The present society has been classified and defined based on their financial capacity, ranges from poorest to the richest – they are the people from the different end of the pole. In the middle of the pole, people who are called the middle class. They are individuals and households who fall into the working class and the upper class within a societal hierarchy. Over the years, 70% of the Americans claim that they belong to the middle class.
However, based on a research report, middle class makes up only 50% of the United States' total population. This class often employed as managers, professionals and civil servants. Pew Research Center, people falling in this class are earning from $46,960 to $140,900 which is two thirds to two times the national median income for the household size. They tend to have a lot of savings and investments; they have more income for consumption and own a property, and holds a higher portion of the college degree.
Politicians and economic leaders are telling that exceptional performance of the US economy and strength of the American middle class, they produce most of the wealth in the country. They are taxed at a higher rate and yet a certain group of wealthy people is enjoying and taking advantage of tax shelter.
December 2017, US President Donald Trump signed a new tax bill.The new tax law changed the standard tax deductions and exemptions. Prior to its passage, numerous analysis and Senate debates were conducted, it found out that the most affected are those typical households and average American taxpayers or the middle class. The new tax code is full of specialized deductions, for charitable donations, mortgage interest, medical expenses and more.
Doubled Standard Deductions
The tax law roughly would double the standard deductions (tax cut for 2018 tax law) and almost none would get the tax increase. For couple joint filers, current standard deductions are at $13,000 changed to $24,000. As for single filers, from $6,500 to $12,000. The effect of the law will vary on different family types and based on the number of children in each household. For the married couple with no children, there are three changes: double tax deductions, eliminate the personal tax exemptions and lower tax rates for income. Couples earning $40,000 will get a tax cut about $300. Families with children, child tax credit is doubled to $2,000 per child and keeps the age limit at 16 and younger, so the more children the larger tax cuts will apply.
Limited Itemized Deductions
Another significant change is that it limits itemized deductions up to $10,000 for state and local property taxes and income and sales taxes, applied either single or married filers and is not indexed for inflation. Unlike before, all state and local property taxes are deductible without limit to the federal tax filing. Mortgage deductions are also limited, the maximum amount of mortgage debt you can deduct interest on taxes is up to $750,000. This new rule shall apply to all loans taken after December 15, 2017.
Required Health Insurance
The new tax law repealed the mandate that requires all Americans under 65 to have health insurance or pay a penalty. As a result, some will prefer not to buy insurance since the penalty has disappeared. High-income earners who do not qualify for subsidies under Affordable Care Act will choose to drop insurance because of the increase in premiums. Health insurance premiums could rise up to 10%. Congressional Budget Office (CBO), CBO estimated over $300 billion in savings, fewer persons with health care means lower costs for the government. They estimated that around 13 million fewer persons would have health insurance by 2025, this includes 8 million fewer on the Affordable Care Act exchanges and 5 million fewer on Medicaid. This allowed Republicans to increase the size of the tax cuts in the bill.
Excise Tax On Private Colleges and Universities
Endowment tax imposes a 1.4% excise tax on private colleges and universities assets valued at $500,000 per full-time student and it will apply to around 32 universities. Endowment funds used to carry out a college's tax-exempt purpose are excluded from the asset threshold, but IRS regulations specifically defining this have not yet been made. The tax law expanded usage of 529 college savings accounts for both qualified K-12 private school tuition. The first $10,000 of such spending each year is tax-free on the federal level, though state-level 529 rules differ widely and may still levy taxes on these withdrawals. Some controversial provisions that would have taxed graduate student tuition waivers, tuition benefits for children and spouses of employees and student loan interest were also dropped.
This new policy would result in clamor, wailing, and disappointments especially those taxpayers who belonged to the middle class. The legislators have forecasted the economic impacts of this new law. As a law-abiding Americans, we have to follow and apply the law properly and wisely.
