Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act of 2017 (TCJA) is a significant piece of legislation that was passed by the 115th U.S. Congress and signed into law by President Donald Trump on December 22, 2017. It represents the largest overhaul of the U.S. tax code in nearly 30 years, primarily benefiting large corporations and high-income individuals through substantial tax cuts. The act permanently reduced the corporate tax rate to 21% and altered various tax deductions, including those for state and local taxes and mortgage interest.
While proponents believed these changes would stimulate job creation and economic growth, critics argued that they disproportionately favored the wealthy and would lead to a significant increase in the national debt. Notably, the TCJA also made changes to the Affordable Care Act (ACA) by eliminating the individual mandate penalty, which some experts predict could lead to more uninsured Americans and higher premiums for those with health insurance. Additionally, the act modified how inflation is measured for tax purposes, potentially leading to increased tax burdens over time for individuals as the new metric rises more slowly. Overall, the act remains a polarizing topic, with its long-term impacts still being debated in the context of economic equity and fiscal responsibility.
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Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act of 2017 was legislation passed by the 115th Congress and signed into law by President Donald Trump. The act contains the most sweeping reform of tax law to occur in roughly three decades. Considered a significant win for conservatives of the time, the Tax Cuts and Jobs Act of 2017 significantly reduced the taxes paid by large corporations, banks, and the wealthiest individuals. It also significantly altered the Affordable Care Act (ACA) and tax deductions for individuals and married couples.
The Tax Cuts and Jobs Act of 2017 also modified the method by which the Internal Revenue Service (IRS) measures inflation. Its new metric increased more slowly, which resulted in people paying more taxes over longer periods of time.
Proponents of the act argued that by reducing the amount of taxes paid by large corporations, those corporations would be able to create more jobs, thereby growing the economy. Advocates argued that such economic growth would eventually result in an increase in the strength of the national economy, which would in turn reduce of the national debt.
However, opponents of the act argued that the reduction in tax income would drastically increase the national debt and provide the government with fewer means to reduce that debt or engage in other expensive endeavors. Additionally, the act was commonly criticized for its changes to the ACA. This was projected to increase the percentage of uninsured Americans and raise premiums for people holding health insurance policies.
Background
Congress modified the Internal Revenue Code of 1986 through the Tax Cuts and Jobs Act of 2017. The act was passed by the Republican-controlled 115th US. It was signed into law by President Donald Trump on December 22, 2017.
The act began its journey when it was introduced by Congressional Representative Kevin Brady, a Republican representing a district of Texas, as H.R. 1 on November 2, 2017. Because of its content, the bill was sent to committee, where it was considered by the House Committee on Ways and Means. At this point, this bill was renamed the Tax Cuts and Jobs Act. It passed the committee on November 9, 2017, where it moved on to a general vote from the House of Representatives.
The Tax Cuts and Jobs Act passed the House of Representatives on November 16, 2017, and was passed by the Senate on December 2, 2017. The bill was then discussed in a joint conference committee, after which it underwent additional changes. It was finally passed by the Senate on December 20, 2017, on a party-line vote. Later that same day, the House of Representatives once again passed the bill, this time with 224 votes in favor and 201 against. Following those votes, the bill was signed by President Trump and became law.
Overview
The Tax Cuts and Jobs Act of 2017 was controversial both before and after its passage. It was typically praised by conservatives as much-needed tax reform and criticized by liberals as a handout to corporations. The passage of the Tax Cuts and Jobs Act of 2017 marked the largest set of changes to the tax code of the United States to occur in roughly three decades. The bill’s passage was generally considered a victory for large corporations, extremely wealthy individuals, and banks. It provided large, permanent tax cuts to investment income, estate taxes, corporate profits, and many other methods by which the wealthiest people and organizations are taxed. The Tax Cuts and Jobs Act of 2017 permanently lowered the corporate tax rate to a flat 21 percent. However, additional methods for preferential treatment under tax law meant that certain organizations, such as large banks, would be able to additionally reduce their effective tax rate and exploit loopholes. The bill also made significant changes to state and local tax deductions, itemized deductions, mortgage interest deductions, and family credits.
Proponents of the bill hoped that reducing taxes for corporations and the wealthiest Americans would spur job creation, which would allow the economy to grow, resulting in net economic gains for society. Then Treasury Secretary Steven Mnuchin predicted that the bill’s passage would result in a net reduction to the national debt. However, opponents of the bill criticized the tax cuts, arguing that reducing the government’s monetary income by cutting taxes on corporations and the wealthy would increase the national debt by hundreds of billions of dollars over the next decade. Though the Tax Cuts and Jobs Act of 2017 temporarily lowered the tax payments of individual earners, experts noted that by 2025, the lowest earners in the country were expected to pay more taxes. The tax cuts for corporations, in contrast, were permanent.
In addition to its sweeping changes to tax law, the Tax Cuts and Jobs Act of 2017 made modifications to the Affordable Care Act (ACA), commonly referred to as “Obamacare.” Previously, the ACA penalized individuals who did have health insurance coverage. Though the Tax Cuts and Jobs Act of 2017 did not remove the mandate in an official capacity, it changed the penalty to zero for 2019 and all subsequent years. Experts expect that the removal of the mandate will reduce the federal deficit in the short term but will encourage millions of people to go without health insurance, thereby raising insurance premiums for consumers.
The Tax Cuts and Jobs Act of 2017 also changed how the federal government measured inflation for the purposes of tax indexing. In the past, the IRS measured inflation for urban consumers using the consumer price index (CPI-U). In the future, the IRS will utilize chain-weighted CPI-U, which accounts for spending changes executed in response to price shifts. This standard rises more slowly than the previous measure, meaning that the government may be able to collect more in taxes in the future.
The passage of the Tax Cuts and Jobs Act was contentious, controversial, and followed along party lines. Opinions on its perceived value remained so through the mid-2020s. Data indicated, nonetheless, that the wealthiest households in the United States were the primary beneficiaries. One estimate suggested that the top 1% of wage-earners would reap a tax benefit of $60,000 while the bottom 60% would only save $500. A year following the passage of the legislation, in 2018 the Congressional Budget Office forecasted a loss of almost $2 trillion in federal revenues that would be added to the national debt. As a percentage of GDP, tax collection fell from approximately 20% of GDP to just over 16%. The promised “trickle-down” effect never materialized. Those earning less than $114,000 annually did not realize a greater change in earnings.
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