January 20th of this year marked the one-year anniversary of Donald Trump’s inauguration into office as President of the United States. Since being sworn into office, the US economy has seen changes in its GDP (rising 3 percent), redevelopment of consumer confidence, the Dow Jones reaching record highs, and redefining the North American Free Trade Agreement (NAFTA). But perhaps one of the more recent developments of Trump’s administration that has sparked conversation is his $1.5 trillion “Tax Cuts and Job Act” signed at the end of this past year. The bill was passed by the Senate on December 20th with the idea that its action will allow for less of a dent in the federal deficit, cuts in corporate and individual taxes, boost middle-income households, stimulate US business, and more. With all this taken into account, here are some of the important aspects of the plan we know thus far.

In terms of income brackets, the tax plan lowers the taxation for all except the lowest and the 35th percent. As per law, this is set to only go until the year 2025. The bill also raises IRS income standard deductions for some. For married couples, it was raised by $11K (from $13K to $24K), for singles the raise nearly doubles from $6.5K to $12K, and lastly for heads of households it was a raise to $18K. The tax bill has also placed a hold on personal tax exemption, thus limiting individual deductions. What is going to lift a weight off the federal deficit is putting an end to the Obama administration’s individual mandate which allowed punishment for those exempt from health care coverage. This is said to lower the federal deficit by $338 billion by 2027. However, the downfall is that this will take 13 million people out of the pool of those with insurance.

There have also been changes to the state and local taxations (SALT). State and local property taxations have been allowed deductions up to $10K. The changes here have been a conversation for a hot topic and debate as high-tax states such as New York and New Jersey being taken off tax deductions would be detrimental. More specifically, state and local taxes end at $10K. Perhaps a large talk around the bill is the corporate tax cut implementation lowering the corporate tax rate to 20%. Families with children will also notice the raise to the child tax credit, bumped to $2K, but only if the child is younger than 17 and the legal guardian provides the children’s Social Security. Mortgage interest deductions have been deduced to $750K. The plan also expands to deal with alternative minimum tax, 401K’s, student loans, raises single filers estate tax to $11.2 million, caps net interest deductions, and much more.

So ultimately, what does all of this mean for the average American? In a recent Yahoo Finance report, author Lauren Lyons Cole depicts how this will play out for different income levels of families of four. Essentially, with the tax deductions taken into account in 2015 and with assumptions a similar pattern will follow in 2018, the following exhibits the tax cuts under the Senate’s tax cut plan:

· $25,000 household income: estimated annual tax savings of $100.

· $75,000 household income: estimated annual tax savings of $2,244.

· $175,000 household income: estimated annual tax savings of $3,095.

§ Yahoo Finance

The same situation applies below but with the House Republican’s tax plan:

· $25,000 household income: estimated annual tax increase of $72.

· $75,000 household income: estimated annual tax savings of $1,711.

· $175,000 household income: estimated annual tax savings of $2,264.

§ Yahoo Finance

Though for now the savings look promising, after 2025 when most of the proposed tax cuts expire, families will actually be paying more with taxes. The largest problem as well is that with the plan, though promises are towards a more stable income for the middle-class, the tax cuts are helping the top-tier income brackets the most. As seen above, households with $175K under the House Republican’s bill can see $2K in a tax break while the lower brackets will only be saving not even $100.

As the plan is in its early phases, it will be interesting to see how this will play out for Trump’s administration and US tax payers, businesses, and the federal deficit.