Trump's tax plan will actually raise the lowest tax rate -- but there's a catch

The most fleshed-out version of the Republican tax reform plan will be released on Wednesday, with clearer details on proposed changes in tax rates for corporations and individuals.

While President Donald Trump has previewed the plan as the “biggest tax cut in history,” early indications suggest that, at least on the surface, rates could increase for one group.

According to reports, the tax rate for the bottom individual tax bracket would be increased from 10% to 12% under the plan. At the same time, however, the standard deduction would be doubled.

Currently, an individual paying the 10% tax rate makes between $US0 and $US9,325 annually, and takes a standard deduction of $US6,350 a year. That means people making $US6,351 to $US9,325 would pay the 10% rate, excluding any other deductions.

But under the Trump plan, while an individual making $US9,325 or less will be bumped up to 12% tax bracket, since the standard deduction will now be $US12,700, none of those individuals would see their effective tax rate increase. In fact, many more people would end up paying nothing in taxes.

Put another way — looking at this provision alone — the poorest Americans would see their tax rate go up, but no one would end up actually paying more per year in taxes.

The reports help to explain a seemingly puzzling quote from Trump on Sunday regarding the tax plan.

“We’re going to bring the individual rate to 10% or 12%, much lower than it is now.,” Trump said while speaking to reporters outside of Air Force One.

A White House spokesperson clarified to Business Insider that Trump was referring to the lowest rate on income tax.

“It’s important to note that by increasing the standard deduction (as was on the one-pager we released in April) we’re effectively increasing the size of the 0% tax bracket, so that the hardworking American at the bottom of the economic ladder is empowered to climb their way up,” the spokesperson said.

In addition to the slight uptick for the lowest tax bracket, the Republican plan is expected to propose lowering the top individual tax rate from 39.6% to 35%.

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