Make $150,000 or More? Higher Taxes May Lie Ahead
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Who is on the show and what tax headline are we discussing?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Jennifer Strong in New York. Tax reform is a top priority in Washington now that Republicans see it as their best shot at a major victory before the midterm elections. But if it happens, not everyone is going to get a tax break. Here in the studio with a closer look is The Wall Street Journal's Laura Saunders. Laura, if President Donald Trump sticks to what he said, Americans earning between $150,000 and $300,000, you say, are more likely to see an increase.
Well, they're more likely than other groups to see an increase. Overall, the people that would see an increase vary by income. And in the highest likelihood, the people at most risk of seeing a tax increase are people earning between... $150,000 and $300,000. About a third of them might see a tax increase, whereas people at the bottom, like under $25,000 or in the top 1%, over $733,000, their chance of seeing a tax increase would be 1 in 10.
It's a pretty sharp contrast, though, looking at the study when compared to folks making the most, as you just mentioned, or the least. What else do we learn?
Well, we learned how much we don't know as it is. This comes from the Tax Policy Center in Washington. They're a group of very smart economists, and they have looked at all the things that Donald Trump has said. We don't have much official detail from the administration, but they've looked at proposals, and they came up with what they think will happen. And so these numbers are based on that because people want to know, well, what's going to happen to my taxes? And the answer is, overall, about 80% of people would have some kind of tax cut, and about 20% would see a tax increase. But the greatest likelihood of a tax increase is $150,000 to $300,000. Sure.
And overall, the study found that about 20 percent of taxpayers would actually owe more taxes after tax reform than at present.
Based on all the things that President Trump has said, he changed his tune just a little bit because he had been everything he has said would give the largest share of relief from tax reform to the top 1% and the top one-tenth of 1%. This week, he said he didn't like seeing all these charts and headlines in the Wall Street Journal that shows that the rich would get the most benefit. And so he said he'd really like to do something to help the middle class.
Which income group is most likely to see tax increases under the proposed plan?
Meanwhile, we have this study as a marker. You know, let's see how the plan changes from here. So why would this hit the affluent so much harder than the wealthy or the poor? Well, that's because of our crazy mixed-up tax system and how complicated it is. But the short answer is that the affluent, that is people between $150,000 and $300,000, are at greatest risk because, for one thing, they have more ability to pay higher taxes than the working poor. On the other hand, compared with the highest earners, people making a million dollars, things like that, they use a lot more deductions and exemptions, the affluent do. You know, state income tax deductions, maybe medical deductions, home mortgage deductions.
These deductions are a smaller percentage of your income if you're very wealthy. If you're very wealthy or very high income earning, you are much more likely to have... rates lower because of capital gains and investments and things like that. And nobody's talked this year about changing the rates on those. So in a sense, your income is somewhat protected from tax increases.
We're talking about taxes with Laura Saunders, and you're listening to Your Money Matters from The Wall Street Journal. Thanks for listening, everyone. Laura, at this stage, what else should we know about this?
Well, I think one thing that's interesting is that the Tax Policy Center didn't break down the causes of higher taxes for various income tiers. But we know that it's a pretty good chance that it would come from the denial of state and local tax deductions. Under current law, if you pay income taxes to your state or property taxes to your county or something like that,
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