New Tax Bill Means More Money for Taxpayers

Dec 31, 2017 by

New Tax Bill Means More Money for Taxpayers

By Henry W. Burke

12.31.17

 

The recently enacted tax cut measure means Americans will pay lower federal income taxes in 2018. 

Most Americans will keep about $2,000 more each year as a result of the new legislation; and people at all income levels will experience the benefit of tax reform.

 

Congress recently passed the Tax Cuts and Jobs Act (TCJA).  On December 22, 2017, President Donald Trump signed the tax cut measure into law.  The 2017 Tax Cuts and Jobs Act is the most sweeping update to the U.S. tax code in more than 30 years.  The tax cut measure will lower the federal income tax bill for most Americans in 2018.

For individuals and families, this is accomplished through lower tax rates, a nearly doubled standard deduction, and an expanded child tax credit.  For single filers, the new standard deduction is $12,000; for joint filers, the new standard deduction is $24,000.  Also the tax reform measure repeals the Obamacare individual mandate, beginning in 2019.

For corporations and businesses, the new tax measure lowers the corporate tax rate from 35 % to 21 %.  This will benefit workers through higher wages and more jobs.  Also the tax cut bill increases the temporary expensing of capital investments from 50 % to 100 %.  Because many small and pass-through businesses pay their taxes as individuals, the tax bill authors addressed this issue.  With the new legislation, pass-through businesses will be able to deduct 20 % of certain types of non-salary business income.  This will bring down the top marginal tax rate from 39.6 % to 29.6 %.  The new tax measure is far from perfect and lawmakers should continue to improve the tax code in future legislation.

A common talking point on the new tax cut measure is that “it offers tax breaks for the rich.”  Is this true?  Will rich taxpayers experience drastically lower tax bills than lower and middle-income taxpayers?  What are the facts?  

Numerous organizations have analyzed the impact of the 2017 Tax Cuts and Jobs Act.  Assumptions and methodologies vary across these analyses.  For example, are the taxpayers married or single?  Do they have children and what are the ages of their children?  Were various deductions (e.g., home mortgage interest, charitable giving, etc.) included in the calculations?  The interested reader should follow the links (URL’s) to the listed websites to obtain a more complete picture of the various scenarios. 

Typical results are shown in the following Tables:

 

Table 1a –Tax Cut Savings for the New Tax Cut Bill

Description Single –

$30,000

Single –

$50,000

Single — $75,000 Married –

$50,000

Ordinary Income  $30,000   $50,000   $75,000   $50,000
Marital Status   Single   Single   Single   Married
Children      0      0      0      2
         
Taxes:        
Current Law    $7,016   $13,141   $23,216    $7,421
New Tax Law    $6,560   $12,020   $21,274    $6,075
Tax Cut Savings       $456     $1,121     $1,942    $1,346
Tax Savings Percent     6 %     9 %     8 %    18 %

 

Source:

Tax Policy Center (Joint venture of the Urban Institute and Brookings Institution), “Tax Proposal Calculator.”

http://tpc-tax-calculator.urban.org/

 

Table 1b –Tax Cut Savings for the New Tax Cut Bill

Description Married –

$75,000

Married –

$100,000

Married –

$150,000

Married –

$500,000

Ordinary Income   $75,000 $100,000 $150,000 $500,000
Marital Status Married Married Married Married
Children      2      3      2      2
         
Taxes:        
Current Law   $15,332   $21,285   $41,679 $169,668
New Tax Law   $13,214   $18,039   $35,871 $150,651
Tax Cut Savings     $2,118     $3,246     $5,808   $19,017
Tax Savings Percent     14 %    15 %    14 %    11 %

 

Source:

Tax Policy Center (Joint venture of the Urban Institute and Brookings Institution), “Tax Proposal Calculator.”

http://tpc-tax-calculator.urban.org/

 

Table S – Summary of Tax Cut Savings and Percentages

Ordinary

Income

Marital

Status

Tax Cut

Savings

Tax Cut Savings

Percent

    $30,000 Single       $500       6 %
    $50,000 Single    $1,100       9 %
    $50,000 Married    $1,300     18 %
    $75,000 Single    $1,900       8 %
    $75,000 Married    $2,100     14 %
  $100,000 Married    $3,200     15 %
  $150,000 Married    $5,800     14 %
  $500,000 Married $19,000     11 %

 

Brief Explanation on Taxes:

The 2017 Tax Cuts and Jobs Act becomes effective in 2018.  If you are married and you will earn $50,000 in 2018, you can expect about $1,300 in federal tax savings for 2018.  Of course, your situation, number of children, and deductions might produce a different result than the figures in these Tables.  To reflect the lower tax rates, your employer will deduct less money from your paycheck, beginning in February. 

When you file your income taxes in April 2018, there will be no difference from prior years.  However, your 2018 Tax Return (filed in April 2019) will reflect the lower tax rates from the New Tax Bill.  Because of tax simplification, many taxpayers can simply claim the standard deduction rather than itemizing.  Accordingly, it will be much easier to file your 2018 Tax Return. 

 

Other Analyses of the New Tax Cut Bill:

  1. Tax Foundation, “Who Gets a Tax Cut Under the Tax Cuts and Jobs Act?”  Amir El-Sibaie, 12.19.17.

https://taxfoundation.org/final-tax-cuts-and-jobs-act-taxpayer-impacts/

  1. USA Today – The Motley Fool,How the Tax Cuts and Jobs Act Could Affect These 5 Households,” Matthew Frankel, 12.20.17.

https://www.usatoday.com/story/money/taxes/2017/12/20/how-the-tax-cuts-and-jobs-act-could-affect-these-5-households/108773102/

  1. The Heritage Foundation, “In Updated Charts, How These 7 Taxpayers’ Bills Will Change If Tax Reform Is Signed Into Law,” Rachel Greszler, 12.20.17.

http://www.heritage.org/taxes/commentary/updated-charts-how-these-7-taxpayers-bills-will-change-if-tax-reform-signed-law

Recent Videos on the Tax Cut Bill:

  1. “CBS Asked an Accountant How Tax Cuts Will Affect Families”

 4:28 Minute YouTube Video:

 https://www.youtube.com/watch?v=gda27SWWdZg

  1. Dave Ramsey – “How the New GOP Tax Bill Will Affect You”

9:13 Minute YouTube Video:

https://www.youtube.com/watch?v=-kU-g15Vve4

 

CONCLUSION

From the above Tables, it is apparent that most taxpayers will see about $2,000 in tax savings under the new tax measure, when compared with the current tax code.

Taxpayers across all income levels will obtain the benefit from the tax reform legislation.  Most taxpayers will experience about 10 – 15 % in tax savings; the very rich will see a reduction of only 1 %.  

The results should dispel the myth that the new tax bill is simply a “tax break for the rich.”

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Bio for Henry W. Burke

Henry Burke is a Civil Engineer with a B.S.C.E. and M.S.C.E.  He has been a Registered Professional Engineer (P.E.) for 37 years and has worked as a Civil Engineer in construction for over 45 years. 

Mr. Burke had a successful 27-year career with a large construction company. 

Henry Burke has served as a full-time volunteer to oversee various construction projects. He has written numerous articles on education, engineering, construction, politics, taxes, and the economy.

Henry W. Burke

E-mail:  hwburke@cox.net

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