With his signing of the Tax Cuts and Jobs Act, President Trump will achieve three signature legislative victories for the American people: cutting taxes, repealing the Obamacare mandate, and boosting American energy production.
Tax reform will provide a strong direct boost to take home pay.The standard deduction jumps from $13,000 to $24,000 for a married couple and from $6,500 to $12,000 for a single filer.Above the much more generous deduction amount, the 15 percent rate is cut to 12 percent, all the way up to $77,400 for married couples and $38,700 for singles.The rest of the rates are also cut, providing tax cuts at every income level while making the overall tax system more progressive: the share of all federal income taxes paid by millionaires is expected to increase from 19.3 percent to 19.8 percent.
The bill doubles the child credit to $2,000 per child, including up to $1,400 per child for non-income taxpayers.
There is no change to the deduction for teachers’ classroom expenses, graduate student tuition waivers, the adoption tax credit, or 401(k) contributions.The deduction for medical expenses was not only retained but expanded.
According to the liberal Tax Policy Center, over 80 percent of tax units will receive a tax cut averaging $2,140, while just 4.8 percent of units will see a tax hike.
The tax hikes tend to be for high-income taxpayers in areas with high state and local taxes.Under the old system, state and local taxes could be deducted without limit from federal taxes.Under the new bill those deductions are limited to $10,000.In time, even that small group of taxpayers should benefit too as state and local politicians – no longer able to offload the taxes they impose to the rest of the country via an unlimited deduction – will be forced to lower taxes to stay competitive.
The new law is expected to be implemented in time for February paychecks, and I recommend filling out a new W-4 form as soon as the IRS makes it available to be sure your adjusted withholding is accurate.
Perhaps even more significant for families is the impact of the bill’s business tax cuts on wage growth.The U.S. has been uncompetitive internationally, with the highest corporate tax rate in the world and a perverse system that penalizes companies for bringing home the profits of their foreign subsidiaries.An analysis by Council of Economic Advisers Chairman Kevin Hassett finds that fixing these problems will raise household incomes $4,000 to $9,000.
The bill also delivers victories for the American people on health care and energy.
The individual mandate is the corrupt beating heart of Obamacare – the idea that people should be required to buy overpriced insurance products they don’t want or pay a penalty tax.
IRS data show that 79 percent of taxpayers who pay the mandate tax make less than $50,000 and 37 percent make less than $25,000.The best argument mandate supporters can muster is that if people are not taxed for opting out of Obamacare, more people will opt out.But it’s hard to see how people who might sign up solely to avoid the mandate tax are hurt by having the option to say no.
The final bill cuts the mandate penalty from its current level – the higher of $695 or 2.5 percent of AGI – to a nice flat rate of zero, effective 2019.
The Trump administration should expand the exemption categories to maximize transition relief in the last year of the mandate and move forward aggressively on the reforms outlined in the president’s October executive order to make lower cost options available.Come 2019, Americans will once again be able to choose coverage that meets their needs – not the desires of federal bureaucrats – without penalty.
The ANWR provision will be a big boost to American energy production.It will allow environmentally responsible access to a vast Alaska energy resource that could produce 1.5 million barrels a day through a tiny 2,000 acre footprint – just one ten thousandth of the total area of ANWR.This will create tens of thousands of jobs and billions in state and federal revenue, as well as representing an enormous symbolic victory over a multi-decade spin campaign in which the left turned nearly desolate tundra into a key battleground in their effort to use environmentalist ideology to block even responsible development of our natural resources.
House and Senate Republicans worked together in the face of lockstep partisan opposition from Democrats and a relentless smear campaign from their media allies.As a result the American people are getting the big, beautiful Christmas presents President Trump promised.