Trump’s tax reform: A clarification
Last week, the Spokesman-Review published a package outlining how President Donald Trump’s proposed tax reform might impact Spokane families.
The information in the article was accurate, but the accompanying calculator and graphic were unintentionally misleading about the possible impact the plan might have on low-income families, specifically by showing a family of four making between $18,000 and $50,000 per year likely would be worse off under the broad outlines offered in Trump’s proposal.
While the tax reform plan is a rough outline and lacks many specific numbers, the scenario presented did not account for tax credits which significantly change the tax liability of low-income families. This omission was an error on our part.
We want to set the record straight with this explanation. We’ve updated our online tax calculator to present more accurate information about tax credits, and we’re replacing the original graphic with a corrected one showing a more accurate estimate of tax liability.
A married couple with two children making $18,000 per year would owe nothing in taxes under current law, and also nothing under Trump’s plan. Our calculator inaccurately presented tax liability in negative numbers rather than simply reporting it as $0.
More importantly, that family would also be eligible for two large tax credits that would entitle them to a refund. The first, the earned income tax credit, pays low-income families on a sliding scale based on their income and the number of children they have.
The EITC is refundable, meaning that if the amount of the credit is more than the total taxes a family owes, the family gets a check back from the Internal Revenue Service.
A family with two children earning less than $50,198 is eligible for a credit of up to $5,572, with the amount of the credit increasing as income lowers. To be eligible, a family must have income earned from work or a handful of other sources.
The current Trump proposal did not outline any changes to the EITC, which has historically enjoyed bipartisan support. With no changes, our hypothetical family making $18,000 would receive the full $5,572 credit.
The Republican plan would also increase the child tax credit, leaving $1,000 of it refundable as under current law. Because our hypothetical family owes no taxes, the amount of their refund would still be $2,000, which is $1,000 for each child.
Our second scenario involved a family of four making $50,000 per year. Our graphic suggested that family’s taxes would increase by $883 under the Trump plan, but that assumption only holds with no change in the child tax credit. That family would also be eligible for a small EITC of $36 under both plans.
The Trump outline did not include a specific increase in the child tax credit, but the 2016 Republican tax plan suggested raising it to $1,500 per child.
Using that GOP plan scenario from last year, that change would make this family eligible for a $3,000 tax credit, reducing their tax bill to just $84 with the EITC. Under existing law, they’d receive a credit of $2,000 and pay about $202 in taxes.
The two more prosperous families we included, making $160,000 and $500,000 per year, respectively, would not be eligible for the EITC. The family earning $160,000 might be eligible for a smaller child tax credit under the Republican plan, but the highest earning family would be excluded on the basis of income.
We failed to be clear with readers about the assumptions we were making and as a result, left an inaccurate impression of the likely impact of the plan. This was unintentional and once the mistake was realized, we made and published corrections immediately.
The Spokesman-Review is committed to continuing to report on tax reform as it moves through Congress, and will update the online calculator to keep track of what the latest changes may mean for readers.