Who The Expanded Child Tax Credit Helped
The Tax Cuts and Jobs Act of 2017 greatly expanded the child tax credit . The maximum value of the CTC doubled from $1,000 to $2,000 per child, and it increased the income limits so that more taxpayers could qualify.
IRS data from February 2020, shows that the CTC was claimed on 31.4 million more tax returns in 2018 than 2017. That means the child tax credit was claimed 478% more after Trumps tax reform. The biggest increase came from tax returns with an AGI of less than $10,000. However, all AGI ranges up to $500,000 claimed the CTC significantly more.
However, the expanded child tax credit still may not have helped everyone for two main reasons:
Low-income individuals claimed the additional child tax credit less, so they may not have gotten the full value of their CTC.
The CTC may have been needed by some taxpayers just to offset the loss of the personal exemption.
Get Help With These Tax Law Changes
Portions of this law are in flux, and other portions are complex. Prepare for tax season by making sure you have excellent records and you can show a business purpose for any expenses. Then take everything to your tax professional. They have the latest changes to regulations and can help make sure you aren’t missing anything important.
Corporate Income Taxes Were Way Down In 2018
One of the biggest results of Trumps tax cuts was lowering the corporate income tax rate to 21% from 35%. This change appears to have benefited businesses greatly, because the corporate income tax payments collected by the IRS decreased by 22.4% from 2018 than 2017.
Looking just at year-over-year returns, businesses enjoyed an increase of 33.8% in tax refunds nationally from 2017 to 2018. The average business income refund varied by state, but businesses in some states appear to have received a major windfall. In Maryland, for example, businesses received total refunds worth 238.6% more .
The tax savings that businesses received from President Trumps tax plan could offset the benefits of the tax reform to workers. The lower corporate tax rate is also a permanent change to the U.S. tax code, but the lower tax rates for individuals are temporary and will expire in 2025. That means workers could receive a tax increase in five years even as businesses continue to pay a lower rate.
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The Right Question: What Would Revenues Have Been Without The Tcja
The most appropriate test of the revenue impact of the TCJA is to compare actual revenues in FY2018 with predicted revenues in FY2018 assuming Congress had not passed the legislation. In fact, the actual amount of revenue collected in FY2018 was significantly lower than the Congressional Budget Offices projection of FY2018 revenue made in January 2017before the tax cuts were signed into law in December 2017. The shortfall was $275 billion, or 7.6% of revenues that were expected before the tax cuts took place. Given that the economy grew, and in the absence of another policy that could have caused a large revenue loss, the data imply that the TCJA substantially reduced revenues .
Lower Rates Higher Standard Deduction
The Tax Cuts and Jobs Act trimmed individual tax rates overall, lowering the top rate to 37% from 39.6%.
Corporations also saw their levies fall, as their income tax rates declined to 21% from 35%.
At the same time, the standard deduction for single filers went up to $12,000 in 2018 from $6,350 in 2017 .
The 2018 tax overhaul also curbed certain itemized deductions.
It also did away with personal exemptions, which once were $4,050 for yourself and each dependent in your household.
Due to the higher standard deduction, fewer people itemized on their returns.
More than 14.6 million individual income tax returns claimed itemized deductions, such as charitable giving write-offs and property taxes paid, during the 2018 tax year, according to IRS data through July 25, 2019 the most recent figures available.
In comparison, 42.2 million returns filed for the 2017 tax year used itemized deductions, according to IRS data through July 25, 2018.
Changes To Tax Credits
The TCJA increased the child tax credit from $1,000 up to $2,000. Even parents who don’t earn enough to pay taxes can claim a refund of the credit up to $1,400.
The TCJA also introduced a $500 credit for other dependents, which helps families whose dependent children no longer meet the strict criteria of child dependents because they’ve aged out, as well as families caring for elderly parents.
These tax credits are fully available to taxpayers with modified AGIs of up to $200,000 for single filers and $400,000 for married taxpayers who file joint returns. They were phased out and eliminated at $75,000 and $110,000 respectively before the TCJA.
Arctic National Wildlife Refuge Drilling
The Act contains provisions that would open 1.5 million acres in the Arctic National Wildlife Refuge to oil and gas drilling. This major push to include this provision in the tax bill came from Republican Senator Lisa Murkowski. The move is part of the long-running Arctic Refuge drilling controversy Republicans had attempted to allow drilling in ANWR almost 50 times. Opening the Arctic Refuge to drilling “unleashed a torrent of opposition from conservationists and scientists.” Democrats and environmentalist groups such as the Wilderness Society criticized the Republican effort.
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How Tax Refunds Changed From 2017 To 2018
The average tax refund was $90 higher in 2018 than 2017, according to 2019 IRS data. However, more detailed IRS data, released February 2020, shows that the refunds were not equally distributed across the population.
Taxpayers with an AGI of less than $10,000 received 11.5% fewer refunds in 2018 than 2017, and the total value of their refunds was 17% less. found single filers who earned minimum wage and had no children were least likely to save on their income taxes in 2018.) Across tax returns with an AGI between $1 and $50,000, taxpayers received 4.5% fewer refunds in 2018 and their refunds were worth 2.7% less.
Taxpayers with AGI between $50,000 and $100,000 received 2.5% more refunds but those refunds were worth 1.8% less than in 2017. Those with an AGI of more than $200,000 received 45% more refunds in 2018 and the value of those refunds was 203.4% higher. Taxpayers with an AGI of $1 million or more received 216% more refunds than in 2017 and those refunds were worth 394.3% more.
Income tax refunds also varied greatly by state, as you can see in the table below. Individuals in 12 states had a lower average refund in 2018 than 2017. North Dakota taxpayers saw the biggest decline in average tax refunds, getting $151 less in 2018 than 2017.
Individual Income Tax Rates
The TCJA lowered tax rates, but it kept seven income tax brackets. The brackets correspond with more favorable spans of income under the TCJA, however, than under previous law. Each bracket accommodates more income.
The highest tax bracket starts at taxable income greater than $523,600 for single filers and $6128,300 for married couples filing jointly in tax year 2021, and $539,900 and $647,850 for 2022. These taxpayers are subject to a 37% rate on incomes over these thresholds after exemptions and deductions.
|2017 Income Tax Rate||2022 Income Tax Rate|
These income levels are adjusted each year to keep pace with inflation.
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Income Tax Calculator: Estimate Your Taxes
Our schools lag those of other countries , our citizens are less healthy , and Americans are unhappy . Improving our schools, health care, and well-being all require a large collective investment in the form of taxes.
One worrying trend however, is the fact that views of taxation are increasingly falling along political party lines. The breakdown between Republicans and Democrats is fairly even among income brackets until you get to incomes below $30,000, at which point more identify as Democrats. This leads me to believe that an outsized portion of low-income Republicans still believe that the present federal tax system is very or moderately fair.
This comes into conflict with the reams of data available to show that the system is, after all, not fair. Income inequality is widening to record levels and theres no reason to believe the trend will slow down.
The Tax Cuts and Jobs Act of 2017 was the largest tax overhaul in over three decades. It was rushed through congress and its working exactly as it was intended to do so: to line the pockets of the wealthy at the expense of the working class. Optically, it was championed as a way to boost the economy, but the fact is that unemployment was already low and the cuts came amidst a long bull market.
If nothing else, its clear that theres a taxation problem in America and the current solution is only making it worse.
New Additional Tax Deduction For Other Business Types
A new Qualified Business Income deduction is available to small businesses beginning with 2018 taxes. Income taxes for small businesses are called pass-through taxes because the tax paid by the business passes through to the owners’ tax returns. This part of the new tax law gives many small businesses a 20% deduction from net business incomein addition to all other business expense deductions.
Taxpayers at higher income levels may have additional limitations or exceptions. At higher tax levels, professional businesses, for example, are excluded. Only certain types of business income may be included. This new deduction is extremely complex.
There are many limits and qualifications to meet this new deduction. Talk to your tax professional if you think you might be able to take this deduction.
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Retirement Plans And Hsas
Health savings accounts were not affected by the law, and the traditional 401 plan contribution limit in 2019 increased to $19,000 and $25,000 for those aged 50 and older. The law left these limits unchanged but repealed the ability to recharacterize one kind of contribution as the other, that is, to retroactively designate a Roth contribution as a traditional one, or vice-versa. Since the passing of the Setting Every Community Up for Retirement Enhancement Act in Dec. 2019, though, people can now contribute to their individual retirement accounts past the age of 70½.
The IRS makes cost-of-living adjustments to contributions for retirement savings accounts every year. For 2022, the annual contribution limit for 401 and other workplace retirement plans is $20,500, up from $19,500 in 2021. Employees over age 50 can contribute an additional $6,000 “catch-up”$26,500 in total.
Taxpayers Who Claim The Standard Deduction
You’ll win on two levels if you claim the increased standard deduction because it’s now bigger than your old itemized deductions were. First, it will reduce your taxable income more than past years. Second, you can skip the complicated process of itemizing your deductions. That not only saves you time, but it will also save you money if you no longer have to pay a tax advisor.
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Promise: A Simpler Tax Code
Some aspects of the law did make filing tax returns easier.
For individuals, the law boosted the standard deduction, which allowed millions of people to skip itemizing on their annual tax returns. It also raised the threshold for a parallel system of taxation meant to target people who take an outsize amount of credits and deductions, known as the alternative minimum tax, and eliminated a similar system for corporations.
But other changes to the tax codesuch as a 20% write-off for owners of pass-through businesses, and the laws byzantine international provisionswere far from simple, even before the IRS wrote hundreds of pages of regulations for how to follow them.
Beyond the code, Republicans promised that people would be able to do their taxes on a postcard-sized form.
That was somewhat true in 2018, when the IRS shrunk the Form 1040 from two full pages to a small one-page document. However, for that year, lines for reporting income, credits, and deductions were shifted to six separate attached schedules.
Then, in 2019, the IRS reverted to a two-page 1040 form, and the agency reduced the number of schedules to threesomewhat placating accountants who complained that the previous years postcard was a mess.
Did The Trump Tax Cuts Work The Answer May Not Be What You Think
A common justification for raising corporate tax rates is that cutting tax rates back in 2017 didnt work so well. So whether for reasons fiscal or egalitarian, its good policy to reverse some or all of President Trumps Tax Cuts and Jobs Act.
Certainly a cursory glance at the statistics which is what the they didnt work claim is based on shows GDP growth, productivity, and business investment about the same heading into the pandemic. Not much sign of the sharp and sustained surge that some proponents promised. President Trump, for instance, said the tax cuts would be rocket fuel for the economy. But as The Wall Street Journal concluded in early 2020: Early growth in business investment seems to have faded overall economic growth rose before pulling back again. Cross-border investment patterns have changed only modestly.
A couple things to keep in mind, however: For starters, many GOP politicians and pundits argued for the tax cuts in a way most economists didnt. While the former said the tax cuts would radically alter investment incentives and unleash a flood of corporate cash into the domestic economy from overseas holdings, the latter made arguments more like this one from AEI economist Alan Viard :
One reason the trade wars may have undercut the tax cuts was because of the massive business uncertainty they created. In a new analysis by Hites Ahir, Nicholas Bloom, and Davide Furceri, the researchers note the following:
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A Tale Of Two Tax Policies: Trump Rewards Wealth Biden Rewards Work
During the 2016 campaign, President Donald Trump promised tax cuts that would create jobs and provide substantial savings for working families. What did he deliver?
For four years, Trump has relentlessly pursued an economic agenda that rewards wealth over work and favors multinational corporations over small businesses. After first trying to strip health care protections away from more than 100 million Americans with pre-existing conditions, President Trump spent the remainder of his first year in office fighting for a $1.5 trillion tax giveaway primarily for large corporations and the wealthy. His Republican allies in Congress even admitted they needed to pass the bill to satisfy their donors. Almost immediately after signing the bill into law, Trump flew to Mar-a-Lago to tell his clubs wealthy members, you all just got a lot richer.
But middle-class Americans were largely left out. Tax experts estimate that over the long run, 83% of Trumps tax giveaway will flow to the top 1% of earners in this country. And, while our country faces an unconscionable racial wealth gap, the average Black and Latino family received less than half the tax savings as the average white family. Trump even snuck in a hidden middle-class tax hike that will kick in after he leaves office to pay for this permanent corporate tax giveaway.
I. Trumps Tax Proposal In An Economic Crisis: A New Billionaire Tax Cut
Just a few examples of the harmful impact of Trumps corporate tax giveaway include: