Republicans in Congress and President Trump have touted that their tax reform legislation will give middle-class Americans in the U.S. significant tax relief. However, there is no clear definition of an American middle-class family. An American’s average yearly income is not the only indicator that determines whether someone falls in the middle-class category. So, the question is, what really defines a person as middle class and will the tax reform legislation help or hurt Americans.
What is Middle Class?
Aside from how much money you earn, your location can determine whether you are considered middle class. Think about this, the value of a dollar goes much further in New Mexico than it does in Massachusetts. Therefore, two similar families from New Mexico and Massachusetts earning an average of $80,000 per year will not have the same spending power. If the definition of middle class was a family of four in the United States earning $80,000/year, would both families be considered middle class? The point is, there is no one universal indicator that determines if a family falls under the middle-class label.
The Republican Stance on Middle-Class Tax Relief
In October, Donald Trump said that by getting rid of loopholes for special interest groups and tax breaks for the wealthiest Americans, the tax reform legislation’s outline would guarantee that any cuts would go directly to working middle-class Americans.
However, when pressed to define what constitutes the working middle class in America, most proponents of the bill, including Trump, could not give a definitive answer. The only real answer with any substance behind it was it would be up to committees in Congress who handle tax-writing to determine what constitutes middle class based on an American family’s income levels.
Important Tax Reform Facts
Whether or not President Trump’s tax reform bill helps or hurts so-called “middle-class” Americans depends on the meat behind the bill. Here are some facts behind the tax reform bill such as individual tax rates and the new rates for Americans who file jointly with their spouses.
- Individual Tax Rates- The tax reform legislation would reduce the number of current tax rates from seven to four. The new rates would be 12, 25, 35 and 39.6 percent.
- Married Filing Jointly- The Republican tax plan would put married Americans filing jointly who earn $0 to $89,999 under the 12 percent bracket. Married Americans who earn $90,000 to $259,999 would fall in the 25 percent tax bracket. The tax bracket for Americans filing jointly who earn between $260,000 and $999,999 would be between 33 and 39.6 percent. Any married couple earning more than $1,000,000 would be taxed at 39.6 percent. Other standard deductions and dependent exemptions apply to the tax rates.
Republican tax reform also promises to cut the corporate tax rate down to 20 percent. Congressional Republicans and the president promise that companies who receive the tax cuts will pump those savings back into the economy. Whether the Trump tax plan helps or hurts companies that offer car financing alternatives remains to be seen.