Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 17
I just calculated my federal income tax for 2017 under current law and under the new GOP bill assuming 2017 brackets but revised rates. We get a tax raise of about $2800. Our state taxes will also go up if we take standard deduction on Federal taxes, as we are forced to take standard deduction on state taxes as well.

We are a retired couple, solidly middle income in the 25% marginal tax bracket (under current law). We have no earned income and no eligible children or dependents. Almost two thirds of our income is from qualified dividends. The rest is from interest and taxable portion of retirement plan distribution.

We live in a high income tax "blue" state. Our itemized deductions for state income and property tax and charitable deductions are significantly higher than 2017 standard deductions. Under the new law due to $10,000 cap on state tax deductions, we are better off taking the standard deduction. What hurts even more is the loss of deduction of personal exemptions of over $8100, without any offsetting tax credits. As a result our taxable income shoots up by almost $12000.

Since a significant portion of our income is from qualified dividends, taxed at lower rates than wage and interest income, we do not feel the full bite of the increased taxable income. Under current law around 55% of our qualified dividends are taxed at 0%, and the rest at 15%. Under the new law, around 42% of our qualified dividends are taxed at 0%. Also the income taxed using tax tables is significantly higher and even at lower rates under the new plan, the tax is higher.

And we will have to find quirky and unproductive ways to minimize our overall Fed+state taxes. Double charitable deductions one year and skip them the next. Itemize on Fed, even if less than standard to be able to itemize on state. Lobby representatives to adjust state tax laws to compensate new Fed tax law.

We probably do not represent the typical working family with children living in red states that the GOP sought to benefit. But we probably are representative of many retired middle-income couples, with no dependents or mortgage and no wage income.

Even though our taxes go up, I can't complain, because of the very preferential treatment of investment income over wage income. Our net tax rate (not marginal rate) even under the new law is under 10%; it is under 8% under current law. When you consider FICA taxes, a couple with similar total income as us, but typically comprised of mostly wages, would have a significantly higher net fed income+FICA tax rate (the proverbial Buffett and his secretary paradigm).

I had no hope that the GOP tax reform would be the promised "abolish IRS and mail in a post card" return. And I am still hoping we will have a fairer, simpler and progressive tax system where all sources of income (wage, investment, carried interest etc) are treated the same, FICA wage limits are removed and rates reduced, no itemized deductions/credits allowed except significant catastrophic losses/expenses above a threshold. And I hope it does not take another three decades to achieve it.

So though our taxes go up under the new law I am not complaining about that, as our overall rates are still very low. It is just the huge wasted opportunity to truly improve the tax system.
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.