Seven hypothetical scenarios provide a sense of the impact you can expect on your personal budget from impending tax rate changes.
Congress is expected to pass significant tax rate changes soon and the bill is likely to wind up on President Trump’s desk this week. After going through changes in both houses of congress, the question turns to the impact this legislation will have across the country.
Bloomberg Politics recently published an in-depth look at both the House and Senate bills. Though neither includes the new, consolidated bill currently working its way through congress, here’s a breakdown of what tax rate changes you may expect and a few scenarios to consider.
Current Effective Tax Rate: 30.51%
House Bill: 33.69%
Senate Bill: 31.44%
In both plans, the effective tax rate will rise for the well-to-do Manhattan-ite, in large part to changes in deductions. Note: Unlike the City vs City cost of living calculator, this information does not include State and local taxes so the true “total tax bill” is understated. Check out our other post to learn more about this concept.
Small Business Owners in Pittsburgh
Current Effective Tax Rate: 18.69%
House Bill: 18.53%
Senate Bill: 14.47%
This rate assumes a married couple who own a small manufacturing business in Pittsburgh, PA. Assuming they file jointly, with $300,000 in earnings, two young children, and a $150,000 mortgage. The largest tax rate changes impact the couple’s taxable income; which fares much better under the Senate bill.
Oregon Middle Class
Current Effective Tax Rate: 8.01%
House Bill: 5.92%
Senate Bill: 6.38%
This scenario assumes a married couple without children, filing jointly with earnings of $58,000 and a mortgage balance of $75,000 at a home valued at $150,000. This is around the median income in America. The couple would fare slightly better under the House bill, though their effective rate is lower in either scenario.
Suburban New York Family
Current Effective Tax Rate: 17.43%
House Bill: 16.75%
Senate Bill: 15.28%
This married couple has two children under 17, owns a home valued at $700,000 and files joint earnings of $275,000. This couple’s effective tax rate will be lower under either plan and both plans enable them to avoid the individual AMT tax. This plus the enhanced child tax credits would help minimize the hit this couple will take from the deductions and exemptions they will no longer qualify for.
Renting in Milwaukee
Current Effective Tax Rate: 1.29%
House Bill: 0%
Senate Bill: 0%
This scenario assumes a married couple, renting a home, one child under 17, and with an adjusted gross income of $40,000. Under both plans the effective tax rate drops to 0%. This is mostly due to the double standard deductions included in both bills.
Single in New York
Current Effective Tax Rate: 18.57%
House Bill: 18.15%
Senate Bill: 17.58%
This scenario assumes a single person living in New York City, renting a home/apartment, an with an income of $130,000. Neither plan moves the needle much for this individual, however the Senate bill may represent over $1,000 in savings.
Married in Texas
Current Effective Tax Rate: 11.28%
House Bill: 8.47%
Senate Bill: 8.74%
This couple has no children, rents a home, and files joint earnings of $100,000. They also donate $5,000 to charity. Under the House bill, the family credit would save $300 each while the double standard deduction drops their effective tax rate substantially.
Not a Done Deal… Yet
Under all scenarios that Bloomberg examined, only higher income earners stand to see an immediate increase in tax rate. It’s important to note that these scenarios only examine wage income and pass-through income. Furthermore, the scenarios were based on median taxes across counties and did not consider the impact of state and local taxes, or the planned corporate tax rate cut.
Note: The consolidated bill currently working its way through congress more closely resembles the Senate bill’s proposed tax rate changes.
The impact on your wallet is a major factor in deciding on which city you want to make your new home. As more data becomes available, a clearer picture on tax rate changes will start to form. The patent-pending technology of City vs City can help sort through the complicated data and give you the tools and information you need to make a great choice for you and your family.