In December 2017, President Trump signed into law the most sweeping overhaul of the U.S. tax code in three decades. More than a year and a half later, how have these changes impacted the country and the average American family? In short, the new law was a step in the right direction and has already provided tangible benefits that are making a positive difference.
Let’s start with the clearest impact that is helping American families. The new law lowered the average American’s tax bracket from 25% to 22%, for those earning between $37,951 and $91,900. On top of the direct tax cut, another major change for individuals and families is the near-doubling of the standard deduction (now $12,000 for individuals and $24,000 for families).
This shift in how Americans approach their income taxes has put in place noticeable tax relief for everyday families. By significantly raising the standard deduction, most people’s tax life has simplified, with less need for itemizing and the accompanying paperwork. The 1040 form itself was also simplified.
Contrary to the political spin about the law benefitting the wealthy, the vast majority of Americans received tax cuts, and the middle class in particular benefitted. According to the Tax Policy Center, 82% of middle class earners (households that make $49,000 to $86,000 a year) received a tax cut averaging about $1,050. H&R Block reported that among the millions of tax returns it processed for 2018 — the first tax year from which to derive data — the average tax cut was $1,200. This is real change that has an actual positive impact on our families.
One of the promises accompanying the tax cuts was that wages would rise. Statistics show that pay is on the rise nationwide, and the White House touts rising hourly wages as a sign of success of its tax bill. According to the Department of Labor, for the average worker, wages are now growing more than 3% a year. What is perhaps even more telling is that wages are growing fastest for lower income workers.
Another promise was that the gross domestic product would grow. This has happened. In just the first year after the tax cuts were enacted, the GDP has grown to 3%. This has massive implications, economy wide.
There are other benefits related to the 2018 Republican tax bill. Capital expenditures — investments businesses make in equipment, technology, new buildings and research — lurched forward in the first and second quarters of 2018, which is known to indicate investment by business in future economic success and has positive forward indications.
Also, money is coming back to the United States that had been kept oversees by larger companies. According to government data, $665 billion has come back to the U.S. so far, with much more predicted to follow.
Despite all the nay-saying and Trump-hating, a CNN poll conducted at tax time 2019 showed that 71% of Americans say the economy is in good shape — the highest result in that poll since 2001. Trump’s approval rating on the economy is inextricably linked with the tax bill, which has been a legacy item for the president, and is a good indication of the average American’s experience with the new tax landscape.
The bottom line for regular Americans like you and me is that the 2017 Republican tax bill is a positive start in a long series of overhauls that needs to continue to take place. The economic health of our country and our families depends on shifting your income away from the wasteful spending practices of our bloated government back into the hands of the American family.