“The business of America is business…and business is money” – Mr. Moore
The words of my Honors U.S. History 11 teacher during my junior year of high school have never been more true than they are now. Yesterday, President Trump signed the Tax Cuts and Jobs Act of 2017. In the simplest of terms, it’s a new tax law…the most sweeping overhaul of the national tax system since the Reagan years. For many people—and by many people, I mean the overwhelming majority of progressives and liberals—the point of contention is the changes to income brackets. The bottom 2 brackets—the 10% and 15% rates—have virtually gone untouched. But the other 5 brackets saw some incredible changes. For instance, until December 31st, if you make $65000 as a single filer, your tax bracket would be the 25% rate which covers all income between $38700 and $93700. However, starting New Year’s Day, that same filer would see their rate drop to 22% as the newly reconfigured bracket covers all incomes between $38700 and $82500. For me, I dig it because I’ve always argued that when I was working for USACE in Alabama, making $65000ish a year, I had the same tax rate as somebody who made $90000ish here, in the Washington, DC area. To see there is a line of separation is refreshing to me.
What are some of the big changes to tax law? Well, the biggest change is the tax rates. Now, the high rate is 37% with incomes of $500000+ falling in that bracket. That’s down from the high rate being 39.5% for all incomes above $426700. Another noticeable change is the standard deduction, which is now $12000 for single filers and $24000 for married couples. That’s basically doubling the deduction. And with that comes the elimination of personal exemptions, which is valued at $4050 per person. A lot of people—especially those with multiple children—are pissed about that. However, that loss can probably be made up with the increase to the Child Tax Credit, which has doubled to $2000—with $1400 of it refundable. The Child Tax Credit also has a higher value as the phase-out doesn’t start until $200000 and $400000 for single and married filers, respectively. That’s up from $75000 and $110000, meaning more people get access to that credit. There is also an additional $500 tax credit called Credit for Other Dependents which covers dependents that are 17+, have ITINs, are dependent parents, or unrelated dependents living with the taxpayer. It’s a completely brand new credit that doesn’t start phasing out until $20000 and $400000 for single and married filers, respectively. That ridiculous Obamacare penalty that punished people for not having health insurance is out. A number of itemized deductions like moving expenses, home office stuff, professional association dues, and even work clothes are out as is the deduction for alimony payments. With the standard deduction being twice as high, I can understand this.
How do I feel about it? For the time being, my tax rate lowers to 22% so I feel good about that. I also feel good about the standard deduction doubling, which means that I don’t have to fumble around with receipts and stuff. I can just take the standard deduction and move on. For the last few years, I’ve been flip-flopping with itemizing and taking the standard. With most of the itemized deductions off the table, I won’t have to worry about it and my tax prep fees would be reduced. That Child Tax Credit is a win for me. With a son on the way in the spring, Mercedes and I will be one of the first beneficiaries of the increase from $110000 to $400000 as joint filers. Living up here, in the DC area, I never understood how it was reasonable for the phase-outs to begin at $75000 and $110000, respectively. There might be some growing pains getting used to this new tax law and I’m prepared for 2018 to be a learning year because I’m not sure how I should configure my withholdings with this law.
Above all things, the important thing to remember is that this law affects individual income taxpayers through December 31, 2025. It’s only good for 8 years. We’re assured to have a new President in office by then, regardless of what happens with the remaining 3 years of President Trump’s 1st term. A lot of my more fiercely liberal social media friends point to financial hits that individual income taxpayers will suffer in 2027 and 2030 as reasons why this new law is a bad deal but, as I just alluded to, the stuff that affects me as a taxpayer expires in 2025 and I’m sure the new President—whether it’s Vice President Pence, another Republican, or a Democrat—will likely change it so there’s that. For now, it’s wait and see. I’ll really find out how this shakes out for me in March 2019.
Image: A chart showing examples of the impacts of the Tax Cuts and Jobs Act of 2017 [Source: Tax Foundation]
