Trump tax plan

Associated Press

WASHINGTON

President Donald Trump’s plan to overhaul the nation’s tax code could provide significant tax cuts for the working-class voters who elected him, but the unknowns could end up hurting many of these core supporters of the president.

A look at the plan:

THE WORKING CLASS

These are the people who have been left behind by an increasingly globalized economy.

Trump’s proposal, a one-page outline short on detail, says he would double the standard tax deduction, which could provide significant relief to working-class families. But Trump’s top economic adviser used some bad math to describe the proposal, raising questions.

Gary Cohn said the standard deduction for a married couple would be doubled to $24,000. But that’s not double. The standard deduction for a married couple is $12,700, so double would be $25,400.

Cohn said the deduction would create “a zero tax-rate for the first $24,000.” That sounds great, but very few families making $24,000 a year pay federal income tax, said Roberton Williams, a fellow at the nonpartisan Tax Policy Center. In fact, 44 percent of all U.S. households pay no federal income tax, though most pay other taxes.

THE MIDDLE CLASS

The median household income in the U.S. is about $55,000, though people living in high-cost areas can make much more than that and still feel like they are in the middle class.

Doubling the standard deduction – or at least raising it to $24,000 – could provide significant tax relief to middle-income families. But whether they pay more or less depends largely on details that have yet to be released.

One of those pesky details is how Trump will structure the tax rates on individual income.

HIGH-INCOME FAMILIES

Trump’s plan has the potential to provide big tax cuts to high-income families – unless you live in a state with high state and local taxes.

Trump calls for eliminating the Alternative Minimum Tax, which was enacted in 1969 to prevent high-income people from paying no income tax. It has evolved over the years and now impacts about 5 million households, most of them making between $200,000 and $1 million a year.

In 2005, Trump himself paid $36.5 million in taxes, mostly because of the AMT. Without it, he would have paid just $5.5 million, according to a leaked copy of that year’s return.

On the flip side, Trump wants to eliminate the deduction for state and local taxes, a big tax break that benefits millions, especially people living in Democratic-controlled states with high local taxes such as New York, New Jersey and California.