I read the basics as laid out in a Business Insider (IE) article. If you don’t have a head for numbers, the explanation looks good. But it isn’t good. It’s really bad. Removing the deductions INCREASES your tax rate even if the percentage goes down.
Here’s what the BI article states:
The base rate will be much, much lower.
So, again, let’s say you make $40,000 per year and you’re single. Right now, you would get taxed at 25% per year, which is the rate for people who make $37,650 to $91,150.
So as far as the base rate goes, it’ll be cut in more than half. Under the new plan, anyone who makes between $0 and $45,000 will pay a rate of 12%. At $45,000, the rate goes back up to 25%.
What is wrong with this picture? Most people do not pay the top percentage in their tax bracket. Most people don’t pay taxes on their gross income, but rather their Adjusted Gross Income.
I have a client in the construction industry, a contractor. His deductions for expenses and labor are very high. They come right off the top of your AGI. In short, he pays on his net income. For this client, his tax rate was 4% of his Gross Income. What do these words mean? The example here is impossible to analyse without definition of terms. Does that 25% apply to gross or net income? Does the sliding scale of the tax tables disappear?
For more on this topic, see my article: