Yesterday, when details of the House Republican tax plan started to trickle out, people like me were glued to websites, TVs and podcasts. We were trying to figure out who benefits and who pays if this tax plan moves through Congress.

By midday I had seen enough details to get a rough understanding of the plan, but I was hearing some pretty one sided commentary. I also didn’t have any detailed analysis from anywhere I trusted…so I wanted to take a crack at doing some of the calculations myself.

Change in Average Tax Rate by Income

I tried to look at the data from a “What’s in it for me? What’s in it for my clients?” standpoint.

Most talking heads the past few days have been saying things such as “the average middle class family of four will save (this dollar amount) per year.” Paul Ryan sat in front of a podium yesterday and used this specific selling point.

The congressman who represents my home district, Peter Roskam (R-IL), came out yesterday and read a speech about the tax plan that seemed as if he had not bothered to ponder what this would do his mostly middle class constituents. Roskam used the same purposely deceptive story that tax plan is good for everybody because everyone gets a tax cut. Ryan & Roskam both know that if everyone in the country gets a raise…the raise isn’t really a raise…it is a new normal.

So this is a very simple look at the changes. Who wins? Who loses?

For simplification I am going to be discussing income tax for couples. Individuals can mostly divide these numbers in half, but there is a hitch for upper middle income individual filers which won’t be covered here. Please click on the chart to see how much of an income tax cut you would be receiving from the tax plan, the differences between income levels is dramatic.

The chart only addresses base income tax. Many common deductions are also being eliminated. These changes to deductions will hurt filers in lower middle income and middle income brackets the most.

Deductions proposed for elimination:

  • State and Local Taxes no longer deductible
  • Medical Costs
  • Daycare Expenses
  • Tex Prep Fees
  • Changes to Home Sale Gains Exemption
  • Moving Expenses
  • Disaster Losses
  • Adoption Credit
  • Alimony
  • 401(k) deductions (currently removed)


Combined Income of Less than $120,000: The tax plan is a solid income tax break for this group. They will be paying less income tax. This adjustment in the tax code should be a positive, at least short term. I would be very cautious about any optimism though. This group benefits greatly from many federal programs, even if they swear to you that they don’t benefit from any federal program or tax exemption. If a person in this group has been itemizing their return and taking some of the deductions listed above…chances are they aren’t getting a tax break at all. It is also extremely likely that this group will be most impacted by expected future inflation. This tax plan is going to be sold to people in this group as a benefit, when it is really just as bad as the deal they have been getting all along.

Combined Income of $120,000 to $600,000: This group is the big loser. Life is pretty good for them but sorry there is no way to put lipstick on this pig. They are stuck with the bill, and this group contains almost the entire “middle & upper middle classes” at least as far as PEW Research defines “classes.” (PEW)  Their income tax cut (as a percentage) is minimal. They probably won’t feel any benefit from the small percentage of extra take home income. The buying power of their tax cut will most likely dissipate quickly with rising inflation. The spoiled cherry on top of this stink sundae is that they probably will not get to benefit from the estate tax changes. If they are really fantastic savers, they may benefit over the very long term from lower investment taxes. Right now they are being told they are going to “win big” with tax returns that will be “$4800 to $12,000” larger than before. Some will even fall for it, but they are getting the smallest income tax break and after the eliminated deductions are factored…this group should be very angry.

Combined Income of $600k to 900k: This may be salvageable. For some reason, their income tax was lowered less than those making 900k to $1.4 million (which doesn’t make any sense at all), so this whole plan isn’t really benefitting them as much as other groups but they will probably benefit from some of the estate tax changes as well as changes to corporate and investment income. They will have a lot of interesting opportunities to game this system and ultimately they will benefit if the code stays similar to this plan over the next 20 to 80 years.

Combined Income of $900k to $1.4 million: Congratulations!!! This tax plan was tailor made for you! Not only do you get an income tax deduction that is somehow much higher (percentage wise) than the middle class, but you also will very likely get to take advantage of the additional changes to investment gains and estate taxes. With no worry about hitting against the Alternative Minimum Tax…gravy freaking train!!!

Income of Greater than $1.4 million: Your tax cut will be lower percentage wise than most. This was most likely done to show that top income earners will be “paying their fair share.” But the other changes in corporate taxes as well as estate taxes will mitigate most if not all income loss. The average couple in this category derives 70% of their annual net from investments and only 30% from income. This chart does not fully illustrate how ridiculously fantastic this tax plan is for upper income earners.

What this whole plan really is, if you remove all of the layers of window dressing, is a gigantic loan against the U.S. balance sheet. The plan is projected to add $1.4 trillion in debt, with the hope that this type of spending will grow revenue to pay for the expense. We have rolls and rolls of data showing us that this type of federal spending does nothing to grow revenue…but nobody seems to care about fiscal responsibility anymore. The biggest losers are our kids who get to pay for our irresponsibility.

Here is the Math:


Adam Faust, Northbrook IL