1. The amount of the standard deduction.
2. The interest rate on the mortgage.
3. The term of the mortgage and how long into the mortgage you are.
4. Amount of interest paid that year.
5. Your marginal tax rate.
6. Your annual income.
7. How far above the marginal rate breakpoint your are (the standard deduction or itemized deduction could kick you back into a lower bracket, so some of the "savings" would be at a lower rate).
8. Single or Married, filing jointly or separately.
How would tax preparers and tax preparation software people feel about it? Their sales pitch was that for their $250 to $500 fee, they are saving you thousands in taxes and insuring you are not audited. But when you can fill out a simple form and never worry about being audited, what is their compelling story to sell?
By the way, and I digress here, the media loves to report that Millennials are no fun at all, not buying into the "American Dream of Home Ownership" buy purchasing a condo or starter home. But if you do the math, buying a $150,000 condo or starter home isn't going to change your tax bill much for a married couple - in fact not at all, as it won't create enough interest payments to exceed the standard deduction. And given the history of housing prices in this country, a $150,000 condo could be worth $100,000 next year, bankrupting you! Maybe these Millennials are smarter than we give them credit for. Better off to rent that condo for $1200 a month and take a trip to Europe and eat your avocado toast than to chase deductions! Particularly when the deductions simply don't exist and houses cost less to rent than to own!
So, will Trump's proposal mean higher or lower taxes for you and me? Well, to begin with, it likely will be altered significantly when it goes through the massive sausage-grinder that is Congress. The Association of Realtors(tm) will lobby hard to preserve the home mortgage interest deduction for the middle-class, as will the banking lobby and even TurboTax and H&R Block. Guess who has more money and influence than you and me?
And by the way, just get over that because it will never change. People with money and power have always had, well, money and power, over people who are powerless and have no money. It has been this way since the dawn of time and has never changed. Even in Communist countries (especially in Communist countries!) people in power who have influence pull all the strings and the little people have no say in things. Oddly enough, in the Western World, we have a greater say than in such "egalitarian" socialist and communist countries. Not a total say by a long shot, but a greater say. But I digress. Yet again.
|Marginal Tax Rate||Single Taxable Income||Married Filing Jointly or Qualified Widow(er) Taxable Income||Married Filing Separately Taxable Income||Head of Household Taxable Income|
|10%||$0 – $9,325||$0 – $18,650||$0 – $9,325||$0 – $13,350|
|15%||$9,326 – $37,950||$18,651 – $75,900||$9,326 – $37,950||$13,351 – $50,800|
|25%||$37,951 – $91,900||$75,901 – $153,100||$37,951 – $76,550||$50,801 – $131,200|
|28%||$91,901 – $191,650||$153,101 – $233,350||$76,551 – $116,675||$131,201 – $212,500|
|33%||$191,651 – $416,700||$233,351 – $416,700||$116,676 – $208,350||$212,501 – $416,700|
|35%||$416,701 – $418,400||$416,701 – $470,700||$208,351 – $235,350||$416,701 – $444,550|
For the upper middle-class - people making $500,000 a year, such as doctors, lawyers, or dentists or small businessmen (the successful kind, not me) it could mean a 4.5% decrease in marginal rate, plus the ability to itemize deductions still. However, the benefit of itemizing would only be for those deduction above $24,000. It would be a tax cut, but not a huge one, and the benefit offset by the increase in the standard deduction.
The very, very rich would be unaffected - they pay at the 15% capital gains rate - which is what Mitt Romney, Warren Buffet, and Donald Trump pay, if they pay that much at all. But since the GOP also proposes eliminating the estate tax (which only affects people with more than $5,000,000 in assets) it will be easier to hand-off wealth to children and create dynastic wealth. But of course, there were already tax dodges in place to avoid this tax, such as the Crummy Trust (generation-skipping trust). Fortunately, most heirs squander wealth within a generation or two. The Koch brothers may have increased their father's fortune, but I suspect their children will squander it all on yachts and nonsense in due course.
For me personally, it would be a wash. This year, my taxable income was so low, I took the standard deduction, which pretty much zeroed out my taxable income. I am living off after-tax savings, which as the name implies, are not taxable. Mortgage interest, state taxes, and all that bullshit means nothing to my tax bill. The standard deduction pretty much wiped out my tax bill entirely, except for my "self-employment" tax, which is the social security and medicare taxes you pay, times two (because I have no employer to pay the other half).
Going from $12,600 to $24,000 won't make a difference this year but would be a big help to me by age 59 when I start spending taxable 401(k) money. This might also wipe out my tax bill, but again, since we don't know the breakpoints on these new brackets, it might also increase it. Once I am collecting Social Security and paying ordinary income tax on my 401(k) deductions, I could have a sizable taxable income in retirement, which was supposed to be at 15% when I planned for retirement 30 years ago (when they sold us on this idea of 401(k) plans). If Trump Bumps me into the 25% bracket, it will all be for naught.
Playing with the tax code is like playing with fire, and politicians do and can get burned if a lot of people even just perceive that their taxes went up. Sadly, a lot of people in the lower classes will like the new plan, even if it means higher taxes, if they can file a simpler form with the new standard deduction. Their main gripe with the tax system is the complexity of it, and the uncertainty they have every year whether or not they paid the least amount or whether their neighbor paid more or whatnot. That, and the guilty feeling they get over taking deductions for sketchy things like charity, even if their odds are being audited are infinitesimal.