April 15 (17th this year due to the 15th being a Sunday, and Monday a federal holiday, Emancipation Day) is Tax Day. The Trump Administration sees Tax Day as an opportunity to tout the Tax Cuts and Job Act with the slogan “Out with the Old, In with the New.” While everyone’s tax rates will change, there is a lot of the “old” that stuck around too.
If you haven’t seen the new tax brackets, almost every American’s tax bill will change.
Here are the new tax brackets:
For comparison, here are the old tax brackets (we will revert back to these in 2026 if tax cuts are not made permanent by Congress):
Another important aspect of the tax law is that it doubled the standard deduction from $6,350 to $12,000 if you’re single, and from $12,700 to $24,000 if you file jointly. If you’re unfamiliar with the standard deduction, it basically limits how much of your income the IRS can tax. For example, if you make $50,000, and you are single filing, your taxable amount is $43,650 in 2017, but will be just $38,000 in 2018, pushing you into a lower tax bracket.
The bill doubles the child tax credit from $1000 to $2000 and eliminated the individual mandate penalty for healthcare insurance. The bill also eliminated some itemized deductions like moving expenses and alimony, but keeps deductions for mortgage interest, charitable giving and retirement savings. Most Americans won’t be affected by this change as 94% of taxpayers are estimated to take the standard deduction in 2018.
For most of our readers, that is pretty much all you need to know. If you want to learn more about the bill you can read it’s full text (if you’re in to that kind of thing) or head over to the Washington Post who has a good explanation of the rest of the tax reform bill. However, we would be remiss if we didn’t highlight the things that were NOT included in the tax bill.
The tax bill was advertised as “tax reform,” but really it’s just a big tax cut package. You won’t be able to mail your taxes in on a postcard, and the thousands of pages that make up the tax code still remain. Most importantly though, the tax bill did not address the complexity of the code, or the loopholes that help D.C. pick winners and losers.
It’s no secret, the biggest tax breaks go to corporations and individuals who can afford the best lobbyists, lawyers, and accountants, leaving everyday Americans to fill the gap. According to Senator Jeff Flake’s Tax Report, “there are more than 200 loopholes buried throughout the tax code that collectively cost $1.23 trillion annually. This exceeds the total amount spent annually by the federal government for all discretionary programs, which includes defense, education, transportation, foreign aid and the environment.”
Our Executive Director, Bryan Berky, illustrates tax loopholes before and after the tax bill, “Before he retired, former Senator Tom Coburn released Tax Decoder, a report analyzing the various tax expenditures scattered throughout the tax code. The report analyzed 165 tax expenditures that cost more than $900 billion annually in lost revenue. Of the 165 tax expenditures that were listed in Tax Decoder, only four were repealed by the tax law and another eight were limited (most prominently the Mortgage Interest Deduction and the State and Local Tax Deduction). Not only were many tax expenditures saved, but some were even expanded.”
While tax cuts have Americans feeling optimistic about the economy, the tax bill will add between $1 to $2 trillion to the $21 trillion national debt, and Americans will still be paying to subsidize Washington’s favorite special interests. One of the biggest misses of tax “reform” is the fact that Congress was unwilling to challenge these constituencies. Loopholes go unchanged year in and year out because Members of Congress are unwilling to challenge those constituencies, no matter the burden it places on the American public and next generations. Congress only went half way, there is still more to be done.