Likely Effects of the 2017 Federal Tax Law Changes

The 2017 federal tax law changes were controversial from the beginning. The bill was essentially written in secret, without the benefit of public hearings. Opponents, though they hadn’t seen even a draft, lambasted the bill as a giveaway to “the rich” that would massively increase the deficit and the national debt.

Professor George Yin spoke at the Wednesday September 12, 2018 meeting, which was held at the The Center in Charlottesville. Following the presentation, questions were taken from the audience. The program was moderated by SSV board member Bob McGrath. Listen to the podcast for a clear explanation of the impact of the new law.

Professor George Yin, an expert on federal tax law, presented a balanced assessment of the bill’s likely consequences on individuals, on businesses and on the economy. His analysis includes both a lay explanation of tax-law arcana such as “the Byrd rule” and an even-handed, practical critique of the assessments of the bill by its supporters and its opponents.

Professor Yin was formerly chief of staff to Congress’ Joint Committee on Taxation (known colloquially as “Joint Tax”), a nonpartisan body that helps draft tax legislation, analyzes it and prepares official revenue estimates concerning its effects. Prior to that he was tax counsel to the U.S. Senate Finance Committee. He is a graduate of the University of Michigan, the University of Florida, and the George Washington University Law School.

Program Summary

A lot has changed in the legislative process since the last major tax reform adopted in 1986. The 2017 bill was rushed through almost as if the legislators were ashamed of what they were doing. In 1986 the first proposal came out in three volumes. In 2017 the proposal was one page of bullet points. The second proposal in 1986 was contained in a 500 page report, while in 2017 the second proposal consisted of a nine page press release. The markup of the bill took 17 and 26 days in 1986 as compared to four and four days in 2017. The total time to pass the legislation in 1986 took almost two years. In 2017 it was just seven weeks.

Almost all of the selected tax changes affecting individuals will expire in 2025 while most of the tax changes affecting businesses do not sunset. For individuals the maximum rate has been reduced to 37 percent. The standard deductions for individuals and married couples have been increased from $6,500 and $13,000 to $12,000 and $24,000 respectively. An additional standard deduction for a single person 65 or over is $1,600 and for married couples with only one person over 65 is $1,300, and $2,600 if both over 65. The child credit increases from $1,000 to $2,000. Offsetting some of these changes, the personal/dependent exemptions which were $4,050 in 2017 have been repealed. To sum up, under the old law a married couple both of whom are 65 or older would have been entitled to total exemptions of $23,700 before any taxable income at all. Under the new law the total exemption is $26,600, a difference of about $3,000 resulting in a bit of a tax cut.

The major business-related changes include a reduction in the corporate tax rate from 35 percent to 21 percent—a 40 percent decrease! “Passthrough” businesses have a new 20 percent deduction but only through 2025. Businesses can deduct 100 percent of capital investments other than buildings through 2022 and then the amount is reduced between 2023 and 2026 to 80, 60, 40 and finally 20 percent.

There has been a growing inequality of income and wealth over recent decades. With regard to income, the top one percent has experienced a 169 percent real increase between 1980 and 2014 with the top one-tenth of one percent enjoying a 281 percent real increase. Compare those increases to the median household increase of only 11 percent over the same three decades. During approximately the same time period the top one percent increased its holdings from 25 percent to 40 percent, while the top 10 percent increased from two-thirds to three-quarters.

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