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Chapter 7: Trumponomics

Personal Taxes
Congress passed the most sweeping tax code
overhaul in decades, which went into effect January of
2018—many of the changes will expire after 2025. The
new law keeps seven tax brackets, but changes the tax
rates, which shifts income into lower tax brackets.
Studies by the Tax Foundation and the Tax Policy
Center indicate that most taxpayers will pay less under
the new rules.

You are taxed based on your taxable income
which is your gross income minus deductions. The most
sweeping change is the doubling of the standard
deduction $6,350 to $12,000 for single filers and from
$12,700 to $24,000 for married filers. The new law
eliminates personal exemptions as a way of lowering
your tax bill. When combined with the increased
standard deduction and increased child tax credit, lower
and middle-income households should see a net benefit
despite the elimination of these deductions. However,
higher-income taxpayers could see an increased tax bill
from this proposal if they have large families and do not
qualify for the child tax credit, because of the income
phase-outs within the tax bill.

The new law simplifies taxes because it reduces or
eliminates itemized deductions in favor of the standard
deduction. The new law limits the deduction for state
and local income taxes, property taxes, and real estate
taxes to $10,000 and increases the child tax credit to
$2,000 from $1,000. Tax credits are better than tax
deductions, because credits reduce your taxes
dollar-for-dollar, while deductions only lower your
taxable income. This change should benefit low and
middle-income households with children.

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