It’s been difficult to get a good understanding of the tax cuts passed by a Republican Congress and signed into law by President Donald Trump. Media coverage has generally been sporadic, and seemed to accentuate the negative whenever possible.
Shortly after the bill passed, coverage implied that most Americans would see little difference or higher taxes. That cycle mostly ended when CBS News hired an accountant to review the tax returns of three families and predict how they would fare under the new rates. To the surprise of each family and to the news anchors, each family would pay less under today’s rates.
After people began filing returns, a rash of stories focused on average refunds being 16% lower than prior years. These stories obfuscated or omitted the fact that tax refunds aren’t reflective of total amount paid. Withholdings for many taxpayers were reduced under last year’s tax tables, giving workers more money up front.
These stories, too, disappeared when average refunds began to rise when the bulk of tax returns filed. By April, the average refund was only about 2% different than under the old system.
Now comes an analysis by the Tax Foundation, which has reviewed the aggregate of all returns filed by April 15th. This covers about 80% of potential returns for 2018 taxes, but does not include those who have requested an extension.
The numbers are clear. Despite the rhetoric of critics who have decried the Tax Cuts and Jobs Act as a “tax cut for the rich,” the opposite is true. Taxes went down for all income levels except those earning more than $1 million per year.
While rates for those on the top end of the scale were cut, so were the deductions they are able to claim. State and Local taxes, often referred to as SALT deductions, are now capped at $10,000 for deductions.
This affected taxpayers in states with high state income tax rates like California and New York, but also limited the deductions for those whose high home values have them paying large amounts of property taxes. It’s ironic that many who decry the tax cuts as a giveaway to the rich also want to restore full deduction of state and local taxes. It’s almost as if they’re being hypocritical.
Also noted by the Tax Foundation is the increase in the ease of filing under the new code. The standard deduction increased from $13,000 to $24,000 for married couples, and from $6,500 to $12,000 for individuals. This decreased those that itemized their deductions from 30% of returns filed to 10%.
Families with children were a big winner under the new tax code. With the childhood tax credit doubling and the income limit for families eligible for the tax credit increased, the Tax Foundation found increased use of the credit across all income rates except the for those earning more than $1 Million.
As we move closer to a presidential election, many will attempt to continue to obfuscate the effect of tax cuts on the American taxpayer. We’ll also continue to see politicians from California and New York demand “the rich” pay more while they simultaneously try to restore SALT deductions so that the high taxes their states collect can be subsidized by deductions against their federal tax bills.
All of that rhetoric needs to be met with reality. Taxes went down under the Tax Cuts and Jobs Act for the average tax returns in each income bracket except those earning over $1 million per year.
Meanwhile, the economy continues to grow. Wages are rising at the highest rate in over a decade. Unemployment is near half-century lows.
The tax cuts have worked as advertised. It would be nice to see more members of political media report that accurately.