite clear about this progression.
Next: You probably won’t be able to afford that house.
7. The cap on mortgage deductions
Many people struggling to achieve the American dream of owning a home will feel pinched by the GOP tax plan. In the House version, there is a cap of $500,000 on house loans. Any purchase beyond that would not have the right to deduct the interest you pay on your loans. Anyone who has checked the housing market in big cities recently knows that this amount will definitely affect the middle class.
Next: Grad students will pay about four times more for working while in school.
8. Taxing students working their way through school
They say you need a master’s degree to compete for top jobs these days, and going for a PhD. puts you among the best suited for high-paying work. However, it costs a ton to secure these advanced degrees. Graduate students have an edge when they teach to subsidize their university studies. Currently, schools waive the tuition for students teaching classes, and the IRS does not tax that benefit.
In the GOP tax plan, those tuitions become fair game for the government. So if a grad student gets free tuition for teaching a class, they will have to pay taxes on that value ($40,000 and up these days). If you are trying to get an advanced degree and access to better paying jobs, this plan will make your life harder. One student at Carnegie Mellon in Pittsburgh expects her tax payment to go from $2,500 to over $10,000, Wired reported.
Next: Income inequality remains a problem.
9. The rich getting richer
In his “trickle-down” CNBC interview, Gary Cohn said something extraordinary. “The most excited group out there are big CEOs,” he told John Harwood, referring to the tax plan. If there’s one thing everyone agrees on, it’s that this GOP tax proposal makes the rich richer. Yet there’s nothing in the bill to specifically address income equality and stagnant wages. Wages will remain the same unless a CEO voluntarily gives someone a raise.
Next: Paying for any form of higher education will get more expensive.
10. Student loan interest
If you’ve been watching, you’ve seen tuition at major universities double in the last few decades. However, wage growth has barely moved, meaning students are more dependent than ever on loans to make it through college. In the GOP tax plan, the interest deduction on these loans would disappear, thus raising the chances for graduates to end up with bad credit and the many side effects that come with it.
Next: Moving will get more expensive.
11. Relocating for a better life will cost you
Taxpayers can deduct moving expenses, and the impact can be huge. For example, if you get a job offer to move to a new city, you can go knowing some of your costs will be deductible. This system allows people to take advantage of opportunities without serving ramen to your family for several weeks. In the interest of making ends meet for their donors, Republicans needed to scrap this benefit to taxpayers.
Next: What happens when tax payments from millionaires drop
12. Less funding for state schools
Everyone hates paying taxes. However, a funny thing happens when you look at the services the middle class gets from taxes on the 1%. Funding for state colleges and social services drops when millionaires pay less. (Connecticut felt that burn earlier in 2017.) Families who can’t afford Ivy League schools end up seeing a lower level of public education at the state level. Lowering taxes for the top 1% has a direct impact on middle class education.
Next: Economical driving will get $7,500 more expensive.
13. Kissing the electric car credit goodbye
This proposal comes straight from the Koch Brothers’ wish list, so we know it would make at least one pair of GOP donors happy. Currently, consumers who buy all-electric vehicles receive a tax credit of $7,500 to subsidize the higher cost of fuel efficiency technology. That credit would disappear under the Republican plan, meaning taxpayers would either have to keep paying for gasoline cars or finance an extra $7,500.
Next: This tax plan proposal will hit America’s favorite charities hard.
14. Charitable donations
Middle-class and poorer Americans donate billions to charities every year, and the available tax deduction makes that possible. These donations get claimed as line-item deductions. Under the proposed Republican plan in the House, taxpayers could not write off these gifts to Salvation Army and other organizations. One expert on philanthropy estimated the change would force Americans to donate less to charity — amounting to $13 billion.
Next: Americans living in these states will feel the pinch from the Senate plan.
15. Blue state blues
If you live in a high-cost state such as California or New York, you’ll have bad news when it comes to property taxes. The new Senate plan would eliminate all state and local tax deductions. (Ryan’s House plan keeps property tax write-offs limited to $10,000.) If you pay high local taxes and count on the deductions for filing federal returns, you’re in trouble. However, don’t worry about the company you work for — businesses will keep those benefits.
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