Winners & Losers in the TCJA

November 17, 2019

Now that the 2018 tax act commonly referred to as the Tax Cuts & Jobs Act (TCJA) has been implemented, we’ve had a chance to look back at the actual results and see how a variety of different tax situations were affected by the new legislation.

We have analyzed ten different tax scenarios to see who came out ahead, and who is paying more under the new rules.

As we said previously, for tax households without dependents and who didn’t itemize deductions, the new tax law resulted in a tax cut. It should be noted that most taxpayers did not itemize deductions in 2017. With the dramatic increase in the standard deduction, far fewer taxpayers will itemize deductions in 2018 and the future. We have over-selected itemized deduction cases because they are more interesting to show the differences in the tax law.

Click on the filing status of any row in the chart to see how the changes came about, along with some additional analysis of each case. With the exception of the four cases whose AGI ends in zero, these cases are patterned after actual taxpayers’ situations.

(Itemized deduction cases intentionally over-sampled)

Filing status 65+ Dep. AGI Item?  17 tax  18 tax $ Change
Married no 2 70,200 yes 2,636 1,166 -1,470
Married no 2 133,103 yes 13,434 14,527 1,093
Married no 0 237,296 yes 41,021 39,602 -1,419
Married no 0 368,627 yes 87,360 74,622 -12,738
Married no 0 1,015,000 yes 327,609 310,352 -17,257
Married yes 0 54,125,500 yes 8,746,040 8,836,839 90,799
H of H no 2 34,937 no -3,479 -4,289 -810
Single yes 0 58,255 yes 2,662 3.323 661
Single no 0 111,084 yes 18,320 16,952 -1,368
Single no 0 375,000 yes 90,131 88,680 -1,451

Our analysis is subject to some limitations. For example, we compare precisely the same amounts of income and deductions when comparing 2017 and 2018 results. However, if the TCJA were not passed, the 2018 tax brackets, standard deduction, personal exemption, and many other limits and thresholds would have been adjusted for inflation. Therefore, a comparison using the same income and deduction figures for both years would necessarily result in a slightly lower level of tax in 2018 versus 2017 for these factors alone. While we make no adjustment for these factors, their effects are minimal in comparison to the overall changes in taxation. Also, we gave no consideration to state income tax effects or changes in tax planning brought about by the new law. We are comparing only the function of the tax law changes on a static set of elements, not the changes in federal revenues or changes in taxpayer planning and behavior that may result from the law change.

Except as it pertains to investments and the Head of Household example with self-employment income, on these pages we do not analyze one of the most pro-taxpayer aspects for small business owners and some investors of the new law, the Sec 199A Qualified Business Income deduction.

Similarly, we do not highlight the doubled amounts and vastly higher limits for the revised Child Tax Credit or the new Credit for Other Dependents, except as they apply to the cases above. These new and revised credits reduce federal taxes for millions of taxpayers.

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