The Congressional Research Service (CRS), which serves as a nonpartisan shared staff to members of Congress and congressional committees, and operates solely at the behest of and under the direction of Congress, released a report dated January 24 on the “Federal Income Tax Treatment of the Family Under the 2017 Tax Revisions.” The document examines certain temporary changes made to the federal tax code under the Tax Cuts and Jobs Act (TCJA or the Act) including tax rate changes, elimination of the personal exemption, increase in the standard deduction and changes to the child tax credit. While many of the changes included in the Act were meant to be permanent, the report notes that the particular changes addressed in the report are only temporary in nature and set to expire after 2025.
The introduction to the report notes that the “federal income tax treatment of the family is affected by several major structural elements applicable to all taxpayers: amounts deductible from taxable income through standard deductions, personal exemptions and itemized deductions; the rate structure, which varies across taxpayer types; the earned income credit and the child credit; and the alternative minimum tax. Some of these provisions only affect high-income families and some only low-income families, but they are the tax code’s fundamental structural features.”
The TCJA effectively eliminated personal exemptions claimed by the taxpayer, his or her spouse (if married) and any dependent, offsetting those losses for most taxpayers with an increased standard deduction. Further, the increase to the child credit more than offset losses from the eliminated dependent exemption for many taxpayers. Though the effect was most notable for joint return filers, the TCJA actually lowered rates for all three main types of individual tax returns (joint, single and head of household).
The TCJA also retained significant aspects of the law that existed prior to 2018. The CRS report notes that the “income tax code after the 2017 tax revision remains progressive across income levels for any given type of family, although effective tax rates are slightly lower.”
As to the impact on families, the report concludes that changes brought by the TCJA “continued and, in some cases, expanded the favorable treatment of families with children in the lower- and middle-income levels on an ability-to-pay basis.” At the lowest income levels, “this treatment was maintained largely due to EITCs” (referencing the earned income tax credit available to lower-income taxpayers). The report continues: “Treatment was increased and extended up through the income classes because of the increase in the child tax credit amount and the increase in the income level at which the credit is phased out.” At the highest income levels, however, “Rate changes tended to favor joint returns over singles and heads of household, largely due to the rate structure.”
There is a great deal of interesting data included in the report, including tables showing effective tax rates, marginal tax rates and income levels where federal income taxes kick in. Please note the report covers federal income taxes only and does not discuss the impact of state or local income taxes or Social Security taxes.
We predict that proponents on both sides of the Congressional aisle will find things they like or dislike about the information contained in the report. You can make your own decision by reviewing the report, accessible at CRS Report TCJA Impact on Families January 2020.
