Tax Cuts and Jobs Act of 2017 – The Results Are In

Categories : Financial, News
December 4, 2019

In the closing hours of 2017, Congress promised to help most Americans financially. Given the track record of the past several Congresses, that would have required a 180-Degree course correction regarding taxation. Skeptical Americans (including this author) demanded that Congress and President Trump “Show Me.” Lo and behold, they did just that.

The Tax Cuts and Jobs Act of 2017, or TCJA, passed and was signed into law, then took effect for tax years beginning January 1, 2018. Tax Returns for that year were due on April 15, 2019, and offered automatic extensions until October 15, 2019, for those who needed more time. Those dates have passed, returns have been filed, and results are in. The Journal of Financial Planning, one of our industry’s most respected publications, compiled IRS statistics for Tax Year 2018, with the following results and comments:

  • Contrary to early media reports, the average tax refund was down only $29, or 1%, from Tax Year 2017
  • Payroll withholding tables were adjusted to withhold less tax from paychecks, causing a corresponding increase in “Take-Home Pay”
  • The combination of an increased paycheck and a similar refund amounted to 67% of taxpayers receiving a measurable tax cut in 2018
  • Only 6% of taxpayers actually paid more in 2018 than under the prior Tax Code, and a slightly larger percentage had no measurable effect
  • Some people owed more due to the new $10,000 annual limitation of State and Local Tax itemized deductions, or SALT, were negatively impacted
  • Only 10% of taxpayers itemized deductions, due to the new, larger Standard Deduction
  • Tax cuts due to TCJA were not skewed to favor “the rich”
  • 92% of taxpayers used e-file for 2018 Tax Returns, compared to 67% the prior year
  • Small businesses fared well under TCJA, thanks to Wisconsin Senator Ron Johnson, who convinced President Trump and the Congress that a provision had to made for “pass-through” businesses to equalize tax rates with larger companies

Many tax preparers added a demonstration page to 2018 Tax Returns, showing what the taxpayer actually paid, against what would have been owed absent TCJA. If you used a professional to prepare your 2018 Tax Returns, you may be able to see for yourself how you fared under TCJA.

Congress has more to do if they truly aim to help the majority of taxpayers. Due to strange and outdated budgeting rules, personal tax rates expire after 10 years. Current reduced rates need to be made permanent. There are other areas Congress should address, such as encouraging higher retirement savings rates. Congressional Republicans have several proposals on the table, but the divided government has essentially ground to a halt. Only time will tell how this saga ends.

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