(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?
Image Credit: Pixabay
MrFireStation 
We’ll save a few hundred dollars on the standard deduction. But our healthcare costs may rise with the removal of the Obamacare penalty. Still, I’m not too concerned because I think more changes are coming.
LikeLiked by 1 person
True – they still have to sort things out between the house and Senate versions. I hope they kill the AMT.
LikeLike
We will get clobbered by tax reform, because it looks like property tax deductions will be limited or eliminated, and state income taxes will no longer be deductible. We live in a high income tax state. The reform will probably increase our taxes by 5%. It also appears the Obamacare tax is still in effect.
LikeLiked by 1 person
It looks like they are trying for a $10K/year property tax deduction. That’s about exactly what we pay. We’re in high-tax MN, but on principle, I’m fine if that isn’t a deduction.
LikeLike
Your state income tax rate is high as well? Would eliminating state income taxes as a deduction affect you?
LikeLiked by 1 person
Yes – Minnesota is true blue Democrat controlled for generations. We pay 9%+ income tax. That said, IMO, it is our State’s problem and shouldn’t be ‘excused’ by the Federal government with a SALT deduction.
LikeLike
MN is #3 behind CA + OR
LikeLike
I live in Texas, so our taxes are quite low. Fortunately, I’ll be seeing around a 4% savings next year (if the calculators are correct). I didn’t realize MN was so highly taxed. That stinks but I do agree that low taxed states shouldn’t have to subsidize high ones. BTW, seems your link to the tax calculator is not working. Here a calc I’ve been using which might be helpful. http://taxplancalculator.com/
LikeLiked by 1 person
Yes – Texas and Minnesota are probably about as far apart as you can get when it comes to state government. MN culturally sees itself as America’s version of Scandinavia – high taxes and high social services. Lots of Swedes and Norwegians here reinforce that belief.
LikeLike
This calculator that you provided (Thanks!) calculates my savings at about 2.5%. It says that it uses data from the final tax bill that was signed into law. Good news !
LikeLike