Americans’ New Tax Rates Depend on Who They Are and What They Do

Boil down the hundreds of tax provisions in the sprawling legislation signed by President Donald Trump on July 4, and it becomes clear: The rates Americans pay will now depend less on how much money they make, and more on how they earn it, where they live and even who they are.

The new Republican-passed law is a departure from a longtime objective of many conservatives to simplify the tax code. GOP presidential candidates Steve Forbes in the 1990s and Herman Cain in the 2012 campaign famously espoused flat tax systems stripped of deductions, while Republicans’ 2017 overhaul during Trump’s first term trimmed back dozens of special provisions, even as it introduced a few new lucrative breaks for business owners and investors.

By contrast, the new $3.4 trillion fiscal package multiplies the categories of people and economic activity getting favored treatment. It extends and expands the 2017 law’s benefits for investors, business owners and wealthy heirs, while adding new deductions for tips, overtime, auto loan interest, seniors, parents and various industries.

“Nothing in this bill screams simplification,” said Andrew Zylka, principal at accounting firm UHY. “It’s really adding in more things you need to worry about when you’re filing your tax return.”

It also means that, whether you earn $100,000 or $100 million, your effective rate can be wildly different from your official tax bracket.

A lot depends on how you earn your money. The most obvious examples are new tax breaks for tipped income and overtime pay, which Trump insisted on including in the law. But those deductions come with limits, don’t apply to payroll levies and expire after four years. Far more economically significant are perks aimed at higher-end taxpayers, now made permanent.

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