(Updated 12/31/17 for final Tax Reform provisions)
Tax Reform has been all over the news in the last week and when the Senate passed their bill on Friday night, I was excited at the prospect of seeing a solid windfall based on what the politicians were saying about it.
The Republicans promised big savings for everyone across the board – they were even concerned it might be too much and increase the national debt. Democrats, on the other hand, claimed the tax cuts were only for the wealthy and would increase income inequality – I guess by increasing tax equality – as the US has a very progressive tax structure.
Since even in early retirement we have a higher income than the average household, I expected we would make out pretty well in this deal. Our average tax rate went up about 4 percentage points under Obama’s tax increase, so I hoped we would get that back. (We also have been socked with a $5K/year extra ObamaCare Tax that I hope has been completely eliminated).
Unfortunately, that doesn’t look like the case. I used this CALCULATOR to compare our expected 2017 income & deductions under the new Senate plan compared with existing laws and found a benefit of 2.5 percentage points. That gets us back some of the Obama Administration increase, but not all of it. The calculator is pretty simple – and not authoritative – but I hoped it would give me some sense of what we might be getting.
We live in high-tax Minnesota – if we had lived in an average tax state, we would be seeing a benefit of almost 8%! That would be quite a Christmas present, indeed. In ANY of MN’s neighboring states, we would get 2x-3x the benefit we get in MN. That said, I always felt it unfair that citizens of other states should pay more federal tax to offset the bureaucratic spending in my own state. Hopefully, this will drive increased accountability on a state level.
Tax Reform was one of my top 4 priorities last Election Day in my post What The New President & Congress Must Address. It looks like the Republicans are delivering some of what I hoped for, but without spending Reform, it ends up being much less than I wanted to see.
How do you expect to make out in 2017 Tax Reform?
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