Joint Tax Committee Releases Report on Impact of TCJA

By:
Chris Gaetano
Published Date:
Apr 24, 2018

Congress

The Joint Committee on Taxation released its initial assessment of the Tax Cuts and Jobs Act, estimating the new effective tax rates for the different brackets, as well as the estimated distribution of certain tax benefits. The JCT report comes on the same day that the Senate Finance Committee is holding a hearing on the new tax law’s initial impact, and it is intended to act as a resource for lawmakers evaluating their position.

In terms of both wage and salary income and Schedule C profit or loss from business, the JCT charts show that, while there is an immediate benefit in 2018, effective rates slowly rise until, by 2026, they reach levels that are even higher than the 2017 rates. For wage and salary income, the biggest difference seems to be for those in the $20,000 to $30,000 range, who will see their effective rates going from 23.9 percent last year to 26.6 percent in 2026. The bracket least affected by this change will be those making $1 million or more: Their effective rate will go from 44.4 percent in 2017 to 44.7 percent in 2026.

Individual

Similarly, when breaking down Schedule C changes by bracket, it would appear that the ones most affected by this change will be those making $10,000 to $20,000 a year, as their effective rates will go from 7.6 percent (last year’s rate) to 12.2 percent in 2026. Meanwhile, those making less than $10,000 and those making $500,000 to $1 million will actually see their effective Schedule C tax rates go down: from 5.1 to 4.7, and from 42 to 41.6 respectively.

ScheduleC

The JCT also took a look at the 20 percent pass-through entities deduction, which has been the subject of both much excitement and much confusion. It determined that the benefits scale up with taxpayer income levels, with those making $1 million or more taking home the biggest slice of the pie, with about $17.8 billion in tax savings. This is almost twice as much as the second runner-up bracket, those making $200,000 to $500,000, who are estimated to get $9.4 billion in tax savings. By the year 2024, the highest tax bracket is expected to take on an even larger proportions of the benefits at $31.6 billion, nearly three times as much as the runner-up $200,000-to-$500,000 bracket, which will see an $11.6 billion benefit. 

Those making under 10,000 will benefit so little that the JCT opted to not even include precise figures for either 2018 or 2024.

PassThrough

The committee report also estimated that, up until the $100,000-a-year bracket, the number of people itemizing deductions will fall, sometimes precipitously. This is likely a consequence of the doubled standard deduction, which gives more people less cause to itemize, as whatever they itemize would likely fall into this range anyway. Conversely, though, the number of people itemizing is expected to grow at higher income brackets. The most dramatic shift will be in those making between $200,000 and $500,000: Last year 7,745 such taxpayers itemized. By 2026, this is expected to grow to 20,821.

Itemize


Another point of analysis was the distribution of tax benefits for the state and local tax (SALT) deduction, which was capped at $10,000. As the deduction was previously unlimited, the JCT estimated a dramatic drop-off in tax benefit starting this year, going from $109 billion to $16.6 billion. Benefit levels stay within about $10 billion through 2024, but when the cap expires in 2026, the benefit is expected to explode to $173 billion, even higher than it was in 2017.

SALT

Similarly, the JCT estimates that, with the new limits on the mortgage interest deduction, the number of people taking it is expected to drop, which will then decrease the overall tax benefit until, yet again, the year 2026.

MortgageInterest

Consequently, the JCT estimates that the new law will affect who actually buys a home in the first place. Home ownership is expected to fall between 2017 and 2026 for those below the $100,000 bracket. Conversely, those within and above this bracket are expected to increase their rates of home ownership in the same time.

HomeOwner

Current polling by Gallup says that the new tax law has more detractors than supporters, with 39 percent supporting and 52 percent against. Nine percent believe their taxes will go up, versus 18 percent who believe they will go down. Both groups, however, are dwarfed by those who don't know what impact the new law will have on them, 56 percent. 

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