So you got your “tax cuts” eh?
What, specifically, did you just “win”?
Let’s think about this for a minute. The “average single Joe” doubled the standard deduction, which many people think is a big win. It’s not, because you lose the personal exemption, which is $4,050 per person. So the actual exemption increase isn’t $6,000, it’s $2,000. You got scammed, in short, into believing you “got” a big gain there when you didn’t.
If you’re a married couple the calculation is roughly the same; you have a $24,000 standard deduction (doubled) but you lost two personal exemptions, or $8,100. So the net income exemption gain is $4,000 not $12,000.
Further, if you have dependents (e.g. single-parent households) you get whacked here because personal exemptions are gone and those were quite substantial.
Note that because the lowest bracket is 10% the actual gain in taxes saved is $200 or $400, respectively, and that’s only if you didn’t lose a deduction off AGI in the process. There is a roughly 3% decrease in rate in all brackets but the first (in other words, once you get into the 15% bracket it’s 12% instead) however the problem with just looking at this is the loss of deductions. Again, the place this is likely to bite people is found in single-family households or families with children. In these instances you are unlikely to see much change but if you do it will probably be a net increase in taxes, although it’ll be small.
This post was published at Market-Ticker on 2017-12-20.