E Are Trump’s Growth-Centered Tax Reforms Causing Short-Term Pain?

In December 2017, President Donald Trump’s tax reforms monikered TCJA (Tax Cuts and Jobs Act) came into effect. This meant that the year 2018 was going to print a different picture from the perspective of IRS personal and corporate tax reports.

And in February of this year, the changes were confirmed with the IRS collecting more than $91 billion lower in corporate taxes for the Federal year 2018 compared to the previous year. On the other hand, personal income taxes edged higher by more than $93 billion.

The changes were mainly due to a reduction in the corporate tax rate as per the TCJA reforms from 35% to 21% which increased tax breaks for big businesses. Last year, the IRS had gross collections (the amount before tax refunds) of $1.97 trillion compared to $1.87 trillion in 2017. And while tax refunds increased marginally to $398 billion from $386 billion in 2017, still, individual taxpayers ended up forking out more by $93 billion compared to the huge reduction of $91 billion in business taxes.

While several people did realize an improvement in tax cuts, some saw a significant reduction in tax refunds especially to families with children. One of the reasons behind this weird scenario can be easily illustrated by comparing previous tax breaks with the current ones using a hypothetical family. According to tax experts at Tax Defense Partners a married couple filing jointly with two children saw their standard deductions increase from $12,700 to $24,000. However, with tax refunds decreasing from $16,200 to $0.00 in the current system, this implies a net tax break of $24,000 for the couple. In the previous system, this hypothetical family would have received a tax break of $28,900.

When you add the tax credits for the two children, the total tax break adds to $28,000 (new system) and $30,900 (old system). This includes a tax credit of $1,000 per child in the old system and $2,000 per child after Trump’s reforms.

Following these changes, many Americans expressed their grievances via social media complaining about the impact the reduction of tax refunds has had on their income. In the US, like in many countries around the world, the practice of disciplined saving is not common. In fact, the latest statistics from last year show that the average American saves 2.2% of their income. Some rely on the annual tax refund to top up their savings while others spend it on some special household projects.

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Disclaimer: The material appearing on this article is based on data and information from sources I believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor ...

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