The end of the government shutdown means one big thing can begin: tax filing season. The IRS begins accepting tax returns this week from more than 150 million families (and millions more businesses) that file every year. What you won’t read about in the political or tax press beats, though, is the biggest news of tax season this year: the big tax cut middle-class families will see from the Tax Cuts and Jobs Act of 2017.
Ask most people what the tax reform law was all about, and they’ll probably say something like cutting the corporate income tax rate from the highest in the developed world to a rate equal to the weighted global average. They would be right, along with shifting from a worldwide to a semi-territorial international system that makes it far less easy to do corporate inversions or ship jobs overseas.
But the biggest part of the tax cut by far was tax cuts for individuals.
To start with, tax rates for families were cut across the board — for everyone. The top rate of 39.6 percent was reduced to 37 percent. The tax rates underneath went down, too. The most common middle class marginal tax rates of 15 and 25 percent were reduced to 12 and 24 percent, respectively. The marriage penalty was eliminated in all but the top tax bracket.
Tax reform did more than just lower rates, though. It also made tax season easier for middle-class families by liberating them from having to gather receipts and tax forms to itemize deductions. Under our tax system, a family can choose between a Sunday afternoon of gathering tax forms from employers, mortgage banks, local tax receipts, and charities on the one hand, or simply claiming the “standard deduction” on the other. Before tax reform, about three in 10 families (more than 46 million) did it the hard way because their itemized deduction total exceeded the standard deduction allowed.
[Also read: GOP returns to tax cuts, economy in 2020 election]
Tax reform doubled the size of the standard deduction, making it easier for families to choose the simple route because it now made sense for them financially. The standard deduction in 2018, which is also the amount you can earn before any income tax is owed, is $24,000 for a married couple, $18,000 for a single parent, and $12,000 for an individual. As a result, nine in 10 families will choose this simplified method instead of getting out the old tax shoebox from the top of the refrigerator. The number of refrigerator shoebox families has dropped from 46 million to 18 million, according to Congress’ nonpartisan Joint Tax Committee. That alone is cause for celebration across the country.
A bigger standard deduction also means that many low-income individuals are no longer required to file an income tax return. Under the old tax law, a student with a summer job or a low wage worker had to file a tax return once their income exceeded about $10,000. That number is now $12,000. There’s no particular need for people with income this low to have to worry about tax filing, and now millions more don’t have to. They are also exempted from income tax withholding at work, boosting take-home pay.
The tax reform law is particularly generous for middle-class families with kids. Under the old tax law, the dollar-for-dollar reduction in income tax liability (the child tax credit) was $1,000 per child. Tax reform doubled that number to $2,000 per child. It also increased the amount families could earn before that more generous child tax credit started to phase out. For lower-income but still working-class families who have no income tax liability, up to $1,400 per child can be received despite not paying income tax at all.
Middle-class families already have gotten a down payment on all these tax cuts. A year ago, the IRS announced revised wage tax withholding tables that gave higher paychecks to hundreds of millions of workers. The rest of the tax cut will likely be realized when these families calculate and file their taxes.
What’s the bottom line for typical families? A median income family of four with two kids makes about $80,000 per year. Their income tax burden was reduced from about $4,600 to about $2,300, a 50 percent cut in income tax. A single parent with two kids making $60,000 per year got an even bigger tax cut, seeing her taxes reduced from $3,000 to $800. Even an individual making $35,000 got in on the fun — his taxes are cut from $3,200 to $2,600.
Let’s pause there to let that sink in. The prototypical family, mom and dad and two kids, got their income tax cut in half by the Tax Cuts and Jobs Act. I bet you haven’t read that anywhere.
This tax relief is real, and it’s hardly been reported on by the major press. But numbers don’t lie. Middle-class families across the country have gotten pretty massive tax relief, and it’s thanks to tax reform. Voters should remember that the next time they hear congressional Democrats bemoaning the “Trump tax cut” as if it’s not about real people.
Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.
