Welcome to this week’s Chalk Talk. As you know, we’re talking about the new tax bill and how it affects all of us. What I did is I had Larry run some different scenarios for us to see how the new tax law would compare to what we had before. So in other words, he tried to keep it simple. He took married couples, so just different income levels, that’s it. So what we have here is we have a married couple with $80,000 Adjusted Gross Income. We have another at $140,000 and then a third at $220,000. The idea here is to see what would they have owed under the 2017 tax bill, or tax law if you will, versus what they’re going to owe in the new Trump tax law, the 2018 tax bill.
So why don’t we go ahead and start with our one at the top, the $80,000 AGI, and we’ll go on down. So let’s take a look at these folks right here. At $80,000 of Adjusted Gross Income, in 2017 they would have owed about $7,600; 75, 76. Now, that’s not state income tax, it’s just at the federal level. So that’s just we’re talking what’s owed to Washington D.C. So about $7,600. Now, if you compare that to their overall income of $80,000, that’s about nine and a half percent, something like that. So a little less than 10% effective tax rate.
With the 2018 tax bill, however, their taxes go down from $7,600 down to roughly $6,000. They get a … What is that? $1,500, $1,600 reduction of their tax liability. That’s $1,500 in their pocket. Now if you look at on $80,000, now they’re down to about seven and a half percent tax bracket. That’s pretty good. If you compare these two numbers, that’s a reduction of a little over 20%. So their tax liability has been reduced by about 20%.
Well, as you know, if you watch the media or read the media, we know clearly this new tax bill benefits the rich, not the poor. So let’s move up the income ladder here. Let’s see if that’s true or not. So here we go. Now we’ve got a couple and they’re $140,000 of AGI. Again, under the 2017 tax code, they would’ve owed about $20,000. $20,650. Now I don’t know about you, but imagine you have to write that check to the IRS every year. A check for $20,000 to the IRS. You might sit there and say, “Yeah, they’re making $140,000, that’s still a pretty big number. Well, with the tax bill, they’re down to $16,800 which is still a big number, but it is a reduction of, what is that? $3,800. Certainly they’re benefiting more than the couple up here, aren’t they? They’re getting $3,800 back. They’re only getting $1,500 back, so we can say they’re benefiting more. But if you look at the percentage, they’re only getting 18% reduction, whereas these guys were getting over 20.
So on a percentage basis, they’re actually getting less of a benefit. Well, let’s go down $220,000, because again the rich are supposed to benefit here, right? $220, we’re starting to get richer, as it were. In 2017, look at this number, $42,000 are given to the IRS. I mean, holy cow, that’s getting up there. 2018, it’s still $35,000, which is still a ridiculous number, in my opinion. That’s just a lot of money. But here’s the thing. Again, a reduction of about $7,000. Again, they’re benefiting dollar-wise more than either of these two levels, but if you look at the difference, it’s really a difference of about 16%.
So as we’re going up the ladder, people that make more income dollar-wise are getting a bigger benefit. However, percentage-wise, it’s a smaller benefit. Either way, though, I’m looking at this. I’m seeing if you’re about $80,000 AGI, effectively you’re paying about seven and a half percent tax. If you’re at $140,000, you’re paying about 12% tax. If you’re $220,000, now we’re paying, what is that? About 13, 14% tax. In other words, the more you make, the bigger percentage of your income you pay in tax. That’s still the case. But based on what we’re seeing here, if you pay tax at all, odds are with this new tax bill, you’re going to pay less. Less is always good in our opinion.