The Working Families Tax Cut Act, presented by Representatives Nicole Malliotakis and Michelle Steel, would enhance the standard deduction, increasing the amount of income that is fixedly excluded from taxes.
Although it might not seem like it would pass as a stand-alone piece of legislation, it might be incorporated into a broader proposal.
Higher Standard Deduction Plan Favors Higher Income Earners
Details then could alter, but the result would probably be the same. The goal of the bill’s supporters is to reduce the costs of inflation for middle-class workers.
Despite the good intention, according to new data from the TPC, the majority of tax savings from raising the standard deduction would go to those with the highest earnings, leaving middle-class workers and low-income families with only a quarter of the gain.
Married couples with adjusted gross incomes over $400,000 would begin to phase out these higher amounts (the corresponding amounts for single and head of household taxpayers are $200,000 and $300,000, respectively).
The project will cost, according to TPC, $95.1 billion. Families with higher incomes benefit more from the standard deduction than families with lower incomes due to our progressive tax rate structure.
A $4,000 increase in the standard deduction results in a $1,480 savings for a family paying the highest tax rate of 37 percent.
Read more: Cooling Inflation Impact: Social Security’s Cost-Of-Living Adjustment Likely To Fall Below 3%
Expanding Credits for Those Most Impacted by Inflation
At the lowest rate of 10%, a family only saves $400. However, a lot of low-income households currently don’t make enough money to pay federal income taxes, so they wouldn’t gain anything from raising the standard deduction.
In comparison to the CTC schemes we looked at, a rise in the standard deduction would produce significantly less targeted benefits.
The top 40% of income-distribution households receive 60% of the benefits. Instead of raising the standard deduction, which will have minimal effect on people who are most impacted by inflation, it would be more effective to concentrate on expanding credits.
Read more: Dollar Reaches 5-Week Peak Due To Inflation Concerns; Lira Plummets, Baht Skyrockets