Effects of The Tax Cuts and Job Act of 2017
"Impact is measured by what you can do for others that may never be in position to return the favor."
The Impact on Individuals
The Tax Cuts and Jobs Act lowered tax rates and simplified the individual income tax for most filers. The Act nearly doubled the standard deduction to $12,000 for individuals and $24,000 for married couples in 2018. The number of individuals taking the standard deduction will increase in 2018 from approximately 70 percent of returns to approximately 90 percent, reducing compliance costs by $3 billion to $5 billion annually.
The Tax Cuts and Jobs Act also limited several key deductions, such as the mortgage interest deduction and state and local taxes paid deduction. It reformed the alternative minimum tax and doubled the exemption for the estate tax.
While much ink has been spilled about the impacts of each of those provisions on their own, the net impact of the Tax Cuts and Jobs Act on individuals is that 80 percent of filers will see a lower tax liability in 2018, with another 15 percent having no material change. Only 5 percent of taxpayers will pay more in taxes in 2018 than they did in 2017. And, as the map below shows, on average, taxpayers in every income group in every congressional district in America will see a net tax cut.
The Impact on Businesses
The Tax Cuts and Jobs Act made dramatic changes to the business tax code in the U.S. The corporate income tax rate was lowered from 35 percent to 21 percent, capital investments can be fully deducted until 2022, and we moved to a quasi-territorial system, meaning that businesses are only taxed (with notable exceptions) on their income earned in the U.S., not abroad.
Our Taxes and Growth model estimates that lowering the corporate income tax rate will increase long-run GDP by 2.6 percent, increase worker pay, and grow the U.S. capital stock as firms find that more investments are now profitable.
The Act did include a few provisions which will slow economic growth in the long run, such as requiring research and development expenses to be amortized and tightening the interest deduction cap in 2022.
