Winners and Losers Under the Trump Tax Plan
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Who is explaining the Trump tax plan and why does it matter?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm Jennifer Strong in New York. President Donald Trump and Republican leaders are proposing a new tax framework for American taxpayers and companies. Joining us with a closer look here in the studio is The Wall Street Journal's Laura Saunders. Laura, you've looked at the winners and losers under this plan. Let's start with people who don't take deductions.
Well, but let's also put in a caveat right at the very beginning. We don't know what's going to happen. This is very fluid. This plan is missing crucial details. And Mr. Trump gave it to the Congress to work out. He gave them the hard part. What about people who don't take deductions? How might they fare? Well, they might do better if they don't take any deductions because the so-called standard deduction, if you don't just write off your mortgage interest and charitable donations and things like that, is going up. It's getting doubled. It would be maybe $24,000 for a couple. But there's a hitch here. If that couple has children, they could lose because they want to take away the so-called personal exemption, and everything would be folded into the standard deduction.
So that's something to keep an eye on.
You say heirs of very large estates, though, are likely to benefit under this plan.
Well, they could, absolutely. This plan wants to get rid of the estate tax, sometimes called the death tax. Right now, it only affects people who leave estates more than $11 million per couple or $5.5 million per individual.
How would doubling the standard deduction affect taxpayers who don't itemize?
That exempts almost everybody from paying any estate tax. But if you're very, very, very wealthy, your heirs could be very, very happy if this goes through.
And what about the difference between someone who lives in a low-tax versus a high-tax state?
Well, they want to get rid of the deduction for state and local property and income and sales taxes. So states that have a lot of those taxes, and they're the ones you think of, California, Maryland, New York, Massachusetts, Illinois – Those people may be at a great disadvantage if they get this proposal through. They're already starting to walk it back a little bit because it's such an important deduction. And generally, it's the blue states that have the highest taxes and the red states that have the lowest ones. So you wouldn't suffer so much if you live in Texas or Florida, but look out if you live in Massachusetts, New York, or California, or New Jersey especially. What about folks with large medical bills, such as nursing home residents?
Well, these people may come out behind. They could benefit from other provisions, but there's a very high hurdle to taking that deduction so that people who are in nursing homes or have catastrophic costs and things like that, those are the only people who get it. If they take that away, they won't get it anymore. And so those people could be net losers.
And what about single parents or others who file as head of household?
Well, this is one of the mysteries that we don't know yet, what they're going to do about those filing statuses and things like that. But the reorganization of the standard deduction, getting rid of the personal exemption, puts single-parent families and families with lots of children at risk for higher taxes. And they may increase child credits so that that doesn't happen, but they haven't specified how and for whom and whatever. Okay. And then the alternative minimum tax, the dreaded AMT.
Okay.
That's good for everybody that hates it because it is going to be repealed. And I really think that will happen. I don't think anybody in Congress likes it anymore. I don't think anybody in the IRS likes it anymore. I know that tax writers don't like to write about it because it's so complicated.
We're talking about proposed tax reform with Laura Saunders, and you're listening to Your Money Matters from The Wall Street Journal. Thanks for listening, everyone. Laura, what else should we know at this point?
Well, the most radical thing that this plan wants to do is to lower taxes on corporations so that we can be more globally competitive.
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