Another change is the reduction of tax rates to the minimums set in the tax law
of 2001. That means all rates 27% and greater drop 2% to 3.6%.
The first 10% and 15% bracket ranges are increased slightly
to $6,000/$12,000 and $28,400/$56,800 respectively for single and joint
filers.
Okay, that makes some sense and is actually reasonable fair. It would be nicer
if we could actually afford it, but that is a different topic. Here are some
typical tax savings calculated at
H&R Block.
The bill addresses the "marriage penalty" by increasing the standard deduction to $9,500, and increasing the 15% married bracket to incomes up to $56,800. That's great but if you always itemize that might not make a difference or may actually make you not "itemizable" at all anymore. For married couples with less than $9,500 in total state and local taxes, mortgage interest and charitable contributions, that will indeed be the case. That means in this case your mortgage interest and charitable contributions are, in fact, no longer deductible. Your "deductible" mortgage interest and charitable deductions may very well save you very little or no tax at all. With such a high standard deduction now, I have written up a new calculator to figure out your overall deductibility and show how much you now save in taxes with mortgage interest and contributions.
The child credit has also been boosted from $600 to $1,000 so you get an extra $400 per offspring. As any parent should know that is nice but does not cover much in the way of child expenses these days. ("Dad, I was such a great student I won a special field trip on Friday! It costs $20.") In any case the IRS is actually going to mail out checks to every eligible parent within income limits. What will I do with my $800 check? How will I "spur the economy"* with it? Maybe I'll gas up the minivan and pay the air conditioning bills for the summer. That might cover it.
Some ideas that were scrapped were the Lifetime Savings Account and Retirement Savings Account to replace IRA's and such. They sounded nice but would really have only helped the affluent and the well-disciplined middle class to save more. Frankly these sounded a lot more useful than the restructuring of taxation on dividends, but what do I know, I'm not a politician (who are all obviously experts on taxation and stimulating the economy).
What I found truly interesting was an article that shows what taxes are really hurting working families -- payroll taxes especially on two-income families. People pay a lot of taxes on benefits they will never receive there, and many pay much more in payroll taxes than they do in income taxes.
But the question remains, is now the time to reduce federal revenues? Can we truly afford tax cuts right now, with increasing spending fighting terrorism and rebuilding Iraq? And will these tax cuts that primarily help the wealthy truly help the economy as a whole? I do not know the answers to these questions, but I am afraid many in Washington do not either.
Repeat after me,
Tax cuts spur the economy*
Tax cuts spur the economy*
Tax cuts spur the economy*
Maybe if we say it enough times it will actually come true...