New Tax Bill Offers $2,000 ‘Bonus Guaranteed Deduction,’ But Will It Benefit the Average American?

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In mid-June, the U.S. House Ways and Means Committee introduced its American Families and Jobs Act, a Republican-promoted tax package partially aimed at providing tax relief and raising the standard deduction for Americans across all tax brackets and income levels.

However, the act, consisting of three separate bills — the Tax Cuts for Working Families Act, Small Business Jobs Act and the Build It in America Act — has little chance of moving forward through a divided Congress. There has been some degree of resistance from opposing Democrats, who feel the bill doesn’t do enough to benefit lower-earning families.

The 2017 Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction that a large majority of Americans use for their tax returns. The Tax Cuts for Working Families Act expands the guaranteed deduction bonus to $4,000 for joint filers or surviving spouses, $3,000 for heads of household and $2,000 for individual taxpayers for 2024.

“For tax years starting in 2024, the amount of the bonus guaranteed deduction would be $2,000 for an unmarried individual (other than a head of household or a surviving spouse) and a married individual filing a separate return, $3,000 for a head of household, and $4,000 for married individuals filing a joint return and a surviving spouse, according to a report on the bill by Congress’s Joint Committee on Taxation. For tax years starting in 2025, the amounts would be indexed for inflation. But the bonus guaranteed deduction would not apply to tax years after 2025,” Accounting Today detailed.

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“With this bill, we make a historic investment in the working Americans and families that are the backbone of our great nation, in direct response to the concerns they have shared with this committee about the spike in cost of living in our hearings across the country,” House Ways and Means Committee chairman Jason Smith (R-Mo.) stated in a June 13 press release.

Democrats Criticize Tax Bill

The bill has sparked immediate reaction from Democrats. Although around two-thirds of American households would receive a tax cut in 2024, households in the bottom income quintile (those making less than $19,500) and those in the top 1% generally would not benefit, according to University of Pennsylvania’s Penn Wharton Budget Model initiative.

As the ranking Democrat on the Ways and Means Committee, Richard Neal (D-Mass.) feels the guaranteed deduction bonus fails to benefit economically vulnerable American families. “With the proven success of the Child Tax Credit, I cannot accept this as an alternative for working families,” Neal stated in a June 13 press release.

The standard deduction for married couples filing jointly for the 2023 tax year will be $27,700, up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction will be $13,850 for 2023 (up $900) and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400, per the IRS.

The standard deduction was significantly increased by the TCJA in 2017 and approximately 90% of 2021 individual income tax returns claimed the standard deduction on their taxes (as opposed to itemizing deductions), according to MarketWatch. This new bonus deduction would be in addition to current standard deduction rates.

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