Current Law: Taxes owed under the current tax system (tax year 2023)
Simplified: Simplified Income Tax would considerably simplify the income tax for most people and maintain its graduated rate structure. The proposal would eliminate all itemized deductions, all personal credits, the section 199a deduction for business, the head of household filing status, and preferential rates for capital gains and dividends. It would create a personal credit of $1,000 for each family member and a work-related credit of 20% of individual earnings up to $20,000, phasing down to zero when individual earnings reach $40,000. Both credits would be refundable, meaning that taxpayers would receive the full credit even if their gross-of-credit tax liability was less than their eligible credits.
Modified Simplified: Exactly like the Simplified Income Tax with one change, designed to help low- and moderate-income families with children. The personal credit would be increased to $2,000 but would phase out beginning at $36,000 for unmarried filers and $72,000 for married filers.
Back to the Future: Back to the Future incorporates the simplifications in the first approach and raises the standard deduction substantially (to $100,000 for couples and $50,000 for singles from current levels of $27,700 and $13,850) the proposal would set the lowest income tax rate at 25% and create a 10% value-added tax (VAT). To help offset the burdens of the VAT on low- and moderate-income households, the refundable personal credit would rise to $2,800.
Simplified, VAT, UBI: Combines the simplification of the first proposal and the 25% minimum tax rate and 10% value-added tax of the third proposal to fund a substantial Universal Basic Income (UBI) program that would raise the personal credit to $3,900 per person.
Potential Tax Implications
The above number is the estimated income tax liability under current law for a person or family that fits the marital status, income, and expenses that you selected.
The above number is the estimated income tax liability under the Simplified Income Tax Proposal for a person or family that fits the marital status, income, and expenses that you selected.
The above number is the estimated income tax liability under the Modified Simplified Income Tax Proposal for a person or family that fits the marital status, income, and expenses that you selected.
The above number is the estimated combined income tax and VAT liability under the Back to the Future Proposal for a person or family that fits the marital status, income, and expenses that you selected.
The above number is the estimated combined income tax and VAT liability under the Simplified Income Tax, VAT, UBI proposal for a person or family that fits the marital status, income, and expenses that you selected.
Taxes
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Adjusted gross income
Total income subject to tax after adjustment for exclusions and additions.
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Standard Deduction
A fixed-dollar reduction in taxable income for each tax return, for taxpayers who elect not to itemize specific deductions.
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Itemized Deductions
Total expenses that taxpayers can itemize (net of limitations), including state and local taxes, mortgage interest, charitable contributions, and other items.
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Taxable Income
Adjusted gross income minus personal exemptions, the standard or itemized deductions, and qualified business income deductions allowed under the regular income tax.
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Income tax before credits
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
EITC/Work Credit
Refundable tax credit based on taxpayer’s earnings and number of children; credit phases out for higher-income households.
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Child Credit/Personal Credit
Credit based on number of dependents or total household size.
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Other Credits
Including the child and dependent care credit, the American opportunity credit, and the lifetime learner credit.
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Income Tax After Credits
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
VAT
Estimated amount of Value Added Tax owed.
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Total Income Tax + VAT
|
Current Law |
Simplified |
Modified Simplified |
Back to the Future |
Simplified, VAT, UBI |
Project Acknowledgements
TPC is a joint venture of the Urban Institute and Brookings Institution. TPC is made up of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government. It aims to provide independent analyses of current and longer-term tax issues and to communicate its analyses to the public and to policymakers in a timely and accessible manner.
RESEARCH: David Weiner and Muskan Jha
DEVELOPMENT: Jessica Kelly, Jean Clayton Seraphin, and Silke Taylor