In December 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA). Most of the tax changes included in the bill went into effect on January 1, 2018.
Republicans hailed Trump’s tax plan as an overdue tax cut for American citizens and promised that changes would bolster the economy. But has that been the case?
Let’s take a closer look at all the ways that Trump’s tax plan has impacted individuals and businesses and how its affected the economy as a whole.
Notable Changes Under Trumps Tax Plan
Below is a quick list of some of the most important tax law changes that were ushered in with the Tax Cuts and Jobs Act.
1. Lower income tax rates for most brackets
Trump’s tax plan chose to keep seven tax brackets as there were before. But, for most brackets, the tax rate went down.
Here’s a quick comparison of the tax rates for each bracket before and after the Tax Cuts and Jobs Act went into effect.
The Republicans promise to renew the individual’s tax cuts at a later date, but until that actually happens, there are no guarantees. It should be noted that the decreased tax rates, along with most other individual tax cuts included in the TCJA are set to expire in 2025.
2. Larger standard deduction
Trump’s tax plan increased the standard tax deduction for everyone by nearly double. Here’s a quick look at how the standard deduction has changed for each type of filer.
|Type of Filer||Before||After|
|Married, filing jointly||$12,700||$24,000|
|Heads of households||$9,350||$18,000|
Note: The standard deduction as well as other tax deductions and credits are subject to annual IRS inflation adjustments. And the blind and elderly are still eligible for extra standard deduction amounts as they were before the Tax Cuts and Jobs Act.
3. Fewer individual deductions
In exchange for increasing the standard deduction, the tax plan has reduced or eliminated several smaller tax deductions. Here are a few examples:
- Mortgage interest deduction: Before 2018, you could deduct the interest that you paid on mortgage debt up to $1 million. Now the limit is $750,000.
- Property tax deduction: Before, you could deduct all of your property taxes, with no limits. But under the TJCA, the property tax deduction is now capped at $10,000.
- State and local taxes (SALT) deductions: Under prior law, you could deduct all of your state and local income or sales taxes. Now, the deduction is limited to $10,000.
- Deduction for moving expenses: Now only active-duty members can claim moving expenses as a tax deduction.
- Casualty loss deduction: Now you can only deduct non-business casualty losses and only those that were caused by a presidentially declared disaster.
- Miscellaneous itemized deductions: Previously, taxpayers could deduct a variety of expenses by the amount that they exceeded 2% of your AGI. Under the new tax law, these miscellaneous itemized deductions have been eliminated.
So what does all this mean? Higher standard deductions and fewer itemized deductions mean that fewer Americans will be able to find value in going the itemized route with their deductions.
If you were already using the standard deduction, the higher limits under Trump’s tax plan will work in your favor. But if you were someone who itemized your deductions, you may not be as happy with the tax changes.
4. No more personal exemptions... but more available tax credits for your kids and dependents
Under prior law, taxpayers could claim a personal exemption of $4,050 each for themselves, their spouse, and their dependents. But under Trump’s tax plan, personal exemptions have been eliminated.
On the other hand, the Tax Cuts and Jobs Act increased the child tax credit from $1,400 per qualifying child to $2,000. And the new law adds a $500 tax credit for other dependents that don’t count as qualifying children.
Along with the higher standard deductions, the extra tax credits help to take some of the sting out of the elimination of personal exemptions. But some households with a lot of dependents may owe more under the new tax law now that personal exemptions are gone.
5. Reduced reach and effect of the Alternative Minimum Tax (AMT)
Under the new tax law, AMT exemptions have been increased to $71,700 for singles and $111,700 for married, filing jointly filers. And the income at which the exemption begins to phase out is much higher--$510,300 for singles and $1,020,600 for married, filing jointly.
As a whole, these changes should cause fewer people to need to pay the AMT. And for those that do, less of their income should be exposed to the tax. Finally, the TCJA reduced the maximum AMT rate from 39.6% to 28%.
6. Larger estate tax deduction
Before 2017, wealthy parents could transfer up to $5.49 million to their heirs tax-free--shielding that money from the estate tax, which maxes out at 40%. But the estate tax deduction has more than doubled to $11.18 million as a result of TCJA changes.
7. Lower corporate taxes
One of the most dramatic effects of the Tax Cuts and Jobs Act was a major drop in the taxes that corporations must pay. Under prior law, corporations paid 35%. But under Trump’s tax plan, the corporate tax rate has been cut to 21%.
How Trumps Tax Plan has Affected the Economy
So has Trump’s tax plan led to great economic growth and job creation as promised? It’s too early for either side to dub the new tax plan a win or a flop.
But here’s a quick look at how the economy has fared since the Tax Cuts and Jobs Act was signed into law.
1. Wage growth
President Trump often points to all-time high wages as a sign that tax cuts have kicked the economy into overdrive.
Wages have been steadily increasing since the recession of 2012 but it’s clear that there was a sharp rise in wage growth in 2018.
But, in 2019, wage growth has tailed off a bit. Overall, growth is still solid. But the jury’s still out on the long-term effects of Trump’s tax plan on employee earnings.
2. Gross Domestic Product (GDP) growth
One of Trump’s biggest campaign promises was that deregulation and lower taxes would result in annual GDP growth of 3%.
However, 2018 wasn’t markedly better for GDP growth than 2017. And during the last two quarters of 2019, the economy has experienced more modest GDP growth at around 2%.
If we look at GDP growth over the past 10 years, it’s clear that growth has steadily improved since Trump took office in 2016. But it should also be pointed out that President Trump came in at an unusually low point for GDP growth.
So, in some sense, it was inevitable that the GDP would improve. And the highest U.S. GDP-growth year over the past decade was actually in 2015, during the Obama administration.
3. The housing market
To gauge the strength of the housing market, we can look at the median sales price over time as well as the number of homes sold.
Unfortunately, the median sales price of homes has been on a downward trend since 2018.
This isn’t a good sign for American homeowners. Could this shift be unrelated to Trump’s tax plan? Sure. But it’s definitely something that everyone will be monitoring over time.
Thankfully, things look better when it comes to the number of new homes sold. After taking a dip in early 2018, new home sales have been steadily rising--reaching their 5-year highs in June 2019.
4. The stock market
Have tax changes made a difference in the stock market? It’s hard to say.
The S&P 500 dipped early in 2018 and then dropped even more sharply in 2019.
But in both instances, the stock market recovered and ended up hitting new highs. If Trump’s tax plan has had any direct effect on the stock market, it’s hard to determine what exactly that effect has been.
The Bottom Line
Most individuals and families saw at least some drop in tax liability as a result of the Tax Cuts and Jobs Act.
But (as many Democrats have pointed out), the biggest winners were actually corporations by virtue of the corporate tax rate being slashed by 14%.
And when it comes to the macro effects of Trump’s tax plan, well simply have to wait to see how it impacts the U.S. economy over time.