2018 Form 1040

Tax Day: Impact of the 2017 Tax Cut

It’s April 15, which is tax day here in the U.S. Federal and state income taxes have to be filed by today. It’s also the first chance we can see the actual impact of the tax cut Republicans passed in late 2017.

So did you pay more or less on your 2018 taxes? 

There’s been a lot of political rhetoric surrounding these tax cuts—that I think turns out to be wrong on both sides—as well as plenty of skewed perceptions.

Let’s look at the reality.

Tax Cut?

First, the big question: Did most people see a tax cut?

According to the independent Tax Policy Center, 65% of Americans got a tax cut under the 2017 law. Only 6% paid more.

And the more money you make, the more likely you got a tax cut. For those who make more than $100,000, the percent who saw a tax cut jumps to 89.5%.

For my own experience, I can attest to that. My taxable income went up in 2018 (credit where credit is due: OK, my wife’s income went up in 2018—she got a raise; I actually made less), but my tax went down.

The Perception?

However, most people don’t think they got a tax cut.

Again, according to a survey by the independent Tax Policy Center, only 40% of Americans think they got a tax cut.

So why the skewed perception?

Part of it is that for many middle class families, the cut was fairly modest—$780.

Another reason is that the tax cuts actually lowered the withholdings from workers’ paychecks, which put more money in people’s pockets—but spread out over biweekly paychecks, it wasn’t very noticeable.

This why a lot of people are seeing smaller refunds than normal. And that doesn’t feel like much of a tax cut.

Real Critique of the Tax Cut

I think it’s important to be honest about the reality of policy. So let’s be honest—the tax cut was actually a tax cut for most Americans.

But let’s also be honest about the impact of that tax cut.

  • More money in your pocket: For most Americans, yes, they ended up keeping more of their money. That certainly helps.
  • Increased the deficit: The tax cuts added billions to the federal deficit, though Republicans argued the tax cuts would pay for themselves by stimulating the economy. There’s little evidence of that so far. It’s frustrating that politicians talk about the deficit to get elected or bash their opponents, but do nothing about it.
  • Little economic stimulation: Much like the ‘trickle down economics’ of the 1980s, the idea behind this tax plan is that corporations will reinvest, workers will get raises, and we’ll see an economic boom. Instead, we’re mostly seeing payouts to stockholders.
  • Temporary gains: The timing of the tax law is also confusing. While 65% of Americans did get a tax cut, those cuts will expire in 2026. Temporary tax cuts feel like a political game. I wish politicians—of either party—wouldn’t do that.
  • Helping the wealthy: Democrats also argue that these cuts primarily benefited wealthier Americans. That’s certainly true. The top 20% get more than 60% of the savings. Also, corporations benefited from a big tax cut, but their cuts are permanent. That’s a benefit that will primarily help the wealthy as well.
  • Not simpler: Remember when Republicans promised to make taxes simpler? So simple they’d fit on a postcard? Yeah, not so much. They actually do fit on a postcard, but only because they redesigned the form 1040 so the bottom half of the page is blank. It’s close to postcard size, but you can’t file your taxes on a postcard. The even eliminated the old 1040 EZ form, which actually did simplify things.

Honest Assessment

So yes, taxes went down.

But it hasn’t achieved what Republicans promised it would.

I’m not really trying to debate tax policy here. I’m trying to make some of the underlying issues more clear. Sometimes I think the debate would be easier if we could be honest about the realities.

Leave a Reply

Your email address will not be published.