The Tax Cuts and Jobs Act (TCJA), known simply a “tax reform” to most, is the most sweeping change to the U.S. federal tax code in more than 30 years. You’d have to go back to the Reagan administration to find a shift of similar size and scope, and some economists argue that the long-term impact of the TCJA may be even greater than the changes of the mid-1980s.
In the lead-up to the TCJA’s late-2017 passage, economists and ratings agencies generally projected that the law would have a modest ameliorative effect on GDP growth through 2027, its ostensible 10th birthday.
Business leaders were largely bullish on the law as written. “I believe that passing the Tax Cuts and Jobs Act (TCJA) is among the most significant actions Congress can take to encourage economic growth,” wrote Majestic Steel CEO Todd Leebow, whose company employs hundreds in the Cleveland area (and operates service centers in Florida and Texas), shortly before the law’s passage. Leebow cited nonpartisan analysis pointing to thousands of potential jobs created in his home state of Ohio.
Eighteen months on, how have those projections held up? Let’s take a look.
What Is the Tax Cuts and Jobs Act of 2017?
First, let’s review the TCJA’s key provisions. In no particular order, key provisions for individuals include:
- Nearly doubling the standard deduction to $12,000 for individuals and $24,000 for married couples
- Capping certain housing-related deductions
- Capping the state and local taxes paid deduction
- Doubling the estate tax threshold
For corporate entities, the TCJA’s changes were even more pronounced. Key provisions for businesses include:
- Making capital investments fully deductible through 2022
- Reducing the top corporate tax rate from 35% to 21%
- Eliminating taxes on much business income earned overseas
- Instituting a new 20% deduction for qualifying service businesses
- Requiring amortization of R&D expenses
Curious to see how the TCJA affects you? Use the Tax Foundation’s tax calculator to measure its impact
Is It Too Early to Say How the Tax Cuts and Jobs Act Is Affecting U.S. Growth?
Unfortunately, due to the long-term nature of many TCJA provisions, it may be too early to say how the TCJA is affecting U.S. growth. It’s true that most individual taxpayers and businesses saw a net tax cut in 2018, but that doesn’t necessarily translate to faster growth or more jobs. Most observers are taking a wait-and-see approach; the widespread expectation is that we’ll know more in 2021 or 2022.
How’s the Weather Where You Are
If pre- and post-passage debate around the Tax Cuts and Jobs Act is any indication, the law’s impact is not uniform. Indeed, no law as complex as the TCJA could possibly impact all individuals and corporate entities identically. As is often the case in policy and politics, outcomes depend very much on localized, even individualized, circumstances.
While we’ll have a better sense of how the TCJA has affected the broader economy in a few years, we can be all but certain that economists will agree to disagree on its topline impacts, and that subsequent macro and micro events will serve to further confound analysis.
Perhaps it’s best to map the TCJA’s main provisions against your own personal financial situation and ask yourself a simple question: Are you better off today than you were before its passage?
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Founder Dinis Guarda
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