It's being billed as a "massive tax cut," but millions of Americans will end up paying more to the Treasury if, as expected, Congress approves a final tax plan this week and President Donald Trump signs it into law.
Your odds of being hit with a bigger bill depend on a number of provisions in the more than 500 pages of new rules. To better show the impact of these factors, analysts at the Institute on Taxation and Economic Policy crunched the numbers and came up with an estimate of how individual households may fare under the new rules.
These estimates aren't definitive. The new rules are so complex that two taxpayers in the same neighborhood with the same household income could see very different tax bills. But numbers provide a broad look at where the burden of the tax changes will fall.
Much of the debate over the bill has focused on average changes for American households. But the average of any collection of data often masks the range of impact on individuals. If the average temperature in the United States is 55 degrees, for example, that offers little comfort to someone in Minneapolis in February or Miami in August.
In the same way, a focus on the average impact of the tax bill overlooks the specific impact on each individual tax return. Some households will see big savings; others will get hit with large increases.
"There's clearly no question that the benefits of this tax break are going to go primarily to the top 4 percent (of earners). "
A few major variables will have a big impact in determining how tax reform hits your household budget. If you're paying a lot of state and local income and property taxes, for example, you could owe a lot more if those popular deductions go away.
Much also depends on where you fall on the income ladder; in general, the more you make, the more you'll save on taxes if the Republican tax plan becomes law.
The plan covers a 10-year span, with the biggest cuts coming in the early years. That's why some people who may see a tax cut in 2019 could see their taxes rise again by 2027.
The scope of the new law is sweeping. It's being billed as a $1.5 trillion package, but when you add it all up, the changes in the bill would create more than $5 trillion worth of tax winners and losers.
Corporations would enjoy a big drop in the tax rate on their profits, but would give up dozens of deductions, exemptions and exclusions that lower their tax bill.
Individuals would also see their tax rates cut, but they would give up some important tax breaks that benefit those at the bottom of the income ladder more than those higher up.
"There's clearly no question that the benefits of this tax break are going to go primarily to the top 4 percent [of earners]," said Matt Gardner, a senior fellow at the institute. "Middle income families will be at best an after-thought."
The changes won't go into effect until next year, so you won't really know for sure how much you'll save — or owe in new taxes — until the detailed rules are written and you prepare next year's tax return in early 2019.
But the broad outlines of the final bill are coming into focus. For individual taxpayers, the biggest savings would come from lower tax rates (worth $1.2 billion over 10 years), a doubling of the standard deduction ($720 billion over 10 years), the phaseout of the alternative minimum tax (worth $637 billion in savings) and a bigger child tax credit ($573 billion).
In return for those tax breaks, individuals would give up personal exemptions (currently worth $1.2 billion in tax savings) along with popular deductions (worth $668 billion in savings.)
Businesses big and small also catch some new tax breaks and give up some popular deductions in return. The drop in the corporate tax rate from the current 35 percent to 21 percent will save U.S. companies more than $1.3 trillion over 10 years. In return, they'll lose part of the deduction for interest expenses (generating $253 billion for the Treasury over 10 years), along with limits on deductions for operating losses ($201 billion) and R&D spending ($120 billion).
The bill's authors also hope to generate some new revenue for the Treasury by offering tax breaks on income earned by U.S. companies and stashed in overseas affiliates, but it remains to be seen how corporations will take to those provisions.
Employees would lose some popular tax breaks, including the deduction for moving expenses. Employers can no longer deduct the cost of helping workers defray transportation costs, and deductions for meals and entertainment expenses have been sharply cut. (Those two measures alone are worth more than $40 billion over 10 years.)
The rest of the bill is a grab bag of deductions, exclusions, exemptions credits and other provisions, some of which will help or hurt only small groups of businesses or individuals.
Here's how the elements of the final bill stack up:
