ARRA News Service
News Blog for social, fiscal & national security conservatives who believe in God, family & the USA. Upholding the rights granted by God & guaranteed by the U.S. Constitution, traditional family values, "republican" principles / ideals, transparent & limited "smaller" government, free markets, lower taxes, due process of law, liberty & individual freedom. Content approval rests with the ARRA News Service Editor. Opinions are those of the authors. While varied positions are reported, beliefs & principles remain fixed. No revenue is generated for or by this "Blog" - no paid ads - no payments for articles. Fair Use Doctrine is posted & used.
Blogger/Editor/Founder: Bill Smith, Ph.D. [aka: OzarkGuru & 2010 AFP National Blogger of the Year]
Contact: editor@arranewsservice.com (Pub. Since July, 2006)
    Home Page
   

One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors. -- Plato (429-347 BC)

Friday, December 08, 2017

Most Retirees Would Save Money Because of Tax Reform . . .

. . . Here Are Some Key Examples.

by Rachel Greszler: The proposed House and Senate tax reform bills that lawmakers are currently merging into one would mean tax cuts for most Americans. Nevertheless, change—even good change—can bring about uncertainty.

Retirees may be the most concerned about what tax reform will mean for them, as most rely on relatively fixed incomes.

But in fact, the proposed reforms are mostly good news for retirees. For the most part, they would be less affected than other Americans, as the proposed reforms would not change the way Social Security and investment income are taxed.

Many retirees would in fact benefit from the tax bills’ doubling the size of the standard deduction.

While seniors’ earnings and pension income would be subject to new individual income tax brackets and rates, those changes would actually mean tax cuts—not increases—for an overwhelming majority of seniors and retirees.

There are three provisions in the tax reform bills that could particularly affect retirees:

1. Medical Expenses Deduction
Currently, anyone who has high medical expenses can deduct the portion of those expenses that exceeds 10 percent of their income. So a couple who earns $40,000 in income and has $10,000 in medical expenses can deduct $6,000 of those expenses.

The House bill eliminates this deduction, but the Senate bill maintains it and increases the deductible amount to over 7.5 percent of income for 2017 and 2018. In the above example, this would mean a $7,000 deduction.

2. Personal and Elderly Deductions
Currently, in addition to claiming a $4,050 personal exemption, people over 65 can also claim a $1,250 blind or elderly deduction. Both bills eliminate the personal exemption and replace it with a roughly doubled standard deduction.

The House proposal eliminates the elderly deduction, while the Senate bill maintains it.

3. Other Itemized Deductions
Two of the deductions that have received the most attention are changes to state and local taxes and mortgage interest. Both the House and Senate bills eliminate the state and local tax deduction and cap the property tax deduction at $10,000.

For mortgage interest, the Senate bill maintains current policy while the House bill caps the mortgage interest deduction at $500,000, but only for new home purchases. These deductions tend to have less impact on retirees who often have no mortgage or are far enough along in their mortgage payments that they have little mortgage interest.

Retirees typically also have lower state and local income taxes because not all of their income is subject to taxation.

To illustrate just how the House and Senate tax reform packages would affect different retirees, consider these five examples.

Evelyn Thompson
Evelyn is a retired waitress and a widow. She receives an average-level Social Security benefit of $16,000 per year, as well as $11,000 from her husband’s 401(k). She has $10,000 in medical expenses.

Evelyn’s tax bill will not change under the proposed reforms. She does not pay anything under the current tax system, and she wouldn’t pay anything under the reform proposals because they do not change the taxation of Social Security benefits or investment income.

Moreover, the proposed increases in the standard deduction, coupled with lower tax rates, make up for her loss of the medical expense deduction in the House proposal.

Phillip Olson
Phillip is a retired utility worker. He earned an average income throughout his career, but now receives a significant pension and even saved a little on his own through a 401(k).

His combined retirement income is $50,000 a year, consisting of $16,000 in Social Security benefits, a $28,000 pension, and $4,000 in 401(k) income. Phil has $7,500 in medical expenses, and he currently pays $3,988 in federal taxes.

Phil’s tax bill would go down by $232 under the House’s proposal (to $3,756) and by $572 under the Senate proposal (to $3,416). This would mean a 5.8 percent tax cut under the House proposal and a 14.4 percent tax cut under the Senate proposal.

These tax cuts would come from lower marginal tax rates on his $28,000 in pension income. In addition, no changes would be made to the taxation of Phil’s $18,000 in Social Security benefits, or his $4,000 in 401(k) income.

Although Phil has $7,500 in medical expenses, the higher standard deductions under the House and Senate bills make it not worthwhile for him to deduct these expenses, meaning he would face less paperwork and a simpler tax-filing process. Phil would also benefit from lower tax rates on his income.

Craig and Grace Graham
The Grahams are a middle-income retired couple with very high medical expenses. Craig was an electrician and Grace was a secretary.

Together, they receive $25,000 a month from Social Security and $50,000 from their 401(k) savings, making for a total income of $75,000. However, Craig’s health has deteriorated significantly and he had to enter a nursing home this year, which resulted in $50,000 in out-of-pocket medical costs.

Because all of their income comes from Social Security and investments—which the proposed reforms do not change—the Grahams’ tax bill would not change under either the House or Senate proposals. In each case, they would owe nothing in federal income taxes.

Michael and Sarah Lee
The Lees are a semi-retired, upper-income couple. Michael was a writer and Sarah was an attorney, but both still do some contract work on the side.

The Lees have a combined income of $150,000 a year, consisting of $50,000 in earnings, $50,000 in Social Security benefits, and $50,000 in investment income from their 401(k)s. They have $15,000 in out-of-pocket medical expenses, and currently pay $15,613 in federal income taxes.

Under the House proposal, they would pay $1,003 less (their federal income tax bill would be $14,610), and under the Senate proposal they would pay $2,059 less (their federal income tax bill would be $13,554). This would mean a 6.4 percent tax cut under the House proposal and a 13.2 percent tax cut under the Senate proposal.

Although the Lees’ taxable income would go relatively unchanged under both proposals, they would receive significant tax cuts under both the House and Senate bills due to lower tax rates on their earned income.

Hector and Carmen Garcia
The Garcias’ are a wealthy retired couple. At one time, they jointly operated their own real estate development company, which they have since passed on to their children.

The Garcias have accumulated significant savings, and they receive $950,000 in investment income each year along with $50,000 in Social Security benefits. The Garcias make generous charitable donations of $100,000 a year, they have $25,000 in medical expenses, and they pay about $79,000 in state and local taxes.

Although the Garcias do not need all of their income to cover their own expenses, they enjoy using their wealth to help their children with their business ventures, to support some family members who live outside the U.S., and to contribute to each of their 10 grandchildren’s college accounts.

Under the current tax system, the Garcias pay $151,768 in federal income taxes. Under the proposed House bill, their taxes would increase by $12,744 (to $164,512) and under the Senate bill, their taxes would rise by $12,149 (to $163,917).

This would mean an 8.4 percent tax increase under the House proposal and an 8 percent tax increase under the Senate proposal. These increases would come from a loss of their state and local income tax deduction and the $10,000 cap on the property tax deduction.

While the Garcias would lose these deductions, they would keep other deductions—such as for charitable donations—that are worth more under the proposed reform packages because both House and Senate bills would eliminate the phaseout of itemized deductions, which exists in the current tax code.

Good Changes for Most Retirees
Understandably, many retirees may be concerned about how tax reform will affect them. But the bare facts of these two tax reform bills should be reassuring: Tax reform, for the vast majority of American seniors, is great news.

Moreover, although not represented in seniors’ individual income tax bills, the corporate and small business tax provisions contained in the proposed reforms would benefit seniors both through their investment incomes and their purchases.

That’s because the benefits of lower corporate taxes flow to individuals who own stock in those corporations, workers who are employed by those corporations, and consumers who purchase goods and services from those corporations.

As the House and Senate move toward reconciling their two similar tax bills, American seniors can rest assured that this bill is a win for them.
----------------
Rachel Greszler is a Research Fellow in Economics, Budget and Entitlements t The Heritage Foundation.

Tags: Most Retirees, Would Save Money, Because of Tax Reform, Rachel Greszler, The Heritage Foundation, The Daily Signal To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service and "Like" Facebook Page - Thanks!
Posted by Bill Smith at 10:00 AM - Post Link

0 Comments:

Post a Comment

<< Home


View U.S. National Debt

Don't miss anything!
Subscribe to the
ARRA News Service
It's FREE & No Ads!

You will receive a verification email
& must validate you subscribed!

You Then Receive One Email Each AM
With Prior Days Articles / Toons / More


Also, Join & leave conservative posts & comments on
Facebook.com/ARRANewsService


Recent Posts:
Personal Tweets by the editor:
Dr. Bill - OzarkGuru - @arra
#Christian Conservative; Retired USAF & Grad Professor. Constitution NRA ProLife schoolchoice fairtax - Editor ARRA NEWS SERVICE. THANKS FOR FOLLOWING!

Action Links!
State Upper & Lower House Members
State Attorney Generals
State Governors
The White House
US House of Representatives
US Senators
GrassFire
NumbersUSA
Ballotpedia

Facebook Accts - Dr. Bill Smith
Pages:
ARRA News Service
Arkansans Against Big Government
Alley-White Am. Legion #52
Catholics & Protestants United Against Discrimination
End Taxpayer Funding of NPR
Overturn Roe V. Wade
Prolife Soldiers
Project Wildfire 4 Life
Republican Liberty Caucus of Arkansas
The Gold Standard
US Atty Gen Loretta Lynch, aka Eric Holder, Must Go
Veterans for Sarah Palin
Why Vote for Hillary (Satire)
FB Groups:
Arkansas For Sarah Palin
Arkansas Conservative Caucus
Arkansas County Tea Party
Arkansans' Discussion Group on National Issues
Blogs for Borders
Conservative Solutions
Conservative Voices
Defend Marriage -- Arkansas
FairTax
FairTax Nation
Arkansas for FairTax
Friends of the TEA Party in Arkansas
Freedom Roundtable
Pro-Life Rocks - Arkansas
Republican Network
Republican Liberty Caucus of AR
Reject the U.N.

Patriots
Exchange
Links

Request Via
Article Comment

Links to ARRA News
A Patriotic Nurse
Agora Associates
a12iggymom's Blog
America, You Asked For It!
America's Best Choice
ARRA News Twitter
As The Crackerhead Crumbles
Blogs For Borders
Blogs for Palin
Blow the Trumpet Ministry
Boot Berryism
Cap'n Bob & the Damsel
Chicago Ray Report - Obama Regime Report
Chuck Baldwin - links
Common Cents
Conservative Voices
Diana's Corner
Greater Fitchburg For Life
Lasting Liberty Blog
Liberal Isn't Amy
Marathon Pundit
Patriot's Corner
Right on Issues that Matter
Right Reason
Rocking on the Right Side
Saber Point
Saline Watchdog
Sultan Knish
The Blue Eye View
The Born Again Americans
TEA Party Cartoons
The Foxhole | Unapologetic Patriot
The Liberty Republican
The O Word
The Path to Tyranny Blog
The Real Polichick
The War on Guns
TOTUS
Twitter @ARRA
Underground Notes
Warning Signs
Women's Prayer & Action
WyBlog

Editor's Managed Twitter Accounts
Twitter Dr. Bill Smith @arra
Twitter Arkansas @GOPNetwork
Twitter @BootBerryism
Twitter @SovereignAllies
Twitter @FairTaxNation

Editor's Recommended Orgs
Accuracy in Media (AIM)
American Action Forum (AAF)
American Committment
American Culture & Faith Institute
American Enterprise Institute
American Family Business Institute
Americans for Limited Government
Americans for Prosperity
Americans for Tax Reform
American Security Council Fdn
AR Faith & Ethics Council
Arkansas Policy Foundation
Ayn Rand Institute
Bill of Rights Institute
Campaign for Working Families
CATO Institute
Center for Individual Freedom
Center for Immigration Studies
Center for Just Society
Center for Freedom & Prosperity
Citizens Against Gov't Waste
Citizens in Charge Foundstion
Coalition for the Future American Worker
Competitive Enterprise Institute
Concerned Veterans for America
Concerned Women for America
Declaration of Am. Renewal
Eagle Forum
FairTax
Family Research Council
Family Security Matters
Franklin Center for Gov't & Public Integrity
Freedom Works
Gingrich Productions
Global Incident Map
Great Americans
Gold Standard 2012 Project
Gun Owners of America (GOA)
Heritage Action for America
David Horowitz Freedom Center
Institute For Justice
Institute for Truth in Accounting
Intercollegiate Studies Institute
Judicial Watch
Less Government
Media Reseach Center
National Center for Policy Analysis
National Right To Work Foundation
National Rifle Association (NRA)
National Rifle Association (NRA-ILA)
News Busters
O'Bluejacket's Patriotic Flicks
OathKeepers
Open Secrets
Presidential Prayer Team
Religious Freedom Coalition
Renew America
Ron Paul Institute
State Policy Network
Tax Foundation
Tax Policy Center
The Club for Growth
The Federalist
The Gold Standard Now
The Heritage Foundation
The Leadership Institute
Truth in Accounting
Union Facts



Blogs For Borders

Reject the United Nations

Presidential Prayer Team

Thousands of Deadly Islamic Terror Attacks Since 9/11


FairTax Nation on FaceBook
Friends of Israel - Stand with Israel
Blog Feeds
Syndicated - Get the ARRA News Service feed Syndicated!
ARRA Blog Feed

Add to Google Reader or Homepage

Add to The Free Dictionary

Powered by Blogger


  • To Exchange Links - Email: editor@arranewsservice.com!
  • Comments by contributing authors or other sources do not necessarily reflect the position the editor, other contributing authors, sources, readers, or commenters. No contributors, or editors are paid for articles, images, cartoons, etc. While having reported on and promoting principles & beleifs beliefs of other organizations, this blog/site is soley controlled and supported by the editor. This site/blog does not advertise for money or services nor does it solicit funding for its support.
  • Fair Use: This site/blog may contain copyrighted material the use of which has not been specifically authorized by the copyright owner. Such material is made available to advance understanding of political, human rights, economic, democracy, and social justice issues, etc. This constitutes a 'fair use' of such copyrighted material as provided for in section Title 17 U.S.C. Section 107 of the US Copyright Law. Per said section, the material on this site/blog is distributed without profit to readers to view for the expressed purpose of viewing the included information for research, educational, or satirical purposes. Any person/entity seeking to use copyrighted material shared on this site/blog for purposes that go beyond "fair use," must obtain permission from the copyright owner.
  • © 2006 - 2020 ARRA News Service
Creative Commons License
Creative Commons Attribution Noncommercial Share Alike 3.0 Unported License.