Question

"An Analysis of the Tax Cuts and Jobs Act of 2017 2-3 Pages 5 Primary sources
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Interesting and Informative

Use quotes from thought leaders, properly referenced
DO NOT CUT AND PASTE- USE YOUR OWN BRILLIANT WORDS Provide a reference page.

Answer 1

• The Tax Cuts and Jobs Act of 2017 made several significant changes to the individual income tax, including reforms to itemized deductions and the alternative minimum tax, an expanded standard deduction and child tax credit, and lower marginal tax rates across brackets.
• The Internal Revenue Service estimates the average time to complete an individual tax return will decrease by 4 to 7 percent. Converting this to dollar terms, we estimate compliance savings could range from $3.1 billion to $5.4 billion
• The individual income tax changes are scheduled to expire after December 31, 2025. If permanent, the income tax provisions would reduce federal revenue by $165 billion per year on a conventional basis, but when incorporating economic growth and feedback, on a dynamic basis, they would reduce federal revenue by $115 billion a year.

On December 22, 2017, Donald Trump signed into law the biggest tax overhaul since the Tax Reform Act of

1986. This paper summarizes the provisions of the bill—commonly referred to as the Tax Cuts and Jobs Act

(TCJA)—and provides a preliminary analysis of its effects.1

The new tax law makes substantial changes to the rates and bases of both the individual and corporate

income taxes, most prominently cutting the maximum corporate income tax rate to 21 percent, redesigning

international tax rules, and providing a deduction for pass-through income. Other major changes include

expensing of equipment investment; elimination of personal and dependent exemptions, the tax on people

who do not obtain adequate health insurance coverage, and the corporate alternative minimum tax; and

increases in the standard deduction, the estate tax exemption, and the individual alternative minimum tax

exemption. Almost all the individual income tax and estate tax provisions expire after 2025, while most of the

corporate provisions are permanent.

TCJA will stimulate the economy in the near term. But, most models indicate that the long-term impact on

gross domestic product (GDP) will be small. The impact will be smaller on gross national product (GNP) than on

GDP because the law will generate net capital inflows from abroad that have to be repaid in the future.2 The

new law will reduce federal revenues by significant amounts, even after allowing for the impact on economic

growth. It will make the distribution of after-tax income more unequal. If it is not financed with concurrent

spending cuts or other tax increases, TCJA will raise federal debt and impose burdens on future generations. If

it is financed with spending cuts or other tax increases, TCJA will, under the most plausible scenarios, end up

making most households worse off than if it had not been enacted. The new law simplifies taxes in some ways

but creates new complexity and compliance issues in others. It will raise health care premiums and reduce

health insurance coverage. It will affect activities in many sectors, including state and local public spending,

charitable organizations, and housing.

The TCJA includes significant changes for individual taxpayers, most of which take effect for 2018 and expire after 2025. Here are some of the most notable changes.

Tax rates, brackets and inflation adjustments

The TCJA maintains seven income tax brackets but temporarily adjusts the tax rates as follows:

2017 2018-2025
10% 10%
15% 12%
25% 22%
28% 24%
33% 32%
35% 35%
39.6% 37%

The top rates, which for 2017 kick in at $418,400 of taxable income for single filers and $470,700 for joint filers, for 2018 take effect at $500,000 and $600,000, respectively. The brackets will con- tinue to be adjusted for inflation.

Be aware, however, that the TCJA calls for annual inflation adjustments to be calculated using the chained consumer price index (also known as C-CPI-U). This will increase tax bracket thresholds at a slower rate than is the case with the consumer price index previously used. C-CPI-U also will apply to the standard deduction, certain exemptions and other figures.

The change could potentially push taxpayers into higher tax brackets more quickly and make various breaks worth less over time. The law adopts the C-CPI-U on a permanent basis.

Personal exemptions and standard deduction

For 2017, taxpayers can claim a personal exemption of $4,050 each for themselves, their spouses and any dependents. In addition, they can either itemize deductions or take a standard deduction based on their filing status: $6,350 for singles and married couples filing separately, $9,350 for head of household filers, and $12,700 for married couples filing jointly.

For 2018–2025, the TCJA suspends personal exemptions but roughly doubles the standard deduction amounts to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers. The standard deduction amounts will be adjusted for inflation beginning in 2019.

For some taxpayers, the increased standard deduction could compensate for the elimination of the exemptions, and perhaps even provide some additional tax savings. But for those with many depen- dents or who itemize deductions, these changes might result in a higher tax bill — depending in part on the extent to which they can benefit from the family tax credits.

Family tax credits

Tax credits are especially valuable because they reduce your tax bill dollar-for-dollar, rather than just reducing the amount of income subject to tax like deductions do. Beginning in 2018, the TCJA dou- bles the child credit to $2,000 per child under age 17. The maximum amount refundable (because a taxpayer’s credits exceed his or her tax liability) is limited to $1,400 per child.

The TCJA also makes the child credit available to more families than in the past. Under the new law, the credit doesn’t begin to phase out until adjusted gross income exceeds $400,000 for married couples or $200,000 for all other filers, compared with the 2017 phaseout thresholds of $110,000 and $75,000. The thresholds won’t be indexed for inflation, though, meaning the credit will lose value over time.

The TCJA also includes, beginning in 2018, a $500 nonrefundable credit for qualifying dependents other than qualifying children (for example, a taxpayer’s 17-year-old child or elderly parent).

These provisions all expire after 2025.

Above-the-line deductions

Above-the-line deductions are deductions you can take even if you don’t itemize. They’re subtracted from your income to determine your adjusted gross income (AGI). AGI affects eligibility for many tax breaks and can trigger certain taxes. The TCJA makes some significant changes to two above-the- line deductions:

1. Moving expenses. The deduction for work-related moving expenses is suspended for 2018–2025, except for active-duty members of the Armed Forces (and their spouses or dependents) who move because of a military order that calls for a permanent change of station. (For 2018–2025, the exclusion from gross income and wages for qualified moving expense reimbursements is also suspended, again except for active-duty members of the Armed Forces who move pursuant to a military order.)

2. Alimony payments. For divorce agreements executed (or, in some cases, modified) after December 31, 2018, alimony payments won’t be deductible — and will be excluded from the recip- ient’s taxable income. Because the recipient spouse would typically pay income taxes at a rate lower than that of the paying spouse, the overall tax bite will likely be larger under this new tax treatment. This change is permanent.

Itemized deductions

When you file your tax return, you can either claim the standard deduction or you can itemize deductions. The TCJA limits or suspends many itemized deductions. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. With the TCJA’s near doubling of the standard deduction for 2018 and reduction of itemized deduction benefits overall, many taxpayers who’ve typically itemized may no longer benefit from itemizing.

Here’s a closer look at the TCJA changes to itemized deductions:

State and local tax deduction. The deduction for state and local taxes had been proposed for elimination under tax reform. It survived but has been scaled back substantially. For 2018–2025, taxpayers can claim a deduction of no more than $10,000 for the aggregate of state and local prop- erty taxes and either income or sales taxes.
Mortgage interest deduction. The TCJA tightens limits on the deduction for home mortgage interest. For 2018–2025, it generally allows a taxpayer to deduct interest only on mortgage debt of up to $750,000. However, the limit remains at $1 million for mortgage debt incurred before December 15, 2017, which will significantly reduce the number of taxpayers affected.
Home equity interest deduction. The new law suspends the deduction for interest on home equity debt for 2018–2025. However, home equity debt interest might still be deductible if the funds are used for a purpose where interest otherwise may be deductible, such as for home-improvement, investment or business purposes. The rules are complex and the new law is still being interpreted.
Medical expense deduction. Qualified medical expenses are deductible only to the extent they exceed the applicable AGI threshold. The TCJA reduces the threshold from 10% of AGI to 7.5% for all taxpayers for both regular and AMT purposes in 2017 and 2018.
Miscellaneous itemized deductions subject to the 2% floor. This deduction for expenses such as certain professional fees, investment expenses and unreimbursed employee business expenses is suspended for 2018–2025. If you’re an employee and work from home, this includes the home office deduction.
Personal casualty and theft loss deduction. For 2018–2025, this deduction is suspended except if the loss was due to an event officially declared a disaster by the President.
Charitable contribution deduction. For 2018–2025, the limit on the deduction for cash donations to public charities is raised to 60% of AGI from 50%. However, charitable deductions for payments made in exchange for college athletic event seating rights are eliminated.
Elimination of the AGI-based reduction of certain itemized deductions. Under pre-TCJA law, if your AGI exceeded the applicable threshold, certain deductions were reduced by 3% of the AGI amount over the threshold (not to exceed 80% of otherwise allowable deductions). For 2018–2025, the reduction is suspended.

Adam Michel

Political Analyst's Point of View

The U.S. tax code is sorely in need of reform, and the Tax Cuts and Jobs Act is a pro-growth plan that simplifies taxpaying for many individuals, lowers tax rates, and updates the business tax code so that American corporations and the people they employ can be globally competitive again.

Political and procedural hurdles prevented some of the boldest reforms from making their way into the final conference report and encouraged lawmakers to design many important features of the reform as expiring provisions. Congress will have to revisit the tax code in the coming years to finish the work it is just now beginning. Future reforms should include full expensing for all business costs, further tax cuts for individuals and businesses, parity in rates between individual and business income, the elimination of tax preferences, and further simplification.