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Industry Insights

Changes in the tax code will benefit hard-working Americans

By ,
David Prokupek, CEO of Jackson Hewitt Tax Service Inc.
David Prokupek, CEO of Jackson Hewitt Tax Service Inc. - ()

Rumors of the death of world markets in the event of a Donald Trump election apparently were greatly exaggerated. The Dow Jones Industrial Average has stormed higher. Global equities have been right behind. American CEOs and CNN reports, “are thrilled with Trump.”

For all those who own stocks and who are CEOs, that’s swell.  But how about everyone else? How about the roughly 50 percent of Americans who own no stocks?  Or the vast majority whose incomes put them in the middle to lower ranges of the economic spectrum?  What will a Trump presidency do for their pocketbooks? 

Obviously, the economy is a difficult thing to predict, and I won’t try. But I can analyze tax proposals. After all, preparing tax returns  especially for those with incomes of less than $100,000  is what our company does.

When I look at President-elect Trump’s tax proposals, I do see meaningful benefits up and down the income spectrum:

  • The standard deduction  which is the amount of money tax filers can automatically deduct from their annual gross income if they don’t itemize deductions  is proposed to be raised for everyone. Married couples who file jointly, for example, would see their standard deduction increased by nearly half, to $30,000.
  • Proposed tax rates are headed south for most people. For example, single filers with income between $9,000 and $37,000 would be taxed at a rate of 12 percent, down from 15 percent today. Income between $37,000 and $91,000 would be taxed at the same 25 percent, the same as now, but income between $91,000 and $112,000 would also be taxed at 25 percent, down from 28 percent today.
  • For those with dependents, the plan increases the child tax credit to $1,500, up from $1,000. And hard-working Americans may also be able to create new child care and elder care savings accounts, with Uncle Sam providing a 50 percent match on contributions up to $1,000 a year for low-income families.

The result is that federal income tax burdens are going to fall across the board. According to the independent, Washington, D.C.-based Tax Policy Center, they’ll fall 1 percent in the lowest quintile moving incrementally up to 9.7 percent in the top quintile.

Clearly, the net tax benefits rise as income levels rise, a feature that some observers have criticized. Skeptics also ask how the country will pay for all these cuts.

Defenders of the plan note that the top 20 percent of taxpayers already pay about 85 percent of the nation’s individual taxes. They also say the country can indeed pay for all these cuts, if the cuts – and some others in mind for business  stimulate the economy and job growth as they predict. 

I’m not here to referee such debates. My point is simply this: Americans across the income spectrum do stand to benefit from these proposed tax changes. And if the economy does indeed move into a higher gear, the result will be job and wage growth that will benefit hardworking Americans.

President-elect Trump also said he wants to simplify tax returns. Some might view that as a risky development for a tax preparation company, but I applaud it. Taxes are complicated. And not only because of the 74,000 pages of related rules. 

They’re complicated because life is complicated. Life changes create new opportunities for credits and deductions each year. From getting married and having a baby to moving for a job or even turning 50, new and different credits and deductions could become available. 

Because of those personal nuances, there will always be a need for individuals to get expert help to file their taxes. Simplification won’t change that. And all of the social benefits disbursed through the Treasury Department are lost if you don’t know to claim them, or don’t file a tax return.

As an example, last year one in five taxpayers eligible for the earned income tax credit, one of the largest credits available, didn’t receive this benefit because they either didn’t claim it or they didn’t file an income tax return. Millions of taxpayers leave millions of dollars on the table without even knowing.

President-elect Trump’s proposals enhance benefits up and down the board, including safety net benefits for lower income taxpayers. But the cost of not knowing you are eligible, and, therefore, not claiming them, is about to grow.

David Prokupek is the CEO of Jackson Hewitt Tax Service Inc., an innovator in the tax industry with a mission of offering its hard-working clients access to simple, low-cost solutions to manage their taxes and tax refunds.

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