One of the stated goals of President Trump’s new tax proposal is to “provide tax relief to American families — especially middle-class families.” But look through the one-page document and it’s not clear how much middle-class relief is really offered.
For the rich, the gains are very clear and very valuable, including reducing the top income tax rate, eliminating the alternative minimum tax and estate tax, and cutting capital gains.
But even in wealthy Massachusetts, these kinds of changes affect a remarkably small number of people. Only about 1 percent of Massachusetts taxpayers actually reach the top tax bracket, and even the alternative minimum tax — which has a reputation for biting into the middle class — affects less than 5 percent of all state returns.
For the rest of the 3.3 million households that pay taxes in the Bay State, the benefits of Trump’s tax plan are hard to determine, because virtually all of the key details are missing.
Take Trump’s pledge to double the standard deduction, from $12,700 to $24,000 for a married couple. That could certainly be a significant boon to middle-income taxpayers, allowing them to shield more of their earnings from the income tax.
Except that when Trump issued a similar proposal during the campaign, he paired it with other changes that undid many of the gains, including scrapping the “head of household” filing status and eliminating the $4,050 tax exemption families get for each household member. We don’t yet know if these accompanying changes still apply.
A similar problem haunts Trump’s promise to increase the child-care tax credit. Done right, this would mightily help working families, who are spending an ever-growing share of their income on child care. But here again, details matter — and the current plan doesn’t have any. In the version Trump unveiled during the campaign, 70 percent of all benefits went to families earning over $100,000.
Even more important are the indirect effects. Trump’s plan is estimated to cost around $5 trillion over 10 years, according to the bipartisan Committee for a Responsible Federal Budget. And that means less money for programs that families rely on like college grants, aid to schools, Medicaid reimbursements, and housing vouchers — not to mention public goods, including science funding or national defense.
A separate concern is that Trump’s tax plan could hurt the Massachusetts housing market. That’s because homeowners would no longer be allowed to subtract local property taxes from their federal tax returns, a popular deduction.
Without this option, the real cost of owning a home would rise, because people wouldn’t be able to get a tax break for their property. And while it’s not clear how big an impact this would have, even small perturbations in the housing market can generate big effects in Massachusetts — where so much wealth is tied up in our expensive abodes.
For the Massachusetts middle class, then, Trump’s tax plan comes with real risks and uncertain benefits. The typical family could see a genuine reduction in their tax bill, or not. And implementation has the potential to disrupt the housing market and require cuts to widely used federal programs.