This week the administration revealed its wish list of tax changes.
The reveal brought to mind the expression, “the devil is in the details.” The plan, such as it was, took up all of one page.
So before you get all excited about a possible tax cut, you’ve got some reading to do. And the president has to deliver on some details.
The stock market wasn’t impressed, closing down after the White House unveiled its plan.
Here’s what’s the administration put on the table:
— Cutting the top corporate tax rate to 15 percent from the current 35 percent.
— Eliminating the seven existing income tax brackets, which top out at 39.6 percent, and replacing them with just three brackets: 10 percent, 25 percent and 35 percent. The plan didn’t detail the income that would land folks in which bracket.
— Doubling the standard deduction that Americans can take. For example, the deduction for married couples would increase from $12,600 to $24,000.
— Getting rid of the deduction for state and local taxes.
— Eliminating the estate tax and the alternative-minimum tax.
The Washington Post’s Jonnelle Marte lays out six ways Trump’s tax plan could affect you
Marte writes, “Without more details, it is difficult to know exactly how some taxpayers will fare. The White House will need to work with Congress on the final plan, which could look very different if lawmakers push back against some of the proposed changes.”
Here are some comments from Bankrate.com’s chief financial analyst, Greg McBride, and senior economic analyst Mark Hamrick on Trump’s tax plan:
McBride: ” Wake me when something actually gets signed into law.”
Hamrick: “As we know, the failure of the president and the Republican-led Congress to make good on his promise to repeal and replace the Affordable Care Act was a dramatic swing and miss. The challenge in pushing through a tax reform package of substance might well be even tougher. When discussing health care, we’re talking about a segment of the U.S. economy. When discussing individual and corporate tax reform, we’re basically talking about the entire economy. The split within the GOP over taxes might well be just as difficult to overcome.”
Color Money question of the week
What are your thoughts on Trump’s tax plan? Send your comments to email@example.com. Please include your name, city and state. In the subject line put “Trump Tax Plan.”
Live chat today
Join me at noon (ET). Let’s talk about poverty. For this month’s Color of Money Book Club Selection I picked an essay, “Falling,” written by novelist and former Washington Post journalist William McPherson. The essay was printed in 2014 in The Hedgehog Review and can be found on the journal’s website.
McPherson died last month at 84. After dropping out of college and serving as a Merchant Marine, he eventually got a job at The Post writing literary criticism, for which he was later awarded the Pulitzer Prize. His two novels also earned him wide acclaim.
But as I wrote in my review of the essay, McPherson’s life is literally the tale of rich man, poor man. As the essay details, his professional accomplishments were followed by a descent into poverty.
McPherson writes: “The rich are all alike, to revise Tolstoy’s famous words, but the poor are poor in their own particular ways. I started life comfortably middle-class, maybe upper-middle class; now, like a lot of other people walking the streets of America today, I am poor. To put it directly, I have no money. Does this embarrass me? Of course. . . . It’s humiliating to be poor, to be dependent on the kindness of family and friends and government subsidies.”
I’d like to hear your thoughts on the essay. Click this link to participate in the discussion.
Get a tax refund every year? Why you probably shouldn’t.
Most financial experts say it’s not a good thing to get a large refund year after year if there’s been no change in your tax situation. Yet many people ignore this advice. So last week I asked: Why do you like getting a tax refund year after year?
Deirdra Logan of Portland, Maine wrote, “Our family uses the annual federal income tax refund to prepay home heating oil for the next year. We’ve done this since we bought our first home and we’ve never ‘noticed’ having a heating oil bill because of this choice.”
Marissa from Hawaii wrote, “I use my tax refund to splurge. I’m pretty tight with money throughout the year, so whatever I get back at tax time (usually just a few hundred dollars) is just for me and I buy that little something extra that I’ve been wanting.”
Mary Phillpotts of Leominster, Mass., wrote, “I don’t exactly ‘like’ getting a refund, but as a retiree with stocks as part of our income, I really do not know year to year what our earnings will be. I use tax software to prepare our taxes and base the estimated taxes on the year just finished. Better to pay estimated taxes than a big surprise bill. I’m just happy to have an income to be taxed.”
Marilyn Ferrick of Rohnert Park, Calif., wrote: “I have always used my income tax refund to pay my property taxes. This way I don’t have to worry about setting money aside each month to be able to pay my property taxes when they come due. Interest rates are so low that I have no concern that I am losing out on much money if I had been saving it. I have neither the knowledge nor the interest to try investing in the stock market.”
Stacy Stafford of Falls Church, Va., said, “Every year, I receive a federal tax refund that amounts to about one quarter of my monthly salary. I always save every penny of it in a separate interest-earning savings account. Since joining the workforce five years ago, these tax refunds have grown enough so that I can invest more seriously for the first time ever. Even though the federal government doesn’t pay me any interest for holding this money all year, I’m still very excited that my ‘set-it-and-forget-it’ attitude toward refunds has allowed me to diversify my finances.”
Kate McRae of Aurora, Colo., wrote, “I like getting a tax refund because it’s a painless way to make the bulk of my annual charitable contributions. I file my return on October 15, and the funds arrive right around ‘Colorado Gives Day’ in early December, when local companies band together to match donations to charitable organizations. I then forward the amount of my refund, plus whatever additional I can afford, to the selected charities who are then eligible for matching funds.”
Finally, the Eades of Washington, a married couple in their late 30s who have two kids (7 and 5). On average they get a federal refund of $4,000.
Their reasoning isn’t without merit. Ryan Eades wrote, “We like getting this refund because the alternatives on adjusting our withholdings wouldn’t net a huge amount in our daily lives and the small lump sums allow us to do several things:
1) We immediately set aside $3,500 to pay for summer camps — they are expensive in DC!
2) We use any remainder to replenish our small $2,000 slush fund, if needed.
3) We put the rest into our ‘don’t touch 6-month emergency fund.’
4) If none of the above on 2 or 3 is needed, we buy something nice for our family/house (think new outdoor couch for the deck) because gosh darn it, life is busy and a grind and we deserve it!”
Color of Money columns this week
Knowledge isn’t power. The right knowledge is power.
Stay informed about your money. Read and share my columns for this week.
Five lessons we can all learn from federal workers who may be facing a furlough
Have a question about your finances? Michelle Singletary has a weekly live chat every Thursday at noon where she discusses financial dilemmas with readers. You can also write to Michelle directly by sending an email to firstname.lastname@example.org. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read more Color of Money columns, go here.