We all prefer simple answers, and in this politically charged climate, we tend to gravitate to the “experts” that tell us what we want to hear … only the rich are benefiting …or ... The Tax Cuts & Jobs Act (TCJA) is great for American families. But the truth is so much more complex and those simple answers are misleading. One commentator labeled the TCJA a “Marvel of Complexity”. So in a series of blog posts, we at RLH are going to share some non-political and factual explanations about some of the more important parts of the TCJA.
Let’s start with some statistics. The Congressional Budget Office (CBO) estimates the net revenue reduction from the TCJA is $1.5 trillion. However the gross numbers are $5.5 trillion in cuts and $4 trillion of increases, which net to $1.5 trillion. We need to know more about the $4 trillion of tax increases to determine if we are winners or losers.
The CBO, in conjunction with the Joint Committee on Taxation (JCT), scored $5.5 trillion in tax cuts, including individual tax rate reductions, standard deduction increase, child tax credit increase, corporate tax rate reduction, business deduction for “pass-through entities”, business property expensing elections, estate tax reduction and numerous other provisions.
On the other hand, they scored $4 trillion of tax increases from personal exemption repeal, elimination and limitation of some itemized deductions, health insurance savings from 13 Million uninsured, business interest and other expense limitations, net operating loss limitation, international tax changes, and numerous other provisions.
These tax increases and decreases net to $1.5 trillion in tax cuts.
As you can quickly see, these changes will affect us from both directions. Some provisions of the tax law are easy to understand, while others are so complex that we will not know the true impact until Court cases have been fought over IRS Regulations that will be written over the next year or more. Once a week through tax season (and maybe beyond), we will provide a “Tax Act Tuesday” article that will take a deeper look at some of the significant changes increasing and decreasing your tax bill.
And best wishes for a grin when you see your tax bill next year!