In the 1966 film The Good, the Bad and the Ugly, starring Clint Eastwood, the three main characters are on the hunt for easy money – $200,000 in buried Confederate gold.
While presenting the Republican tax proposal last week, House Speaker Paul Ryan made it seem like every American would wind up with some easy money from the proposed lowered rates.
But as Eastwood’s character Blondie discovered, easy money is never easy.
Here’s a look at some important facets of the new tax reform and what they could mean for you.
The Good
Most Americans will see a three-percentage-point decrease in their tax rate. That said, the lowest income group will see a two-point increase in their tax rate, as will a small group of people who earn between $416,700 and $470,700. Americans earning more than $470,700 will pay the same rate.
The standard deduction that most taxpayers use will nearly double from $12,700 to $24,400 for a married family filing jointly. That lowers taxable income by an additional $11,700, which would save another $2,925 per family in the 25% tax bracket.
The rich get a big break in the form of estate taxes. The exemption on the inheritance tax will rise from $5.49 million per person to $11.2 million and will be phased out in 2024.
The plan also gets rid of the alternative minimum tax, which was used to ensure that wealthy Americans didn’t use massive deductions to get out of paying taxes.
The corporate tax rate will fall to 20% from 35%. That seems like a good sound bite, but on average companies pay less than 19% already.
Additionally, companies with overseas funds will be allowed to repatriate the cash by paying a 12% tax. That should lead to greater dividends and stock buybacks.
I’ll get into how the new plan will affect your investments next week.
The Bad
On the surface, the lower rates sound good. But when you look at what the plan does in regards to deductions, it gets a little trickier.
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