Update December 2017: On December 20, the Senate passed the new GOP tax bill that marks the biggest rewrite of the tax code in decades. Later the same day, the House also gave final approval to the bill. On December 22, it was signed into law by President Trump.
This study takes a look at an earlier version of Trump’s tax plan that was released on November 2. That version of the plan, reduced the number of tax brackets from seven to four. The final version of the plan that Congress passed keeps the seven tax brackets but reduces some of the rates. For more on the latest version of the tax bill, see this article.
Previously: What will the GOP tax bill mean for the average family in 20 of the country’s biggest cities? We found that it will lead to a boost to their wallets, but maybe not as big as they expect. In most cases (15 out of 20 cities we looked at), it’s the high earners who will see the largest percentage decrease in federal income taxes. The big winners in those 15 cities are families who make incomes that are greater than 95% of all other families.
The tax proposal, which still must be approved by Congress, will have a varied impact as currently written (though it will likely go through some changes during the coming weeks). SmartAsset ran the numbers to see how families in 20 big cities will be affected.
In addition to reducing the number of tax brackets from seven to four, the other major changes this bill calls for are increasing the standard deduction, repealing the alternative minimum tax (AMT), eliminating the itemized deductions for state and local income taxes, changing the mortgage interest deduction cap from $1 million mortgages to $500,000 mortgages and increasing the child tax credit.
- Higher savings for higher earners – Generally speaking families with higher incomes save the most under Trump’s tax plan. Across our 20 cities the bottom quintile of families typically break even, the median household receives a tax break of around $520 and the top 5% of families receive a tax break of around $5,300. The one caveat comes for the highest earners. Based on what city they live in they will either receive a major tax cut or end up paying more taxes.
- SALT changes hurt locations with high state and local income taxes – No longer being able to deduct state and local taxes will hurt higher-earning residents in states like California, New York and Missouri. Our models indicate this change will lead families in those places to pay more. For example, New York City families who earn $1.5 million will pay an extra nearly $30,000 in taxes.
We examined the effects of Trump’s tax bill on four family situations: low earners, median earners, high earners and highest earners.
For our study, low earners are families who earn the highest income of the bottom 20% of families in each city. Median earners are families who earn each city’s median household income. High earners are families earning the lowest income of the top 5% of earners. Finally, highest earners in our study are families earning $1.5 million.
For taxes paid in this study, the number includes federal, state, local and payroll taxes. The only thing changing between the pre- and post-Trump tax plan are the federal income taxes.
New York, New York
Our estimates show that overall most New York families would get a tax break if Trump’s tax bill were to be signed into law. The lowest quintile (bottom 20%) of earners would see their taxes unchanged. Those earning the median income would see taxes cut by about $578, dropping from paying $9,348 in overall taxes to $8,770.
The biggest beneficiaries in New York are high earners who are unaffected by the fourth bracket (the bracket that applies to income surpassing $1 million for married couples). For example, a family earning $250,000 in New York would see their total taxes drop by about $6,222. Those that make over $1.5 million in NYC will be hurt the most by the removal of the SALT deduction and will therefore pay more in federal taxes, nearly $30,000 more.
Los Angeles, California
Trump’s tax plan calls for the elimination of state and local income tax (SALT) deductions, meaning taxpayers can no longer deduct their state and local income and sales taxes from their federal taxes. This hurts residents in high-tax states like California and New York the most.
Overall, our data suggests that the highest-earning families in L.A. (those earning $1.5 million per year) will see a tax increase of about $30,000 with this plan. The middle class in L.A. will see a modest decrease in their taxes. We estimate that L.A. families earning the city’s median income will pay about $445 less in taxes under the new tax plan.
Most Chicago families will pay less taxes under Trump’s proposal. A family earning the median income in Chicago would save about $403 per year in taxes.
However, our data shows that high-earning families will see their tax bill shrink the most under the new proposal. According to our estimates, Chicago families who earn $231,000 would see their taxes drop by 9% overall. They would go from paying about $64,300 per year in taxes to $58,600.
There is no state income tax in Texas, this means Dallas taxpayers will not be as negatively affected by the elimination of the state and local tax deductions as other some taxpayers.
In Dallas, our data suggests that only the wealthy receive a tax break under the new proposal. Families who earn $235,100 (the lowest income of the top 5% of earners) would receive a tax break of around $5,988. Furthermore, families who earn $1.5 million would receive a tax cut of about $28,931.
In our analysis, the middle and lower classes in Dallas would see their taxes remain unchanged.
Houston and Dallas families face similar tax situations. Families in Houston earning the median income or less would continue to pay no federal income tax (they do pay payroll taxes, which are reflected in the chart above).
Just like in Dallas, Houston families who make $234,700 (the lowest income for the top 5% of earners) would see their taxes fall by $5,831. Under current law, those families pay $55,146 in total income tax under current law. Our study shows they will pay $49,315 if Trump’s tax plan goes into effect.
Our analysis shows that the middle class in the nation’s capital would get a tax deduction if this bill is passed. We estimate that Washington, D.C. families who earn the District’s median income would pay $1,078 less in taxes under this new proposal. Our models show D.C. families earning $250,000 would get a tax break of about $6,222 under Trump’s tax plan. Both represent about an 8% decrease in overall taxes paid.
Conversely, the numbers in our study show those earning $1.5 million in D.C. would see their taxes increased by about $18,575 (or 3%).
Our analysis shows that the average Philadelphia family would receive no tax break from the new Republican plan. That is because they already do not pay federal income taxes.
High-earning families in Philly would receive a sizable tax cut, according to our models. We found that families who earn $174,100 (the lowest income of the top 5% of families) would see taxes fall by $3,459. That’s a decrease of 9% for overall taxes paid.
Similarly, the very highest earners (families earning $1.5 million) would pay about $11,647 (or 2%) less if this tax plan is passed.
Similar to Texas, Florida residents do not pay state income taxes. This means Miami residents are not affected by the changes to the SALT deduction. Therefore, high earners in Miami would see significant tax breaks under the new proposal. Families earning $200,500 would pay about $5,708 less under Trump’s plan. That’s a decline of 12% of overall taxes paid. And the highest earning Miami families (those earning $1.5 million) will see taxes fall from $558,136 to $529,205, a decline of almost $29,000 or 5%.
Miami families earning the median income or less will not see changes to their federal tax bill under Trump’s plan. That’s because according to our analysis, those families don’t pay federal income taxes under the current tax code.
Our models show that Atlanta families who earn the city’s median income ($53,843) will see their taxes fall under Trump’s proposal, but by less than the number that is being touted as the nationwide savings for average families. We estimate that in Atlanta median income earners will save about $428 if the bill gets signed into law. If you live in Atlanta and want to place your savings in a safe space, you can check out the best banks in Georgia.
High-earning families stand to gain the most under Trump’s bill. Our analysis shows families who earn $250,000 will receive a tax break of about $6,200. That’s the biggest decrease both in raw numbers and percentage-wise of the four family situations we considered.
Our study shows most Boston families will get a tax break under the proposed Republican tax plan. According to our estimates, Boston families who earn the city’s median income would receive a $721 tax cut on their federal taxes under Trump’s plan. That’s a 7% decrease in overall taxes paid.
High-earning families will see overall taxes drop by more, however. Our models show they will see taxes cut by 9%, or $6,222.
The highest-earning Boston families (those earning $1.5 million) should get a tax cut of around $576.
San Francisco, California
Like Los Angeles taxpayers, the highest-earning San Francisco families will be hit by the changes to the SALT deduction. We estimate that SF families with two children who earn $1.5 million per year would pay $29,700 more under this plan than before.
Families who earn the city’s median income ($103,801) would see their tax bills fall by $1,927. That’s the highest percentage cut of the family situations we looked at. This is also the highest median income of any city in our city.
We estimate that none of the Phoenix family situations we analyzed would pay more in federal income taxes under the new plan. However the benefits are not evenly spread. The average family earning $52,062 can expect to save just under $400, but the city’s high-earning families are the real winners. Our models show that families earning $200,100 can expect to save $4,007 in taxes.
According to our model, average and high-earning families in Riverside would get a tax cut under the new plan, but the highest earning families would not. A family earning $1.5 million would need to pay $29,398 more in taxes. This is due to the fact that they can no longer deduct their high state and local taxes from their federal taxes.
Our analysis shows that the average family in Detroit would pay around $3,000 in total income tax (state, local, federal and payroll) under this new tax plan. That’s the same amount they pay under the current law. There will also be no changes to low-earning Detroit families’ taxes under the proposed bill.
Families who earn $115,800 (the bottom income for the top 5%) would see a tax break of around $2,770, according to our models. Our figures show that Detroit families who earn $1.5 million per year will see a tax bill increase of around $8,100 (or 1%).
Low-earning families, those making $31,500, see no change according to our analysis since they pay no federal income tax currently (though they do pay FICA taxes as reflected in the above chart). To varying degrees, the other three family situations in Seattle would do better under the new tax bill.
Families earning the median income ($83,476) would get a tax break of about $1,317. That’s an 11% reduction in overall taxes paid. Our models show Seattle families who earn $250,000 will go from paying $60,300 in total incomes tax to paying $54,100, or a decrease of about $6,222. That’s about a 10% reduction in overall taxes paid.
The highest earners in Minneapolis would see their taxes go up under Trump’s plan. We estimate that Minneapolis families earning $1.5 million per year would pay an extra $23,000 per year if this tax proposal is passed.
Other Minneapolis taxpayers would face a smaller tax bill under the plan. But our models show families earning the city median income will see a 7% decrease in overall taxes paid, while high-earning families will see an 8% decrease. Families who earn $198,200 per year will see their taxes fall by $5,137. Families who earn the median income would see a more modest decline in their taxes (about $500).
San Diego, California
The new tax bill affects San Diego families very differently depending on their income level. Our data suggests that families who earn the city’s median income of $71,481 will get a tax cut of $957. That’s a decrease of 9% in overall taxes paid.
High-income San Diego families (those at the bottom of the highest 5%), would see their taxes cut by less at 8%, or $6,222.
Lastly, thanks to no longer being able to deduct state and local taxes, families earning $1.5 million in San Diego would see a tax increase of $29,800.
Florida residents would generally benefit under this proposed plan. Tampa families who earn $250,000 per year would get a tax break of $6,222 or about 10%. The highest-earning families in our study, who earn $1.5 million, would see a $28,931 tax cut, according to our models.
The tax benefits for those who earn the city’s median income will not be quite as large. Tampa families who earn $50,405 can expect a tax cut of about $293. That represents a 7% decrease in overall taxes paid.
Our analysis shows that Denver families who earn the median household income can expect to see a tax cut of around $646, or a 7% decrease. High-earning families stand to gain more were this bill to pass. We estimate that families who earn $250,000 would see a tax break of $6,222, or a 9% decrease in overall income and payroll taxes paid. Families who earn $1.5 million would pay $3,000 less in taxes, or a 1% decrease.
The lowest quintile would continues to pay no federal income taxes (they do pay FICA taxes).
St. Louis, Missouri
The majority of St. Louis families will not benefit from Trump’s tax proposal. The lowest-earning families and those earning the median income will continue to pay the same amount. This is because, according to our analysis, they currently don’t pay federal income tax (payroll taxes paid are reflected in the above chart).
Our models show families who earn $157,200 (the lowest income of the top 5%) will get a tax cut of $2,062. That’s a decrease 4% in overall income taxes paid. However high-earning St. Louis families (those who earn $1.5 million) would see a tax increase of $10,091.
Data and Methodology
In order to estimate the effect of the Trump tax plan on Americans, we looked at data for a wide swath of Americans. In our analysis we used four income data points for each city: the top income of the first quintile of households (i.e. the bottom 20% of earners), the median household income, the bottom income of the top 5% of earners and households that earn $1.5 million.
Note: In some cities the lowest income of the top 5% of earners is greater than $250,000. However, the Census Bureau caps its estimate for this figure at $250,000. In those instances, we used $250,000 for the high-earning families.
We ran those income numbers through our income tax calculator to find the taxes that each of those groups would pay under the current tax brackets. Then we created a model to calculate how much they would pay under Trump’s tax plan. We assumed taxpayers were married filing jointly with two dependents.
In order to make this as accurate as possible we also assumed each household would make itemized deductions (if their estimated itemized deductions were greater than the standard deduction). We found estimated itemized deductions by averaging the itemized deduction taken by people in each income level in each city, according to IRS data.
Data on incomes comes from the Census Bureau’s 2016 1-Year American Community Survey. Data on average itemized deduction comes from the IRS.
Our model takes the MID into account but the changes to the mortgage interest deduction are not reflected in this analysis because we did not assume people were buying homes with mortgages over $500,000.
Details of the New Trump Tax Plan
The Tax Cuts and Jobs Act was released by the House Committee on Ways and Means November 2nd. It calls for cutting the number of tax brackets from seven to four. The four new tax brackets would have marginal rates of 12%, 25%, 35% and 39.6%. The majority of families would find themselves moved from paying a marginal tax rate of 15% to 12%. Here’s a look at the tax brackets proposed in the Tax Cuts and Jobs Act:
|TRUMP’S PROPOSED INCOME TAX BRACKETS|
|Single Filers||Married Filing Jointly||Tax Rate|
|$0 – $45,000||$0 – $90,000||12%|
|$45,001 – $200,000||$90,001 – $260,000||25%|
|$200,001 – $500,000||$260,001 – $1,000,000||35%|
The plan also calls for rolling multiple deductions into one standard deduction. Deducations like the personal exemption and the standard deduction will be eliminated and one larger standard deduction will be created. For single filers this means the standard deduction will move from $6,500 to $12,000. The standard deduction for joint filers will move from $12,700 to $24,000.
The third relevant change for American’s income tax bill is the change to itemized deductions. This plan calls for scrapping state and local tax deductions on income and sales taxes while capping the deduction for state and local property taxes at $10,000. The plan also proposes to cap the mortgage interest deduction at $500,000. Deductions for IRA, 401(k) and charitable contributions would remain untouched.
To make up for the change in personal exemptions, the plan calls for an increase in the child tax credit from $1,000 to $1,600 per child as well as the creation of a per person tax credit of $300 for filers and non-child dependents. These are different than a deduction in that it is a one to one drop in taxes owed. Say you are filing jointly owe $6,000 in taxes and have two children. After the child tax credits are taken into account and $300 per person credit, you would owe $3,200.
The bill will likely go through changes in the coming weeks.
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Photo Credit: ©iStock.com/olya_steckel
Dave Colletta assisted with data analysis for this article.