What If a Trump-Era Policy Let Families Deduct More Everyday Expenses? Here's Who Would Benefit Most
President Donald Trump has made many changes to the tax code during his second term, including an enhanced deduction for seniors and a raised state and local tax (SALT) deduction limit.
But what would happen if families could deduct more everyday expenses? It could result in more winners during tax season. The most recent U.S. Bureau of Labor Statistics (BLS) data on the quintiles of income before taxes hints at who could benefit the most.
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High-Earning Families Could Max Out at the Limit
Although a tax proposal like this would likely have a limit, high earners could save the most money and end up hitting the limit. BLS data found that the highest 20% of families have an average income of $264,510 before taxes. This same family spends an average of $16,989 per year on food, compared with $5,498 in average food spending for the bottom 20%.
While groceries are the most common everyday expense, the people who earn the most also tend to spend the most money in other categories, such as housing, apparel and transportation.
The Lowest 20% Could Save the Highest Percentage of Their Incomes
While high earners would likely hit limits in this hypothetical tax proposal, the lowest 20% could save the highest percentage of their incomes. The people in this group earn an average income of $16,658 before taxes and have $35,046 in average annual expenditures. The second-lowest 20% is in a similar situation, with annual expenditures exceeding income before taxes.
People in lower income levels would likely save the highest percentage of their paychecks with this type of tax proposal, but it wouldn't be a panacea for financial hardships.
What About Family Size?
With a family-friendly policy like this, people who have children would likely benefit. In that case, people in the lowest 20% and 40% thresholds may be less likely to capitalize on this hypothetical tax proposal. The BLS survey found that the average person in the lowest 20% bracket has 0.3 children under 18, compared with 0.8 children for the highest 20% of earners.
If everyday expenses for children who are under 18 were the only qualifying costs, high-income individuals would benefit much more from this hypothetical proposal than the bottom 20%.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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